Editorials on Dentistry

Ortho Centers of America changes name & Revenue Recognition
Dr. Jeff Dorfman
 
September 24, 2004

 

Orthodontic Centers of America changed its name to OCA on August 30, 2004 as it expands internationally into pedodontic, general dentistry and medical practices searching for growth.

In their quarterly earnings in 2002 they used the term “Net” Revenue. In 2003 they used the term “Fee” Revenue instead. In 2004 they used the term “Patient” Revenue instead. I’ve been following this company for many years and I think I know why. Does anyone care to email the reason for this change in revenue recognition?

An “accounting change” adds $74 million to their quarterly cash flow in 2004. Why?

The various “receivables” in their quarterly balance sheet also looks interesting.

I wish OCA well but their stock seems to be doing quite poorly. I think the business would be much better off if it was privately owned and could focus on the long term. Ask any doctor or dentist on your golf course if their practices grew at an annualized rate that would interest Wall Street.

 

 

Outlandish Executive Pay fuels increased medical costs:

Dr. Jeff Dorfman

August 23, 2004

 

William J. McDonough recently testified before a congressional subcommittee. He said: 1) In 1980, the average Fortune 500 CEO made 40 times more than the average employee. 2) In 2003, the average Fortune 500 CEO made 530 times more than the average employee.
“There is no economic theory on God”s planet that can justify that. It is grossly immoral.” Mr. McDonough said.
And Mr. McDonough should know. He now runs the Public Company Accounting Oversight Board and previously was the head of the Federal Reserve Bank of New York.
Warren Buffett agrees.
I think that the total compensation for the former CEO of hospital operator, Tenet Healthcare, in the year before Tenet’s troubles appeared was about $80 million.
And how is Tenet doing now? And Tenet’s shareholders? And Tenet’s patients?

In another story, Anthem, Inc. wants to acquire Wellpoint Health Networks for $16 billion. John Garamendi, the state Department of Insurance commissioner, wants to block part of the deal saying the combination would only benefit companies’ executives, not California consumers.
Please anyone, email me what you read about it!

I think U.S. healthcare is in pretty good shape. I find brilliant and genuine doctors and auxillary personnel, and I find completely average doctors and sloggish bureaucrats.

And I find healthcare CEO’s taking excessive compensation at the expense of the good doctors, auxillaries and bureaucrats who could all use to make a little more money, and at the expense of patients.

Please email me your thoughts.

[Read the Wall Street Journal to find a writer, Joseph Hallinan, for more info on the first subject. It was a great article. The later info was found in the August 4 WSJ in the Health Section].

 

 

Resolving Pay Discrepancies between Doctors and Senior Healthcare Executives:  The Rabbit & The Hare

Dr. Jeff Dorfman

March 5, 2004

 

The increasing cost of health care has become a major concern to the US Government, business and all Americans. Corporate salaries for senior executives is unnecessarily excessive and I see this as a cause of the problem.

Doctors belong in a similar socio-economic group as senior corporate executives, though years of profligate corporate spending during the roaring 1990’s has created quite a wide gap.

Now it’s the doctor’s turn to turn the screws and raise rates by 15%, year after year, so that they will be able to live in the same neighborhood as their corporate brethren. The Wall Street Journal teaches that wealth is a relative term and thus similar socio-economic groups should naturally seek parity.

It’s a classic case of the rabbit and the hare. Bring sanity back to corporate compensation and the cost of medical services will follow.

 

 

 

Tooth Whitening/Bleaching Kits Sold on the Internet

by Dr. Jeffrey D. Dorfman*

December 25, 2002

 

     There are many companies selling tooth whitening/bleaching kits on the Internet.  These companies, which advertise on search engines, may be classified into two types:  1) those that sell bleaching trays to be modified by the customer at home and, 2) those that provide impression material to the customer so that the customer can make an impression of their own teeth at home and then send this to the internet companies own dental lab for fabrication of a bleaching tray.

     It appears that the latter business model may be illegal for two reasons:  1) A dental lab in New York State requires a written prescription from a dentist in order to fabricate any prosthesis for a patient.  This is true in many other states.  2) This may be construed as practicing dentistry across state lines without appropriate state licensure.

 

*Member, Council on Dental Practice, New York State Dental Association

Premium Medical Services and Multi-tiered Insurance Plans
by Dr. Jeffrey D. Dorfman
Thanksgiving, 2002

     Premium health care services and multi-tiered insurance plans have been getting some recent, deserved publicity though they are really not new ideas. There have always been medical offices offering premium services to those patients who could afford the fees.  Multi-tiered insurance plans also already exist.  Every doctor knows that some insurance plans reimburse at a substantially higher rate than others and this is specifically related to the monthly premiums paid by the insured. 

     Mult-tiered insurance plans should be further developed as employers recognize the need for their employees to become actively involved in the expense of receiving health care.  This could become a political minefield though because Americans want to believe that access to proper health care should be equally available to all.  The problem for insurers is to finally, honestly acknowledge that insurance benefits are really related to the premiums being paid, and not to the spurious notion of an ever-changing, “usual, customary and reasonable” fee.  This phrase has sparked recent lawsuits from the American Medical Association and the American Dental Association; this author has written a lot about this subject for years.  

     The only way for the U.S. to tackle health care costs is to acknowledge that one cannot legislate socialistic health care in a capitalistic society.  Medical education should start in high school and continue throughout an undergraduate college curriculum.  Those students on such an academic pathway could help provide health care to the 40 million uninsured Americans.  We have already created a working model for this concept in our dental office.  [Those interested may go to the “Office Staff” section of this website and then click on “The Internship Program” to learn more].

 

What is Revenue Recognition?
By Dr. Jeffrey D. Dorfman

(Published in Dentist Quarterly – The official publication
of the New York County Dental Society  – August 2000 )

The Securities and Exchange Commission (SEC) recently released a new accounting bulletin to change the way companies can legally book certain revenue items to make their numbers look better.  Though these companies may have followed ample legal precedent it has been said that revenue recognition issues are among the most serious financial reporting problems.

What does this all mean?  Well, an executive at one orthodontic DMSO has stated that when a patient begins orthodontic treatment they ‘book’ $700 in revenue though that patient has actually only made a $100 down payment. Wow! What a great idea!  Every dentist should do the same thing when they want to sell parts (or shares of stock) in their own practices.  Just go public.  Then for every dollar of collections you could ‘recognize revenue’ of $7. You’ll legally receive seven times more money in selling your practice just by altering the method of accounting.

There are many problems for decent dentists who might want to sell their practices to a DMSO.  There is almost a cult-like secrecy within them.  The confidentiality agreements even prevent the review of contracts by a dental society’s general counsel.  Why?  Could DMSO’s be trying to hide the fact that they do engage in hard assets buyouts and are therefore in violation of New York State law?

Reading their financial documents also takes a lot more expertise than many dentists possess.  One DMSO is currently valued at five times last years revenue.  Most dental practices are typically valued at one half of one year’s revenue.  This DMSO is valued at possibly ten times higher as a public company than the sum of the individual practices.  When you next realize that the DMSO’s stated revenue could be based upon revenue recognition of $7 for every one dollar of collection in a real practice then could one surmise that this DMSO could be valued by as much as seventy times more than the sum of the individual practices?  Personally, I would not want to be left holding stock in a DMSO when the veil of secrecy is ultimately lifted.

Conclusion
It doesn’t make economic sense for the majority of retiring dentists to sell their practices at current levels of valuation given that Wall Street seems to feel that they are worth much more.  A dental practice which enjoys a good reputation and that is still growing at the time a dentist is retiring could really be worth five times revenue.  A retiring dentist would be better off financially if he or she offered young dentists the ability to obtain equity through a salary differential over time.  In the meantime, the retiring dentist could still work on a limited part-time basis and enjoy the fruits of decades of their own labor. He or she could pick the types of  cases they chose to treat, share their wisdom with the next generation of dentists, and make more money over more years than if they sold out prematurely.

Update: Usual, Customary and Reasonable (UCR) Terminology
by Dr. Jeffrey Dorfman*

(published in the ADA News – April 2000)

In October 1997 the ADA unanimously adopted a resolution which requested that all third-party payers use the term ‘maximum plan allowance’ in place of ‘usual, customary and reasonable (UCR)’ terminology.

Why? Because there is no such thing as a ‘usual, customary and reasonable’ fee and its use is misleading to the public. Doctors resent it.

What has happened since then? I have provided a few gems from the many letters I have collected.

‘Any change to our current explanation of benefits language will be an internal decision. As a customer-focused Company, our business decisions will be based on the needs and priorities of our customers. If and when a determination is made to alter the language, it will relate to our customer relationships. As such, any communication of timing of changes will be between our Company and our clients.’

— The General Manager

Wellpoint Dental Services

 

It seems that Wellpoint doesn’t understand that doctors are necessary to deliver the healthcare they insure. Their business decisions should also reflect our needs and priorities.

I asked the President and CEO of Aetna U.S. Healthcare about the UCR issue at the Bear Stearn 12th Annual Health Care Conference in New York this past fall. I was subsequently asked to leave the conference. Are readers aware that Aetna will soon insure close to ten percent of the people in this country? Persistent letter writing and phone calls to Aetna paid off with the eloquent response below. I still don’t believe that Aetna’s Chief Medical Officer ever answered my question; will Aetna consider using the term ‘maximum plan allowance’ rather than ‘usual, customary and reasonable.’

‘Actually, within the health benefits industry, ‘usual and customary’ is taken to mean a reference to a standard of reimbursement, typically the schedules produced by the Health Insurance Association of America (HIAA). The term is in common use and is well understood by consumers and plan sponsors. In addition, our contracts and certificates of coverage reference this term. Aetna U.S. Healthcare refers to our fee schedule as the ‘reasonable equitable fee’ or ‘REF’ to distinguish it from fees based on industry accepted usual and customary rates. We appreciate that the term ‘maximum plan allowance’ may well be less suggestive of a reference to the reasonableness of a dentist’s fee for a service, however, it is not synonymous with ‘usual and customary.’

— The Chief Medical Officer

Aetna U.S. Healthcare

 

Aetna’s President need not look any further than the Chief Medical Officer’s letter to understand why Aetna’s stock price is so low; Aetna is out of touch.

Prudential is rare among the big insurers in using the preferred ‘maximum plan allowance’ terminology and should be commended. Companies like Wellpoint and Aetna can either work with doctors as they should to improve healthcare delivery in this country or doctors may begin to legislate it and rally public opinion. Give a copy of this article to your patients who don’t understand UCR and to your stockbroker who asks for your medical opinion about why healthcare stock prices are in the toilet.

Addendum:  In December 1999 the CEO of Aetna was forced out of the company.  A Wall Street Journal article at that time pointed to investor discontent that began in September 1999 that lead to his ouster.

 

*Dr. Dorfman is a member of the Council on Dental Practice of the Dental Society of the State of New York.

Where Are The Doctors?
by Dr. Jeffrey Dorfman*

(Published in Dentist Quarterly – The official publication of the
New York County Dental Society – March 2000)

 

I attended the Bear Stearns 12th Annual Health Care Conference that was scheduled to run from September 15-17, 1999 at the Waldorf-Astoria Hotel in New York City. There were over 1200 registered attendees and over 150 speakers representing all kinds of healthcare companies. I was one of very few doctors who was invited to attend. I was asked to leave.

I was asked to leave because I asked two questions. Will insurance companies like Aetna and Wellpoint respect the request of the American Dental Association and stop using ‘usual, customary and reasonable (ucr)’ terminology in dealing with patients and instead use ‘maximum plan allowance.’ The reason for this request is that there is no such thing as a usual, customary and reasonable fee; there is tremendous variation of reimbursements for a given procedure even within the same insurance company based upon the specific policy purchased and premiums paid. To use such terminology raises distrust in the mind of the patient regarding their doctors fees.

I also asked the management of several publicly traded dental management service organizations if their growth strategies could avoid taking equity positions in dental practices through the legal subterfuge of ‘hard asset buyouts.’ This is because the American Dental Association believes that the welfare of patients is best considered when the ownership and control of dental practices remain with dentists, not investors.

These are legitimate questions that must be answered if doctors are to become involved in the evolution of healthcare delivery in our country. Investment bankers and their investors should not consider doctors merely a variable cost in healthcare and in need of paternalistic employment. We should be considered equal partners and invited to attend these conferences. Healthcare is much more than the pathetic representation of revenues and income growth as shown at this conference.

Addendum:  In December 1999 the CEO of Aetna was forced out of the company.  A Wall Street Journal article at that time pointed to investor discontent that began in September 1999 that lead to his ouster.

*Dr. Dorfman is a member of the Council on Dental Practice, the Dental Society of the State of New York and a member of the Board of First Madison Corporation, a for profit subsidiary of the New York County Dental Society.  He is a major activist in the growing opposition to dental management service organizations in New York State. He is in private practice in New York City.

 

Retiring Dentists Might Consider Selling Their Practices To Any Highest Bidder!
By Dr. Jeffrey D. Dorfman*

(Published in: Dentist Quarterly-The Official Publication of
the New York County Dental Society – January 1999
and the ADA Legal Advisor – January 1999)

Retiring dentists have historically always sold their practices to other dentists. This is not easily accomplished because the dentist-buyer is usually younger and has limited access to capital. The attraction of DMSO’s to dentists is they are ready buyers with access to capital and the Wall Street allure of riches.

 

The problem with selling a practice to DMSO’s is twofold: 1) Selling a dental practice to any unlicensed person or group could expose the dentist-seller to unwanted litigation which could lead to revocation of their dental license; and, 2) Most DMSO purchases of dental practices are accomplished with some cash and mostly company stock.

 

In the table below, it may be seen that the stock price of nearly all DMSO’s listed are selling below their initial offering price; the few apparent winners appear not to have kept pace with the S&P 500 index even though they represent a much higher risk. All that glitters is not gold.

 

So what should a retiring dentist do? Why not sell your practice to any highest bidder. Offer to sell your practice to your lawyer, accountant, bank manager, stock broker, cab driver, barber or doorman. Sell your practice to anyone who offers the most cash. If the non-dentist-buyer were to hire a young dentist at a low salary they could make a nice return on investment.

 

Let’ s say that a bank manager was getting tired of working at Chase so he decided he wanted to buy a dental practice. He could make the best cash offer to a retiring dentist. The bank manager need only execute a ‘hard asset buyout’ of the dental practice to buy it. This is the same legal subterfuge used by DMSO’s.

 

Imagine what our profession would be like in a generation if anyone were allowed to own a dental practice. Imagine lawyers, accountants, bank managers, stock brokers, cab drivers, barbers and doormen all owners of dental practices in competition with dentist-owners. That is exactly what is happening now when a DMSO buys a dental practice and the equity is in the hands of stockholders. How will priorities in healthcare change?

 

New York County Dental Society members need to contribute PAC (Political Action Committee) money when they receive their annual dues statements. Our members should double or triple the local FDDSPAC requested and include a note to our state dental leadership asking them to modernize the education law to specifically deal with keeping DMSO’s out of New York State.

 

Dentistry does need to create a mechanism that allows an easier transition of practice ownership from retiring to new dentists. Dentistry also needs to consolidate. This should occur in a manner similar to the legal profession, not medicine. Let’s keep dentistry for future dentists and their patients. If not, then retiring dentists should now consider selling their dental practices through a hard asset buyout to anyone offering the most cash. Who will stop you?

 

Please get out your checkbook and give to our local FDDSPAC today.

 

*Chairman, Dental Benefit Programs, New York County Dental Society