January 24, 1996
Donald S. Clark
Office of the Secretary
Federal Trade Commission
Sixth Street and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Hearings on Federal Trade Commission Policy in Relation to the Changing Nature of Competition
(Federal Register, Vol. 60, No. 247, December 26, 1995)
Dear Mr. Clark:
The American Dental Association (ADA) appreciates the opportunity to submit comments for the Federal Trade Commission's hearings record regarding changes in the contemporary competitive environment that require adjustments in antitrust and consumer protection enforcement.
The ADA is a professional association that represents approximately 140,000 licensed dentists (75% of the profession) in the United States. The ADA seeks to advance the art and science of dentistry, and to promote high-quality dental care and the dental health of the public.
The Association believes that changes in the health care marketplace give rise to serious concerns that merit adjustment in the FTC's enforcement activities. The Association applauds the FTC's issuance, in 1994, of the Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust, and recognizes that the safe harbors created in those Statements offer some relief for participants in the changing health care marketplace. However, because those statements do not carry far enough, many providers, particularly dentists, are left unable to compete effectively with managed care plans. Absent some leveling of the playing field, the Association is concerned about the effect these marketplace changes will have on the delivery of dental care to the patients served by our members and, ultimately, on the oral health of the American public.
An area of particular concern relates to the safe harbor pertaining to physician network joint ventures. In dentistry, which the FTC has already opined would be governed by this safe harbor, such networks would typically be Independent Practice Associations, or IPAs. It is readily apparent that a dental IPA could include a significant percentage of provider participation, but insignificant market power. This would be particularly true in the case of non-exclusive IPAs, the members of which might also be participating in other managed care or practice arrangements. (Of interest is a recent Association survey indicating that while 29% of dentists participated in at least one of managed care plans (e.g., preferred provider organization, capitation or straight risk pool), the average number of dentist's patients participating was only 6%.)
In theory, an IPA with insignificant market power would still be subject to favorable treatment under a rule of reason analysis. However, the threat of antitrust enforcement (particularly because dentists were the subjects of the only federal criminal, health care, antitrust investigation in a half century), along with some realities of the dental marketplace, may significantly chill the development of such ventures. The net effect may be the loss of dental IPAs that could serve as meaningful procompetitive forces in markets increasingly controlled by managed care plans.
The Association urges the FTC to consider expanding the safe harbors to dental IPAs without significant market power, irrespective of their percentage of provider participation. While mindful of the possibility that dentists considering forming IPAs may seek a business review letter and/or rely on opinion of counsel and risk investigation, the Association believes that market forces will not make these options particularly viable in dentistry. In this regard, it is critical to understand differences between the medical and dental marketplaces.
More than 80 percent of all dentists are general practitioners, meaning most people can get most of the dental care they need in a general dentist's office where a general dentist already acts as a gate keeper -- a concept medical managed care plans have forced on physicians. In addition, dental care is delivered in an office setting rather than an expensive hospital environment. Further, dental overhead (in the range of 62%-65% of billings) is significantly higher than in private medical practices (closer to 45%). Because the net margins in dental practices are so much smaller, there is often much less ability to accept a deep discount. Moreover, it can be economically unfeasible for dentists to satisfy the network safe harbor requirement of sharing substantial financial risk; e.g., in the form of withholds that might undermine all profit margins. The Association would urge that this aspect of the safe harbor be reconsidered as well, to allow for effective competition in the marketplace.
The rapid changes in the healthcare marketplace have opened a veritable Pandora's box of antitrust and consumer protection issues, all of which dovetail into concerns about the delivery of patient care. The Association hopes that this overview of our concerns will provide opportunities for adjustment in the Commission's enforcement activities, which we would urge take into consideration the particular circumstances of the dental marketplace. We are pleased to report that the Association is continuing to develop hard economic (and other) data in this area, which we look forward to sharing as appropriate, in order to facilitate the Commission's enforcement efforts.
The Association recognizes the difficulty in developing appropriate safe harbors to address these factors, but doing so is necessary to promote true competition and protect the public. We appreciate the Commission's continuing attention to issues in the evolving health care marketplace, and look forward to continuing dialogue with you about ways to promote the efficient delivery of dental care.
The Association appreciates the opportunity to submit written comments. If you have any questions or require further information, please contact Dorothy Moss, Director of the ADA Washington Office at 202/898-2400.
John S. Zapp, D.D.S.