From boom to bust?

Oct. 1, 2000
Capitated managed-care plans appeared unstoppable in the early 1990s. But inadequate compensation and unending paperwork may be the downfall of this once-thriving concept.

Capitated managed-care plans appeared unstoppable in the early 1990s. But inadequate compensation and unending paperwork may be the downfall of this once-thriving concept.

Alan Rubenstein, DDS

In the early 1990s, the growth of capitated managed-care plans appeared unstoppable. Their popularity was fueled by employers seeking lower premiums, and propelled by dentists who were fearful of being left behind by this "wave of the future." Organized dentistry scrambled to put together educational programs for its membership, and dentists around the nation called for the leadership of the ADA to "do something" about these dental programs.

What is the current state of capitated managed dental care? How have these plans performed for the dentists who joined? One way to gauge opinion is through the Los Angeles-based Association of Managed-Care Dentists (AMCD), an independent, nonprofit organization composed of experienced, practicing managed-care dentists. Founded in 1991, the AMCD`s purpose is educating dentists about PPO and capitation dentistry, and to be influential in the developing dental managed-care arena.

During the past two years, the AMCD conducted surveys of its membership to determine trends in capitated managed care. The surveys revealed that managed-care dentists are experiencing a growing disenchantment with these programs. Eighty percent of the responding membership reported feeling more negative toward these plans over the past few years. Therefore, it should come as no surprise that a majority of responding AMCD members (71.5 percent) reported they are no longer signing up for new capitated programs. Sixty-three percent report they have closed enrollment to new patients from some of their existing plans, while 31 percent are accepting fewer plans than they did three years ago.

What has happened over the past 10 years in capitation dentistry that has caused even veteran managed-care dentists to consider disengaging from this method of dental reimbursement?

The prevention "investment model" doesn`t work

In the 1990s, the initial premise of capitated managed care seemed reasonable enough: The dentist would provide dental care for a certain population of patients in exchange for a monthly capitation rate and a fixed copayment schedule. The insurance industry promoted capitation plans as a way dentists could "invest" in their patient population by delivering the needed restorative procedures, and also encourages them to practice prevention.

Once such a model could be established, the theory was that the dentist would be financially rewarded - the monthly capitation checks would cover costs and provide an acceptable income in return.

Unfortunately, this model - which I call "The investment model of capitated managed dental care" - does not work. Why?

(1) Employers switch dental plans often, and patients change jobs frequently. As a result, the dental office does not maintain a stable population base to reap the benefits of the "initial investment."

(2) As managed-care dentists quickly discovered, no matter how much patients are educated about the benefits of routine care, they are not as prevention-oriented as this model requires.

(3) Because copayments for restorative and endodontic services are so low under these plans, patients have no financial incentive to practice prevention.

Inadequate compensation

Compensation from capitation rates and patient copayments have not increased significantly. In some cases, rates have even declined over the past 15 years. As last decade`s dental plans competed with one another to boost their enrollments, market forces held premiums to employers and compensation to the dentists at unreasonably low levels.

While compensation remains stagnant, overhead items such as staff salaries and rent continue to increase. Seventy-eight percent of AMCD responding members agree that capitation rates and patient copayments do not provide them with sufficient revenue to meet overhead and return a fair profit.

For a certain time period in the mid-1990s, dentists who had the excess capacity (the "empty chair" concept) could overcome the lack of increases of capitation rates and patient copayments by expanding their practices. A net increase in personal income could be achieved since the compensation was, at that time, still greater than the resulting marginal overhead. However, by the late 1990s, 58 percent of the AMCD membership who reported increased gross office revenues also reported either a drop or no net increase in personal income! Clearly, the low levels of compensation have become a disincentive for many providers to grow their practices with capitated managed-care patients.

Additionally, 75 percent of the responding AMCD membership report that, over the past three years, their net income is either down or has remained the same. Even with low inflation, the CPI has increased 7.5 percent in those three years! Contrast that statistic with a recent survey which reported just the opposite - 71.5 percent of Pacific region (presumably fee-for-service) dentists reported increases in personal income.

Finally, it has long been acknowledged that a major source of revenue from capitated managed-care plans is received from patients who elect to undergo treatment which is considered optional (non-covered benefits) under their plans. Eighty-eight percent of responding AMCD membership agreed that they could not survive without the revenue from this noncovered treatment. In spite of this, some managed-care plans have attempted to expand benefits for patients to include such procedures as cosmetic dentistry at very low copayments. It is baffling to veteran managed-care dentists why dental plans would jeopardize the stability of their provider networks by introducing these services as covered benefits while their dentists are faced with serious issues of financial viability.

Administrative/procedural complexities

Although managed-care companies made claims in the 1990s that dentists would benefit from reduced administrative duties and paperwork (no claims to be filed and traced), this has not been the case.

Paperwork includes specialty referral forms, lab reimbursement forms, and supplemental payment forms. Each dental plan has its own eligibility lists, and patient eligibility must be verified with each dental visit to assure the office is receiving the monthly capitation payment. Furthermore, due to regulatory requirements, dentists are expected to file monthly utilization reports and undergo extensive quality assurance procedures.

To complicate matters, procedures and forms are not standardized among the various insurance companies. As a result, offices with several plans are faced with a multitude of administrative guidelines, which increases the labor intensiveness of managed care. Every person who responded to the AMCD survey indicated that they are not being adequately compensated for the increased administrative and reporting requirements.

Interestingly, 72 percent of AMCD members cited that one of the reasons they dropped a capitation program in the past year was due to administrative difficulties. Unfortunately, a system such as managed care which demands the ultimate in efficiency is bogged down in excess paperwork compounded by a lack of uniformity in the industry.

Difficulty in staff /associate training and retention

A lack of uniformity between plans - such as multiple fee schedules and various policy exclusions and limitations - makes training new staff members and associates a monumental task.

Capitated managed-care plans are, by their very nature, high-volume and mostly associate-driven models of operation. Associates are often confused about the correct copayments and benefits under each plan. It is not unusual for staff members who have been working with these plans (even for several years) to become confused. This leads to inaccuracies in quoting patient fees, which often results in time-consuming phone calls between the patient, dental plan, and the doctor. When the dental office has inadvertently misquoted the appropriate fees, a lack of trust between the doctor and patient develops. This often affects the relationship and the ability of the doctor to gain case acceptance and, in turn, decreases office efficiency and revenue. Furthermore, because the capitation rates and copayments are set by the dental plans, the managed-care dentists cannot unilaterally raise fees.

With increased labor costs, it has become more difficult to find and retain talented staff and associates. The AMCD survey reports that 97 percent of responding members agree that rising staff overhead over the past two years has hurt their profitability.

The referral process

Protocols for referring patients for perio, endo, and oral surgery also are not standardized. Referrals to a periodontist requires dentists to first perform root planings, followed by an additional visit to reevaluate the case, even when the need for specialty treatment is obvious. Emergency referrals for endodontics often take up valuable time as the dental plans are not adequately staffed to handle the incoming calls. Occasionally, even after receiving an authorization for specialty emergency care, the plans may review their decisions. They may proclaim the treatment is within the scope of a general dentist and actually charge back to the referring provider for the specialist`s fee.

Will the drop-off continue?

Typically, capitation offices have high patient volume and large staffs requiring both managerial and organizational expertise. Dentists who practice in this arena must be entrepreneurial, energetic, and able to deal with a multitude of problems not found in fee-for-service offices. They are expected to perform all phases of dentistry with competence. Make no mistake about it - dentists possessing these talents are uncommon, yet imperative to the success of these plans.

The capitated dental managed-care industry has failed to support its provider networks by refusing to raise employer premiums and increase provider compensation. If this continues, it will find dentists with these abilities less willing - and financially unable - to participate in these programs.

Given today`s climate of stagnant capitation rates, unreasonably low patient copayments, and attempts to expand patient benefits, experienced managed-care dentists who once believed that they could successfully run these capitated programs are no longer so certain and are looking for alternative methods of practice.

Information about the Association of Managed Care Dentists can be found at

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