WDS members Drs. Cynthia Pauley, Christopher Delecki, Bernard Larson, Nathan Russell, and Todd Irwin recently filed a complaint with the Office of the Insurance Commissioner seeking a full investigation of the 2013 Delta reorganization effort.
On behalf of concerned dentists across the state of Washington, we have taken the important and necessary step of filing a complaint with the Washington State Office of the Insurance Commissioner (OIC) against the board of directors and executive management of Washington Dental Service (which does business in our state as Delta Dental of Washington or Delta).
This complaint is another critically important step in our continued efforts to make Delta more patient-focused and bring much-needed transparency to its operations. To understand its importance, let’s briefly review what led us to this point.
In June, using a process provided for in the Delta bylaws, member dentists requested a special membership meeting to consider proposed bylaws amendments. Nearly 650 Delta members signed the petition in 24 hours, far exceeding the threshold to compel Delta to hold the special meeting.
The resulting special meeting was held in early September, with hundreds of member dentists from across the state attending, and many bringing proxies from their fellow dentists who could not attend. Of the more than 2,300 votes cast, over 91 percent supported the proposed amendments. Some of the key changes would:
- Require that 94 percent of Delta revenues be directed to paying for patient care and, if Delta’s administrative burden continues to grow above 6 percent, the excess would be refunded to those purchasing coverage;
- Require that Delta, like other health insurance providers, work with the OIC and participate in an independent review board to resolve disputes between the company and a provider over care decisions;
- Require the Delta Board of Directors to formally vote on all recommendations from its Member Advisory Board regarding patient care procedures, claims processing and other issues and to make the results of those votes available to the Member Advisory Board, which may in turn report them to Delta members;
- Provide additional opportunities for members to nominate individuals, dentists and non-dentists alike, to serve as directors of the corporation;
- Encourage contested elections for director positions and require written ballots, with the disclosure of results to the members;
- Require Delta to disclose its administrative expenses by category and provide detailed financial statements of all affiliated entities, including corporate contributions to the foundation and how these contributions were used, particularly regarding lobbying and commercial advertising;
- Require Delta to disclose the percentage of claims denied and, of those, the percentage reviewed by a licensed dentist in making that decision; and
- Require Delta to make records of not just its Board of Directors meetings, but also all committee meetings and other corporate records available to its members for their review.
Despite overwhelming support for these changes to help strengthen the doctor-patient relationship and make Delta more responsive to both patients and members, Delta’s board ignored the clear direction provided by the organization’s members. In late September, the board announced that it was vetoing the majority of the approved bylaws amendments.
One rationale given by the board for a number of its decisions in rejecting the amendments was that the amendments were inapplicable following a corporate restructuring undertaken in 2013.
That’s where the complaint to the OIC comes in. The complaint states that Delta’s board, over a period of four years, not only pursued the reorganization without notification to the corporation’s member dentists, but also misled the OIC regarding key facts during the review process.
First, the complaint alleges that the Delta board misled the OIC to believe there was no objection to the reorganization from member dentists. Delta did not provide its member dentists with actual notice of the reorganization until after the process was complete. Until then, Delta only notified its members of an upcoming name change, and not of the related corporate reorganization.
In August of 2017, CEO Jim Dwyer, wrote to Delta members saying, “But after our holding-company reorganization was approved by Washington's Office of the Insurance Commissioner, we described the parent-subsidiary structure in our 2013 Annual Report which was distributed to all [Delta] members.”
But what Dwyer’s statement doesn’t say is that the 2013 Annual Report wasn’t published until 2014 and that, then, the disclosure was not made in Delta’s management message but instead was buried in a footnote to the financial statements prepared by Delta’s auditors.
The fact that Dwyer would imply that a hard-to-find, after-the-fact disclosure is sufficient again shows the lack of regard for member input and transparency, and it provides further evidence that Delta’s objective was to restructure the organization without input or approval from its member dentists. Dwyer clearly indicates in his August 2017 communication that after-the-fact communication on important governance changes is sufficient communication for Delta member dentists. We disagree.
Given this lack of full and timely disclosure, member dentists had no practicable opportunity to weigh in, no reason to critically examine how the proposed changes would negatively impact their rights or patient care, no chance to express any concern or opposition, or no reason to even monitor the OIC website for details on the proposal.
In recent years, Delta has sought to disenfranchise the governance rights of its member dentists. This is clearly articulated in the Delta Board minutes from its June 2013 meeting. In that meeting, Dwyer articulated his belief that members are a “stakeholder deserving of time and attention by the Provider Services Department” but should not be considered a “strategic partner” in regard to governance issues. Delta’s recent governance decisions clearly follow Dwyer’s philosophy.
The complaint also alleges that the board misled the OIC to believe the corporation’s member dentists had no right to vote to approve the reorganization or proposed amendments to the corporation’s articles of incorporation. This is simply not the case. Both state law and the corporation’s governing documents required such approval. Prior to the reorganization, the articles of incorporation clearly stated that a two-thirds vote of the members would be required to approve any amendments. Earlier amendments in 1963, 1984, and 1991 all were approved under that practice. But no vote was held on the 2013 amendments.
Similarly, the complaint alleges that the board misled the OIC to believe the board, rather than the member dentists, had the right to approve amendments to the bylaws, which were a key part of the 2013 reorganization. Yet, prior to that reorganization, those bylaws clearly stated that they could be amended or repealed by a two-thirds vote of the membership. There was no provision in either the articles of incorporation or the bylaws that authorized the Board to move unilaterally to amend, modify, or repeal any bylaws without a member vote.
Perhaps most importantly, the complaint argues that the Board misled the OIC to believe its member dentists would have the same rights after the reorganization that they had in the pre-reorganization corporation. This assertion is made in plain English in several places in the documents Delta’s board filed with the OIC in relation to the 2013 reorganization.
The complaint alleges that the Board took affirmative steps to limit or eliminate certain rights of the corporation's members in connection with the reorganization, without telling either the members or the OIC. This was done despite repeated assurances to the OIC that the member dentists would have “the same” rights after the reorganization as they enjoyed before. Despite these assurances, one of the board’s first actions as part of the 2013 reorganization was to remove some of the corporation’s standing committees, including the Member Advisory Committee, from the bylaws.
Even after obtaining approval of the proposed restructuring, the complaint alleges that Delta executive management did its best to hide the true impact of the board’s actions from member dentists. The company’s online provider portal continued to display the out-of-date, pre-reorganization bylaws until August 2017, when a member asked to receive the most recently adopted bylaws in preparation for the special membership meetings.
The bottom line is that, in granting approval for the 2013 restructuring, the OIC relied on these and similar misleading statements provided by or on behalf of the Delta board.
Delta leadership now is using the powers it claims it has, obtained through this series of misleading statements to and omissions of material information from the OIC, as a basis for rejecting many of the bylaws amendments proposed and overwhelmingly adopted by its members to improve the patient and provider focus of the organization. Bylaws rejected by the board include important patient protections such as an Independent Review Board that is already in place for medical insurance plans in Washington.
The time to correct these problems is now.
In our complaint, we are asking that Delta be forced to provide all of its member dentists with a full and accurate disclosure of the effects of the 2013 reorganization on their rights as members. Further, we request that the OIC recognize member dentists’ rights provided under state law and the corporation’s pre-2013 governing documents, and provide the members an opportunity to vote on whether they approve both the 2013 restructuring and all subsequent amendments to the corporation’s articles of incorporation and bylaws undertaken by the board without a member vote.
Our expectation is that such a vote could remove the corporate sleight-of-hand that the Delta board and executives have used to deny the will of member dentists, and clear the way to return more transparency, patient focus, and provider responsiveness to Delta’s operations.
In a recent letter to one of the authors of this editorial, Washington Dental Service CEO Jim Dwyer identified “corporate transparency” as a goal that he and his board share with the organization’s members. However, Delta’s actions – the under-the-radar restructuring to systematically limit or eliminate member participation in governance; the veto of common-sense changes that gained more than 90 percent support in a legitimate vote of participating members; the decision to cancel the 2017 annual member meeting even though it is required by the bylaws; the continued campaign to distort members’ motives and avoid increased focus on patient care – speak much louder than the words Dwyer puts on paper.
If Delta is truly committed to transparency, it’s time for it to cast aside the empty rhetoric and take visible, immediate actions to address its members’ concerns.
This OIC complaint is a major step in trying to restore accountability to Delta’s leadership team and board of directors. As this process moves forward in the months ahead, we will continue to keep you posted on our progress.
We thank you for your support in these efforts. There’s more work to be done.
Dr. Cynthia Pauley
Dr. Christopher Delecki
Dr. Bernard Larson
Dr. Nathan Russell
Dr. Todd Irwin