Tab A: Considerations in Establishing Marketplace-Based Dental Fees

The determination by Medicaid programs of appropriate dental reimbursement in the marketplace requires an understanding of the nature and economics of current dental practice. This TAB provides a brief overview of several factors that play important roles in such determinations: dental workforce supply and patient demand; dental practice factors; and methods for making prevailing fee comparisons.

The supply of dental providers and demand for their services by the public are important underlying components in any assessment of the dental marketplace. While it is unclear if a national shortage of dentists and dental hygienists exists, the number of dentists relative to the Nation’s population has been in decline since 1990, when that ratio reached its zenith. The decline in the absolute number of dentists has resulted from the net closure of six dental schools (from a high of 60 during the 1980s) along with an accompanying decrease in dental school class size, such that the equivalent of 20 additional average-size dental schools have been lost over the past two decades. Only about 4,000 dentists have been produced annually since about 1990, compared to about 6,000 per year graduating in the late 1970s and early 1980s. An increasing retirement rate and declining hours of practice among an aging dentist population and other changes in the dental workforce suggest that no increase in the overall supply of dentists relative to the Nation’s population is likely over the next several decade. In some States–especially States with large rural, and/or low-income inner city populations-geographic maldistribution of dentists clearly is occurring with direct impact on competitive pricing for services. Other dental and non-dental health care providers may play a role in provision of oral health services, but that potential remains largely restrained and untapped.

On the demand side of the supply-demand equation, a growing and increasingly elderly population continues to have routine dental needs, a desire for aesthetic dental improvement, and an expectation–unlike earlier generations–that they can and will keep their dentitions intact for their entire lives. Dental demand is elastic, and the long period of recent economic prosperity has generated substantial disposable income among those who otherwise might have considered the purchase of dental services to be discretionary. As a result, dental offices are maintaining busy practices and dentists’ average incomes currently are competitive with incomes earned by most primary care physicians.

Although the dental workforce may not increase in size, projection of future dental supply and demand remains difficult; new scientific and technological breakthroughs, for example, may increase the productivity of the workforce and/or improve the oral health of the population. While such changes may impact on future ability to purchase dental services for State Medicaid programs, knowledge of the current supply and demand situation provides some explanation as to why many dentists are unable or unwilling to provide care when fees are steeply discounted. Indeed, many dentists do not now accept any insurance, preferring to obtain their full charges from patients paying out-of-pocket.

Exploration of other aspects of dental practice, especially in the context of Medicaid, facilitate further understanding of dentists’ practice-related economic decisions: ·

  • Most dentists own and operate their own practices, and about 90 percent are solo practitioners or work with only one other dentist. The average dentist is responsible for all costs associated with managing the practice, and practice expenses as a percent of total annual billings are reported to be about 60-70 percent. The high cost of operating a dental practice places additional pressures on the dentist to avoid acceptance of discounted fees.
  • The general dentist’s practice is more akin to a surgical practice than a primary care practice. A substantial part of the dentist’s time is spent directly in procedures involving cutting, removal and restoration of hard and soft tissue. The dentist’s work in the operatory requires the appointment of individual patients, and failure of the patient to attend the appointment without adequate prior notice creates “down-time” and lost income. The Medicaid client’s reputation for breaking appointments–although not fully substantiated in the literature–has created a perception among dentists that their participation in the Medicaid program will adversely affect the economics of operating a successful practice.
  • Dentists are unable to “balance bill” for Medicaid-covered procedures, whereas under most other insurance plans, patients remain responsible for paying the difference between the insurance payment for the covered service and the dentist’s usual charges. ·
  • Medicaid clients often have significantly more complex oral health needs than are found in higher income populations, and treatment may require more clinical time per procedure.

An understanding of prevailing fee methodologies is also of critical import in establishing marketplace-based reimbursement system. In many State Medicaid programs, administrators have based their reimbursement schedules on the concept of “UCR,” or “Usual, Customary and Reasonable.” The terms may be defined, respectively, as follows:

Usual fee: that fee that an individual dentist most frequently charges for a given dental service.

Customary fee: that fee determined by the administrator of a dental benefit plan from actual submitted fees for a specific dental procedure to establish the maximum dental benefit payable under a given plan for a specific procedure.

Reasonable fee: the fee charged by a dentist for a specific dental procedure that has been modified by the nature and severity of the condition being treated and by any medical and dental complication or unusual circumstance, and, therefore, may differ from the dentist’s usual fee or the benefit administrator’s customary fee.

In the commercial dental benefits sector, this approach usually means that individual dentists submit claims reflecting their usual charges to dental plans for procedures provided to covered beneficiaries, and the dentist is reimbursed either in full or at a modest discounted level of their submitted charges, up to a predetermined upper fee limit. This method appears to be adept at dealing with variations in individual dentist’s fee structures, and appears to be able to attract a broad segment of dental providers, to the degree that the discount on submitted fees is not excessive. The experience of commercial dental preferred provider networks in heavily competitive dental markets indicates that some providers may accept discounted fees in the range of 15-20 percent. At least one State Medicaid program is reported to be using this method for reimbursement, paying each dentist at 85 percent of each submitted charge.

More commonly in the Medicaid program, the UCR concept has meant that the administrator bases the reimbursement schedule on the average fee submitted by all Medicaid participating dentists for procedures provided for Medicaid enrollees. The figure is often obtained from the State’s Medicaid data base. As interpreted by Medicaid programs, this use of UCR may not provide a valid reflection of market-based dental fees for several reasons: ·

  • Medicaid programs often apply a discounted rate substantially greater than that used in commercial dental benefit programs, resulting in fees-for-services that are substantially less than prevailing fees. ·
  • Many dentists submit charges to Medicaid that are equal to the amount Medicaid currently pays for a given procedure, rather than the charges they actually bill their non-Medicaid clients. This custom relates to the dentists’ recognition that they are bound by law to accept the Medicaid fee as payment in full for any covered procedure, and that billing Medicaid at the Medicaid fee instead of their usual charge eliminates the need to reconcile or “write-off” the difference for each procedure provided. There is no incentive for dentists to make this accounting adjustment because they cannot “balance bill” Medicaid clients for the difference between Medicaid and their private-sector fees, as they would for their private sector clients. ·
  • Most States’ Medicaid fee data bases are at least one year behind the private sector market because they contain fees submitted by dentists in the prior year. Additionally, and perhaps more importantly, most Medicaid programs have no provisions for updating fee structures on a regular basis. Over the passage of a few years, the effect of not adjusting for the increase in the market prices for dental services is quickly compounded and the gap, becomes wide.

The effect of Medicaid fee setting processes using UCR was described recently in an unpublished study cited by GAO investigators in their April 2000 Report. This study compared a sample of dentists’ fees in the private sector to Medicaid fees for the same services, and projected the proportion of dentists who might accept the Medicaid fees. The study indicates that the level of Medicaid dental reimbursement in 1999, nationally and in most States, was about equal to or less than the dental fees normally charged by the lowest 10 th percentile of dentists, i.e., 90 percent of dentists charged more, and usually substantially more, than the Medicaid fee.

Use of “percentiles” is exceptionally helpful for Medicaid programs as they enable estimation of the number of dentists in the State who might participate in Medicaid, given any chosen constellation of Medicaid fees. States may then take actions to adjust dental payments so that their programs are likely to enlist sufficient dental providers and assure prompt access equal to that experienced by the general public. To compare Medicaid fees to fee percentiles in a State, you will need to obtain current data sets that describe the percentile distribution of fees that the State’s dentists routinely charge. Information on dentist/fee percentile distributions are available from commercial organizations, such as the Ingenix Corporation’s Prevailing Healthcare Charges System, or from other actuarially sound State-specific sources, such as those which may be available from commercial dental insurers. The American Dental Association’s (ADA) Survey of Regional Fees, which offers regional rather than State-level fee distribution data, is an excellent alternative source of information, if State-specific prevailing fee data are otherwise unavailable. (As noted previously, existing Medicaid claims data bases are not a good source for making dental fee comparisons).

With due consideration of the implications of percentile comparisons, several States recently have moved to increase Medicaid reimbursement levels to considerably higher levels. In most cases it is too soon to tell if the rate increases made by these State are increasing dentist participation, and it is often difficult to separate the affect of fees from the impact of other non- reimbursement programmatic changes being made concurrently. There is reason to believe, however, as noted by the GAO, that fees approaching prevailing private sector fees are more likely to result in increased dentist participation in Medicaid.

The ADA believes that Medicaid fees that approach the 75 th percentile will greatly improve the likelihood of dentists’ participating in the Medicaid program. The ADA has advised that it is prepared to work intensely with State programs that propose to move towards achieving such reimbursement levels.

Please note, if a State delivers dental care through managed care arrangements, the State remains responsible for assuring that access to dental services for Medicaid enrolled children is achieved. Contracts between States and managed care entities should enable the State to ascertain if the plan has adequate provider capacity to provide the dental services needed by the plan’s service area population. Payment rates must be adjusted to assure that plans are able to maintain a sufficient number, mix and geographic distribution of dental providers.