Thursday, May 24, 2012

The Dental Nightmare of Private Equity

The Dental Nightmare of Private Equity

Wall Street Oasis

After years of getting quarterly dental cleanings, my periodontist said he wanted to pull several teeth and do three or four periodontal procedures. My pockets were too deep, I was told. And don't worry, the receptionist said in a cheerful voice, I didn't have to pay all at once. I was given about nine or ten months to get the $8000 together.

I declined the offer. He is now my ex-periodontist.

Several years later, I was on the verge of losing tooth #16, the left upper quadrant wisdom tooth. And tooth #15, the second molar, was not in good shape either. I was willing to sacrifice my wisdom tooth if it meant saving the tooth next to it, but then my dentist wanted to pull that one too! So I set up appointments with dentist after dentist after oral surgeon after endodontist until I found a dentist I could trust. My new dentist filled the tooth with no guarantees--this was about five years ago--and I've been fine ever since. No root canal. No tooth extraction.

So you can imagine my horror when I read the following (from May 17 on the Bloomberg website, an article by Sydney Freedberg: Dental Abuse Seen Driven By Private Equity Investments):

Dental care at an elementary school.

Isaac Gagnon stepped off the school bus sobbing last October and opened his mouth to show his mother where it hurt.

She saw steel crowns on two of the 4-year-old’s back teeth. A dentist’s statement in his backpack showed he had received two pulpotomies, or baby root canals, along with the crowns and 10 X-rays -- all while he was at school. Isaac, who suffers from seizures from a brain injury in infancy, didn’t need the work, according to his mother, Stacey Gagnon.

“I was absolutely horrified,” said Gagnon, of Camp Verde, Arizona. “I never gave them permission to drill into my son’s mouth. They did it for profit.”

Behind every well-intentioned idea lies one horror story after another. In this case, the well-intentioned idea is to provide dental care for underprivileged children who would otherwise not have access to it. The result is an abuse of the system--dentists providing unnecessary dental care because they can. As Mr. Freedberg explains:

Isaac’s case and others like it are under scrutiny by federal lawmakers and state regulators trying to determine whether a popular business model fueled by Wall Street money is soaking taxpayers and having a malign influence on dentistry.

Isaac’s dentist was dispatched to his school by ReachOut Healthcare America, a dental management services company that’s in the portfolio of Morgan Stanley Private Equity, operates in 22 states and has dealt with 1.5 million patients. Management companies are at the center of a U.S. Senate inquiry, and audits, investigations and civil actions in six states over allegations of unnecessary procedures, low-quality treatment and the unlicensed practice of dentistry.

This is how The Wealthy Dentist blog described the situation on May 22:

The private equity dental companies only account for about 12,000, or 8%, of U.S. dental practices, according to Thomas A. Climo, a Las Vegas dental consultant.
In 2010, The Wealthy Dentist reported that All Smiles Dental Center Inc., a management company owned by Chicago-based Valor Equity Partners, filed for bankruptcy protection after a Texas Medicaid action cut off reimbursement payments because of their exorbitant amounts of orthodontic care at the expense of Texas taxpayers.

All Smiles was part of a state audit that discovered 90% of the Medicaid claims for orthodontic braces weren’t medically needed.

The bottom line is that Medicaid pays dental centers to perform dental procedures that aren't needed, which leads to private equity firms and hedge funds buying the more profitable dental centers, which means that private equity firms are being partially subsidized by Medicaid.

Howard Schwartz
See my WSO blog