This Weak Economy

I am writing this in the early evening, after a day during which I spoke to two orthodontists who were seriously considering signing onto a managed care plan and a third orthodontist who had just the previous week signed a managed care contract. I think I need a drink!

It has been more than 25 years since the first article I ever had published was printed in Dental Economics. That article was about the terrible results a doctor would experience once he signed up for any of the various forms of managed care. If that article were republished today, not a word would have to change!

Just so we are clear on definitions: managed care includes any relationship with an employer, an insurance company, or any organization acting as an insurance-type company that agrees to list you as a provider of services in return for your agreement not to charge their subscribers more than a pre-established amount. Included in the contract is the right of the insurance company to change the allowable fee as it sees fit.

Taking Responsibility for Declining Patient Flow

The most common “reason” I hear today for choosing to participate with managed care is that the practice is seeing declining new-patient flow. Twenty-eight years ago, when I started Zuelke & Associates, that exact excuse was used for choosing to participate with managed care organizations.

Paul D. Zuelke

Every time this country has an economic downturn—or even when a city, state, or region within the country has an economic downturn—the managed care companies sign up more orthodontic businesses. Timid orthodontists, convinced that their economic world is collapsing, sign up with managed care. Over these 28 years, we have tracked seven national economic downturns not dissimilar to what is happening now. We have also tracked a couple of dozen local and regional downturns (remember the Spotted Owl?), and all have had the same result: temporary reductions in new exams during the downturn, followed by strong increases in new patient flow (pent-up demand?) once the population started to gain confidence in the economic situation. Unfortunately, orthodontists who took the short view and signed onto managed care plans could not get off them once the economy improved—even when their non-managed care new exams were back to or better than normal!

In most cases, even a cursory interview with the doctor and staff confirm that almost no quality internal and external marketing for new patients has been done. Often, there have been one-shot contests, an open house perhaps, sometimes a field trip to the office by a kindergarten class, but rarely have these practices had a consistent, month-in/month-out marketing program to educate their patients and the community that they welcome new patients. Because, in a healthy economy, these same practices have adequate new patient flow, they had never felt the need to do the extra work and spend the extra money necessary in the marketing arena.

Now, with the economy in decline, when prospective patients postpone elective and big-ticket expenses and when general dentists see declines in their patients’ case acceptance and refer fewer patients to orthodontists, orthodontists with the short view of what is really happening tend to panic. Somehow these doctors have come to believe that new patient flow is a natural occurrence and new patient flow will be strong just because you happen to be a good orthodontist. When times like those we are currently experiencing occur, these practices experience the most severe declines in new exams, yet rarely accept responsibility for the problem and often choose to blame it on “the economy” or some other factor for which they do not have to accept personal responsibility.

When Temporary Becomes Permanent

If participating with managed care were a temporary repair of the problem, I probably would not be so against it. If it were possible, for a year or two, to generate a 25% increase in new exams and a 10% increase in new starts (the case-acceptance rate of managed care patients is terrible) and then, a year or two later, when the economy shifted for the better and new patient flow has improved, drop managed care, then a managed care plan would not be so bad. Unfortunately—and as many unhappy orthodontists will attest—once you are with managed care it becomes almost impossible to withstand the serious financial impact of getting off it. Simply put, you are stuck!

A $75,000-a-month practice that has grown to $100,000 a month in revenue, generating 25% of that in managed care business, is rarely willing—and rarely able even if willing—to eliminate that $25,000 in managed care business. Even though the typical overhead of the managed care practice is dramatically greater (75% overhead is common), getting those managed care patients is such a breeze that few orthodontists have the fortitude to eliminate that portion of their business. The downside—the penalty—is in quality of life and profitability.

For more than 28 years, I have been tracking the performance of managed care in the orthodontic industry, and I have identified a few common factors. First, these companies virtually always promise doctors new to the plan that their current fee is “protected” and, in fact, the allowed fee is often greater than what the orthodontist currently charges. Second, a year or so later, when the orthodontist submits his new fee schedule, a tiny (usually 2% to 4%) difference appears between the fee the orthodontist wants to charge and the fee that the managed care entity approves. Since this is usually less than a $200 discount, and since many patients get that discount for paying in full or for being a sibling, doctors on these plans tend to rationalize that, “such a small discount is really insignificant.” A $200 discount is, in fact, insignificant. But at what point does discounting your fee become significant?

In 75% of cases, 5 years after signing up with a managed care company, an orthodontist will be subtracting 20% to 25% of his gross fee for managed care patients. The other 25% of orthodontists who write off little to none of their fee are able to do that only because they have deluded themselves into believing that the only path to good case acceptance is a low fee schedule. Their fees have not kept pace with inflation, so they fit right into the managed care/PPO mold and end up being poorly paid even by the non-PPO patients in their practice.

To read more articles by Paul D. Zuelke, in our free online archives.

In summary, orthodontists considering managed care should recognize that the downturn we are in today is temporary. Granted, it is a tiny bit more severe then most of our past downturns, and it has lasted, so far, 6 months longer than past downturns—but it is still temporary.

Be patient! Understand the difference between marketing and advertising. Do a great deal of good marketing, every single day, and do no advertising of any kind! Your practice will come out of this decline (as it always has in the past), and you will not be shackled to what will become a crippling fee schedule.

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Paul D. Zuelke is the owner of Zuelke & Associates Inc, an orthodontic consulting firm in Portland, Ore. He can be reached at