Private equity in dental care increases the risk of over-treatment

Private investment in health care is not limited to medical groups, nursing homes, or emergency clinics. The new report highlights the growing role of firms in the highly fragmented dental industry.

The Private Equity Stakeholder Project, a non-profit group that studies the impact of private equity investments in various industries, released a report on Thursday warning of the potential harm of such costs in the dental industry. The report says private investors are demanding returns that drive profit-driven practices such as unnecessary services, misleading advertisements, and Medicaid scams.

Since dentists must own their practice in most states, private equity groups join them in buying so-called Dental Service Organizations (DSOs). DSOs provide non-clinical practice management and business services such as human resources, accounting, marketing, and procurement. Although DSOs currently make up a small portion of the entire dental market, the report says that share is growing rapidly.

American Dental Association states 10.4% of dentists were affiliated with DSOs in 2019, up from 7.4% in 2015. The trade association said it expects DSO consolidation and membership to continue to grow in the future. Dentists affiliated with the DSO look younger and most likely specialize in orthodontics and pediatric dentistry, according to the ADA, which declined to comment on the PESP report.

DSOs are also overwhelmingly owned by private equity groups. According to the report, of the 30 largest DSOs, for example, 27 are privately owned. The largest of these is Heartland Dental, owned by KKR, which has 1,142 clinics, according to the report. Aspen Dental Management, Inc., the second largest DSO operator in the country, has approximately 1,000 offices in 46 states. Aspen is 80% owned by private equity firms Leonard Green & Partners and Areas Management, and 20% owned by private equity firm American Securities and its management and dentists.

“The most surprising thing was the extent to which private investment has penetrated the market,” said Eileen O’Grady, PESP research coordinator and author of the report.

The problem with this, O’Grady said, is that the industry is largely unregulated. Private equity groups are not required to report their investments in DSOs to state or federal regulators. More importantly, she noted that there are no rules limiting the financial incentives that DSOs can use to get dentists to take on more patients and perform more procedures.

According to O’Grady, the dentists associated with the DSO are legally responsible for clinical decisions, but in practice the lines of responsibility become unclear. There is no standard payment scheme between dentists and DSOs. In some cases, DSOs pay dentists based on a percentage of payments received for dental services. DSOs may also offer performance or profitability bonuses.

The report singled out a DSO from 150 clinics called Benevis, formerly known as Kool Smiles, as an example study. The company – through several private equity holders –paid nearly $ 24 million in 2018 settle allegations that the DOJ made false claims for medically unnecessary dental care for Medicaid children. Complaints included medically unnecessary root canals in infants, tooth extractions, and stainless steel crowns.

The government says Benevis pushed dentists to provide more services by using cash bonuses and punishing those who failed. Benevis, which went through bankruptcy and restructuring last year, did not respond to a request for comment.

The report notes that over the past decade, Aspen Dental has undergone significant regulatory scrutiny and has paid at least $ 1.7 million to settle accounts with state attorneys general in Pennsylvania, Massachusetts, New York and Indiana. Attorney General of New York in 2015for example, it found that the company encouraged staff to increase dental sales by promoting income-driven planning and oversight of clinical staff. In the same year Indiana Attorney General found that Aspen used deceptive advertising, especially for the elderly, that skewed the true cost of services and created an unanticipated financial burden on them.

Aspen did not respond to a request for comment. The Association of Dental Support Organizations, the DSO trade group, also did not respond to a request for comment. The PESP report notes that ADSO is almost entirely controlled by private equity affiliated DSOs.

The report compares investments in private equity in DSOs with investments in medical practice. Both industries appear to have been created primarily by private equity firms to avoid regulation prohibiting investors from owning clinical practice, the report said.

After all, O’Grady said she believed there should be a lot more private capital above dental investment.

“When you have private equity firms with expectations of returns ranging from 20% to 25% in relatively short periods of time, you have to ask,“ What impact will this have on patient care? “

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