Economist Finds Dental Service Organizations (DSOs) More Cost-Effective Than Average Independent Dentists

By Laffer Associates

NASHVILLE, Tenn., Sept. 24, 2012 — /PRNewswire/ -- An in-depth study of state reimbursement claims data conducted by economist Arthur Laffer shows that Dental Service Organizations (DSOs) in Texas are providing more cost-efficient and conservative dental care than the average Texas dentist – while providing much-needed services to underserved patients, many of whom are children on Medicaid who have not previously had access to any dental care whatsoever.

The research concluded that DSOs are "filling an important void in dental coverage that Congress has specifically incentivized dentists to fill, and at least in Texas… are actually treating patients more conservatively than non-DSO dentists."

DSOs are individual companies who provide comprehensive administrative and other support services to dentists or groups of dentists. Through group buying power, electronic medical records, centralization and the use of dental best practices, DSOs create efficiencies that allow dentists to provide cost-effective care to low-income children and families on Medicaid. Even though Medicaid has increased reimbursement rates in Texas, many DSO and non-DSO dentists still do not accept Medicaid patients, given that reimbursement is much lower than what private insurers pay. Before DSOs were created, this left many families on Medicaid with nowhere to turn for dental care.

This comprehensive study effectively refutes some perceptions that DSOs engage in overuse of high-reimbursement dental procedures, with the goal of maximizing income, when in fact, just the opposite is occurring in Texas. The data shows that DSOs are actually the more conservative providers of such high-reimbursement procedures, which included tooth extraction (removal), placement of crowns and pulpotomies (removal of infected pulp in a tooth).

Laffer's Texas analysis found that DSO dentists charge, on average, about $225 less than non-DSO dentists, and perform fewer procedures per patient than the average dental office. While the average DSO patient had about 10 procedures performed, an average non-DSO patient had more than 12 procedures. In addition, the charge per patient in DSOs averaged $483.89 at DSOs, compared with $711.54 for patients in other types of dental practices.

Kool Smiles, the largest Medicaid focused DSO in Texas and largest Medicaid dental provider in the United States, performed more conservatively still, with about 8 procedures per patient and a cost of $345.45, less than half of non-DSO dentists. This data finding is even more remarkable given many Kool Smiles patients initially present with severe tooth decay and other complications as a result of poor dental hygiene due to lack of access to care and education.

Laffer said the study indicates the DSO model enables the provision of dental services at a lower cost to consumers of all income levels by taking advantage of economies of scale. He concluded, "Competition, new business models, and increased services are good things. As consumers and taxpayers, we should embrace innovation."

Laffer was a member of President Reagan's Economic Policy Advisory Board from 1981 to 1989, and was the first chief economist at the White House Office of Management and Budget. He is the author of the "Laffer Curve," one of the main theoretical constructs of supply-side economics.

Laffer's study was sponsored by Kool Smiles, the largest Medicaid focused DSO in Texas. The study of publicly available data of 25.9 million Medicaid procedures in Texas in 2011 is available at : http://www.pacificresearch.org/docLib/20120918_2012.09.19DSOs.pdf. Laffer maintains the independence of the study results and his opinions.