Washington State Dental Association leadership has requested the Antitrust Division of the Washington State Attorney General’s Office to investigate whether Washington Dental Service (Delta Dental of Washington) has engaged in illegal monopsonist practices in our state.
The following is a summary of the complaint filed with the AG’s office last month.
The term “monopsony” may be unfamiliar to many readers. We are all familiar with the concept of a monopoly, perhaps because we have rolled the dice, put our hotels on Boardwalk, and passed Go to collect $200. But, in real life, monopoly power is no game.
As Delta’s position as the dominant purchaser of dental services in Washington state proves, the same can be said about a monopsony.
While a monopolist dominates a market by controlling the supply of a good or product, a monopsonist holds sway over the market through dominance of demand. Classic elements of monopsony power include a purchaser (a dental benefits provider) controlling a very large market share, a limited or inelastic supply of the good or service in question (dentists), and an inability or unwillingness for new purchasers (other dental benefit providers) to enter the market or expand their market share.
Monopsony market power, in and of itself, is not illegal. The US Postal Service is a virtual monopsony in demand for the squat, jeep-like vehicles driven by mail carriers. Monopsony power is also seen in a number of labor markets: loggers or miners in employer-run company towns are regularly cited as examples.
However, if the monopsonist maintains buy-side market power through anticompetitive or predatory conduct, the monopsonist can be found just as guilty as a monopolist in violating antitrust statutes. Examples of predatory monopsonist behavior include insisting on payments that are less than the provider’s cost of doing business; unwillingness to deal; and refusal to purchase except at an unreasonable price.
“We believe Delta Dental’s position and practices in Washington inappropriately leverage monopsony power for its corporate benefit, to the detriment of both dental service providers and their patients,” said WSDA President Dr. Cynthia Pauley. “We are optimistic that a careful examination of the facts will lead the Attorney General’s Office to reach the same conclusion.”
Delta’s market position is indisputably dominant. The company contracts with approximately 90 percent of the state’s licensed, practicing dentists, and it enjoys an estimated 66 percent market share among children and working-age adult patients enrolled in private dental benefit plans in the state, based on a review of publicly available data.* In some markets, those already high percentages are even larger.
Furthermore, we understand that Delta is looking to contract with the state’s Medicaid program to provide carved-out managed care dental services to Medicaid patients, which would further increase its market share.
Unfortunately, the impact of Delta’s market power is well-known to dentists and their patients. Given its predominant market share, the company wields substantial bargaining leverage when contracting with dentists. Delta effectively offers its contracts to dental providers on a “take it or leave it” basis, with no room for negotiation, and with complete control of rates and terms.
For example, in 2011, Delta unilaterally and dramatically reduced its reimbursement rates for network dentists by approximately 15 percent. These new rates failed to cover many dentists’ costs for the provision of some services.
In the first five years following that precipitous reduction, Delta increased its benefit plan enrollees by 27 percent, its premium revenue by 30 percent, and its premium revenue-per-patient by 2 percent.
During that same period, Delta’s Chief Executive Officer’s compensation increased by 127 percent and its Board Chairman’s compensation increased by 115 percent. Only 10 percent of Delta’s increased premium revenue-per-patient was directed towards patient care and the company’s cash and investments increased by 67 percent.
While the company dramatically reduced reimbursements to dentists, it appears Delta retained the bulk of its savings for its corporate benefit, rather than passing these savings along to the dental patients covered by its plans.
“There is concern that patients are losing access to care as a result of Delta’s reimbursement rates and what many perceive as predatory behavior,” says WSDA Executive Director Bracken Killpack, noting that, in addition to driving some dentists to leave the market, others have been forced to sell their practices and retire earlier than they otherwise would have.
Delta’s actions have had other negative consequences for patients as well, including reduced access to innovations in dental care. For example, patient radiation exposure from digital X-rays can be as little as 10 percent of the exposure from film-based radiography. But reduced reimbursement means that many dentists can no longer afford these capital-intensive technological advances for their practices and their patients.
Similarly, the fee reduction has forced many dentists to eliminate or reduce the volume of Medicaid patients or uncompensated care they provide. Because Washington’s Medicaid reimbursement rates are already extremely low, serving these patients places a significant financial burden on dental practices. When Delta unilaterally reduced reimbursement rates for non-Medicaid patients, whose care would otherwise help a dental practice cover this burden, it made it unaffordable for many dentists to provide discounted or free care to meet the needs of this underserved population.
Other changes imposed by Delta aren’t driven by, or aligned with, improved patient care. The company requires preventive periodontal services or treatments to be made in multiple visits simply for administrative, not clinical reasons. It has changed benefit coverage of some diagnostic procedure codes, including eliminating coverage for bitewing films essential in detecting disease between teeth, increasing intervals between coverage for panoramic X-rays, and refusing coverage for certain standard periodic X-rays for children.
Over the years, patients have come to expect these and similar basic diagnostic services to be covered by their dental benefit plans. When these necessary diagnostic tools aren’t covered, patients are surprised and often frustrated to learn that they now must bear the cost. Some who may be unable to afford the additional expense are forced to refuse important procedures, running the risk that they may require more complex and expensive future care.
“Delta’s actions suggest that it has prioritized profits over patient care, and we believe that a strong case can be made that Delta has engaged in unlawful monopsony conduct that is harming consumer welfare in Washington,” argues Dr. Nathan Russell, WSDA Secretary-Treasurer.
According to legal experts, making that case will require a careful review of a variety of indicators to help distinguish between legitimate and coercive behavior. In the health care marketplace, indicators of coercive behavior could include:
- a decline in market output;
- a pattern of provider exit because of low rates;
- a large share of total market-wide reimbursement from the alleged monopsonist;
- single rates for specialties rather than contract negotiations;
- low reimbursement levels to providers;
- limited opportunities to treat noncommercial patients;
- low incomes and/or profit margins for providers;
- no systematic excess capacity by providers market-wide;
- few rival health care insurers;
- low rates paid by rival health care insurers; and
- difficulty of entry into the health care insurance market.
Many feel these factors can be observed in the dental benefits market dominated by Delta.
Another key factor in determining whether a dental benefit provider has monopsony power is whether there are reasonable alternatives for providers to shift their sales in order to make a monopsonist’s reduced reimbursement unprofitable. If there are few benefit plan providers in the market, as evidenced by the monopsonist’s large market share, and entry by new benefit plan providers is difficult, there are likely no reasonable alternatives for the provider.
It's also important to factor in the significant switching cost a health care provider would incur in replacing lost patients when terminating a contract with a monopsonist. It’s not like an industry making and selling widgets, where excess product can simply be stored for sale at a later time. Dentists cannot store their time. If the dentist can’t replace the monopsonist’s lost patients sufficiently quickly with patients covered by a rival health insurer, the dentist will incur a significant and irrecoverable loss. The situation is made even more difficult because the monopsonist controls such a large share of the market that there aren’t enough patients covered by other insurers to make up the loss.
When this combination of factors exists, as it does here in Washington, the health insurer may be able to exercise monopsony power over providers.
According to WSDA President-elect Dr. Christopher Delecki, WSDA turned to the Attorney General’s Office because it is the Office’s responsibility to protect the public from anticompetitive behavior, and because the complexities of monopsonist behavior demand a thorough and factually-intense investigation.
“When you sit down and review all of the available data about Delta in the context of a monopsony, you begin to appreciate the impact it’s having not only on dental practices, but even more importantly on patient care in our state,” said Delecki.
The WSDA letter summarizes how we believe Delta’s lack of transparency has frustrated dentists’ efforts to get the information necessary for this analysis, including Delta’s representations to the Office of the Insurance Commissioner that its 2009 corporate reorganization would not reduce member dentists’ rights and was supported by the members; the elimination of dentist input via the Provider Compensation Committee and Member Advisory Committee; the Delta Board of Directors’ veto of bylaws amendments supported by an overwhelming percentage of members; and the cancellation of the required annual membership meeting in 2017.
“We’ve worked for years trying to obtain information from Delta to address our mounting concerns regarding patients’ access to care,” said WSDA Immediate Past President Dr. Bernard Larson. “Since the company continues to thwart our efforts to get this information, our hope is that the AG’s office will have more success.”
WSDA leaders are confident that, if the Attorney General’s office decides to move forward with a formal investigation into Delta’s practices, they will conclude that the company has engaged in abuse of its monopsony power in the marketplace.
*Publicly available data used to determine Delta market share: 2012 WDS Annual Report, 2016 WDS Annual Report, Health Care Authority Medicaid statistics, United States Census Bureau Washington Quick Facts, and Health Policy Institute Research Brief on Dental Benefits Coverage for Working-Age Adults in 2014.