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The Benefits Created by Dental Service Organizations

October 1, 2012
By Wayne Winegarden and Donna Arduin

This analysis by the Pacific Research Institute examines Dental Service Organizations (DSOs), finding they create a “win-win solution for consumers and taxpayers."

According to the Kaiser Family Foundation, “dental caries, or tooth decay, remains the most common chronic disease among children ages 6-18.” The incidence of this problem is borne disproportionately by children from lower-income families. Dental Service Organizations (DSOs, also commonly referred to as Dental Practice Managements (DPMs), Dental Management Organizations (DMOs) or Dental Management Service Organizations (DMSOs)) are a management innovation that disproportionately benefits poor and uninsured patients. As stated by Shaw (2012),

While in theory Medicaid does offer dental benefits, only about one-third of dentists accept Medicaid patients. It’s not difficult to understand why. Beyond the abysmally low reimbursements, dentists cite other issues such as frequently broken appointments, unappreciative patients, stifling red tape, and an often hostile bureaucracy to deal with. Fortunately, Dental Management Service Organizations have emerged to meet the challenge of providing dental care to the nation’s poor.

These practices and dentists are going where the other dentists can’t or won’t: Inner cities, rural America, and low-income neighborhoods.

As such, certain efficiencies in operation can be realized, allowing Medicaid-reimbursed dentistry to become a viable business model. In addition, DMSOs permit dentists to leave the administrative functions to others, and focus on what they do best...dentistry.

Despite the obvious benefits created by DSOs, critics of the DSO concept cite the specific actions of a few unscrupulous organizations as a means to condemn the entire industry. And, the critics are correct that the actions of these organizations are wrong and that the perpetrators should be prosecuted to the fullest extent of the law. But, these actions are not representative of the DSO industry. According to a study of DSO practices in Texas by Laffer Associates (2012):

…our review of the Texas Medicaid data from fiscal year 2011— some 25.9 million procedures—rejects virtually everything DSO detractors claim:

• Across the state of Texas in 2011, dentists affiliated with Kool Smiles (the nation’s largest Medicaid focused DSO) performed 8.24 procedures per patient and dentists belonging to DSOs performed 10.15 procedures per patient, versus 12.39 procedures per patient at non-DSOs. Clearly, Kool Smiles and other DSOs are not performing too many procedures—at least not relative to non-DSO dentists.

• The cost per patient per year was $345.45 at Kool Smiles practices and $483.89 at DSO clinics, compared with $711.54 for non-DSO offices. Kool Smiles and DSOs in general are not overcharging either, compared to regular dentists. DMSOs permit dentists to leave the administrative functions to others, and focus on what they do best... dentistry. 

• Dentists at DSO clinics also billed Medicaid less per patient than other dentists for those procedures that could indicate the presence of fraud or mistreatment, such as tooth extractions, pulpotomies (removal of infected tooth pulp), and crowns.

All of the 2011 data for Texas suggest that DSO dentists provide conservative, low-cost treatment to a previously underserved population, thus improving the dental health of Texas’ low income children and families. Today, DSOs are doing just what we need: providing a critically important health service to people who desperately need it, ultimately at a lower cost to the taxpayer. As consumers and taxpayers, we should embrace this win-win-win solution.

These types of benefits that are created by the DSO industry should not be foregone simply because a few organizations or individuals engage in illegal activities. For instance, it would not be beneficial to society if the financial markets were completely shut down simply because Bernie Madoff ran a Ponzi scheme that stole billions of dollars from investors. Shutting down the financial industry would make the U.S. economy poorer and lower the quality of life for all Americans.

In fact, it is clear that responding to the Madoff scandal by making money management illegal is an extreme over-reaction by regulators and lawmakers to a problem that was (and should be) managed by prosecuting those individuals who engaged in the illegal behavior. Responsible individuals and organizations in the financial industry should have been (and were) allowed to continue providing beneficial financial services to the millions of Americans that require investment vehicles to save for college, home purchases, and/or their retirement. The same principle holds for DSOs.

This analysis illustrates that DSOs are an excellent example of private sector innovation that created a solution to a serious societal problem. The paper begins by documenting the serious health problem that has emerged in many lower income communities due to a lack of access to regular dental care. DSOs are a market solution to this problem that empowers dentists to effectively serve populations that are not effectively served otherwise.

Next, the DSO structure is described to illustrate how leveraging a DSO organizational structure provides many benefits to dentists and also empowers the dentistry profession to serve the lower income communities that have otherwise lacked service. While it is true that not all DSOs provide care for lower income, Medicaid or CHIP eligible patients, the model lends itself to meeting the needs of an underserved market.

The final section provides the current developing evidence that DSOs are creating significant economic benefits for the dentistry profession, and providing better and more widely available dentistry services to all communities—especially the lower income communities where dental services have been in short supply.

The paper concludes by summarizing how DSOs exemplify the societal benefits that private sector organizations can create by pursuing their own private interests.

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Health Care