Howard Speaks: Racing to the Bottom by Dr. Howard Farran

Dentaltown Magazine

Reimbursement rates drop when insurance companies compete—so why do we accept so many plans?

by Howard Farran, DDS, MBA, publisher, Dentaltown magazine

I’m always looking at the threads you post on Dentaltown’s message boards, and a recent one exemplifies something I think is insane about dentistry. Maybe you read the excerpt we ran in our February issue:

A dentist had received a notice from Delta Dental that hinted the company would be dropping its reimbursement rates, which led to a lot of complaining on the boards.

Those dentists, of course, never do anything wrong: They’re always the victims. Of course, they never ever go meet their value chain.

The value of the value chain

I’ve talked about this for 30 years. When my dad ordered $1 million worth of meat a year for his nine Sonic drive-ins, he knew the guy he ordered from very well. They even vacationed together sometimes! Once while they were having drinks, my dad said, “You know what makes me mad? My top moneymaking times are between 11 a.m. and 1 p.m. for the lunch hour, and after 5. And what time do you show up for meat delivery? From 11 to 1—the time I least want to take someone off fryer and grill duty to help check in stock.” The vendor had never thought about that before—and because of that conversation, he changed the hours of delivery.

I remembered that when I opened my dental office. At the end of my first year, the person who’d paid me the most money was Ed Judd, the CEO of Delta Dental of Arizona. I called Delta Dental and said I’d like to speak with Ed—it was like 4 p.m., they didn’t know who I was—and when they asked what it was regarding, I said, “I just opened my first dental office, Delta gave me more money than anybody else over the past year, and I’d like to take Ed to dinner.”

We agreed on the Black-Eyed Pea, because we were two guys from the Midwest. During dinner, Ed told me that he gave dentists $100,000 a year or more but he usually got only one letter a year from them, if that—and it would always be filled with profanity because they were angry that he hadn’t covered some procedure. “I really respect the fact that you took the time to thank me for doing my job,” he said. This is our value chain!

Nowadays, this value chain has gone south. There’s no communication. A Delta Dental CEO will sell literally $1 billion of insurance to customers in a state, and would he ever be invited to speak at the state’s annual meeting? No way! Instead, they’ll bring in consultants who’ll talk about how insurance companies are the devil. They’re full of gas, because insurance companies are dealing with the same problems that dentists do.

The snake is eating its own tail

When Delta Dental goes to sell its benefits plan to potential customers, it’s selling against all the other low-cost plans that dentists have signed up to accept. To win in the competition against MetLife, United Concordia and all the dental PPOs, Delta ends up lowering its fees, because its customers are looking for the best possible rates.

A few years later, the same thing happens again: Dentists sign up for another lower-fee service, all the companies have to cut their fees to be competitive, and dentists get paid even less. It’s not even the cat chasing its own tail—it’s more like a snake eating its own tail.

Delta can’t keep its fee schedule the same because of the competitors out there: A lot of insurance companies have gone out of business over the years, just like dentists go out of business. Delta couldn’t keep its fees higher unless every other benefits company agreed to as well, and that would be price-fixing, which is illegal.

Dental plans benefit the patients, not the dentists

Let’s go back to the beginning of dental insurance: After the WWII era of national wage freezes, the International Longshoremen’s and Warehousemen’s Union Pacific Maritime Association needed to find a way to demonstrate value to its dues-paying members even if raises were off the table. It couldn’t get its members more dollars per hour, but what about free dental treatment for their children? It started in just three states—Washington, Oregon and California—and expanded into Delta Dental, which also spun off preferred providers, or PPO plans.

Dental insurance didn’t get its start because health care coverage was sacred or necessary; it was because unions couldn’t get their members higher wages. Insurance companies are selling employers a benefit to reduce staff turnover. “We offer dental insurance, medical insurance and 401(k)s only because we want you to work here, and not over there.”

An insurance company’s customer is your patient’s boss, because that’s who is helping to cover her dental bills. That boss is looking to pay the lowest rate possible— why would he or she buy a more expensive plan when you’ve signed up to accept lower-priced ones? And yet you see the insurance company as the bad guy.

Cut back on plans that cut coverage

If you don’t want insurance companies to keep lowering their fees, don’t sign up to accept all of these insurance companies with lower fees! It’s like finding an addict in the alley, asking me to sell him some drugs, and when I ask why he wants to buy drugs, he says, “Because I’m tired of the drugs. So please sell me some more drugs.”

If you’re going to sign up for every plan that comes by with a lower fee, that’s fine and great—that’s competition. But I don’t want to listen to whining about the other insurance companies lowering their fees. Because they’re only following your lead.

See Howard Live!
Howard Farran, DDS, MBA, is an international speaker who has written books and dozens of articles. To schedule him to speak at your next national, state or local dental meeting, email


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