Some Economic Fundamentals

There is great power inherent in the directional flow of money. Insurance companies understand this. Banks understand this. Politicians understand this. As dentists, we often do not understand this. Failure to comprehend this fundamental economic principle has consequences, and they are not good. Several years after graduating from dental school, we purchased a building lot on a quiet cul de sac. We bought this lot directly from the builder, with an agreement that is often referred to as a build-job. This means that as part of the purchase agreement, we were also agreeing to use this same contractor to build our home. This contractor had built quite a number of nice homes in this area. We closed on the lot, with the plan to wait until the following spring to begin construction. During the ensuing months, we started hearing horror stories from some of our soon to be neighbors. They went something like this: “We cannot clean up the title on our new home because of all the liens levied against our property.” My gut-level reaction was, “What, you have a brand new home that is already encumbered by liens?”

That was precisely the situation in which many of these people found themselves. Similarly, they had all purchased build-jobs from this same contractor. This well-meaning contractor was using draws on home A to pay the sub-contractors on home B, and he was getting a little behind… Essentially, he was robbing Peter to pay Paul.

I was horrified. What had I gotten myself into? I spent many sleepless nights fretting over this problem. In the end, I consulted with a real estate attorney. His advice was simple: First, stipulate to the builder that every bank draw, and subcontractor payment must be authorized by me. Second, no subcontractor is to be paid without first providing a lien waiver. We simply redirected the flow of money, and removed the general contractor from the middle-man role. By following this simple advice we took control of the situation, and had a much different outcome from our new neighbors. When our home was finished, we had a clean, unencumbered title. Everyone was happy, including our general contractor, and all of the subcontractors.

I learned an important lesson from that experience: Whoever cuts the checks calls the shots. Ultimately, the final destination of the money did not change. What changed is the path it took to get there. Another way to look at this is, whoever pays you, controls you. That is precisely why dental insurance companies much prefer to have patients assign their dental benefit over to you, the health care provider, than to have the patient pay the health care provider directly, and then be reimbursed. It all has to do with redirecting the flow of money, and the effect it has on who controls whom. The patient, either directly, or indirectly through their employer, pays premiums to the insurance company. Consequently, the insurance company must answer to the patient and their employer, but not to you. So, when it comes time to either settle a dispute, or pay on a claim, the patient is in a much better position than you are in to get results. The same is true with the other side of this three-way relationship. If the patient pays you, and is reimbursed by the insurance company, then you are accountable to the patient, which is as it should be. On the other hand, if the insurance company becomes the middle-man by paying you directly, and bypassing the patient, you are not only accountable to the patient now, but also to the insurance company as well. By agreeing to accept the assignment of benefit, you have invited the insurance company into the driver seat position in the relationship. At times, we can be our own worst enemy. In many ways, when we are dependent upon them for payment, we are at their mercy. The mistaken notion that patients who do not sign over the insurance benefit to you, will spend that benefit on their new patio furniture instead, is shortsighted. And, quite frankly, if the patient has already paid you, what does it matter how they spend their insurance benefit. Part of the solution to that problem lies in better financial arrangements with the patient in the first place.

Many years ago, my partner, who happens to also be my brother, and I decided that we were no longer going to accept assignment of benefit from any insurance company. I must admit that we approached the idea with some fear and trepidation. However, once implemented and in place, we never looked back, nor regretted the decision. In fact, it was one of the single most beneficial practice management decisions that we made together. It was liberating. A side benefit was the complete elimination of a front office position in our practice. Gone were the days of statements going out, followed by endless phone calls from patients wondering if we ever received payment from their insurance company, or if that periapical x-ray had ever been sent, or any number of other insurance related questions. Suddenly, our patients were demanding accountability from their insurance carrier directly. They were the ones spending time on the phone with the insurance company, not us. We became allies with our patients, working together for insurance company accountability, and fairness.

We did not do this on a whim. We carefully planned out our approach. We tried to anticipate problems in advance. We rehearsed the plan with our staff. And voilà, it worked. Suddenly we were completely out from under the thumb of dental insurance companies. We loved it. Our patients loved it. The only party not loving it, was the insurance companies themselves. They did everything they could to pay us directly, and circumvent the system we had created. But we persisted, and finally they relented.