by Tom Barron, DMD, MS
The most critical decision that all orthodontists face is whether to participate in managed-care plans. No one correct answer applies across the board. Every orthodontist must decide what is appropriate for his or her practice. This decision will likely be influenced by a multitude of factors. Variables such as practice philosophy, practice locality, the stage of practice growth, the prevalence of managed care in the region, the participation level of referring dentists, the degree of participation of competing practices, the degree of competition in general, and the participation level of local employers will weigh on this decision.
Learning from the experiences of other practitioners also may facilitate your decision. As in our clinical journals, case studies can be important venues for colleagues to share findings and experiences regarding practice-management issues such as managed care. In this case study, I would like to describe several years' worth of experience with managed care. Specifically, the factors that led us to participate, the effects that participation had on our practice, and the resulting decisions that we were compelled to make.
In order for others to make valid comparisons and conclusions, it is important to start by defining the characteristics of the practice described in this case study. Our practice is a corporation owned by two equal partners that consists of one main office and two satellites. There are 18 employees, including five full-time and three part-time administrative staff members, as well as eight full-time and two part-time clinical staff members. Our practice is located near a large metropolitan area in the mid-Atlantic region of the United States. It was established by my senior partner approximately 30 years ago.
In this article, we define managed care as third-party, organized networks of providers who deliver professional services at a reduced fee to subscribing members. As I started my orthodontic, postdoctoral residency in the late 1980s, this term was being used more frequently in conjunction with dental health care. The statistical growth of managed care and preferred provider networks in medicine had many speculating on the future impact of this trend on dentistry.
Factors influencing our decision to participate
When I entered private practice, I discovered that managed-care plans had proliferated widely in our area. A preponderance of economic forces fueled this growth.
Employers big and small were attempting to contain the cost of providing health care benefits to their employees by discontinuing expensive indemnity insurance in favor of managed-care plans. Many of these plans added dental bene-fits as part of the package. Furthermore, when employees had the choice between indemnity and managed-care plans, they often chose the cheaper managed-care insurance, especially when their payroll deduction dollars were being used. Obviously, the premiums are considerably more expensive in an indemnity-type plan where the insurance company assumes the risk of actually having to pay out a percentage of the medical/dental health care charges incurred by its subscribers.
However, in a managed-care plan, the insurance company simply negotiates a reduced-fee schedule with willing providers, collects a premium from its subscribers in exchange for "steering" them to participating doctors, and avoids paying out a percentage of the incurred medical/dental health care charges.
Needless to say, it was unsettling when our secretary began telling us that we were receiving more and more phone calls from potential new patients asking if we were providers with such-and-such plan, and then failing to make an appointment when she informed them that we were not.
Our concerns increased when a general dentist, who was one of our biggest sources of referrals, became a provider in a few of the plans. He told us that he would have to refer his plan patients elsewhere, since we were not providers in those networks. We wondered if he would become comfortable referring to one of our participating competitors, and then begin sending his fee-for-service patients there as well.
Initially, many of the preferred-provider plans advertised that only so many practitioners would be admitted per area. We had heard stories from our physician colleagues that medical specialists who had resisted signing up in the beginning were locked out of plans when they later found it necessary to become providers. We were told that they were shut out of referral networks and that hospitals were more interested in recruiting participating physicians for their medical staff. Again, we wondered about the potential for a similar trend in dentistry.
Another significant factor in our decision was our desire for growth. There were two doctors in the practice, each with income requirements and a drive to have a large, successful practice. Our practice was not located in a particularly high-growth area, and it seemed that each year there were more and more competitors. It was in this environment that we decided to sign on as providers with a handful of plans that were prominent in our area.
The effects of managed care on our practice
Not long after signing the provider agreements, we started to experience a noticeable increase in new- patient exams and case starts. General practitioners who had never sent patients to our practice were now referring their managed care patients because we were "on the list."
We began to develop a rationalization for participating that went something like this: Even though we were accepting a reduced fee, this would somehow be offset by gaining access to newly referring GPs who would hopefully send us fee-for-service patients once they got to know us.
Furthermore, since one of our greatest sources of referrals was by word-of-mouth from our satisfied patients, we thought that these new plan patients surely would recommend us to their fee-for-service friends and neighbors. Besides, we didn't expect that managed care would ever become more than 10 or 15 percent of our practice.
As time went by, we became busier and busier. Our waiting room and parking lot were always full. We hired additional staff members, both clinical and administrative. We dedicated a full-time front desk person to the position of insurance coordinator. This person managed the various plans, sub-plans, and fee schedules. Many plans allowed for additional charges, such as broken brackets, missed appointments, or additional fees when a case exceeded 24 months. These additional charges became very important, especially when we were accepting a reduced fee case "up front." Our insurance coordinator had to make sure that these charges were tracked and billed.
Early on, we were happy that our practice was growing. As we talked to colleagues at national and regional meetings, we were satisfied to learn that we saw more patients per day than many practices, and that our gross income was considerably higher than most. After all. these were two hallmarks of a successful practice — right?
Time passes quickly when you are very busy. Several years went by before we began to realize that undesirable trends were occurring in our practice.
Trend No. 1: Staff turnover
As the practice became busier, the case load for the doctors and clinical assistants increased. As the caseload reached capacity, it became difficult to find appointment slots for the patients. The tension between the front-desk staff and clinical staff increased when patients were frequently "squeezed in" on the daily schedules.
The down time that the staff had counted on to accomplish tasks such as restocking, filing, ordering, etc., was increasingly rare. Since stress and morale are inversely proportional to one another, staff burnout will be reached at a certain point. When staff burnout occurs, eventually turnover will increase, and this is exactly what we began to experience.
We started to realize some of the not-so-obvious costs associated with participating in managed care. Every orthodontist is aware of the time and expense required to hire and train a new staff member, especially a clinical assistant. Not only will the new staff member require a lighter schedule, other staff members will be pulled from their case loads to help with the training. This, in turn, exacerbates the scheduling problems, decreases production, and further increases the stress level in the office.
Trend No. 2: Patient perceptions
The delivery of orthodontic health care is highly amenable to delegation with a professionally trained and supervised clinical staff. Efficiency dictates that most offices design their treatment areas to accommodate tooth brushing stations, on-deck areas, and open bay operatories. This design — along with the volume of patients permitted through delegation — invites the "factory" connotations that we all are aware of and try hard to avoid.
Like a fine restaurant, it is nice to be fully booked and to be sought after by the public as the place to go. However, jammed appointment schedules will lead to back-ups and increased wait time for busy patients and parents. Waiting to be seen in a standing-room only reception area, followed by the frustration of not being able to find a convenient time for the next appointment, only reinforces the "factory" perception that we all strive to overcome.
Though we attempt to shape them in a positive manner every day, patient perceptions are difficult to quantify. In our case, we gained insight into public perceptions about our practice "through the grapevine" at social events and at civic and professional meetings. The words "busy" and "factory" came up time and again. This was certainly counterproductive to the word-of- mouth advertising that we rely upon.
Trend No. 3: Unexpected growth of managed care
After a few years, we witnessed a much greater growth rate in managed care than we expected. What we initially thought would be around 10 percent of our patients became 25 to 30 percent and climbing. Based upon our observations, we attributed most of this growth to two factors:
1 As more local employers, municipalities, and unions offered managed-care plans, an increasing number of patients found our name on the provider lists.
2 The phenomenon of "Paying coach fare for first class" was manifesting itself in our practice.
Like all orthodontists, we worked hard to build a high-quality practice with state-of-the-art offices and a caring, professional staff who were motivated to satisfy our patients. This is analogous to first class travel for our patients. Participating in managed care meant allowing some patients to be treated in our practice at a reduced fee, or "coach fare." Patients today are savvy consumers and will not pay the UCR to be seen in our office when they know that they have an opportunity to be treated with the same high quality for a reduced fee.
We began to recognize this phenomenon when our financial coordinator witnessed more and more instances where a family's first child was a fee-for-service patient and later siblings began treatment under managed care plans. Parents freely asked which plans we participated in, and then planned ahead for younger siblings by switching to reduced-fee plans during open enrollment periods at their places of employment. It seemed that by simply being in the plans, we were encouraging patients to join them.
Trend No. 4: Decreasing case fees
From time to time, the plans that we participated in would update or revise their fee schedules. The general trend for many plans was to reduce their already low case fees. In addition, another plan in our area that initially had no provision for Phase I therapy allowed us to charge our full UCR to the patients requiring interceptive treatment. In time, it too revised its schedules to include Phase I fees that were a 50 to 60 percent reduction of our UCR.
Trend No. 5: Practice net income performance
As we discussed certain parameters of practice performance with our colleagues at professional meetings, we began to discover that even though our gross practice revenue was greater, our percentage of net income was less than most of the practices that did not accept reduced-fee patients. This net income performance was confirmed by comparing statistics published in the JCO orthodontic practice study publications.
It became apparent that as we saw more patients at reduced fees, the increased employee and supply costs had an even greater effect on increasing our overhead. We were working harder, employing more people, generating more gross revenue — but not necessarily taking home more money.
It became obvious that if we continued to see increasing numbers of reduced-fee patients, these trends would only get worse. However, there were problems with immediately discontinuing participation in all of our reduced-fee plans. Most important was the fact that income from the plan patients now represented a significant percentage of our gross revenue. Suddenly subtracting this revenue from our deposits could be financially devastating to our practice, likely leading to lay offs and cuts in our personal income. We decided that we needed to implement four measures to address this problem.
• Gradual but steady termination of our participation. We started by discontinuing our relationship with a few plans that had particularly low fee schedules and that represented only a small part of our total managed-care population. As with all of the plans that we terminated, we were obligated to finish treating cases in progress for the contracted fees. After two calendar quarters, we would reassess and target some of the bigger plans for termination.
• Market our practice aggressively. We decided to take an aggressive approach by marketing our practice to the fee-for-service dental practices, including inviting them to CPR Luncheons (see the August/September 2002 issue of Praxis), and sponsoring CE lectures for the dentists and hygienists.
• Raise our UCR case fees.
• Discount services to former managed-care patients. The fourth measure was implemented in an attempt to retain the families in our practice with whom we had already developed a relationship. Any plan patient who had undergone Phase I treatment with us, while we were providers, was offered a discount to stay with our practice when they were ready for Phase II.
Though the "courtesy" was much less than the reductions under the plan schedule, most of these families chose to continue their relationship with our practice. To maintain the relationship into the future, we suggested that many employers offer pre-tax, medical savings, or cafeteria plans. This, in conjunction with a "second-child courtesy," has proven effective in retaining these families.
Discontinuing the smaller plans did not negatively affect our revenue, but when the time came to terminate the largest plan, we braced for a downturn. More than 18 months later, we are noticeably less busy. The number of new patient exams has decreased. The scheduling problems have begun to ease and the stress levels have decreased considerably. The entire staff can spend more time with patients, and day-to-day operations are generally smoother. Much to our surprise, there has not been an economic downturn in the practice as we had anticipated. Gross income actually has increased slightly, and the net has improved. In other words, we are less busy and making more money.
These apparently conflicting observations may be reconciled by the simple fact that it requires fewer fee-for-service patients to make up the income (and profit) lost from reduced-fee patients.
Editor's note: This article originally appeared in Praxis — The Journal of Orthodontic Practice Management, and is reprinted with permission.
