Suit Ends Dental Plan That Bars Fee Discounts

WASHINGTON —  Attacking a practice described as widespread in the health care industry, the Justice Department and Arizona’s attorney general moved Tuesday to end a dental plan agreement that prevents dentists from discounting their fees.

Delta Dental Plan of Arizona admitted no wrongdoing, but under a proposed consent decree filed in federal court in Phoenix, Delta will notify its participating dentists that the plan’s “most-favored-nation” pricing provisions no longer apply. The dentists also will be told that they “are completely free to offer discounts.”

The “most-favored-nation” provision requires member dentists to charge Delta their lowest fee. It had the effect of preventing dentists from reducing fees for other patients below those offered in the Delta plan, according to the Justice Department. It also deterred competing dental insurance plans from entering the market.

Approximately 85% of Arizona dentists are affiliated with Delta Dental, and Delta patients account for a significant part of the member dentists’ income, the Justice Department said.

Anne K. Bingaman, assistant attorney general for antitrust, said five similar pricing agreements involving a wide range of health care services are currently under Justice Department investigation. She declined to specify in what states the others operate but noted that two are nationwide.

“This is a case of nationwide importance because it involves a contract provision that is widely used in the health care industry,” she said.

Bingaman, appearing at a joint press conference with Arizona Atty. Gen. Grant Woods, estimated the action will save Arizona dental patients between $6 million and $10 million a year.

At first glance, the pricing provisions could be read to encourage lower fees. But some participating dentists charged lower prices to non-Delta patients or to competing dental plans, and Delta began enforcing its pricing clause. As a consequence, most participating dentists refused to discount their fees to anyone, the suit alleged. Otherwise, they would have had to cut their Delta charges to the same level.

“Because most participating dentists receive such a significant portion of their income from serving Delta patients, the costs of having to lower their Delta fees would have been too great,” the Justice Department contended.

J. Ed Judd, president and chief executive officer of Delta Dental, defended the most-favored-nation provision as “a key component in our ability to control costs” and said it would have been upheld in court.

But Delta agreed to the settlement “primarily because of the financial impact of a prolonged litigation and the possible loss of many millions of dollars in state, municipality and federal business that pays for dental service provided to Arizonans,” Judd said in a prepared statement.

“In effect, we had a multimillion-dollar hammer held over our heads,” Judd added.

“That’s what they always say,” Woods responded. “The PR spin is typical.

“We filed this case because we were hearing from a lot of people who were getting hurt, particularly people with not much income.” Dentists in four competing plans that offered lower prices also complained about the Delta provision.

Bingaman said the most-favored-nation pricing clauses are not all illegal or anti-competitive. While she said the clauses would be scrutinized on “a case-by-case basis,” she indicated that the suit against Delta was brought because most of Arizona’s dentists belong to Delta and much of their income flows from that affiliation.

Hundreds of dentists who had signed up with discount dental plans trying to compete with Delta were forced to resign from those plans because of the most-favored-nation clause, the Justice Department said.

Last year, Bingaman urged the Pennsylvania Insurance Department to reject a similar pricing clause proposed by Blue Cross of Western Pennsylvania on grounds that it would raise the costs of hospital services and health plans in the area. And in May, New York state insurance regulators cited Bingaman’s letter in rejecting a similar Blue Cross pricing clause there.