The problem with preferred providers

Preferred provider schemes are an area of concern in the dental profession.

Preferred provider schemes are an area of concern in the dental profession.

There is great concern in the dental profession about the influence and effect of private health insurers and their preferred provider agreements. Chris Sheedy speaks with experts about the future, and how great businesses will survive the challenge

It makes sense that some dental practice owners might be tempted into accepting a preferred provider offer from a private health insurance company, says Julie Parker, co-founder of Julie Parker Dental Management. From a personal point of view, Parker says, she completely understands why this might happen. Some dental practice owners are feeling the pinch. Some are seeing less patients coming through their doors thanks to an environment of increased competition. She understands the motivation that might encourage a practice owner to become a preferred provider for an insurance company. But at the same time, Parker says, she is concerned about the damage the preferred provider model is doing to the dental industry.

“I recently looked into what happens to your income as a business owner when you become a preferred provider, and also what you have to do with the structure of your business and what you need to do as a practitioner of dental services when you discount your fee,” says Parker, whose business offers dental practice owners personalised reports on the financial impacts of signing up as preferred providers.

“The benefits you receive in terms of more people coming through the door ends up creating a false sense of security. Suddenly, as a business, you’re functioning on a much lower dollar amount and compromises have to be made. They might include quality of staff, lower wages, quality of materials, and less funds for staff training and development. The result of becoming a preferred provider is a reduction in your ability to provide the sort of service that you would usually choose to provide. For our industry, the effect of increased private health fund control is going to erode the freedoms of choice that dentists would normally have in the way they provide their services. I am very concerned about this.”

The Australian Dental Association (ADA) shares Parker’s worries. Dr Terry Pitsikas AM, chair of the ADA’s Schedule and Third Party Committee, says that although preferred provider agreements have been around for probably more than two decades, it has only been in the past 10 years that private health insurance providers have begun aggressively targeting an increase in the numbers of contracted dentists.

More recently, we have also seen health funds actually owning dental surgeries and this, Dr Pitsikas believes, introduces serious ethical issues.

“One of the problems we have philosophically is whether a health insurer should actually be providing the service for which they are charging a fee, providing a rebate and then charging the contributor a fee to actually join the insurer,” he says, describing a clear conflict of interest that is not visible to the patient.

A more extreme example, he says, is a bookie at a race course who also owns the race course itself and all of the horses, trainers and jockeys. “Then add in the fact that they charge people to come and watch and then are instructing the jockeys in how they must ride their horse during each race,” says Dr Pitsikas.

It is not a pretty picture that experts draw of dentistry becoming the plaything of the health insurance industry, whose collective profits in general treatments alone (previously known as ‘ancillary cover’) over the past five years, according to an ADA report, have exceeded $5 billion.

“One of the problems is whether a health insurer should be providing the service, charging a fee, providing a rebate and then charging the contributor a fee to actually join the insurer.” Dr Terry Pitsikas AM

“We field a lot of complaints from members on the basis that health funds are deliberately redirecting patients,” Dr Pitsikas says. “Patients who have had their usual dentist for the last 20 years are being forced by their private health insurer, by their punitive difference and discrimination in rebates between individual dentists, to go to a new dentist they have never met. Just by walking through the new dentist’s door they automatically receive a much higher rebate because this dentist has signed a contract with the health fund. If they elect to remain with their customary dentist, they are not offered reduced premiums because they will receive less rebate. Something just doesn’t add up here.”

With such price competition on top of the fact that the dental industry has become increasingly crowded and competitive, what is a dentist to do?
How do they compete if they wish to remain independent of the health funds?

“The advice we give to our members is that ultimately it is their business decision,” Dr Pitsikas says. “Our advice, and my long-term advice, has always been that I value my relationship with my patients. The reason I am as busy as I am is because of the service that I provide. And I am not a preferred provider of an insurance company.”

Parker agrees, but takes the service argument a step further. “If you’re a business that builds success off patient referrals then you will always be more successful than one that doesn’t.”

So how is this achieved?

“First of all, you must be providing high quality customer service, your prices must not be astronomical and your location must be right,” she explains. “Then you need to ask your patients to refer you onwards to their friends, family and colleagues. Putting a reward system in place can be a highly successful strategy to encourage referrals.”

One successful reward Parker has utilised in the past has been to offer referring patients a free scale and clean during their next visit. Those who have been referred should also receive a special offer, perhaps a half-price examination. Parker has also seen popular items as movie tickets used successfully to encourage referrals.

“I prefer the highly relevant offerings, such as free or half-price dental services, that keep the clients coming back through your door and experiencing your fantastic customer service,” she says. “And if you truly understand the value of your referring patients then you will realise their value to your business is enormous, so offering them some work for free is absolutely a great investment.”

Or you could sign up as a preferred provider with a health fund, as many practices have decided to do. “It is ultimately your own business decision,” Dr Pitsikas says, “but I believe it is the wrong time of your life to be compromising your values, your profitability and the enjoyment of your profession. There are still many strong practices that are not preferred providers. They are very busy and doing well as businesses and for their patients. I know this because my practice is one of them.”

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