An Analytical Review of the Pew Report Entitled, It Takes A Team and the Accompanying Productivity and Profit Calculator

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1 An Analytical Review of the Pew Report Entitled, It Takes A Team and the Accompanying Productivity and Profit Calculator The report, It Takes a Team, was released by the Pew Center on the States in December of The report examined the financial impact of incorporating new allied providers such as dental therapists in private practice settings, and suggests that most practices could serve more patients, improve productivity, and maintain or improve bottom line profit while increasing access to dental care, particularly for Medicaid patients. In this paper, we examine the validity and accuracy of the Pew report through an analytical review using economic theory, survey data and practice-level data. In general, we see several major flaws in the Pew report, including: a) The misrepresentation of solo general and dental pediatric practices; b) The assumption of unlimited demand for dental services; and c) The assertion that the employment of dental therapists will significantly improve Medicaid patients access to dental care. We believe these flaws lead to erroneous conclusions regarding the potential contribution of new allied providers, the benefits that may be accrued to Medicaid patients and dentists net incomes. Characteristics of Solo Private Practitioners As of , there were 174,204 active private practitioners in the U.S. of of which 134,492 were general practitioners, 5,114 were pediatric dentists and 34,598 were in other specialties. During the same year, dental hygienists and dental assistants held 174,100 and 295,300 jobs, respectively; 96% and 93% of which were in offices of dentists, respectively. 3 In addition, these allied health personnel are capable of producing over 70 percent of the services in general and dental pediatric practices. 4 While the baseline scenarios of solo dental practices in the Pew report assume the absence of dental hygienists, the data in Table 1 show that on average, solo general and pediatric dentists employ 1.4 and 1.1 dental hygienists in their practices, respectively. The exclusion of dental hygienists from the baseline structure of dental practices falsely inflates the potential contribution of dental therapists. In other words, the incremental contribution of dental therapists should be assessed with hygienists included in the baseline.

2 Table 1: Selected Characteristics of Solo General and Pediatric Dentists Solo General Practitioners, 2008 Solo Pediatric Dentists, 2005 Mean Net Income $194,320 5 $286,610 8 Mean Practice Gross Billings Mean Number of Annual Hours in the Dental Office Mean Number of Operatories Mean Number of Dental Hygienists Mean Number of Dental Assistants $633,380 5 $853, , , In addition, in the Pew report, the baseline income of $337,242 for a solo general dentist without a dental hygienist ($395,503 for those with a dental hygienist) seems extremely high compared to the ADA data shown in Table 1. Further, the net income of solo general practitioners ($337,242) in the Pew report is higher than that of solo pediatric dentists ($320,593). The use of unrealistically high incomes for dentists further inflates the true contribution of dental therapists and exaggerates the cost differential in the production of dental services. While we consider the above flaws to be significant, Pew s implicit assumption that solo dentists (general and pediatric) and dental therapists would remain fully employed is of even greater concern and is explored in the next section. The Mechanics of Supply and Demand In a market oriented economy, the demand for and supply of dental services determine the equilibrium price and quantity that prevails in the market. Figure 1 depicts these conditions, i.e., the demand for (D) and the supply of dental services (S) as well as the price per unit of service (P 0 ) and the quantity demanded and supplied (Q 0 ). How are these conditions affected with introduction of dental therapists? As depicted in Figure 2, the introduction of new allied providers in the market will affect the supply of and not the demand for dental services. For solo general practitioners or pediatric dentists to supply more services the cost per unit of existing care to consumers must be reduced. Consequently, the employment of dental therapists in dental practices is contingent on lowering the cost of dental care, that is, shifting the supply function (S) to the right (S 1 ), other things being equal. Note that movement along the demand curve (e.g., 2

3 from point A to point B in Figure 2 is ascribed to as a change in the quantity demanded and not a change in demand. Figure 1: Demand for and Supply of Dental Services Figure 2: Demand for and Supply of Dental Services a shift of the Supply from S to S 1 Price (cost) S Price (cost) S S 1 P 0 P 0 P 1 A B D P C C D 0 Q 0 Quantity demanded/ supplied 0 Q 0 Q 1 Quantity demanded/ supplied The magnitude of the shift in supply represents the cost reduction of a subset of services now produced by dental therapists instead of dentists. As the intersection of the demand and supply functions shifts from point A to point B in Figure 2, the new market price per unit of dental services decreases from P 0 to P 1 and the quantity demanded and supplied increases from Q 0 to Q 1. Note that the cost reduction at the original quantity demanded/supplied, Q 0, is from P 0 to P c or the distance from point A to point C in Figure 2. But the new equilibrium occurs at the quantity demanded/supplied of Q 1 and price of P 1 which is higher than P c. Thus, the consumers only get part (P 0 to P 1 ) of the total reduction (P 0 to P c ). In general, how much the price decreases and dental utilization increases depends on the cost reduction per unit of service (i.e., magnitude of shift of the supply curve) and the shape (i.e., price elasticity) of the demand and supply curves. The price elasticity of demand (supply) is defined as the percentage change in quantity demanded (supplied) divided by the percentage change in price. Using the nomenclature in Figure 2, we get: [(Q 1 -Q 0 )/Q 0 ]/[P 1 -P 0 )/P 0 ]. The baseline practices discussed in the Pew report are assumed to serve privately insured patients. In the presence of dental insurance, the price elasticity of demand has been estimated to have an absolute value of less than one that is, inelastic. 9 This implies that the percent reduction in price (cost) would exceed the percent increase in utilization, even if the supply is infinitely elastic. Consequently, a shift/increase in supply from S to S 1 shown in Figure 2 would result in a decrease in total expenditures for dental care (i.e., P 1 Q 1 <P 0 Q 0 ). This implies that the gross billings of solo general and pediatric dentists would decline. In addition, dentist s employment time and income would be reduced. Thus, the analytic results in the Pew report are without 3

4 foundation in economic theory; they do not meet the necessary condition which is that the demand for dental care must be unlimited (perfectly elastic) at prevailing prices. Data-Based Estimations It is important to note that several assumptions and caveats are associated with our analyses and estimates: First, we have assumed that a new allied provider can be seamlessly integrated in a solo practice with no costs of training; Second, we have assumed that new allied providers would be perfect substitutes for general and pediatric dentists whose formal training is several times longer; Third, we have assumed that dentists are willing to delegate a broad scope of services and reduce their own hours of work and net income; Fourth, we have assumed that the estimated cost reductions do not include costs associated with dentist s supervision; Fifth, we have assumed that new allied providers would not be performing the tasks/procedures currently performed by dental assistants and hygienists. Sixth, the solo practices at best may employ a part-time new allied provider this may create issues associated with patient scheduling and inefficiencies in the production of dental services; and Finally, we have assumed that states would allow new allied providers with two to three years of training to perform a wide range of irreversible dental procedures. COST OF DENTAL SERVICES According to the Pew report, the new allied provider, compensated in accordance with his/her training, would command higher wages/salaries than that of a traditional dental assistant or dental hygienist. Therefore, employing a new allied provider in a solo general or pediatric practice to produce what dental assistants (e.g., x-rays) or hygienists (e.g., prophylaxes) are producing currently would increase the cost of existing services rather than reduce it. In other words, it would be economically irrational and inefficient to employ dental therapists to produce dental procedures currently produced by lesser trained allied dental personnel. However, there is a subset of dental services currently produced by dentists which the new allied provider could produce such as, simple restorations, extractions, pulpotomies and stainless steel crowns. To estimate the cost reduction of these services being performed by the new allied provider (instead of the dentist), one would have to first identify the services (dental procedures); estimate the dentist share in the cost of those services; and then apply to that cost, the wage differential between dentists and new allied providers. 4

5 While the ADA does not advocate the broad scope of services that are listed in Exhibit 1 of the Pew report, those services were used for this analysis. The data we used were from two separate sources: practice-level data from the 2006 Survey of Expanded Duties for Dental Auxiliaries 10 (a survey of dentists in Colorado) and extensive insurance claims data 11 covering individuals less than 21 years of age. Equation (1) shows the potential cost reduction of employing a dental therapist and equation (2) shows the percent cost reduction in total gross billings of a general dental practice. Where: (1) Potential Cost Reduction = X * s * (W D W DT )/W D. (2) Percent Cost Reduction = (X / Y) * s * (W D W DT )/W D. X is the market value of a subset of dental services currently produced by dentists but could be produced by allied providers. s is the dentist s share in the cost of these services. W D is the wage rate of the dentist. W DT is the wage rate of the dental therapist. Y is the gross billings (market value) of dental services produced by a general dental practice. The cost of the dental services, in general, consists of the value of dentist s time, the value of the dental assistant s time, rent, supplies, the value of time of other dental staff (e.g., receptionist), etc. It has been estimated 10,12 that the dentist s share in the cost of the services (s) is between 20% and 30%, depending on the configuration of a dental practice. In the estimates presented below, the dentist s share in the cost, s, is assumed to be 20%, 25% or 30%. First, using data from the Colorado survey, we calculated the ratio: X/Y. The value of this ratio ranged from 5.3% to 37.4% with a mean value of 15.7%. Using the national estimates of gross billings for solo general practices (Table 1) these percentages imply that the value of X may vary between $33,569 and $236,884 with a mean of $99,441. Table 2 presents the percent cost reduction when the ratio X/Y takes the minimum, maximum and mean value, the wage differential (W D W DT )/W D is assumed to be 50% and the dentist s share in the cost of services is 20%, 25% and 30%. As shown, the potential cost reduction in a general dental practice ranges between 0.53% and 5.61%. Again, using the national estimates of gross billings for solo general practices (Table 1), the savings in dollars would range between $3,357 and $35,533 with a mean value of $12,414. 5

6 Table 2: Potential percent cost reduction in general dental practices Dentist share in cost of services is: 20% 25% 30% Value of ratio X/Y is at: Percent Cost Reduction: Minimum (5.3%) 0.53% 0.66% 0.80% Maximum (37.4%) 3.74% 4.68% 5.61% Mean (15.7%) 1.57% 1.96% 2.36% Second, using the extensive insurance claims data 11 for individuals under 21 years of age, we calculated the same ratio of X/Y. The mean value was 16.72% very close to the mean value of 15.7% calculated with the Colorado survey data; therefore, the cost reductions are not displayed as they would be similar to those in Table 2. PRICEOF DENTAL SERVICES UTILIZATION, EXPEN- DITURES AND GROSS BILLINGS The estimated potential cost reductions presented above are based on the current level of dental care (Q 0 in Figure 2). These cost reductions may become price reductions if and only if the supply of dental care is perfectly elastic. Specifically, if a new allied provider were to produce 15.7% percent of the gross billings of a solo general practice and the dentist s share of the cost is 25%, then the percent cost reduction would be 1.96% (see Table 2) and the percent price reduction would also be 1.96%. This value, 1.96%, should be considered as the upper bound price reduction. The most plausible scenario is that at the new equilibrium Q 1 (Figure 2), the potential cost and price reductions would be even lower, say, 1.5%. In absolute terms, if an average bundle of dental services purchased by an individual consumer was, say, $500 (P 0 ) the new price (P 1 ) would be $ The solo dental practices discussed in the Pew report serve privately insured patients. In the presence of dental insurance, the price elasticity of demand has been estimated to be (i.e., inelastic). 9 This implies that the percent reduction in price would exceed the percent increase in utilization, even if the supply is perfectly elastic. Specifically, if we were to accept as price reduction the plausible value of 1.5%, the estimated increase in utilization would be 0.7%. This implies that the utilization of dental services would increase from 12,529 to 12,617 per general practitioner. 4 Given that the price of dental care would be reduced by 1.5% and utilization would increase by 0.7%, total dental expenditures would be reduced [(P 0 * Q 0 ) > (P 1 * Q 1 )]. Dividing total dental expenditures by the number of practices would yield gross billings per practice. Thus, since the number of practices is constant, the gross billings for solo general and pediatric dental practices would decline to $628,246 and $846,860, respectively. 6

7 HOURS OF WORK AND NET INCOME OF DENTISTS In solo dental practices, a dentist s chair side hours of work would be divided between the dentist and dental therapist. At the current level of output (Q 0, Figure 2), the dentist s hours would be reduced by exactly the same number of hours the dental therapist is employed. It was estimated above that utilization (i.e., output) at the new equilibrium output, Q 1, would increase by 0.7%. This implies that the sum of dentist s and dental therapist s hours of work would increase by about the same amount. Specifically, solo general practitioners worked an average of 1,704 hours in An increase of 0.7% in average hours worked would yield 1,716 hours. Using the mean value of our X/Y ratio discussed above (i.e., 15.7%) to allocate the total hours, we get: (a) 1,447 dentist hours; and 269 dental therapist hours. These hours are not sufficient to keep both a solo dentist and dental therapist fully employed. This implies that (a) a solo dentist s income would decrease even if his/her wage rate remains constant; and (b) the impact of dental therapist would be partial (part-time) rather than complete (full-time). Figure 3 shows the estimated impact of allied providers on general dental practices in terms of net income and utilization. Figure 3: Allied Providers Impact on Solo General Dental Practice ADA Data and Calculations $250,000 NET INCOME IMPACT 16,000 UTILIZATION IMPACT $200,000 $194,320 $181,985 $181,985 14,000 12,000 12,529 12,617 12,617 $150,000 10,000 8,000 $100,000 6,000 $50,000 4,000 2,000 $0 Baseline (Mean Net Income of Solo General Practitioners 5 ) Adding 1 Dental Therapist Adding 1 Hygienist/ Therapist 0 Baseline (Mean Number of Procedures per General Practitioners 4 ) Adding 1 Dental Therapist Adding 1 Hygienist/ Therapist As shown, the net income of solo general practices would decline by about the same percentage the gross income declined, that is 0.8%. As a result, at the new price P 1 and utilization Q 1 the net income of solo general dental practices would be $192,745. This would reflect the 1.5% decline in price and 0.7 increase in utilization. However, the net income of the solo dental practices has to be divided between the dentist and the part-time dental therapist. For example, if we were to assume that the wage rate of a dental therapist is $40 per hour, the annual income of the dental therapist employed for 269 hours in a solo general practice would be $10,760. As a result the net income of the solo general practitioner would be $181,985 ($192,745 minus $10,760). 7

8 These results raise an important question: If the gross income, hours of work, and net income of solo general or pediatric dentists were to be reduced why would they consider employing a new allied provider? SUMMARY OF FINDINGS As has been shown, there is great contrast between what the Pew report portrays as the outcome of introducing dental therapists into existing dental practices and what we see as the outcome based upon economic analysis. The differences are summarized below: Impact of employing new allied providers in solo general and pediatric practices on: Our analysis indicates: Pew report indicates: Cost and Price of Dental Care decrease no change Total Expenditures decrease increase Gross Billings of Solo Dental Practices decrease increase Utilization of Dental Services small increase unlimited increase Therapist Employment part-time full-time Dentist Employment part-time full-time Dentist Net Income decrease significant increase Impact on Medicaid Patients Could dental therapists increase productivity and efficiency in the dental care sector sufficiently to reduce access disparities? Conventional wisdom suggests that there is plenty of room for a lesser (than a dentist) trained individual to contribute in the reduction of access disparities. However, conventional wisdom suggests also that the devil is in the details. In the previous section we have shown the impact on cost, price, expenditures, gross billings and net income. What about the impact on Medicaid patients. 8

9 The Pew report suggests that the introduction of dental therapists into dental practices will increase access to dental care for Medicaid patients. As stated in the Pew report, Medicaid reimbursement rates are 30% to 70% below market rates with an average of 40% across the U.S. The introduction of new allied providers does not affect the Medicaid reimbursement rates. If dental utilization were to increase for Medicaid patients, the gap between market prices and Medicaid reimbursement rates would still have to be reduced. As mentioned above, the potential market price reductions are expected to be less than 1.96%. In addition, most state Medicaid programs do not cover adults. In solo general practices, less than 20% of the patients are children. 5 Apparently, these estimates are relevant only to a small portion of the solo general practices. Of course, improvements in the efficiency of the dental care delivery system are always welcomed. According to the Pew report, solo general and pediatric dentists can increase their net incomes by changing their patient mix to include 20 percent Medicaid patients at reimbursement rates of 60 percent of market prices. Well, using the Pew report s numbers and analysis, baseline solo general dentists may increase their income from $337,242 to $511,446 by adding one hygienist/therapist. According to the Pew report if solo general practitioners were to serve 20 percent Medicaid patients accepting reimbursement rates 60 percent of market prices their income would be increased from $337,242 only to $432,542 (Pew report, exhibit 4 and 5). Consequently, solo general and pediatric dentists as well as small practices have no economic incentive to serve Medicaid patients. The analysis and results presented in the Pew report make no economic sense. Lastly, we believe that by focusing the analysis on profits, the Pew report inaccurately portrayed dentists as only being concerned with the bottom line with respect to treating Medicaid patients. Clearly, that is a false representation. However, we felt it was important to address the faulty analysis and conclusion in the Pew report regarding dentists incomes and patient-mix. Concluding Thoughts The ADA unequivocally shares the same aspirations as Pew when it comes to advancing the oral health of all children and eliminating access disparities. However, while researchers differ in methodology and views, in this analytical review, we have shown that the Pew report uses unreasonable assumptions, faulty economic analysis and; thus, delivers erroneous conclusions which may end up harming rather than helping the cause they are advocating. The major problem with access disparities is the lack of reasonable Medicaid reimbursement rates. This fact, although acknowledged, is not fully appreciated in the Pew report. Instead, the Pew report suggests that access disparities is a dental workforce issue. This cannot be further from the truth. As a result, the entire dental workforce (dentists, dental hygienists, expanded function dental assistants, dental assistants) may become alienated, whereby recruitment and retention in the system would suffer. Medicaid patients, having been promised greater access, will become distrustful. Legislators will become exasperated because promises will not be fulfilled. 9

10 The ADA supports evidence-based innovations in the dental team that will truly break down barriers to oral health care for those who are in need. The best way that can be done is by focusing heavily on prevention the key to improving oral health and helping patients who need care to receive it from the best and most efficient dental team. All patients, regardless of means, should expect nothing else. 10

11 References 1. The Pew Center on the States. It Takes a Team: How New Dental Providers Can Benefit Patients and Practices. The Pew Charitable Trusts; Online: df. Accessed 10 Dec American Dental Association, Survey Center. Distribution of dentists in the United States by region and state, Chicago: American Dental Association; U.S. Department of Labor, Bureau of Labor Statistics. Occupational Outlook Handbook, Edition. Online: Accessed 10 Feb American Dental Association, Survey Center Survey of dental services rendered. Chicago: American Dental Association; American Dental Association, Survey Center Survey of dental practice income from the private practice of dentistry. Chicago: American Dental Association; American Dental Association, Survey Center Survey of dental practice characteristics of Dentists in Private Practice and their patients. Chicago: American Dental Association; American Dental Association, Survey Center Survey of dental practice employment of dental practice personnel. Chicago: American Dental Association; American Dental Association, Survey Center Survey of dental practice pediatric dentists in private practice. Chicago: American Dental Association; Beazoglou T, Brown LJ, Hefley D. Dental care utilization over time. Soc Sci and Med. 1993; 37(12): Beazoglou T, Brown LJ, Ray S, Chen L, Lazar V. An Economic Study of Expanded Duties of Dental Auxiliaries in Colorado. Chicago: American Dental Association, Health Policy Resources Center; Data from a major insurance company in the East North Central Region, Chen L. A Study of the Production Technology of General Dental Practices in the U.S. PhD Dissertation. University of Connecticut,