The WSDA News Spring Issue cover story explores the history of Delta Dental and how its relationships with its member dentists and the Washington State Dental Association have changed over the years.
The company began with the simple idea of providing pre-paid dental care to union members’ children who might not otherwise have access. Over the last 65 years, that small startup has grown into today’s Delta Dental of Washington, a company covering nearly two-thirds of patients enrolled in private dental benefit plans in the state.
This story explores the history of Delta Dental and how its relationships with its member dentists and the Washington State Dental Association have changed over the years. Most of the information on this timeline was pulled from archived issues of the WSDA News spanning from 1954 through 2018.
Members of the International Longshoremen’s and Warehousemen’s Union (ILWU) meet in Bellingham. They approve a proposal to invest approximately $750,000 (the equivalent of over $7 million in today’s dollars) to secure pre-paid dental care for an estimated 4,000 children of union members up and down the West Coast.
The union approaches state dental associations in Washington, Oregon and California. In the midst of the Cold War, the societies’ reaction is cautious, with many member dentists considering the idea to be “socialist.” At the same time, there is growing concern within the profession regarding closed panel dental plans, and the Washington State Dental Association becomes convinced that the union is prepared to establish their own program with or without its active participation.
Ultimately, WSDA decides to opt in, providing funding to help establish the Washington State Dental Service Corporation (WSDSC). The two organizations share office space and an executive director but maintain separate governing boards. The Articles of Incorporation are left intentionally broad to allow WSDSC to move into additional business arrangements. Dentists who signed on agree to have 5 percent of their fees withheld for “research and development,” a strategy to raise capital for the new organization. In the first year of operation, WSDSC provides for treatment of nearly 1,500 children of Washington ILWU members, with an 86 percent participation rate among children over two years of age.
The Washington State Dental Service Corporation begins branching out beyond its original ILWU coverage program. In conjunction with the Washington State Department of Public Assistance (now called DSHS), it launches a program to provide dental services for about 19,000 welfare recipients in eight counties. Another program is developed to cover accidental dental injuries suffered by students in Washington schools.
Washington State Dental Service Corporation changes its name to Washington Dental Service (WDS).
The organization is granted tax-exempt status by the IRS. Although organized as a non-profit under state law, its application for federal tax-exemption in 1956 was originally denied.
At its annual member meeting in October 1961, member dentists created regional representation for WDS governance with the creation of an assigned trustee position for each local dental society, except for Seattle-King County Dental Society, which was awarded three trustee positions. Three additional “trustees-at-large” positions were also created.
WSDA receives “Grand Award” from the American Society of Association Executives for the formation of Washington Dental Service (WDS). The award’s citation states that the result of WSDA’s action is that “the dental profession has won greater respect in the eyes of the public; improved dental techniques have developed, and socialized medicine again has been deterred with the answer to a serious need supplied by free enterprise.”
The WSDA House of Delegates adopts a resolution that calls for an administrative separation between WSDA and WDS effective June 1963.
Following nine years of joint administration and shared office space, the administrative separation of WSDA and Washington Dental Service becomes final June 1, 1963. Executive leadership also split at this time with Mr. Vern Vixie, former WSDA assistant administrator, assuming the position of executive director of the WSDA and Mr. R. E. Paulsen, former WSDA executive director, becoming chief administrator for WDS.
WSDA President Dr. Richard Tucker and WDS President Dr. George Wood make the following statement in the June 1963 issue of the WSDA News: “The separation and move of the WDS does not mean that there is either a lack of interest or severing of the relationship between the professional association and the dental service plan. The WDS was formed by the WSDA and its future is closely tied to dentistry and its policies. This will be true only if the two groups maintain liaison and interest. We are certain this is the intent of both organizations.”
The 5-percent-of-fees withhold for “research and development,” levied on all WDS member dentists at the outset of the company, is eliminated. The exact date of the elimination is unknown.
WDS continues to grow, establishing new programs with the Machinists, Meat-cutters and Bakery and Confectionary Workers unions. A new Incentive Care Program is launched to promote regular dental visits by laddering benefits from 70 percent in the first year to an eventual 100 percent coverage of basic care.
Washington Dental Service joins the Delta Dental Plans Association, a national network of companies providing dental coverage and pre-paid benefits plans. This association allows WDS clients like Boeing to offer multi-state coverage for their employees.
WDS creates a new subsidiary organization to provide “administrative service only” plans to businesses that want WDS to administer self-funded dental plans. WDS charges business 25 cents to 75 cents per month per eligible person, according to the June 1966 WSDA News.
WDS’ new subsidiary selling “administrative service only” plans faces early operational deficits. WDS member dentists are levied with “service charges” to cover these deficits.
Robert Paulsen ends his 14-year term as WDS CEO, having grown the company to $11.5 million in annual premium revenues.
The annual “service charges” levied on member dentists beginning in 1967 to support the WDS “administrative services only” plans are eliminated.
A ruling from Washington’s Insurance Commissioner determines that the company needs to increase reserves. In response, WDS reinstates a 5 percent “withhold” that had been levied on member dentists from 1954 to the mid-1960s.
A resolution at the 1975 WSDA House of Delegates calls for the WDS Executive Committee to hire a full-time auditor to help improve fiscal management of the company. Another resolution declares that the withholding should be limited to a single year and reviewable at the 1976 WSDA House of Delegates, and that any further financial contributions by member dentists beyond this initial withholding should be considered loans to the company.
WDS member dentists adopt bylaw amendments to create a nine-person Board of Directors comprised of six dentists and three public members. According to the September 1976 issue of the WSDA News, this new board will serve “in an administrative capacity…meet once a month and the directors would be reimbursed for expenses ‘and a reasonable fee’ for time spent.” The 1976 bylaw amendments also provide WDS member dentists with a mechanism for placing items on the annual meeting agenda.
In response to concerns raised by ADA legal counsel about potential Federal Trade Commission investigations, the boards of Washington Dental Service and the Washington State Dental Association vote to dissolve all legal ties between the two entities. All state dental associations affiliated with dental services companies, with the exception of the Oregon Dental Association (ODA) and Oregon Dental Service (ODS), take similar action. The Oregon Dental Association/ODS (now known as MODA) affiliation still exists today.
WDS reports that it completed 1978 with a 17.5 percent increase in revenue and a 12.1 percent increase in number of beneficiaries. The improved financial position of the company allows the 5 percent withhold that began in 1975 to be reduced to 3 percent, effective January 1, 1979.
As the company regains its financial footing, WDS discontinues the withhold started in 1975.
WDS establishes a capitation plan for employees of the Boeing Company.
At a special membership meeting, WDS member dentists are told that the funds “contributed” through the withhold process cannot be legally returned to them.
To help fulfill its community service obligations as a not-for-profit corporation, Washington Dental Service launches the WDS Foundation with an initial contribution of $250,000 to cover its first two years of activity.
WDS begins conducting statistical analysis of the cost-per-patient of member dentists and begins a mandatory predetermination policy called the Average Cost per Patient (ACP) program. More than 1,300 WDS members sign a petition calling for a special membership meeting, and those in attendance vote 369 to 21 (95%) to discontinue the program. The Board does so in September.
Paul Ratliffe completes a dozen years as CEO of Washington Dental Service. Annual premium revenue is $150 million and capital reserves are $54 million. James Garrison is selected to succeed Ratliffe. Prior to becoming CEO, Garrison was a WDS board member and CEO of K2 Corporation.
WDS members approve a series of bylaw changes that add three more public members to the WDS board and create a “Provider Compensation Committee” of the board with a majority of the committee being public members.
WDS receives a contract from the Health Care Authority (HCA) to provide dental benefits to state employees. The HCA is the first group to buy WDS’ new Participating Provider Organization (PPO) offering. WDS announces that enrolled state employees will have the “freedom to choose any dentist, but will receive higher benefits by seeing a PPO dentist.”
According to responses published in the April 1995 issue of the WSDA News, WDS confirms that, in addition to its Board of Directors, the organization also continues to utilize its Board of Trustees. All 36 trustees are practicing dentists elected by WSDA’s component societies.
WDS begins offering its PPO policy in conjunction with its capitation program at the customer’s request. The November 1995 issue of the WSDA News quotes then-WDS CEO Jim Garrison with this explanation: “Earlier this year, Boeing management established a corporate objective of reducing their overall cost structure 25 percent, including their cost of dental benefits. The essence of the issue the WDS Board faced was to maintain Boeing as a major customer given their request for a triple employee choice option (Premier Fee for Service, PPO or capitation) and their overall objectives.”
WDS signs a consent decree with the Attorney General’s Office in which it agrees to remove the so-called “most favored nation clause” from its contracts with member dentists. The clause stipulated that if member dentists agreed to charge another dental benefits carrier lower fees than those filed with WDS, than the member dentists must accept those lower fees from WDS as well. The Attorney General’s Office contends that the “most favored nation clause” inhibits competition and hurt consumers.
Washington Dental Service reaches 700,000 subscribers, twice as many as its nearest competitor. Annual premium revenue increases to $485 million and reserves grow to $85 million. The WDS board is expanded to 16 members, with eight dentist and eight public members.
Annual contribution from Washington Dental Service to the WDS Foundation grows to $4 million.
Jim Dwyer becomes Washington Dental Service CEO.
WDS puts forward significant bylaw amendments to member dentists. The amendments eliminate the Board of Trustees, comprised of 36 WDS member dentists from all 17 component societies. Prior to the adoption of these amendments, the Trustees had elected WDS member dentists to serve on the company’s Board of Directors. The bylaw amendments provide for direct election of dentists on the WDS Board by all WDS member dentists, with a nominating committee composed of a majority of independent directors selecting dentist candidates to stand for election.
On April 4, WDS announces a “restructuring” of provider reimbursement rates, an average reduction of 15 percent, effective June 15, 2011. WDS claims that the move, coming on the heels of two years of frozen reimbursement rates, is required to remain competitive in the face of growing market competition and to respond to cost pressures imposed by major employers sponsoring plans for their employees. WDS reports that 94 cents of every premium dollar are paid out in patient claims.
WDS members react strongly to the reduction. WSDA legal counsel cautions that their response options are limited, as anti-trust laws clearly prohibit any collective action that could be perceived as trying to set or change fees.
A group of WDS member dentists forms a group called Concerned Dentists of Washington State (CDWS). With CDWS leadership, WDS member dentists pass a series of bylaw amendments that include a new requirement for WDS to provide all members with an annual report and the ability for member dentists to vote via
WDS cash and investments are $193 million.
Washington Dental Service CEO Jim Dwyer is interviewed by Seattle NBC affiliate KING 5. In defending the 2011 fee reduction, he dismisses dentists’ concerns, suggesting that “dentists could start working five days a week” if they want to maintain their incomes. He also claims that, on average, dentists only work three-and-a-half days weekly.
In response to Dwyer’s comments during the King 5 interview, the WSDA Board sends a letter to the WDS Board that reads as follows:
“Recent statements by Washington Dental Service (WDS) CEO James Dwyer raise the question of his fitness to continue to represent the state’s largest dental insurer. His total disregard for the impact of his statements on the very profession on which WDS depends, his apparent ignorance of the business of dentistry, and his effort to demean the profession with the public, were appalling.
We fully understand that you, as a member of the Board of Directors, have a fiduciary responsibility for the actions of WDS and its employees. It is time for you to exercise that responsibility and take action to demonstrate that WDS does indeed value its relationship with the dental profession and the patient/doctor relationship that is the basis of your business.”
Washington Dental Service completes a four-year corporate restructuring effort that includes changing the name of the company to Delta Dental of Washington. Filings are made with the Washington State Office of the Insurance Commissioner (OIC), which approves the moves on May 22, 2013. Information provided by the company to the OIC states that there is no membership opposition to the changes. WDS’ filings also represent that member dentists have no right to vote on details of the proposed reorganization. The filings also say that members will have the same rights post-restructuring as before.
WDS cash and investments increase to $234 million and WDS collected over $1 billion in premium revenue.
Aggregate compensation for WDS Board members (excluding CEO) increases from $677,000 in 2015 to $1.28 million in 2016. CEO Jim Dwyer’s compensation increases to $2.7 million, up from $1.1 million in 2011.
WDS’ cash and investments increase to $275 million.
In June, Delta changes the name of its charitable foundation from the Washington Dental Service Foundation to the Arcora Foundation.
In September, after more than 650 Delta member dentists sign a petition calling for a special meeting, a series of bylaw amendments are presented to members to ensure that Delta’s decisions are patient-focused, make the company more responsive to patients and member dentists, and give members more visibility into its operations. Detailed proposals include dedicating 94 percent of premium revenue to claims (per 2011 statements), establishing an independent review process to resolve disputed claims, and providing for open election of dentist representatives to the Delta board. The bylaw amendments pass with more than 91 percent approval. Following the special meeting, Delta announces that the Board’s independent directors vetoed most of the amendments. In several cases, Delta argues that the 2013 corporate restructuring makes the approved bylaw amendments moot.
Delta cancels its 2017 annual member meeting.
In January, five WDS members file a complaint with the Washington State Office of the Insurance Commissioner (OIC), asking for an investigation into statements and omissions of important information that occurred in Delta’s 2013 reorganization filings. The dentists’ OIC complaint also asks that all Delta members be provided with full and accurate information on the effects of the reorganization and given an opportunity to vote on all the changes proposed at the time, as well as any corporate changes made by the Delta board of directors subsequent to the reorganization. The OIC indicates that their office is reviewing this complaint in detail.
In July, WSDA leadership requests the Antitrust Division of the Washington State Office of the Attorney General (AG) to investigate whether Delta has engaged in illegal monopsonist practices in Washington. Monopsonist holds sway by dominating demand. While monopsony market power in and of itself is not illegal, maintaining buy-side market power through anticompetitive conduct is a violation of antitrust statutes.
WDS members file petitions for a second special meeting in as many years to be held in November to vote on additional bylaw amendments. These amendments focus on the process of selecting dentist representatives to the board, specifically requiring open nomination and election processes. The bylaw amendments pass with nearly 96 percent approval. Following the special meeting, Delta announces that the board’s independent directors vetoed most of the amendments.
Delta cancels its 2018 annual member meeting.
Jim Dwyer retires as Delta Dental CEO. During Dwyer’s tenure, the company has grown to more than 3,000,000 subscribers, annual premium revenue of more than $1.2 billion, and operating reserves of more than $300 million. Mark Mitchke, who previously was vice president of Global Fulfillment Services at Amazon, becomes CEO.
On February 20, 2019, WSDA joins three member dentists in taking legal action against Delta Dental of Washington, alleging that its independent directors twice have unlawfully rejected bylaw amendments overwhelmingly passed by the organization’s member dentists to improve transparency into operations and make Delta more patient-focused. The complaint also charges that Delta Dental has not held an annual meeting since November 2016. The lawsuit argues that Delta’s decisions have consistently put profits ahead of legitimate concerns about better supporting patient care and treatment decisions.
For more information, visit wsda.org/delta