Consolidation in the Dental Industry: A Closer Look at Dental Payers and Providers

Across healthcare, there has been a trend towards consolidation. The percentage of physicians in practices of fifty or more increased from 30.9 percent in 2009 to 35.6 percent in 2011 (Welch et al., 2013). Between 1983 and 2014, the percentage of physicians in solo practice declined from 41 percent to 17 percent (Squires and Blumenthal, 2016). The number of physicians employed by hospitals increased by 75 percent in the last decade (Kocher and Sahni, 2011). Since the 1990s, health insurance markets have become more concentrated, leading to increased premium growth. (US GAO, 2009; Dafny et al., 2012). Concentrated insurance markets have been shown to be associated with larger physician practices and a greater likelihood that hospitals have ownership stakes in physician groups (Brunt and Bowblis, 2014; McCarthy and Huang, 2017). There is concern that hospital and physician consolidation could have an adverse impact on competition and simply provide an avenue for providers to increase bargaining leverage against insurers (Gaynor and Town, 2012; Burns et al., 2000; Berenson et al. 2010). To date, there has not been analysis to assess the dynamics of provider and payer consolidation in dentistry. Large group dental practices with 500 or more employees grew from nearly nonexistent in 1992 to about 4 percent of all dental practices in 2012 (Guay and Wall, 2016). Our objective is to determine whether market level consolidation among dental payers is associated with the recent increase in dental practice consolidation. We measure payer consolidation at the 3-digit zip-code market level using a Herfindahl-Hirschman Index (HHI) from the FairHealth^® dental claims database. This dental insurer HHI is based on the shares of claims paid by dental payers at the 3-digit zip-code level. We merge this measure of dental payer consolidation to the 2010-2016 American Dental Association (ADA) Survey of Dental Practice (SDP), an annual survey measuring dentist and dental practice characteristics, and the 2016 ADA’s dentist office database. We consider three dependent variables, two from the ADA SDP and one from the 2016 ADA dentist office database. The dependent variables we consider from the ADA SDP include: (1) The number of dentists working at the practice and (2) whether the survey respondent is self-employed or works as an employee in his/her practice. The dependent variable we consider from the 2016 ADA dentist office database is whether the dentist is employed at a group practice location. In regressions, we control for market and year fixed effects, dentist demographics, dentist supply, a market level measure of Medicaid eligibility and rural/urban status. We use an instrumental variables approach to control for the potential endogeneity of dental payer HHI. We use number of firms located at the 3-digit zip-code level as an instrumental variable. A similar IV was used by Brunt and Bowblis (2014). We hypothesize that greater concentration in dental insurance markets lead to the consolidation of dentists and more of them working in larger group practices. We are finishing the data procurement process and expect to embark the empirical analysis in shortly.