By Arthur Laffer, PhD, contributing writer

March 25, 2016 -- Back in 2012, I delved into a topic of utmost importance and surprising depth: children's dental healthcare. For years, many dentists chose not to treat Medicaid patients. From an economic point of view, it was really no surprise; providers willing to treat the state's most vulnerable patients faced prohibitively low reimbursement rates, while also being asked to bear prohibitively high administrative costs. As a result, many low-income children simply didn't receive the dental care they needed.

Given the life-long health consequences of poor dental health -- as well as the rising costs associated with expensive emergency room visits for untreated tooth decay -- Texas decided to act in 2007, raising Medicaid reimbursement rates to incentivize dentists to serve Medicaid patients. While many dentists continued to avoid low-income populations, something incredible took hold. That is, American entrepreneurs provided a free-market solution to a public health problem.

Arthur Laffer, PhD
Arthur Laffer, PhD.

Specifically, dental practices supported by dental service organizations (DSOs) began opening their doors to Medicaid patients. They were able to do so because DSOs tapped into economies of scale and centralized the nonclinical, administrative aspects of running a dental practice. This made it possible for DSO-affiliated dentists to focus exclusively on treating patients, saving them time and money. Higher reimbursement rates coupled with lower administrative costs provided by DSO affiliation allowed more dental practices to serve traditionally overlooked, low-income patients.

For the omniscient observer, the DSO model appeared to be working -- providing kids with dental services and stemming the tide of dangerous tooth decay, all in a cost-effective and responsible way. Yet, despite the patient benefits and expanded access to care, DSOs drew unrelenting attacks.

Critics claimed that profit motives would lead to overutilization, that is, that DSO-affiliated dentists would perform unnecessary services to maximize government reimbursement. These claims were the impetus for my analysis of Texas Medicaid data five years ago, and they proved to be almost entirely false.

In my study, I analyzed every single Medicaid claim paid for by the state of Texas in fiscal year 2011, specifically focusing on Kool Smiles, the nation's largest DSO serving children on Medicaid. I found that the dentists affiliated with Kool Smiles performed 8.24 procedures per patient, versus 12.39 procedures per patient at non-DSOs. Moreover, the cost per patient per year was $345.45 at Kool Smiles offices and $483.89 at other DSO-supported clinics in the state, compared with $711.54 for non-DSO dental offices.

Put simply, DSO-supported clinics performed fewer services than non-DSO clinics, and they provided these services at significantly lower cost. These findings were significant not only for patients but also taxpayers on the hook for government bills.

Fast forward to 2016, and much of the dental community has yet to fully embrace DSOs. However, new research continues to reinforce the clear upsides of this innovative care delivery model.

According to a new study by Dobson DaVanzo Associates, which provides an in-depth comparison of Kool Smiles utilization and Medicaid expenditures across seven states, including Texas, the DSO model continues to be incredibly successful in providing care to Medicaid patient populations at lower costs.

Overall, Kool Smiles performed 25% fewer procedures per patient per year than other Medicaid providers in Texas, resulting in 37% lower Medicaid expenditures per patient per month. Indeed, average monthly per-patient Medicaid expenditures among Texas Kool Smiles providers averaged $12.27, compared with $19.34 for all other Medicaid dental providers.

“Those perpetrating fraud against government services for the poor need to be brought to justice, but ... the data indicate no evidence of overutilization of services by DSO-supported Medicaid dentists.”

Taking the data analysis a step further, Dobson DaVanzo calculated that if all Medicaid dental providers in Texas were to apply Kool Smiles protocols and utilization rates, the savings to the state would be more than $235 million annually. Not only does the DSO model appear to be working in Texas, but the evidence warrants that the DSO model be encouraged on an even larger scale. Dobson DaVanzo estimates that if all Medicaid dental providers in the seven states for which analysis was conducted were to apply Kool Smiles protocols and utilization rates, Medicaid savings to the states would total more than $556 million per year.

Goodness knows that those perpetrating fraud against government services for the poor need to be brought to justice, but just about all the data indicate no evidence of overutilization of services by DSO-supported Medicaid dentists. In fact, the data show just the opposite. Study after study of Medicaid claims data serve to confirm what was apparent four years ago: DSOs succeed in providing cost-effective care to a patient population desperately in need of dental services.

While change isn't always easy, especially in something as firmly rooted as healthcare, we need to move beyond the status quo. Now, more than ever, policymakers across the country must fully embrace a free market model that encourages efficiency and benefits patients and taxpayers in the process.

This essay originally appeared in the Austin American-Statesman. is grateful to the Laffer Center for the right to reprint.

Arthur Laffer, PhD, is known as the "Father of Supply-Side Economics." He was a member of President Ronald Reagan's Economic Policy Advisory Board from 1981-1989. He is the founder and chairman of Laffer Associates in Nashville, TN, an institutional economic research and consulting firm, as well as Laffer Invesments. For more information, visit the Laffer Center website.

The comments and observations expressed herein do not necessarily reflect the opinions of, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.

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Copyright © 2016

Last Updated hh 10/26/2017 9:11:16 AM

4 comments so far ...
3/25/2016 1:35:10 PM
Did your research also look at dentist's income?  Since 2008 income has declined by nearly $40,000.  This may be a great model to serve the low-income population, but not if it turns providers into a low-income group!

3/25/2016 4:35:21 PM
When will public relations spin from the DSO industry ever stop? Let's get to reality. Let's examine Texas dental Medicaid, probably the worst nationally for Medicaid fraud, especially during the 2012 time of Dr Laffer's study. 
This was the era, when Texas authorities paid the corrupt Xerox Corporation for dental Medicaid oversight. They did NOTHING except rubber-stamp through all claims. Taxpayer money BLED from the program, which was by design. Legal action against Xerox is still in the courts. Then Gov Rick Perry (today heads MCNA, dental Medicaid administrator- big conflict of interest) & former Texas AG (today governor) Greg Abbott, both saw dental Medicaid fraud as a state jobs program. Money came into Texas, via a program funded in large part by federal money. Who cares if it was primarily a program centered on scams cheating taxpayers? 
So-called "smaller" dental Medicaid providers like All-Smiles Dental, Carousel Dental, Smile Centers, Smile Magic, etc., were probably the VERY worst of the dental Medicaid fraudsters. These cases are very public. Today, they are either closed, bankrupt, or paid out significant settlements. 
Drs James Orr & Robert Anderton promoted doctors' courses throughout Texas, inclusive of private one-on-one classes, on how to game the dental Medicaid program in Texas. Dental Medicaid swindling was running rampant & was big business. Many were getting wealthy from it, & not just the dental Medicaid clinics. Others included Rick Perry as earlier noted, recruiters to the clinics (via unlawful but unenforced patient inducements), & the sham of oversight (Xerox). 
Let's get to the DSOs. Yes, their level of fraud was probably less than the outrageous levels of fraud by the "smaller" dental Medicaid clinics (These clinics aren't small by any normal assessment.). However, it's insanity to give kudos to one group of fraudsters over another, because the degree of fraud was less. Insane logic!
Let's now get to the specifics of Kool Smiles Dental. Their founders, Drs Tran & Pham were "schooled" under the today defunct, disgraced & bankrupt Small Smiles Dental model (then run by the DeRose family in Pueblo, CO). The various means & mechanisms of scamming the dental Medicaid program were well honed. In fact, these 2 doctors were earlier sanctioned in MA for gross violations of infection control, for patient safety. Kool Smiles itself was largely untouched.
When GA sanctioned the licenses of nearly a dozen Kool Smiles Dental dentists, again the DSO was left untouched. The July 2013 "Report on Corporate Dentistry" by the US Senate (Finance & Judiciary Committees) was highly critical of the DSO industry involved w/ dental Medicaid. They specifically reviewed Kool Smiles Dental, & several other DSOs.
Dr Laffer's comments on the DSO benefit of "economy of scale" is laughable. DSOs have mid-level management to support. The largest overhead cost in dentistry is labor costs. That expense is the same regardless of DSO or non-DSO. The largest economical benefit to DSO run dentistry is dodging taxes. Profits are reassigned as overhead operating expenses of the DSO, & these moneys are pulled out of the state where generated. By establishing the true beneficial owners as first lien creditors or mezzanine financiers, federal earned income tax (38%) is dodged, in favor of capital gains tax (25%).
Please google "Fifth Circuit Ruling 07-30430". Read the entire federal appeals judicial decision, in the case involving the DSO, Orthodontic Centers of America. http://www.ca5.uscourts.g...7/07-30430-CV0.wpd.pdf
One quickly learns the misrepresentations of a DSO pretending not to run the clinical side of a dental practice, & their direct hand in the unlicensed & unlawful practice of dentistry. A DSO's attempt to establish figurehead nominee owner dentists for their practices is shallow. I truly can't believe even Dr Laffer accepts this blatant misrepresentation. 
Lastly, it might be beneficial to learn of Dr Laffer's or his group's disclosure relating to Kool Smiles Dental or the ADSO. Dr Laffer's group was paid $100,000 for the initial report supporting the Texas DSO industry, by Kool Smiles Dental. What was the "consideration" for this report? Or, were "considerations" funded through one of Grover Norquist's groups? "Americans for Tax Reform" (founded by Mr Norquist). Today this group have their personnel very active promoting the DSO industry. Follow the money. 
Michael W Davis, DDS
Santa Fe, NM

3/29/2016 1:08:59 PM
The cost per procedure at Kool Smiles is 71.3% of the other DSOs.  It just doesn't pass the sniff test that Kool Smiles can be profitable with almost 30% less income per per procedure. Also since the number of procedures done at Kool Smiles is significantly less than other providers it is not a matter of more done per time block that accounts for this apparent efficiency.
Considering that the non-DSO providers do about 50% more procedures than Kool Smiles one can ask is Kool Smiles under treating?
Are the Non-DSO providers specialists, treating the most complex patients?
The statistics presented by Laffer leave more questions than confirm the DSO model.

8/28/2017 2:57:58 PM
Art Laffer, the genius who destroyed the economy of Kansas...