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The Economics Of A Non Profit Enterprise In The Dental Health Care Field

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The Economics Of A Non Profit Enterprise In The Dental Health Care Field

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Content THE ECONOMICS OF A NON PROFIT ENTERPRISE IN THE DENTAL HEALTH CARE FIELD by D arryl Joseph Mitry A D i s s e r t a t i o n P re se n te d to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In P a r t i a l F u l f i l l m e n t o f the Requirements fo r the Degree DOCTOR OF PHILOSOPHY (E conom ics) August 1971 72-6086 i i MITRY, Darryl Joseph, 1943- THE ECONOMICS OF A NON PROFIT ENTERPRISE IN THE DENTAL HEALTH CARE FIELD. University of Southern California, Ph.D., 1971 Economics, theory University Microfilms, A X E R O X Company, Ann Arbor, Michigan DISSERTATION HAS BEEN MICROFILMED EXACTLY AS RECEIVED @ COPYRIGHT BY D a rry l Josep h Mi try- 1971 UNIVERSITY O F SO UTHERN CALIFORNIA THE GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES. CALIFORNIA 9 0 0 0 7 This dissertation, written by ............................. under the direction of h.i.?... Dissertation Com mittee, and approved by all its members, has been presented to and accepted by The Gradu ate School, in partial fulfillment of require ments of the degree of D O C T O R OF P H IL O S O P H Y Dean Dfl/e...Septembgr.. 19.7.1... DISSERTATION COMMITTEE PLEASE NOTE: Some Pages have indistinct print. Filmed as received. UNIVERSITY MICROFILMS TABLE OF CONTENTS Chapter Page I . INTRODUCTION ................................................................................. 1 I I . THEORETICAL FRAMEW ORK ........................................................... 8 D e c is io n s o f the F i r m .......................................................... 8 A lt e r n a t iv e Models ............................................................... 15 M athem atical Models: B a sic Assumptions . . . 29 Q u a lity : Symbolic Com position ................................ 30 Q uantity: Sym bolic Composition ................................ 31 C o n c l u s i o n s .................................................................................... 3*1 I I I . DISTINCTIVE ECONOMIC CHARACTERISTICS OF THE DENTAL HEALTH CARE F I E L D ................................ 37 Demand: T a stes and P r e fe r e n c e s ................................. 37 Demand: Income and P r ic e E l a s t i c i t i e s . . . *16 Demand: Third Party and Prepayment Plans . . 52 Supply and Demand E stim a tes .......................................... 55 Pecuniary and Non P ecuniary I n flu e n c e s on S u p p l y ........................................................................................................58 Labor M o b i l i t y ................................................................................... 6*1 ii iii Chapter Page P r o d u c t iv it y Changes .......................................................... 68 D ental Care P l a n s .......................... 75 D ental S e r v ic e C orporations .......................................... 79 Group P r a c t ic e P l a n s .......................................................... 81 Union, Employee A s s o c ia t io n or Employer Plans .......................................................................... 93 Commercial Insurance Plans .......................................... 94 In d u stry C ontrols ..................................................................... 95 IV. A METHODOLOGICAL NOTE.................................................................101 V. EMPIRICAL STUDY.................................................................................109 I n tr o d u c to r y Statem ent ..................................................... 109 The LAHREU D ental C lin ic : H i s t o r i a l and D e s c r ip t iv e C o n sid e ra tio n s .......................................... I l l P re se n t O r g a n iz a tio n a l and O perating F e a t u r e s ................................................................................................ 120 S p e c i a l i z a t i o n and D iv is io n o f Labor . . . . 124 Surcharges and Demand .......................................................... 133 Q u a lity L ev els .......................................................................... 137 P rod u ction and F a cto r Comparisons ........................... 140 C o n c l u s i o n s ...........................................................................................143 VI. ECONOMETRIC CONSIDERATIONS .......................................... 145 The C ost-O utput R e la tio n ................................................ 145 Survey o f P reviou s E m p irica l Evidence . . . . 151 E s tim a tio n C r i t e r i a and Techniques . . . . . 157 iv Chapter Page Output Measures and P a t ie n t Mix D if f e r e n c e s . 164 Data C o l l e c t i o n and R e c t i f i c a t i o n ................................ 168 E s tim a tio n o f Cost F u n c t i o n s ........................................ 170 C o n c l u s i o n s ........................................................................................... 172 A P P E N D IX .................................................................................................... 177 BIBLIOGRAPHY .............................................................................................. 186 LIST OP TABLES T ables in Text Number Page 1. P r ic e I n d ic e s fo r Items o f M edical Care and Consumer P r ice Index, 1935 t o 1968 ........................... 48 2. P ercen tage D i s t r i b u t i o n o f H ealth D o lla r , 1935-1968 .......................................................................................... 50 3 . P ercen ta g e o f T o ta l Consumer E xpenditures Spent f o r S p e c i f i e d Items o f H ealth Care, 1935 to 1968 ............................................... 51 4. R ates o f Return Compared w ith the R atio o f the Number o f A p p lica n ts t o D ental School w ith B a c h e lo r ’s Degrees to th e Number o f Earned B a c h e lo r ’s Degrees in th e P h y s ic a l and B i o l o g i c a l S c ie n c e s ................................................................ 59 5. Average Income o f D e n t is t s by Type o f P r a c t i c e , 1 9 6 7 ............................................................................... 6 l 6. Mean Number o f O f f ic e Hours per Week and Weeks Worked p er Year, 1967> by A ge.......................................... 62 7. R ates o f Return t o P h y s ic ia n s and D e n t is t s . . 65 8. P er cen ta g e o f D e n t is t s in Favor o f Complete L ic en su re R e c ip r o c ity Among S t a t e s , by Region and Employment S ta tu s .......................................................... 67 9. P ercen tage o f D e n t is t s e n r o l le d in c o n tin u in g E ducation Courses in a D en tal S ch ool or H o s p ita l in 1967 by Age and Employment S ta tu s . . . . . . 70 10. Average Number o f P a t ie n ts and P a tie n t V i s i t s o f N o n -S a la ried D e n t is t s in 1967, According to Type o f P r a c t ic e O r g a n i z a t i o n ..................................... 72 v vi Table Page 11. P r o d u c t iv it y I n c r e a s e s , 1955-1961 73 12. Average Income o f N o n -S a la ried D e n t is t s A ccording to Number o f D ental Chairs and U nits Used, 1967 .......................................................................................... 76 13. Summary o f D ental S e r v ic e Plan Programs, December 31, 1968 82 14. Net Income and Expenses as Percent o f Mean Gross I n c o m e ............................................................ 85 15. Average Composite Pees Reported by N o n -S a la ried D e n t is t s f o r S e le c t e d C i t i e s ........................................... 86 16. Growth o f D ental P a rtn er sh ip s ...................................... 90 17. P ercen tage o f N o n -S a la ried D e n t is t s Employing A u x ilia r y P erson n el at Time o f Survey, by Type o f P r a c t ic e and Type o f P e r s o n n e l .................. 91 18. LAHREU C l i n i c O perating Expense and Revenue . 119 19. C lin ic E l i g i b l e s ........................................................................... 119 20. LAHREU C lin ic F u ll Time E q u iv a le n t Employees . 125 21. LAHREU C l i n i c D e n t is t Age-Time D is t r i b u t i o n . 128 22. LAHREU C lin ic P a t ie n t V i s i t s , C hairsid e Hours and VA Pee P r o d u c t i o n .....................................................136 23. Surcharges per P a tie n t V i s i t ............................................ 136 24. C a p ita l, Labor, Output Comparisons ............................ l 4 l 2 5 . Summary o f Parameter Changes and Model D i v e r g e n c e .................................................................................... 153 26. LAHREU C l i n i c Expense ............................................................ 173 27. LAHREU C l i n i c E l i g i b l e s , Income, and U t i l i z a t i o n R a t e .....................................................................173 v i i :Table | Appendix T ables i A -l. I n c id e n c e o f D en tal M a lp r a c tic e Claims . . A-2. Age Comparison o f the Respondents o f th e American D ental A s s o c i a t io n D en tal Survey ! w ith the G eneral P o p u la tio n o f D e n t is t s . . I Ar-3. P ercen tage o f N o n -S a la r ie d D e n t is t s who | Purchased D ental Equipment in 1967 and j Mean Cost o f Equipment Purchased by a l l ! N o n -S a la r ie d D e n t is t s by Region ........................... i A-4. P er cen ta g e D i s t r i b u t i o n and Mean Composite | Pee o f N o n -S a la r ie d D e n t is t s A ccording to | L ev el o f Gross R e c e i p t s , by Age o f D e n t is t | A-5. Mean Number o f O f f ic e Hours o f N o n -S a la ried ! D e n t is t s per Week in 1967, A ccording to ! L ev el o f Gross R e c e ip ts and Type o f O f f ic e | A c t i v i t y ..................................................................................... I A-6. Mean Number and Type o f F u ll-T im e P er so n n el j Employed by N o n -S a la r ie d D e n t i s t s in 1967* A ccord ing to L ev el o f Gross R e c e ip ts . . . A-7. D i s t r i b u t i o n o f C o s ts , 12 Months, I960 . . A-8. LAHREU C lin ic Records Comparison o f Opera t i n g C osts: 1959: 1 2 -1 5 -5 8 th ru 12-1M-59 I960: 1 2 -1 5 -5 9 thru 12- 1^-60 Page 178 179 1 80 181 182 183 1811 185 I CHAPTER I INTRODUCTION The non p r o f i t s e c t o r o f our economy has become an im portant i n s t i t u t i o n a l force.'*' R ecen tly th e s e various c o n c e r n s , both p u b lic and p r i v a t e , have a t t r a c t e d th e a t t e n t i o n o f e c o n o m ists , who, i t would seem, have a v ested I n t e r e s t s in c e most econ om ists are employed by non p r o f i t i n s t i t u t i o n s . However, the i n v e s t i g a t i o n i s y e t young and only a few l e s s tim id s o u ls have ventured in t o t h i s s tr a n g e , u n exp lored area o f our economy. For the economic in q u ir e r , t h i s r a p id ly growing s e c t o r i s a new f r o n t i e r , p r o v id in g much stim u lu s f o r c r e a t iv e thou ght. But, i f I might p ress the metaphor, l i k e an uncharted la n d , i t a ls o may mean a c o n fu s in g maze, or a d e c e p t iv e ly c i r c u l a r p ath . I t i s com forting to n o te th a t some o f th o se members o f our pro- 1E l i G inzberg, Dale L. H iesta n d , and B e a tr ic e G. Reubens, The P l u r a l i s t i c Economy (New York: McGraw-Hill Book Company, 1 965). 1 f e s s i o n who have made forays i n t o non p r o f i t s t u d i e s have been m oderately s u c c e s s f u l and returned u n scath ed . I Much rese a r c h in t h i s area has been concerned w ith | | the economics o f p u b lic i n s t i t u t i o n s ; t h i s paper does not j attem pt to examine the p u b lic s e c t o r , but only p a rt o f j i the p r iv a t e non p r o f i t s e c t o r . In t h i s s e c t o r we fin d m ostly e d u c a tio n a l s e r v i c e s , h e a lth s e r v i c e s , a r t i s t i c i s e r v i c e s and r e l i g i o u s s e r v i c e s . j i Each o f th e s e p r e s e n ts us w ith economic s i m i l a r ! - I \ j t i e s but each h old s up unique a n a l y t i c a l p e c u l i a r i t i e s as j i i ■ I I w e l l . For example, u n its o f output fo r a l l o f th e s e j j ; : i ! concerns are extrem ely d i f f i c u l t to d e f in e . At th e same j tim e, a h o s p i t a l may provid e us w ith some q u a n t i f i a b l e p h y s ic a l phenomena, whereas th e art museum d e f i n i t e l y does I 2 n o t. Some o r g a n iz a tio n s may be fin a n c e d s o l e l y from c h a r ita b le c o n t r ib u t io n s , some through consumer charges and s t i l l o th ers have a more complex f i n a n c i a l b a s is . T h erefo re, we must r e a l i z e th a t a t h e o r e t i c a l model: 'which p a r t ly il lu m in a t e s one s i t u a t i o n can be i r r e l e v a n t ■ t ! in an oth er. Each economic e n t i t y may be c o n v e n ie n tly ; ? i : One might o b je c t and c o n s id e r th e number o f i n d i - j j v id u a ls who v i s i t th e art museum as a proxy v a r ia b le j measuring o u tp ut. However, ponder the not so u n l i k e l y j s i t u a t i o n o f the determ ined grandmother d ragging a r e l u c - ! ta n t 12 year o ld c h il d along w ith h er. Perhaps th e youth | e x p e r ie n c e s d i s u t i l i t y from h i s v i s i t t o th e a rt museum. 3 s e p a r a te d i n t o e le m e n ts. For some, c e r t a in elem en ts are ; ! c r i t i c a l , f o r o t h e r s , unim portant. This r e a l i z a t i o n would j ’ i |seem ob viou s enough, but i t has le d to p a s t m e th o d o lo g ic a l ! 7 c o n t r o v e r s y . J ! i Some would argue th a t on ly t h e o r e t i c a l models o f j ; g r e a t g e n e r a l i t y are to be v a lu e d , and th a t con cep ts o f j ; u n iv e r s a l a p p l i c a t i o n are most im p ortan t. I cannot abide j i by t h i s p o s i t i o n ; n e i t h e r can I tak e r e fu g e w ith the a n tag o n i s t s . My m e th o d o lo g ic a l sta n d must be th a t o f th e "mid- i d l e o f th e road." Not b ecau se u n iv e r s a l laws are somehow : i u n d e s i r a b le , b u t, as W illiam Baumol has p o in te d o u t, i 1 | because t h e i r c o n s t r u c t io n may imply extrem ely h igh c o s t s . In the attem pt to o b ta in h ig h e r l e v e l s o f g e n e r a l i t y , we pay a h ig h e r p r i c e . The tra d e o f f i s in terms o f power j and r e le v a n c e . C on seq u en tly, th e f o ll o w i n g a n a ly s is w i l l le a d us in t o s p e c i f i c models fo r use when p a r t i c u l a r s i t u a t i o n s i o b ta in . Of c o u r se , one model may e x h i b i t a h ig h e r l e v e l ^Emile Grunberg, "The Meaning o f Scope and E x te r - j I n a l Boundaries o f Econom ics," in The S tr u c tu r e o f Economic j : S c i e n c e , ed. by S. R. Krupp (Englewood C l i f f s , N .J .: ! : P r e n t i c e - H a l l , I n c . , 1 9 6 6 ), pp. 148 -6 5 . Andreas Papandreou; | Economics as a S c ie n c e (C hicago: L ip p in c o t t , 1 9 5 8 ). j I T. C. Koopmans, Three~Essays on the S ta te o f Economic j j S c ie n c e (New Yorkl McGraw-Hill Book Company, 1 9 5 7 ). i 4 i W illiam J . Baumol, B u sin e ss B eh a v io r , Value and Growth (2d e d .: New York: H arcou rt, Brace and World, I n c . , 1 9 6 7 ), p . 4. : o f g e n e r a l i t y than an oth er. i | Research in th e th eory o f not f o r p r o f i t firm s has j i been alon g s e p a r a te l i n e s o f i n v e s t i g a t i o n . One area o f j | study a ttem p ts t o d evelop a fundamental th eory through j i . exam ination o f a c c o u n tin g in fo r m a tio n and th e b u d g e tin g j ! j 5 ‘ i p r o c e s s . I t i s b e l i e v e d th a t th e r e s u l t i n g th eory would i ; g a in in r e a lis m from t h i s approach and th a t th e im p lic a tio n s j ! ! are fo r g r e a t e r p r e d i c t i v e powers as w e ll as p r o v id in g j I i n s t r u c t i o n fo r a d m in is t r a t iv e p la n n in g . I t i s through j ; t h i s p r o c e s s a n a ly s is th a t the o r g a n i z a t i o n ' s g o a ls may ; be i n f e r r e d from i t s budget. Thus the f i r s t assum ption ; made i s th a t the budget t r u t h f u l l y r e p r e s e n ts the g o a ls ■ t h a t the firm h a s . The c h i e f d isa d v a n ta g e s to t h i s ap proach are i t s i n a b i l i t y to g iv e i n s i g h t i n t o the m o tiv a - ; g ^ t i o n a l a s p e c ts and i t s h ig h ly m echanical method. Our o b j e c t i v e would be t o provid e a model which i : ; in c o r p o r a te s e x p l i c i t m o t iv a t io n a l a s p e c ts and il l u m i n a t e s I : th e b e h a v io r a l f u n c t io n s o f non p r o f i t firm s as both the ! c o n v e n tio n a l and d is c r e t i o n a r y models have done fo r ! 1 ! p r o f i t making fir m s . This approach then would c o n s tr u c t j j ^F. K. Levy, "Economic A n a ly s is o f th e N o n -P r o fit j i I n s t i t u t i o n - th e Case o f th e P r iv a te U n i v e r s it y ," P u b lic j C h o ice, IV (S p rin g , 1 9 6 8 ), 3 -1 5 . ! 6 * For fu r th e r d i s c u s s i o n o f t h i s c r i t i c i s m in modern; eco n o m ics, see S. S c h o e f f l e r , The F a ilu r e s o f Economics (Cambridge, M ass.: Harvard U n iv e r s it y P r e s s , 1 9 5 5 ). 5 a th eory th a t i s concerned w ith : 1. th e i n d iv i d u a l firm as th e u n it o f study 2. e x p l i c i t assum ptions as to m o tiv a tio n f o r b eh a v io r 3. th e p r e d ic t i o n o f the output d e c i s i o n s . Much o f the f o llo w in g in q u ir y i s , c o n s e q u e n tly , aimed at the l a s t problem. Our i n t e r e s t i s then in th e area o f p o s i t i v e economics and not norm ative d i r e c t i v e s . This paper w i l l focu s a t t e n t i o n on h e a lt h s e r v i c e s , more s p e c i f i c a l l y , th e d e n ta l h e a lt h care f i e l d . Econo m is ts have d evoted r e l a t i v e l y l i t t l e a t t e n t i o n t o th e , j h e a lt h care in d u str y in g e n e r a l , and even l e s s to th e d e n ta l h e a lth care f i e l d . The s i z e and growth p o t e n t i a l o f th e d e n ta l in d u str y would seem to warrant more than th e exiguou s a t t e n t i o n thus fa r a p p o rtio n ed i t . Consumer's t o t a l e x p e n d itu r e s in 1968 f o r d e n ta l h e a lt h s e r v i c e s was e s tim a te d t o be $ 3 ,5 5 5 ,0 0 0 ,0 0 0 . But even more im portant than s i z e alon e are the i n t e r e s t i n g s t r u c t u r a l and p o lic y q u e s tio n s which emerge from t h i s in d u s tr y during a tim e which i s c h a r a c te r iz e d by in n o v a tio n and t r a n s i t i o n . , The i n s t i t u t i o n a l framework, market s t r u c t u r e , and ; conduct o f p r o v id in g d e n ta l care s e r v i c e s are chan gin g. j Many o f th e d e c i s i o n s r e g a r d in g the a l l o c a t i o n o f d e n ta l i i h e a lt h care r e s o u r c e s are made by a d m in is t r a t iv e d e c i s i o n j makers, non p r o f i t or govern m en tal, even though th e r e i s 6 s t i l l a s tr o n g dependence on p r i v a t e , fe e f o r s e r v i c e 7 p r a c t i c e . The n a tu re o f some o f t h e s e changes i s as f o ll o w s : 1. The exp an sion o f demand due to in c r e a s e d a v a i l a b i l i t y o f t h ir d p arty p ayin g p la n s , in c r e a s e d per c a p it a income and e d u c a tio n a l l e v e l s . 2. The in c r e a s i n g p r o d u c t i v i t y o f d e n t i s t s . 3. The in c r e a s e d u t i l i z a t i o n o f group p r a c t i c e o r g a n iz a t i o n s .^ *1. In c r e a se d e x p e r im e n ta tio n in the use o f d e n ta l ! a u x i l i a r y p e r s o n n e l to a l l e v i a t e d e n ta l manpower s h o r ta g e s .! > 5. R is in g concern in p r o v id in g com prehensive I d e n ta l care and th e development o f in d u str y wide q u a lit y sta n d a rd s. 6. In c r e a s e d government funding fo r d e n ta l h e a lt h care s e r v i c e s f o r s p e c i a l groups; i . e . , T i t l e XVIII and XIX o f the S o c i a l S e c u r ity Act in 1965- ^1 am in d e b te d to Max Schoen in p o in t in g out t h a t: ! "In r e a l i t y , to d a y , even p r iv a t e p r a c t i c e i s a f f e c t e d by j t h i r d p arty d e c i s i o n s . The e f f e c t may be i n d i r e c t but the j former freedom t o be a 'King in o n e 's c a s t le * has been j l o s t by th e d e n t i s t to a g r e a t degree - p a r t i c u l a r l y here j in C a lif o r n i a . He must p la y th e r u le s o f th e game where j t h i r d p a r ty payment i s in v o lv e d , even i f i t s on a f e e - f o r - s e r v i c e b a s i s . " 8 ! In Chapter I I I , we d is c u s s payment mechanisms • to th e d e n t i s t . These in v o lv e d i r e c t , b u d g et, s a la r y and o th e r n o n - f e e - f o r - s e r v i c e m ethods. The change in method o f payment i s as im portant as th e change in o r g a n iz a tio n . 7. C ontinuing ex p e r im e n ta tio n w ith non p r o f i t ! c lo s e d p an el d e n ta l c l i n i c s . ! The reason why econ om ists have, u n t i l r e c e n t l y , J la r g e ly ign ored th e study o f the s e r v i c e s o f th e h e a lth : care f i e l d may be b ecause o f s p e c i a l c h a r a c t e r i s t i c s which seem to make th e s e s e r v i c e s e x c e p tio n s to th e t r a d i t i o n a l ‘ economic p r o p o s it io n s th a t e x p la in th e c o n v e n tio n a l 9 |market b eh a v io r. i j These e x c e p t i o n s , or non-econom ic f a c t o r s , should !not be thought o f as d i a b l e r i e o u t s id e th e d i s c i p l i n e but j ! in s t e a d sh ould be c o n sid e r e d as sim p le f a c t s to be i n - I ' eluded in the t r a d i t i o n a l t h e o r e t i c a l framework so as to I jexpand the c o n v e n tio n a l a n a l y t i c . With t h i s a t t i t u d e , ;we may be ab le to i l lu m in a t e the f u n c t io n a l i n t e r r e l a t i o n s h i p s and make c l e a r and manageable any so c a l l e d 1 s p e c i a l c h a r a c t e r i s t i c s o f the in d u s tr y . 9 ............. George S t i g l e r , E ssays in H isto r y o f Economics i (New York: MacMillan Book C o., 1 9 6 5 ), pp. 1 6 -2 2 . Kenneth j E. B ou ld in g, A C onceptual Framework f o r S o c i a l S cie n c e j (Ann Arbor, M ich.: Michigan Academy o f S c ie n c e and ! L e t t e r s , Papers f o r 1 9 5 1 ), XXXVII, 2 7 5 -8 2 . CHAPTER II j THEORETICAL FRAM EW ORK j The fo llo w in g i s an in q u ir y i n t o the nature o f t |non p r o f i t d e n ta l c l i n i c s in c o n s id e r a t io n o f economic |th e o r y . In the f i r s t s e c t i o n we b r i e f l y review the funda I |m ental economic th eory o f th e firm and the d i f f i c u l t i e s i I encou n tered in u s in g t h i s a n a ly s is t o study th e d e c i s i o n making o f a non p r o f i t firm in th e d e n ta l h e a lt h care f i e l d . An attem pt i s made to i d e n t i f y and i s o l a t e the b a s ic nature o f the problem to which t h i s study i s ;ad d ressed . In the second s e c t i o n a l t e r n a t i v e models and t h e i r u n d e rly in g t h e o r e t i c a l fo u n d a tio n s are then d i s c u s - : sed. :D e c is io n s o f th e Firm | In the t r a d i t i o n a l th eory o f th e firm , th e b a s ic jb eh a v io ra l assum ption i s th a t o f p r o f i t m axim izing. S p e c i f i c a l l y , th e firm i s ex p ecte d to always a ct in accor dance w ith p r o f i t m axim ization. P r o f i t i s understood as 8 1 b e in g the d i f f e r e n c e between a l l revenue and c o s t s . The g e n e r a l p ro cess can be d e s c r ib e d in the fo llo w in g manner. j ; I The firm i s to s e l e c t a p r ic e - q u a n t it y com bination. ; These d e c i s i o n s r e g a r d in g output are made by th e e n t r e - 1 t preneur or some such u ltim a te d e c i s i o n making u n it o f the firm . I t i s assumed th a t th e firm fa c e s some g iv e n demand i f u n c t i o n . A ctual demand i s determ ined by th e a t o m is t ic ; b eh a v io r o f consumers in th e m arket, where every consumer I i ; i s a c t in g in a r a t i o n a l manner a ttem p tin g to maximize j i I ; i h i s u t i l i t y s u b je c t to h is income c o n s t r a in t . The stru ctu re1 : o f the product market i s d e s c r ib e d by v a ry in g d eg rees o f | : c o m p e titio n . The firm o p e r a te s under some f a c t o r supply I ' c o n d itio n s which can a l s o be c h a r a c te r iz e d by v aryin g degrees o f c o m p e titio n . The more p e r f e c t l y c o m p e titiv e the market s t r u c t u r e , th e more group r e a c t io n s w i l l modify the p o s i t i o n o f the in d iv i d u a l firm . At any one tim e , ite c h n o lo g y i s assumed c o n s t a n t , and, under th e g iv e n f a c t o r supply c o n d i t i o n s , the ch o ic e among output p r o c e s s e s ! i s determ ined by th e optimum o u tp u t, g iv e n c o s t , or th e ;minimum c o s t , output determ ined. For th e p e r f e c t l y com- I p e t i t i v e firm , p r ic e i s s a i d to be determ ined by th e market. | For th e m o n o p o lis t, p r ic e or output i s d i s c r e t i o n a r y . j j There e x i s t s one p a r t i c u l a r p r ic e and output com bination j |which r e s u l t s in th e g r e a t e s t p r o f i t . I ] ! T r a d it io n a l th eo ry p ro v id es us w ith e s s e n t i a l l y j :two p r o f i t co n cep ts: normal p r o f i t s and e x c e s s p r o f i t s , iSome f a c t o r s o f p ro d u ctio n r e c e iv e a f ix e d com pensation, |in advance o f a c t u a l o p e r a tin g r e t u r n s , such as s a l a r i e s |and wages. The e n tr e p r e n e u r ia l f a c t o r s may r e c e iv e an ! I :u n c e r ta in com pensation ( p r o f i t s ) . Normal p r o f i t s are j I ; I j u s t s u f f i c i e n t to r e t a i n th e l a t t e r ' s s e r v i c e s and i t j i s e s s e n t i a l l y an e q u iv a le n t income. Any p r o f i t s g r e a t e r I than e q u iv a le n t income a r i s e from e i t h e r u n c e r ta in ty or !im p e r fe c tio n s in th e market. ! The d e c i s i o n making u n it (DMU), o p e r a tin g a c c o r d - i |in g to i t s own s e l f i n t e r e s t and i t s d e fin e d o b j e c t i v e , i then chooses th e output l e v e l so as t o maximize p r o f i t s . ' 1 ' ! I j i This o f course i s only one p o s s i b l e d e c i s i o n mak- 1 ;in g c r i t e r i o n . I t has been s u g g e ste d th a t the a n a ly s is 1 should take in t o account a l t e r n a t i v e m o tiv e s , economic and non-econom ic a l i k e . For exam ple, power, p r e s t i g e , s e c u r i t y , i d e n t i f i c a t i o n , s o c i a l i n t e r e s t , n eed -a ch iev e m en t, w i l l , s a t i s f i c i n g , s a l e s have a l l been put forward by P r o fe ss o r s A lc h ia n , Baumol, Becker, Commons, G a lb r a ith , i 1 I ! In a sm a ll firm , the d e c i s i o n making u n it i s the j jen trep ren eu r, th e o w n e r -o p e r a to r . In a la r g e fir m , th e j ‘d e c i s i o n making u n it may be one o f a com bination o f the j I upper management, a d m i n i s t r a t o r ( s ) , and t r u s t e e s . For j jeconomic th e o r y , the l a t t e r case may p r e s e n t a problem j |s i m i l a r to th at o f the Arrow paradox. S ee, fo r exam ple, ! jsidney G. W inter, J r . , "Economic 'N atu ral S e l e c t i o n 1 and j jthe Theory o f th e Firm," Yale Economic E s sa y s, IV (S p r in g , | 11964), 229. i Simon, W illiam son and many o t h e r s . F o llo w in g t h i s i s I the p r o p o sa l t h a t a much l a r g e r concept i s im p lie d , one i i p ;which encompasses th e s e v a r i a b l e s . Such an approach jp o in ts out th e r o l e o f non p ecu n iary as w e l l as p ecu n iary i n f l u e n c e s on b e h a v io r . : Then, from a more g e n e r a l v ie w p o in t, th e DM U i s : concerned w ith some f u n c t io n o f the n a tu re: | v = v(H, y) where: I n = p r o f i t = p ecu n iary income i j = non p r o f i t , non pecu n iary incom e, e . g . , i p r e s t i g e , s e c u r i t y , e t c . In the p r o f i t m axim izing firm , ¥ i s e i t h e r con s id e r e d t o be co n sta n t or unim portant, or an in c r e a s in g : fu n c tio n o f th e f i r s t v a r i a b l e . J For t h e s e r e a s o n s , pro f i t has been the c o n v e n tio n a l m axim izing h y p o t h e s is . | Thus, i t i s the p r o f i t f u n c t io n which becomes paramount ; in o rd er to understand a f ir m 's b e h a v io r . Where: v = v(n) j n = f ( x ) ; p i Andreas Papandreou, Some B a sic Problems in the j Theory o f th e Firm, Survey o f Contemporary Economics (New J York: Richard D. Ir w in , I n c . , 1 9 5 2 ), p. 277• j q i T ibor S c it o v s k y , "A Note on P r o f i t M axim ization j and i t s I m p l ic a t i o n s ," Review o f Economic S t u d i e s , XI | (1 9 4 3 -1 9 4 5 ), Kraus R eprint C orp., 5 7 -6 0 . 12 D e fin in g p r o f i t s as eq u al t o revenue minus c o s t s , revenue as p r ic e tim es o u tp u t, c o s t s as f a c t o r p r ic e jtim es q u a n tity o f in p u t s , assuming some demand and c o s t cu rv e, i t i s p o s s i b l e to maximize th e fu n c tio n and s o lv e i f o r o u t p u t , X. | j However a p p ro p ria te t h i s seg m en t-o f the a n a ly s is j ‘i > I i s f o r p r o f i t making firm s in th e c o m p e titiv e system , i t i i i s a n t i t h e t i c a l to the non p r o f i t firm . The g e n e r a l non j i p r o f i t assum ption i s e s s e n t i a l l y th e fir m 's i n t e n t i o n Z i th a t revenues be not g r e a t e r th an , but equal to c o s t s . I S in ce the b a s ic p r o f i t m o tiv e , which has been r eq u ir ed f o r com plete e x p la n a tio n o f b eh a v io r i s absent from the d e c i s i o n making u n i t ' s fu n c tio n o f a non p r o f i t firm , | we are l e f t w ith the o th e r m o t iv a t io n a l components, sum- i m arized s y m b o lic a lly in our v a r ia b le f , V = v(Y) V = y ( x ) j where o u tp u t, X, may be s a id to have two dim ensions: q u a l i t y and q u a n t it y . In c o n v e n tio n a l economic th e o r y , j product or s e r v i c e q u a l i t y i s determ ined in the market i through consumer c h o ic e . The consumer i s h e ld to be ■ | i ii Which may in c lu d e improvement as w e ll as m ainten ance c o s t s and may or may not be c o n s i s t e n t only in the lo n g run. A ls o , see Howard O leck, N o n -P r o fit C o r p o r a t io n s ,: O rg a n iza tio n s and A s s o c ia t io n s (Englewood C l i f f s , N .J .: P r e n t i c e - H a l l , I n c . , 1965). 13 u ltim a te ju d g e. I t has been s u g g e ste d th a t "in a t e c h n i c a l l y complex f i e l d , such as h e a lt h s e r v i c e s , p e r c e iv e d |advantage and a c t u a l p r iv a t e advantage may d iv e r g e owing |t o the b u y e r 's ign oran ce." ^ Here th en , consumer s o v e r e ig n t y i s an u n r e li a b l e assum ption. "To th e g e n e r a l p u b l ic , q u a l i t y i s a hidden g ;f a c t o r , e s s e n t i a l l y u n a p p re cia ted ." I f we cannot assume !th a t the consumer i s th e b e s t judge o f th e p r o d u c t's ! ( s e r v i c e ' s ) q u a l i t y , we must a ls o c o n s id e r t h i s a d d it io n a l j output dim ension to be in th e d e c i s i o n making u n it fu n c - j t i o n . T h erefore: y = y(QNj Ql ) where: Q^= a q u a n tity measure o f output 7 Ql = a q u a l i t y measure o f o u tp u t. The non p r o f i t d e n ta l c l i n i c s o f t h i s study e x i - s t . : f o r the purpose o f su p p ly in g d e n ta l s e r v i c e to t h e i r p a- j t i e n t s and th e d e c i s i o n making u n it s are n e c e s s a r i l y con cerned w ith the q u a n tity o f s e r v i c e s the firm p r o v id e s . ^Herbert E. Klarman, The Economics o f H ealth ; | (New York: Columbia U n iv e r s it y P r e s s , 1965) 3 p. 54. I ■ fi • W alter J. McNerney, H o s p ita l and M edical Economics,! i (2 v o l s . ; Chicago: H o s p ita l Research and E d u ca tio n a l j jT r u st, 1 9 6 2 ), I I , 604. j | ^The d e c i s i o n o f how we might o p e r a t i o n a l l y d e fin e j j Q l i s co n sid e r e d below . This may be a term d e n o tin g the I t e c h n i c a l f a c t o r s around which th e g e n e r a l l e v e l o f ameni- ! ! t i e s a ffo r d e d th e consumers are d eterm ined. ! 14 Many f u n c t io n a l r e l a t i o n s might d e s c r ib e th e DMU’s j r e l a t i v e v a lu a t io n o f q u a lit y and q u a n t it y . At t h i s tim e , |we w i l l not p o s t u l a t e a s p e c i f i c form. The DM U fin d s |th e v a lu e s fo r q u a l i t y and q u a n tity th a t maximize h i s fu n c- | :t i o n g iv e n th e p o s s i b l e exchange r a t i o s . !b ia s e d b e h a v io r i s c o n s i s t e n t w ith in t h i s g e n e r a l frame- :work. For purposes o f s i m p l i f i c a t i o n l e t us make an I jassum ption reg a r d in g the s u b s t i t u t a b i l i t y o f q u a n tity j j fo r q u a l i t y in the p o s s i b i l i t y f u n c t io n . Let th e r a te jwhere we can see th a t the e l a s t i c i t y o f s u b s t i t u t i o n (Z) Q u a lity and q u a n tity are then p e r f e c t l y s u b s t i t u t a b l e . The p o s i t i o n o f th e p o s s i b i l i t y curve i s determ ined by th e budget c o n s t r a i n t , (E ). W e then may have s i t u a t i o n s I t can be seen th a t e i t h e r q u a l i t y or q u a n tity ;o f s u b s t i t u t i o n be: ; and 3 (Qn / Q l ) r C O 3 r ( Q n/Ql ) j A l t e r n a t i v e l y Z - r(QL-QN) Tv Q n r 0 0 i s in an in v e r s e p r o p o r tio n to the curvature dr/dQL - 15 as i l l u s t r a t e d in Figure 1. The q u a n t i t y - q u a li t y combina t i o n s o f m axim izations a r e , o f co u rse, th e tangency s o l u - I tio n s o f the valu e fu n c tio n and th e expanded p o s s i b i l i t i e s ! fu n c tio n . ! The d e c i s i o n making u n it w i l l then attempt to reach l e v e l s o f o p e r a tio n and performance com patible w ith i the q u a n tity -q u a lity - com binations which l i e on the expan- : s io n path (pp’ ). | A lte r n a tiv e Models i Let us assume th e firm o p e r a te s under the g e n e r a l, non p r o f i t assum ption, in a d d itio n we assume each consumer pays fo r the s e r v i c e s , i . e . , th e r e are no t h ir d party .paying p la n s . This model would, under a c lo s e d market ic o n d i t i o n , d i c t a t e only the e q u a lit y o f average revenue |and average c o st (se e f ig u r e 2 a ). Such a h y p o th e sis has been o f f e r e d f o r the a n a ly s is O jo f non p r o f i t h o s p i t a l s . In one such model (Newhouse), ! ®M . F. Long, " E f f ic ie n t Use o f H o s p it a ls ," in I Economics o f H ealth and M edical Care, Proceedings o f th e jC onference on the Economics o f H ealth and M edical Care, j 1962 (Ann Arbor, M ich.: U n iv e r s ity o f Michigan P r e s s , 1196-4). Joseph P. Newhouse, "Toward a Theory o f Non P r o f i t I n s t i t u t i o n s : An Economic Model o f a H o s p ita l," American Economic Review , LX (March, 1 9 7 0 ), 6 4 -7 4 . M. S. F e l d s t e i n , Economic A nalysis fo r H ealth S e r v ic e E f f i c i e n c y (Amsterdam: n. p . , 1967)., 16 FIGURE 1 E Q . E E (b) i I FIGURE 2 17 C AC Q . V" (b) demand i s assumed t o be p o s i t i v e l y a f f e c t e d by in c r e a s i n g ; ! i ^ q u a lit y l e v e l s above the minimum l e v e l f o r h o s p i t a l a c c r e - i d i t a t i o n . "Further, we assume th a t th e demand f o r th e 1 7 j ! s e r v i c e s o f each i n s t i t u t i o n depends upon q u a lit y as w e ll : as p r i c e . The j u s t i f i c a t i o n f o r t h i s assum ption i s th a t | p h y s ic ia n s probably p r e fe r h ig h e r q u a lit y h o s p i t a l s and j * 9 i 'so are more i n c l i n e d to seek s t a f f p r i v i l e g e s th e r e ." j j I ! S t a r t in g w ith a q u a lit y l e v e l eq ual t o th e minimum ! ; j | a c c r e d i t a t i o n l e v e l , we determ ine an average c o s t cu rv e, i |ACq in f ig u r e 2a. Income and a l l o th e r v a r i a b l e s e x c e p t j ' p r ic e are h e ld co n sta n t and t h i s determ ines a demand curve j j j i(d d 0 ). Assuming th e demand r e l a t i o n s h i p s to e x h i b i t a j ’ i ;downward s lo p in g demand cu rv e, the firm produces at I q u a n tity l e v e l q. I f i t i s p o s s i b l e to in c r e a s e the q u a lit y o f the j output at a h ig h e r c o st (AC-,), w i l l th e firm choose t h i s I q u a lit y l e v e l ? This depends upon the r e l a t i v e movement o f the demand cu rv e, the c o s t cu rve, t h e i r s h a p e s, and ;th e d e c i s i o n making u n i t ' s f u n c t io n . ' ■ Newhouse d e s c r ib e s t h i s demand-cost r e l a t i o n s h i p ; j ■with r e s p e c t to q u a lit y and q u a n tity as a kind o f tra d e j j o f f cu rv e, i l l u s t r a t e d in f ig u r e 2b. The d e c i s i o n maker j w i l l choose the p o in t on t h i s trad e o f f curve which y i e l d s i 1 him the h ig h e s t u t i l i t y . I ^Newhouse, pp. 66- 6 7 • ....................................... . • Assuming p e r f e c t markets and no e x t e r n a l i t i e s , | t h i s model im p lie s l e a s t c o s t p r o d u c tio n . I f a m arginal f a c t o r in e q u a l i t y e x i s t e d , a p r o f i t m axim izing firm would a d ju st p ro d u ctio n to r e a l i z e e q u a l i t y and e f f e c t i an op tim al a l l o c a t i o n o f r e s o u r c e s from a s o c i a l standpoint] Under th e s i t u a t i o n o f m arginal f a c t o r c o s t - mar g i n a l revenue product i n e q u a l i t i e s , th e d e c i s i o n maker I o f t h i s model would a l s o a d ju st p ro d u ctio n a c c o r d in g ly | so as to use the a d d it io n a l valu e in s h i f t i n g the trad e o f f curve o u t, th ereb y a c h ie v in g a h ig h e r l e v e l o f i n d i f fe r e n c e . 10 Because o f primary o r g a n iz a t i o n a l and product d i f f e r e n c e s betw een the v o lu n ta ry h o s p i t a l and a c l o s e d ! p an el d e n ta l c l i n i c as in t h i s stu d y , th e f o llo w in g model may be more a p p lic a b l e . In t h i s m odel, we w i l l drop th e assum ption o f each I i j consumer i n d i v i d u a l l y p ayin g h is e n t i r e b i l l . I n i t i a l l y , j we w i l l make fou r a d d i t i o n a l assu m ption s: ] 1. th a t i n c r e a s i n g q u a l i t y l e v e l s w i l l not le a d j j to in c r e a s e d demand; j Newhouse, p. 60. In p r a c t i c e , o f c o u r s e , know le d g e i s in e x a c t and in co m p le te which p r e v e n ts adjustm ents to the maximum t h a t th eo ry d e f i n e s . For a formal p r e s e n - i t a t i o n o f d e c i s i o n problems under u n c e r t a in t y , se e Gerhard ! T in tn e r , "The Theory o f Choice under S u b je c tiv e R isk and i U n c e r ta in ty ," E conom etrica, IX (J u ly -O c to b e r , 19*11) s 298- ! 30*1. 20 | 2. th a t th e o r g a n iz a tio n u t i l i z e s a c lo s e d panel | and c l o s e d c l i n i c system ; 3. th a t a dual p arty p aying p lan e x i s t s ; 4. th a t in th e sh o rt run, th e DM U chooses a q u a lit y l e v e l , some c o n s ta n t. The j u s t i f i c a t i o n fo r assum ption 1 r e s t s upon the arguments g iv e n e a r l i e r where we s t a t e d t h a t th e a v er- 1 age consumer o f d e n ta l s e r v i c e s i s unable to judge the i I q u a l i t y l e v e l o f s e r v i c e rendered. Of co u rse, i t seems j I probable th a t the consumer i s capable o f a s c e r t a i n i n g j c e r t a i n , n o n - te c h n ic a l f a c t o r s which might be in c lu d e d j in the q u a l i t y v e c t o r ( e . g . , dreary w a itin g rooms, d i s - j tu r b in g ly lo n g w a it in g t i m e s ) . However, in t h i s stu d y , j our q u a l i t y v e c to r was t o w eigh t most h e a v ily th e t e c h - j n i c a l f a c t o r s o f q u a l i t y , w hich , w ith the p o s s i b l e ex ce p t i o n o f extrem ely poor tr e a tm e n t, d i f f e r e n c e s would not be d i s c e r n i b l e to the p a t i e n t . The above, in co n ju n c tio n w ith assum ption 2, w herein we have a c lo s e d c l i n i c , i . e . , d e n t i s t s do not b r in g p r iv a t e p r a c t i c e p a t i e n t s to the c l i n i c f o r t r e a t ment and o p era te on ly as s a l a r i e d p e r s o n n e l, means th a t j in c r e a s e s in q u a lit y w i l l not b rin g about in c r e a s e s in j 1 demand. j The t i e between in c r e a s e s in q u a l i t y and in c r e a s e d : j demand i s now se v e r e d s in c e : (1) q u a lit y i s a hidden j 21 factor for the consumer and (2) patients are not referred iby outside or inside professional staff but are members lof a closed organization. j The dual party paying plan is a financing mechanism iwhereby the trustees of the non profit institution assess 'a monthly fee on members of the consumer organization i(through employers), whether or not the member utilizes |the service. In addition to the prepaid monthly fee, a jsurcharge is levied. This surcharge is some fraction of j I the outside market value of service rendered. It is gen- i I jerally understood that the purpose of the surcharge is to |limit abuse of the clinic by overzealous patients (hypo- chrondriacs, etc.). However, it is readily apparent that i the actual surcharge may be more than sufficient to deter abuse and may further limit the quantity demanded. j To the consumer, then, the prepaid monthly fee may ; 1 i jbe viewed as a sunk cost whereas the surcharge would be !considered as a variable cost. In the clinic dental plans ; ;of this study, the prepaid contribution is mandatory for ■all members of the union (it is considered an employer | • I i contribution). Employees are not free to decide whether lor not they wish to be members of the plan. In effect, j a decision not to be a member of the plan would entail a decision either to be a non union employee or a decision i I ‘ ' i |to change occupations. i For exam ple, th e consumer i s d e c id in g w hether or j !not he w i l l make a v i s i t f o r a d e n ta l checkup. In order j to d ecid e whether or not he w i l l go, he c o n s id e r s con- I v e n ie n c e (le n g th o f tim e , s t a t e o f a p p reh en sion , a c c e s - ! s i b i l i t y ) ; the r a m if i c a t io n s which might occur i f he d e c id e s not t o go; and th e money c o s t . What i s the money j ; | ; c o st o f t h i s checkup? The v a r ia b le c o s t s are th e s u r - | ■ i i charge; the overhead, or f i x e d , c o s t i s th e f i x e d p rep aid | J T \ c o n t r ib u t io n . The r a t i o n a l consumer, th e n , would in con- ! i I i j s i d e r i n g h is v i s i t , be concerned w ith only v a r ia b le c o st | ! i la s th e money c o s t . His f ix e d c o n tr ib u tio n i s made whether j i ! lo r not he r e c e iv e s a checkup. { i j i T h is, th e n , il lu m in a t e s the e s s e n t i a l r e l a t i o n s h i p ! o f demand w ith r e s p e c t t o th e su rch a rg e. Demand i s a func-j t i o n o f the su rch a rg e, s in c e o th e r v a r ia b le s such as ' t a s t e s , tim e , a p p reh en sion , and a c c e s s i b i l i t y are in a c o n v e n tio n a l manner h e ld to be c o n s ta n t. This r e l a t i o n s h i p can be i l l u s t r a t e d in a sim ple two d im en sio n a l diagram, F igure 3. This w i l l be r e fe r r e d t o as a " p a r t ia l r e m it t a n c e " demand cu rve. In Figure 3, i f the surch arge i s $3, jthe q u a n tity demanded ( p a t ie n t v i s i t s ) i s Q. Average j jc o s t i s $40 and the r e s id u a l fund payment i s $37. I f , i { in s t e a d , th e surch arge i s $6, l e t us s a y , th e q u a n tity I idemanded i s Q*. The average c o s t i s $35 and th e r e s id u a l ! j ; j fund payment i s $2 9 . j 23 FIGURE 3 $ C AC 40 35 Q t SC • ' 1 24 ! Thus, i t i s apparent t h a t , by m a n ip u latin g the 's u r c h a r g e , the firm may o p era te on any p o in t o f th e average j c o s t curve i n s i d e th e demand cu rv e. In the p r o f i t m axi- !m izing firm , output l e v e l i s determ ined where m arginal revenue i s eq u al to m arginal c o s t . In the f i r s t non ; p r o f i t m odel, output was determ ined where average c o s t j ; was equal to average reven u e. In t h i s model, output i s ; determ ined through th e p a r t i a l rem itta n c e demand curve j I j !where the d e c i s i o n maker chooses a surcharge l e v e l j u s t j ; j I s u f f i c i e n t to e l i c i t a q u a n tity demanded which maximizes j 11 • ; h is p r e fe r e n c e f u n c t io n . I f , fo r purposes o f a n a l y s i s , i : i : we h o ld th e q u a l i t y l e v e l co n sta n t (s h o r t-r u n s t a t i c s ) , j we may c o n c e n tr a te on t h i s output d e c i s i o n in terms o f \ q u a n tity o n ly . Our concern i s not w ith the primary com- : ponent which u n d e r lie s th e m o t iv a t io n a l core o f the I d e c i s i o n maker. In a d d itio n to the a d m in is t r a t o r 's con- ; j s i d e r a t i o n o f p r o v id in g th e q u a n tity o f s e r v i c e s demanded, : and th e accompanying power, p r e s t i g e , and p u b lic s e r v i c e : r e c o g n i t io n he g a in s in p r o v id in g t h i s s e r v ic e (which are ! 12 ! j accoun ted f o r in h i s supply p r i c e ) , th e a d m in is tr a to r j 1 ! j ; i ]_1 j I This i s r e m in is c e n t o f the c r i t i c a l im p li c a t io n s i | th a t e x i s t when ownership and c o n tr o l are se p a r a te d in j j th e modern la r g e c o r p o r a tio n . I | 12H. T. K op lin , "The P r o f i t M axim ization Assump- j t i o n , " Oxford Economic Papers , XV ( J u ly , 1963), 1 3 0 -3 9 . j ! 25 I considers the basic guiding objectives of the foundation ;important. "First, the behavior must be minimally oriented i I to a common organizational purpose, or it would not be ! meaningful to speak of an organization. The adminis trator is hired and paid by the clinic (foundation) and thus there is a loyalty or affiliation to the foundation 'itself.1^ The administrator's non-pecuniary awards are | intimately bound up with the organization with which he j is associated. | Generally, in a non profit organization, the ad- | ministrator's performance is evaluated in light of a ! 15 1 governing objective by a board of trustees. ^ Usually, the primary objective of the governing board is couched in such general terms, that it becomes necessary for the i administrator to operationalize the objective. In the ' decision maker's attempt to set up the operational equi valent of the initially stated goals, the operational ; equivalent is undoubtedly influenced by the decision maker's perceptions and past experience. ’ ^ v . A. Thompson, Modern O r g a n iza tio n (New York: i A lfr e d A. Knopf, I n c . , 1 9 6 l ) , p. BlT ! i l l j S ta n le y S c h a c h te r , The Psychology o f A f f i l i a t i o n | (S ta n fo r d , C a lif o r n ia : S ta n fo r d U n iv e r s it y P r e s s , 1 9 5 9 ). i 1 5 j ^This may be i n t e r p r e t e d as an a p p l i c a t i o n o f the I Darwinian p r i n c i p l e o f " su r v iv a l o f th e f i t t e s t " t o th e a d m in is tr a to r . 26 For exam ple, the o b j e c t i v e might be to provid e 16 ! " dental care as e f f e c t i v e l y and e co n o m ic a lly as p o s s i b l e . " |However, what i s meant by as "econ om ically as p o s s ib le ? " I ! Is the govern in g o b j e c t i v e one o f e f f i c i e n c y or economy? : To a ch ie v e a g iv en output l e v e l at l e a s t c o s t i s eco n o - ^ m izin g. E f f i c i e n c y r e f e r s to th e achievem ent o f maximum I 17 ; output from g iv e n r e s o u r c e s . C onfusion may a r i s e between i j t h e s e two concep ts and t h e i r im p li c a t io n s . I In a r e c e n t paper concerned w ith h e a lt h care c o s t 1 j o b j e c t i v e s , Lawrence H i l l (D ir e c to r o f Bureau in H o s p ita l j A d m in istr a tio n , School o f P u b lic H e a lth , U n iv e r s ity o f I M ichigan) s t a t e s th a t: Perhaps th e g o a l can b e s t be d e s c r ib e d by u s in g a very s i m p l i f i e d model, w herein th e inpu t i s composed o f r e so u r c e s purchased and th e m ed ical care p r o c e s s i t s e l f , and th e output ; i s p a t ie n t c a re . The c o s t o f care i s r e - • f l e e t e d by th e c o s t o f the r e s o u r c e s used as i inp ut and t h e i r use w ith in th e m edical care j p r o c e s s . The e f f i c i e n c y o f the system can j be d e s c r ib e d as a f r a c t i o n , (Cost o f I n p u t ) / I (Units o f Output) = (Cost per u n it o f O utput). ! O b v io u sly , t h i s model i s o v e r s im p l if ie d . For ' one t h in g , i t ig n o r e s q u a l i t y o f o u tp ut, j Given the assum ption, however, t h a t q u a lit y j remains c o n sta n t . . . th e g o a l sought i s a i r e d u c tio n in th e value o f t h i s f r a c t i o n ; j U .S ., Department o f H e a lth , E d u cation , and Wel- { f a r e , Comprehensive D ental Care in a Group P r a c t i c e , P u b lic H ealth S e r v ic e P u b lic a t io n No. 395 (W ashington, D.C.: ! Government P r in t in g O f f i c e , 195^0* p. 2. 1 ^D. S. Watson, P r ice Theory and I t s Uses (2d e d . ; Boston: Houghton, M i f f l i n Co. , 1 9 6 8 ), pp. 1 0 -1 1 . 27 that is, an increase in output relative to input or a decrease in input relative \ to output. 18 i | It seems that such average figures are, more ioften than not, used as accounting indices of administra- ! i i g i tive performance. One way of satisfying this objective would be to |o p e r a te , f o r exam ple, at p o in t Q on F igure 3- Can we expect that the decision maker will always try to operate j at this particular breakeven figure? The implications jof our model indicate that he will not necessarily do so. Since it is in the interest of the administrator ito appear to be implementing efficiencies, so as to keep costs down, and since he is able, given the partial remit- jtance demand curve, to manage the quantity demanded, he |may go beyond the least cost production to minimum average j cost production, wherein it is not visible that any shor- i tages of service exist (level Q* where quantity supplied iequals quantity demanded). The administrator thereby | brings about a lower average cost of operation (his i I — --------------------------------- 1 1 R | Lawrence A. Hill, "Financial Incentives: How iThey Could Reshape the Health Care System," Hospitals, jXLIII (June, 1 9 6 9 ), 58. i i g ^Even in profit firms, it has been said that it is unlikely that the DMU’s have frequently used marginal cost calculations. See W. W. Cooper, "A Proposal for Extending the Theory of the Firm," Quarterly Journal of I Economics, LXV (February, 1 9 5 1 ), 87-1 0 9 . 28 accou ntant can s u b s t a n t i a t e t h i s ) , whether or not he i s c o m p lete ly c o n sc io u s o f th e means by which he s a t i s f i e s h i s c o st m in im izin g g o a l. This i s another major d i f f e r e n c e between t h i s model and a l l o th e r m od els, and s o , a p r i o r i may comprise one t e s t o f th e c o s t m in im izing h y p o t h e s is . An a l t e r n a t i v e i n t e r p r e t a t i o n y i e l d s fu r th e r ex p la n a to ry power. Let us assume a l e s s r e s t r i c t i v e c o st m inim izin g b eh a v io r in co n ju n c tio n w ith an output maxi m izin g h y p o t h e s i s . A llow in g fo r th e p o s s i b i l i t y o f a su rp lu s o f r e v e n u e s, perhaps f o r fin a n c in g th e expansion o f th e f a c i l i t y , we now have a c o n s t r a in t on output maxi m iz a tio n in the form o f a s p e c i f i e d s u r p lu s . In t h i s t h ir d model th e su rp lu s i s r e m in isc e n t o f Baumol's m in i mum a c c e p ta b le p r o f i t c o n s t r a in t on the m axim ization o f t o t a l revenue ( d o l l a r s a l e s ) . The c l i n i c d i r e c t o r i s then a ttem p tin g to maximize output (but not revenue) giv e n a budget and a su rp lu s t a r g e t . A gain, th e firm w i l l o p era te at some l e v e l o f s e r v i c e t o th e l e f t o f p o in t Q in F igure 3. The ex a ct p o s i t i o n i s now b e in g determ ined by th e s i z e o f the g iv e n s u r p lu s . 29 M athem atical Model: B a s ic Assumptions 1. In the sh ort run, the fir m 's d ir e c t o r chooses some q u a lit y l e v e l . W e take t h i s q u a lit y l e v e l as a c o n s ta n t. 2. There e x i s t s a t o t a l c o st eq u a tio n r e l a t i n g f a c t o r q u a n t i t i e s o f the fir m 's m v a r ia b le f a c t o r s to t o t a l t c o s t . ! [ 3. There e x i s t s a c o st fu n c tio n r e l a t i n g t o t a l c o st to o u tp ut. 4. The r e s id u a l o p e r a tin g c o s t s not covered by s u r charge revenues are p aid fo r out o f a w e lfa r e budget ad m in is te r e d by th e t r u s t e e s o f the c l i n i c . 5. There e x i s t s a " p a r tia l rem ittan ce" demand curve r e l a t i n g output s e r v i c e s to p a t ie n t su r c h a r g e s. | 6. The o b j e c t iv e o f the firnfs d i r e c t o r i s to m inim ize 1 average sh o rt run c o s t . A l t e r n a t i v e l y , he might maximize j o u tp u t. 7- There e x i s t s a con tinuous p ro d u ctio n fu n c tio n r e l a t i n g a s e t o f f a c t o r v a r ia b le s to a s e t o f product v a r i - i a b le s . The p rod u ction fu n c tio n e x h i b i t s d e c r e a sin g mar- i g i n a l p r o d u c t iv it y fo r a l l fa c to r -p r o d u c t co m b in a tio n s, I and a d e c r e a sin g r a te o f t e c h n i c a l s u b s t i t u t i o n between ahy two f a c t o r s . 8. The firm may purchase some f a c t o r s as a monopsonistj or i t could be th a t th e firm has a c o m p e titiv e f a c t o r j i market. (The l a t t e r ca se i s probably more r e a l i s t i c . ) ! 9* The param eters do not change under th e tim e p e r io d s is t u d ie d — sh o rt run a n a l y s i s . | Q u a lity ; Symbolic Com position At any tim e p e r io d t = 1, 2, . . . , n, a q u a l i t y l e v e l qL e x i s t s fo r the fir m , where qL i s a s e t o f a l l p o s s i b l e l e v e l s Q^. The q u a lit y l e v e l o f th e c l i n i c i s seen as th e q u a l i t y l e v e l s o f i t s departm ents. Assume |a v e c t o r o f r r e a l valu ed department q u a l i t y v a r i a b l e s . i |The q u a l i t y v a r i a b l e s might be numbers o f s e r v i c e s , num- I ;ber o f s p e c i a l i s t s a v a i l a b l e , o p e r a t o r ie s p r o v id e d , age |o f d e n ta l equipm ent, e t c . . Let a^t (j = 1, . . . , n) be i ithe v e c t o r o f department j ' s q u a lit y v a r i a b l e s in a s e t o f p o s s i b l e q u a l i t y v e c t o r s A .. Then J (2 -1 ) qLt = (a l t , . . . , afflt) !i s a v e c t o r in mr d im en sio n a l r e a l sp a ce. The q u a lit y c o n tr o l awareness o f each department jCjt i s dependent upon communication about q ^ ; i s an ‘elem ent o f a s e t Cj o f th e p o s s i b l e outcomes in communi- je a tin g a c t i v i t i e s o f the departm ent. The q u a l i t y c o n t r o l ) awareness c ., i s some fu n c tio n o f the q u a l i t y l e v e l o f J ^ th e c l i n i c at time t , and $ i s then th e s t r u c t u r e o f communication to th e departm ent. W e have then 31 Departmental a c t i v i t i e s concern a l t e r n a t i v e t r e a t ment procedures p .. open to i t fo r ch o ic e from a s e t J z I o f procedures , and p^t i s c o n str a in e d by th e aj - f ! Some fu n c tio n ft. e x i s t s such th a t: ! <J :(2 -3 ) p Jt = 3j(c.t , aJ t ) : Then pt = (pl t j • ••> Pmt^ may be a v e c t o r o f procedures I | i n a l l d ep a rtm en ts. The q u a lit y l e v e l ql t f o r the c l i n i c may change [over tim e. I t i s p o s s i b l e to s u g g e st t h i s as: j j (2 -4 ) ^Lt+1 = a ^qL t J Pt s ^ I f $ i s a channel o f a u d it in g as w e ll as communi c a t io n ( f o r example a g e n e r a l d ia g n o s t ic c e n t e r working | f o r a l l o th e r d ep a rtm en ts), u n ifo rm ity in treatm en t p r o - Icedures may be m ain tain ed so as t o e f f e c t a chosen q u a lit y i j l e v e l qLt f o r th e c l i n i c as a w hole. i Q uantity: Symbolic Composition i } J W e have a tra n sfo r m a tio n p r o c e ss g iv e n by: I I (2 -5 ) X (S15 . . . , Sm, I 1 , . . . , I n ) = 0 where: (2 -6 ) > _ 0 are s e r v i c e s ( i = 1, . . . , m) 32 and: (2 -7 ) I . > 0 are in p u t f a c t o r s (j = 1 , ..., n) J D enoting t o t a l c o s t as C, we have a c o s t eq u a tio n (2 -8 ) C = c ( I 1 , . . . , I n ) Let th e f ir m 's t o t a l income be Z, th e budget = E, and R the revenue from s u r c h a r g e s , then (2 -9 ) Z = R + (E-R) where (2 -1 0 ) R = r ( S 1 , ..., Sm) and (2 -1 1 ) E = E 1, g iv e n , where (2 -1 2 ) C - R = E. I f e q u a tio n (2 -1 2 ) i s p e r m itte d in th e sh o rt run to be an i n e q u a l i t y as (2 -1 3 ) C - R. < E, 20 then a typ e o f su rp lu s i s g e n e r a te d f o r th e fund. I f (2 -1 2 ) i s such th a t (2 -1 4 ) C - R > E, then a type o f d e f i c i t p o s i t i o n i s ap parent. But i f on A su rp lu s might be g en era te d f o r improvement o f f a c i l i t i e s at anoth er p e r io d in th e lo n g run. Then: (C - R + M) = E where M = s u r p lu s . 33 |e q u a tio n (2 -1 2 ) h o ld s then a s t a t i c c o n d it io n i s f u l - | !f i l l e d . ! ! Assuming each consumer has some demand fu n c tio n j j o f th e type (2 -1 5 ) s ±j = s 1 J (P1 , Pn , Y± ) ( i = 1 , ..., m; j — 1 , . . . j n ) ;where i n d i v i d u a l i has an income taken as a co n sta n t and a l l o th e r p r ic e s are a l s o assumed c o n s t a n t . I f P. J i s th e surch arge to i n d iv i d u a l i f o r th e p a t i e n t j s e r v ic e v i s i t , we have | ( 2 — 16) S1j = s ^ t P j ) ( i = 1, . .., m; j = 1, . . ., n) i The c l i n i c demand S. f o r th e p a t i e n t s e r v i c e 1 J 1 v i s i t , a t a g iv e n surcharge P ' , i s th en th e sum o f th e 'q u a n t it ie s o f a l l i n d i v i d u a l s , (2 -1 7 ) Sj = £ S ^ .t P 1) (j = 1, ..., n; over a l l P ') where dS/dP i s n e g a t iv e , and th e fu n c t io n as a s i n g l e v a l ued f u n c t io n o f th e surcharge may be e x p r e s s e d as th e i n v e r s e g e n e r a l form ( 2 - 1 8 ) P = p ( s ) I f th e output l e v e l i s s p e c i f i e d , th en th e s u r charge i s u n iq u ely d eterm ined. W e assume th e firm to have ■some c o s t f u n c t io n , which f o r p r e s e n t p u rp oses o n ly , i t 34 i s con ven ien t t o e x p r e ss as: j | ( 2- 19 ) C = aS2 + bS + f I ;where a , b, and f are c o n s t a n t s . The average c o s t fu n c - :t i o n i s then. : ( 2 - 2 0 ) C' = as + b + f / s | d i f f e r e n t i a t i n g C ', and s e t t i n g equ al to z e r o , j (2 -2 1 ) dC'/dS = a - f / S 2 = 0 I i i I s o l v i n g fo r S and th en i n s e r t i n g S i n t o e q u a tio n ( 2 - 1 8 ) , iwe f in d the su rch arge. T h e r e fo r e , once the eq u ation s are ;known we can determ ine a unique surcharge ra te and s e r - ;v ic e r a t e . I f we in t e r p r e t our c o s t m inim izing assum ption ;in a l e s s r e s t r i c t i v e form, th a t o f average l e a s t c o s t ip ro d u ctio n , we then s u b s t i t u t e a system o f sim u ltaneous s o l u t i o n on e q u a tio n s (2-10), (2-12), (2 -1 8 ) and (2- 1 9 ). i C onclusions i \ A fter i n d i c a t i n g th a t the p r o f i t maxim izing assump t i o n o f c o n v e n tio n a l economic th eory i s a n t i t h e t i c a l t o the non p r o f i t firm , we in q u ir e d as to th e b a s ic nature o f th e non p r o f i t problem and the c h a lle n g e i t p r e s e n ts fo r economic th o u g h t. C o n sid e ra tio n was g iv e n to th ree models o f the non p r o f i t firm . The f i r s t model a ffo r d e d 35 ;some i n s i g h t i n t o th e long run a n a ly s is o f a f i r m ’s o u t- I I ^put d e c i s i o n in two d im en sio n s. The second model i n c o r - iporated sim ple o p e r a tio n a l assum ptions reg a r d in g c l i n i c |o r g a n i z a t i o n . The t h ir d model i s an output maxim izing ;model w ith a g iv e n su rp lu s and budget c o n s t r a i n t . The ' f o llo w in g are i n t e r e s t i n g c h a r a c t e r i s t i c s o f the m odels. 1. A l l th e models are c o n s i s t e n t w ith , as they Ibuild upon, the c o n v e n tio n a l s t a t i c framework. O b v io u sly , i t h i s opens the th eory to th e w eaknesses e x i s t i n g in such a framework. Without denying most o f t h i s c r i t i c i s m , I jmay sim ply p o in t out th a t much th a t has been g ain ed in i ■contemporary econom ics has been through th e u t i l i z a t i o n I o f j u s t t h i s type o f co n c e p tu a l framework. 2. The fundamental b e h a v io r a l prem ise o f each model i s one o f r a t i o n a l c h a r a c te r and r e t a i n s th e t r a d i t i o n a l s e l f i n t e r e s t m o tiv a tio n . 3* The r e s u l t s o f our second non p r o f i t model are s i m i l a r t o th o se o f the c l a s s i c a l p r o f i t m axim izing :model in p e r f e c t c o m p e titio n . j it. The models have t e s t a b l e i m p l i c a t i o n s . j ) The fo u rth p ro p erty perhaps i s the most p r e s s in g . However, i t i s not the purpose o f t h i s ch ap ter t o go beyond a p r i o r i c o n s id e r a t i o n s ; a p p lie d r e se a r c h must f o ll o w the t h e o r e t i c a l . I t would be p r e t e n t io u s f o r t h i s e s s a y to claim to be the d e f i n i t i v e sta tem en t on non p r o f i t th e o r y . 36 None o f the above models i s o f f e r e d as "the" model in c o r p o r a tin g a l l th e " r e a l i s t i c " m otives and o b j e c t i v e s o f the DMU. I t would be unreasonable to assume such a theory co u ld e x i s t . I have not attem pted to promote any one model but r a th e r to dem onstrate th a t a d i v e r s i t y o f m otives are fu n g ib le w it h in a broad framework and th a t they e l i c i t c o n c lu s io n s fo r non p r o f i t b eh a v io r as i n t e r e s t i n g as th e theorems o f c o n v e n tio n a l p r o f i t o r ie n te d m odels. In v e n tu rin g i n t o t h i s la r g e l y unexplored area i t i s hoped th a t the author has been s u f f i c i e n t l y c a u tio u s so as not to have opened a Pandora's box. I f I might p ara phrase David Hume, . . . a man has but a bad grace who d e l i vers a th e o r y , however t r u e , which le a d s to a p r a c t ic e dangerous and p e r n ic io u s . Why rake i n t o th o se corners which spread a n u isan ce a l l around? [ i CHAPTER I I I I S DISTINCTIVE ECONOMIC CHARACTERISTICS OP i | THE DENTAL HEALTH CARE FIELD i The major u n d e r ly in g param eters o f th e demand f o r d e n ta l s e r v i c e s are (a) consumer t a s t e s and p r e f e r e n c e s , j (b) the p r ic e o f d e n ta l care w ith r e s p e c t to the p r ic e i ! j ! o f o th e r goods and (c ) the income o f the consumer a n d /or j ; the e f f e c t o f prepayment p la n s on th e income o f the con - j ' sumer. { i Demand: T a stes and P r e fe r e n c e s i i -------------------------------------------------------------------------------------------------- i I | Consumer t a s t e s and p r e fe r e n c e s p lay a unique j j ! ; r o l e in d eterm inin g the demand f o r d e n ta l s e r v i c e s . S e l f - > \ ! i a ssessm en t o f "need" fo r d e n ta l care i s u s u a lly much low er i I 1 • than th e assessm en t o f "need" by a d e n t i s t . In one survey,j 60-70 p e r c e n t o f th o se q u e s tio n e d e s tim a te d the h e a lt h o f | t h e i r t e e t h t o be "very good" whereas the d e n ta l examiner 1M. L. D o lla r and Hugo K u lstad , The Economic As- j p e c ts o f the D ental H ealth Problem , X I, 3^3^ quoted IrT"W. J; P elto n and J . M. Wisan, e d s . , D e n tis tr y in P u b lic H ealth J ( P h ila d e lp h ia : Saunders and C o., 19^ 9), p. 231. I 37 ; c o n s id e r e d on ly 10-11 p e r c e n t o f th o se resp on d in g to -b e i 2 | i n good d e n ta l h e a lt h . ! Thus i t can be s a id th a t the demand f o r d e n ta l | ! care i s much low er than th e need f o r th o se s e r v i c e s as j d e fin e d by d e n ta l h e a lt h p r a c t i t i o n e r s . N e v e r t h e l e s s , :t h i s s e c t i o n i s concerned w ith demand and th e rea so n s fo r I changing t a s t e s and p r e fe r e n c e s which a f f e c t the l e v e l jo f th a t demand. Demand i s d e fin e d as th e v a rio u s q u a n ti f i e s o f d e n ta l s e r v i c e s th a t consumers w i l l take from the f I imarket at each p o s s i b l e a l t e r n a t i v e p r i c e , in v o k in g th e I normal c e t e r i s p arib u s c o n d it io n . The market f a c in g the ! !consumer o f d e n ta l s e r v i c e s cannot be t y p i f i e d by the I economic c l a s s i f i c a t i o n o f p e r f e c t c o m p e titio n s in c e the d i s t i n g u i s h i n g assum ption o f t h i s ca teg o ry i s a b se n t. W e cannot assume p e r f e c t knowledge o f the p a r t i - jcip a n ts in the market f o r d e n ta l s e r v i c e s , e s p e c i a l l y on |th e p a rt o f th e b uyer. Not on ly do consumers f in d them- .s e l v e s w ith ou t adequate in fo r m a tio n on p r i c e s o f th e s e r - iv ic e s in v o lv e d , but u s u a l ly th ey are in c a p a b le o f ju d gin g •the typ e or amount o f s e r v i c e s needed f o r d e n ta l h e a lt h . j :A c c o r d in g ly , the consumer must r e l y on th e d e n ta l p ra c t i t i o n e r to determ ine the q u a l i t y and q u a n tity o f th e 2 J . S. Bulman, e t a l . , Demand and Need f o r D en tal Care (London: Oxford U n i v e r s it y P ress f o r N u f f i e l d Pro v i n c i a l H o s p it a ls T r u s t, 1 9 6 8 ), pp. 3 1 -3 2 . 39 s e r v i c e s rendered. At the o n se t o f d e n ta l c a r e , i t i s j o f t e n d i f f i c u l t f o r even th e s e l l e r to judge the q u a n tity | or v a r i e t y o f d e n ta l care which w i l l be in v o lv e d in the i i I | t r a n s a c t i o n . j i Because o f the unusual nature o f th e d e n ta l care I I market and the n a iv e t e o f the consumer, the demand fo r i id e n t a l s e r v i c e s i s l e s s than what would be o th erw ise t e x p e c te d (as judged by p u b lic h e a lt h s p e c i a l i s t s ) . iThe consum er's c o n c e p tio n o f good d e n ta l care v a r ie s w ith h i s l e v e l o f h e a lt h e d u c a tio n . One d e n t i s t e x p la in e d : Many p eo p le s i n c e r e l y b e l i e v e th a t a d e n t i s t i s someone to be v i s i t e d only when th ey have a to o th a ch e . . . to them, a d e n t i s t i s someone who ta k es out t e e t h more or l e s s p a i n f u l l y and t h e r e f o r e i s someone to be avoided ex c e p t in c a se s o f emergency. 3 I t i s u s u a lly the low er income c l a s s e s which a tta c h |s m a ll im portance t o p r e v e n tiv e d e n t i s t r y . Much o f t h i s ! s p r in g s from the i n a b i l i t y or n e g lig e n c e on th e p art o f I ; d e n ta l h e a lt h workers to w id e ly d is se m in a te in fo rm a tio n • on p r e v e n tiv e d e n t i s t r y . Lower income c l a s s e s purchase i j l e s s d e n ta l care s e r v i c e s becau se th ey th in k "my t e e t h w i l l | Ii [ f a l l out sooner or l a t e r anyway." A high p ercen ta g e o f 3I b i d . , p. 6 3 . li J . S. Western and D. S. Anderson, "The D ental Pro f e s s i o n and P u b lic A t t i t u d e s , " A u s tr a lia n D ental J o u r n a l, XIV (Ju n e, 1 9 6 9 ), 203. 40 t h i s c l a s s have t e e t h p u lle d in t h e i r te e n s and have den- itu r e s in t h e i r m id -tw e n tie s . "This i s by no means s u r - j p r is in g to them . . . and even f e e l t h a t th e r e are some ! 5 jadvantages in d en tu res over n a tu r a l t e e t h . S u r p r is in g ly , most p e o p le , in c lu d in g th e l e s s ‘e d u ca ted , agree th a t r e g u la r b ru shing and p e r i o d i c check ups are "good." However, th e im petus to f o llo w through |w ith good p e r s o n a l d e n ta l care i s g r e a t l y impeded by s e v e r a l f a c t o r s : (a) c o n s c ie n t i o u s home care o f the t e e t h |would show few p o s i t i v e r e s u l t s in th e sh o rt run; (b) con- ;sumer p r i o r i t y f o r d e n ta l care i s low over a range o f o th er imore consp icu ou s consumption goods; (c) th e need fo r ! (p rev en tiv e care i s o b v ia te d by the example o f f u l l den atures and consumer s a t i s f a c t i o n w ith them; (d) la c k o f :understanding or m isu n d erstan d in g o f what a d e n t i s t does land the f e a r o f p a in , u n e a s in e s s or r e p r i s a l by th e den- i t i s t impedes g e n e r a l checkups; (e) th e g e n e r a l a t t i t u d e o f th e p u b lic towards a d e n t i s t and th e d e n ta l p r o f e s - jsion i s mixed. These a t t i t u d e s on th e part o f low er income consumers have f o s t e r e d an a d a p tiv e approach on th e part o f some d e n t i s t s . The d e n t i s t , c o n s id e r in g th e s e im peding f a c t o r s , w i l l o f t e n choose l e s s than optimum d e n ta l -'James Morse Dunning, P r i n c i p l e s o f D ental H ealth (2d e d .; Cambridge, M ass.: Harvard U n iv e r s it y P r e s s , 1970), p. 185. 41 ! treatm en t I f in h i s judgment, l i t t l e care w i l l be taken ' 6 by th e p a t ie n t to m ain tain the d e n t i t i o n . P o in t e , above, d e s e r v e s su p p lem en tal a t t e n t i o n s in c e i t i s th e p iv o t p o in t around which many consumption j d e c i s i o n s tu rn . S e v e r a l su rveys have d is c o v e r e d th a t in I th e o v e r a l l h e a lt h care f i e l d , d e n t i s t s have a r a th e r poor ; image in th e minds o f th e p u b lic compared, f o r exam ple, |w ith p h y s i c i a n s . S e v e r a l a s p e c ts o f p u b lic m is t r u s t are ! im p ortan t. Some members o f th e p u b lic b e l i e v e th a t: i i . . . d e n t i s t s charge too much f o r t h e i r s e r - j v i c e s and th a t th e s e r v i c e s r e c e iv e d are I not worth th e ex p e n d itu r e in v o lv e d . Some ! b e l i e v e d e n t i s t s c r e a te work. I f one g e t s i n t o th e hands o f a d e n t i s t , he w i l l keep j one r e t u r n in g , o s t e n s i b l y to en su re th a t • the t e e t h are kept in good o r d e r , but p r i m a rily to ensure th a t th e p a t i e n t keeps p ayin g him over a lon g p e r io d o f tim e. He [ d e n t i s t ] i s not seen in th e r o le o f a h e lp e r who cau ses p ain in the course o f i c u r in g an i l l , but as someone who w i l l | a t t a c k the p a t i e n t in a s a d i s t i c way. 7 j jSummarizing th e rep o rt o f an e x p lo r a to r y s tu d y , R. T. ;Martin sa y s: I t became i n c r e a s i n g l y c l e a r to th e r e s e a r c h team th a t th e r e was a tremendous amount o f e x a g g e r a te d f e a r co n cern in g th e d e n ta l s i t u a t i o n . A s t r i k i n g d i s t o r t i o n o f r e a l i t y and a h ig h in c id e n c e o f i n t e l l e c t u a l Wesley 0. Young and David P. S t r i f f l e r , The Den t i s t , His P r a c t i c e , and His Community (2d e d . ; P h ila d e lp h ia : W . B. Saunders C o ., 1969 ) , p. 183. "^Western and Anderson, p. 200. d e n ia l con cernin g the f a c t s o f d e n ta l j h e a lt h and d e n ta l tre a tm e n t, and a u b i q u it o u s , a g g r e s s i v e , and h o s t i l e r e s e n t ment towards d e n t i s t s [ s i c ] . 8 I t i s apparent th en th a t the p u b l i c ' s im p erfect degree o f knowledge about the s e r v i c e s th a t a d en ta l p r a c t i - c io n e r renders and the t y p i f i c a t i o n o f th e d e n t i s t h i m s e l f , mars the a b i l i t y o f the p u b lic to i n t e l l i g e n t l y choose j d e n ta l ca re . This f a c t o r i s v i t a l l y im portant in under s ta n d in g the demand fu n c tio n f o r d e n ta l h e a lt h care s e r - j I v i c e s . j I An exam ination o f the p u b l i c ' s a t t i t u d e towards j d e n ta l care and an acquain tance w ith the " i n t e l l e c t u a l j d e n ia l" found by Martin in h is study a ffo r d some i n s i g h t i n t o th e f l u o r i d a t i o n i s s u e . D ental h e a lt h w ork ers, un t i l r e c e n t l y , have not been ab le to provid e mass p reven t i v e a c t io n a g a in s t d e n ta l c a r i e s . However, th e d isc o v e r y th a t f l u o r i d a t i o n o f a w ater supply i n h i b i t s d e n ta l d is e a s e ! i b r in g s one a sp ect o f d en ta l care in t o the f i e l d o f c o l l e c t i v e good. The c h a r a c t e r i s t i c o f a c o l l e c t i v e good i s ! the i n a b i l i t y to i d e n t i f y th e q u a n tity o f b e n e f i t s which accrue to th e i n d i v i d u a l . This i s tru e o f f l u o r i d a t e d I w ater s u p p lie s where th e b e n e f i t s accrue to some i n d i v i - q duals and th e f l u o r i d a t i o n i s p u b l ic l y fin a n c e d . i 8 I b i d . 9 For exam ple, th e primary b e n e f i t s o f f l u o r i d a t i o n j - - 4 3 Probably no o th e r i s s u e r e l a t e d to d e n ta l h e a lth (has r e c e iv e d such w idespread n o t o r i e t y . Proponents o f ! f l u o r i d a t i o n argue th at a d a ily dosage o f one p art per ;m i l l i o n o f f l u o r i d e in th e d a ily w ater supply w i l l cause reduced d e n ta l c a r i e s , w ith the g r e a t e s t e f f e c t upon ; c h ild r e n . T y p i c a l l y , the r e d u c tio n s approximated 60 p e r - i c e n t . 10 However, the r e d u c tio n or n o n -r e d u c tio n o f den- | t a l c a r i e s soon became a s id e i s s u e fo r th e opponents o f I f l u o r i d a t i o n . i Some a n t i - f l u o r i d a t i o n i s t s found i t i p e r f e c t l y r e a so n a b le to suppose th a t s c i e n - ; t i s t s would len d th e m se lv e s to a co n sp ira cy ; w ith enemies o f our country (th e Communist b ra in washing p l o t ...) and at th e same time would perm it th em selv es to be used by a g ia n t monopoly (th e Aluminum C orporation o f America) . . . iOther arguments are th a t f l u o r i d e i s deadly in la r g e .am ounts, concern f o r p o s s i b l e sab o ta g e o f th e w ater su p p ly , land r e s p e c t f o r the i n d i v i d u a l ’s r i g h t s ( i . e . , f l u o r i d a t i o n i s compulsory mass m e d ic a tio n ). j In 1968, fou r s t a t e s re q u ir e d f l u o r i d a t i o n in any approved w ater su p p ly. I t i s g e n e r a lly b e l i e v e d by only accrue to c h ild r e n whose d e n t i t i o n are s t i l l in t h e i r form ative s t a g e , w h ile even " to o th le s s " o ld maids pay f o r the f lu o r i d a t e d w ater. 1(^For a com plete laym an's in t r o d u c t io n to th e f l u o r id a t io n i s s u e , see Dunning, ch. x v i . ^ D u n n in g , p. 191. 1 I : M 1 : | ;many d e n t i s t s th a t f l u o r i d a t i o n w i l l e v e n t u a lly tak e p la c e j i ' ! Sin most la r g e w ater s u p p l i e s . Why do d e n t i s t s approve o f j ; i j f l u o r i d a t i o n ? W ill not f l u o r i d a t i o n d ecre a se the o v e r a l l I I : demand f o r t h e i r s e r v ic e s ? Are d e n t i s t s r e a l l y th a t hum anitarian? A c t u a lly , w ater f l u o r i d a t i o n may r e s u l t in j th e e x t e n s io n o f d e n ta l care to a la r g e r p r o p o r tio n o f th e j ip o p u la tio n than now r e c e i v e s i t . A dults who p r e v io u s ly } ! I I l o s t a l l t h e i r t e e t h at an e a r ly age now keep t h e i r | i I i d e n t i t i o n and thus the demand f o r d e n ta l care should even ' 12 ! in c r e a s e per p erson . T h erefo r e, promotion o f f lu o r i d a t e d ! w ater by the d e n ta l p r o f e s s i o n would be c o n s i s t e n t w ith j i 13 i S sim ple s e l f i n t e r e s t m o t iv a t io n s . i 1 2 Jou rn al o f th e American D ental A s s o c i a t i o n ^ ; LXXV (A ugust, 1 9 6 7 ), 282". : "^Alexander R. M a u rizi, in h is a n a ly s is o f m igra- i t i o n o f d e n t i s t s s t a t e s t h a t th e p resen ce o f f l u o r i d a t i o n ; in one area more than another w i l l be one f a c t o r d e n t i s t s I \ c o n sid e r in ch oosin g a new l o c a t i o n . M aurizi s t a t e s t h a t: | i "The p resen ce o f f lo u r i d e [ s i c ] in d rin k in g w ater i s : known to reduce d e n ta l c a v i t i e s , hence the demand fo r ! | d e n t i s t s . " A lexander R. M a u rizi, "An Economic A n a ly sis i o f th e D ental P r o f e s s io n ," (u n p u b lish ed Ph.D. d i s s e r t a t i o n , ! | S ta n fo rd U n i v e r s it y , 1 9 6 7 ), p. 1^5, fo o tn o te 1. In h i s I I r e g r e s s i o n a n a l y s i s , M aurizi ind eed f in d s th a t " d e n t is t s j ten d t o m igrate to s t a t e s where f l u o r i d a t i o n o f the w ater ; \ supply i s not r a p id ly expanding." M a u rizi, p. 170. How- j | e v e r , M aurizi u ses only data f o r the year 1964. Since j f l u o r i d a t i o n o f th e w ater supply has in c r e a s e d in a l l s t a t e s at ai ra p id pace s in c e 1 9 6 4 , t h i s e a r ly ev id en ce I cannot be c o n sid e r e d s i g n i f i c a n t . i Any statistics outlining the need for dental care j must be considered in the light of various and divergent j standards for dental treatment. As we have stated before, 1 ithe public is generally incapable of ascertaining their j [need; therefore, the statistics used are gleaned from !the American Dental Association (ADA), Bureau of Economics j Research and Statistics, "Survey of Dental Needs." The j l ! I dental needs cited by the ADA are for "comprehensive" j ;dental care. Although there is no well defined explana- i I i : tion for this widely used term, essentially, comprehensive ! I care entails initial care (to repair the backlog of ■damage) and maintenance care which keeps the quality of ;the teeth at a good level. In a society which has not been completely edu- icated to the ideal of comprehensive dental care, there |are two other "levels" of demand which are of lesser im- iportance but still worthy of note. The most primitive |level is that of tooth extraction only. This demand may jbe satisfied by a few persons trained in this relatively i !simple procedure. To some extent, as cited earlier by I [Western and Anderson, this situation still exists in the lower income classes in the United States. Another slightly more sophisticated level of care is the "blood Jand vulcanite" classification which derives its name | i i from tooth extraction and replacement with dentures which j i ■ H6 were o r i g i n a l l y made o f v u l c a n i t e . Many i n d i v i d u a l s s t i l l c o n s id e r t h e i r t e e t h ex p en d a b le, but now demand r e p l a c e ment. In the U nited S t a t e s to d a y , t h i s a t t i t u d e i s not c o n fin e d on ly to the low er income c l a s s e s alth ou gh th e 1 i4 g r e a t e s t use o f p r o s t h e t i c d e v ic e s i s found t h e r e . Demand: Income and P r ic e E l a s t i c i t i e s George J . S t i g l e r has c a l c u la t e d th e income e l a s t i c i t y fo r d e n t i s t ' s s e r v i c e s to be g r e a t e r than one, i . e . , th e demand f o r d e n ta l s e r v i c e s i s h ig h ly dependent 15 upon the income param eter. The b e t t e r ed u c a te d , upper income l e v e l s demand more and b e t t e r d e n ta l c a r e . How e v e r , d e n t i s t s agree th a t t h e i r a c t u a l needs are low er than o th e r income c l a s s e s s in c e they tend to have p e r i o d i c d e n ta l checkups. Each income c l a s s has a d i f f e r e n t l e v e l o f demand f o r d e n ta l c a r e . Even when p rep a id d e n ta l h e a lt h care in su ra n ce makes d e n ta l care more e a s i l y a v a i l a b le to low er income c l a s s e s , th e u t i l i z a t i o n r a te fo r t h e s e s e r v i c e s i s s t i l l low er than would o th e r w ise be e x p e c te d f o r more " co n v en tio n a l" com m odities. 14 Harry J . Hann, " P rices and P r o d u c t iv it y i n Den t a l Care," Jou rn al o f P u b lic H ealth D e n t i s t r y , XXVII (Summer, 1 9 6 7 ), 130 -3 1 . 15 ^George J. S t i g l e r , Trends in Employment in th e S e r v ic e I n d u s t r ie s ( P r in c e to n , N .J .: P r in c e to n U n iv e r s it y P r e s s , 1 9 5 6 ), p . 27. I 47 | In the 1960's, th e p r ic e o f d e n ta l care has r i s e n f a s t e r than most o th e r components o f the Consumer P rice Index, w ith the e x c e p tio n o f p h y s i c i a n ' s s e r v i c e s and h o s p i t a l care (s e e Table 1 ) . C e te r is p a r ib u s , i f d e n ta l t |c a r e had a high p r ic e e l a s t i c i t y o f demand, we would e x - I ip ec t an in c r e a se d amount o f s u b s t i t u t i o n from d e n ta l jcare to o th e r s u b s t i t u t a b l e s e r v i c e s . However, i t i s I apparent th a t th e r e are few s e r v i c e s th a t could be con- i is id e r e d c l o s e s u b s t i t u t e s fo r d e n ta l ca re . W e may assume i th e n , th a t th e p r ic e e l a s t i c i t y o f demand fo r d e n ta l s e r - i . . _ 16 I v i c e s i s low. I W ithin one study group, r e s e a r c h e r s found th a t 82 p erce n t o f th e upper middle c l a s s v i s i t e d th e d e n t i s t I once a y ea r or more o f t e n , 46 p erce n t o f th e low er middle I ; c l a s s v i s i t e d th e d e n t i s t once a y ear or more o f t e n , 18 i | j p erce n t o f the upper low er c l a s s and only 6 p e r c e n t o f i 17 ith e low er low er c l a s s . | Consumer's t o t a l e x p e n d itu r e s fo r d e n ta l care | i n 1968 was $ 3 ,5 5 5 ,0 0 0 ,0 0 0 ; th e per c a p it a ex p en d itu re ■^Paul J. P e l d s t e i n and Ruth M. S everson , "The Demand fo r M edical Care," Report o f th e Commission on th e Cost o f M edical Care (Chicago: American M edical A ss o c ia - t i o n , 1 9 6 4 ), I , 73. ■ * ■ 7 The stud y was made f o r th e American D en tal A sso c i a t i o n by S o c ia l R esearch, In c. "A M o tiv a tio n a l Study o f D ental Care," Jou rn al o f the American D en tal A s s o c ia t i o n , LVI (March, 1 9 5 8 ), 434-443. 48 TABLE 1 PRICE INDICES FOR ITEMS OF MEDICAL CARE AND CONSUMER PRICE INDEX, 1935 t o 1968 (1957 to 1959' = 100 ) Year Dentist feesa s Physi cian ' s feest> Hospi tal daily service charges Drugs & Prescrip tions0 All -"medical care Consumer " Price Index 1968 134.5 1 45.3 226.6 98.1 145.0 121.2 1967 127.5 137.6 200.1 97.9 1 36.7 1 1 6 .3 1966 121.4 128.5 168.0 98.4 127-7 113.1 1965 117.6 121.5 153.3 98.1 1 22.3 109.9 1964 114.0 1 17.3 144.9 98.4 119.4 108.1 1963 111.1 114.4 138.0 9 8 .7 117.0 106. 7 1962 108.0 111.9 129.8 9 9 .6 114.2 105-5 i 960 1 0 4 .7 106.0 1 12.7 1 0 2 .3 108.1 1 0 3 .1 1958 100.2 100.0 99.9 100.6 100 .1 1 00.7 1954 92.2 87 .O 79.2 9 1 .7 86.6 93.6 1940 5 3 .5 54.5 25.4 6 9 .3 5 0 .3 4 8 .8 1935 5 2 .0 53.9 23.8 6 9 .2 49.4 47 .8 jSource: ADA Bureau o f Economic Research and S t a t i s t i c s , j Jou rn al o f th e American D en tal A s s o c i a t i o n , I LXXIX (December, 1 9 6 9 ), 1149. Notes: In d ic e s s in c e 1963 in c lu d e " f u l l upper d e n tu r e s ." Inclu d ed "appendectomy" b e fo r e 1963 . c In clu d ed " a s p ir in t a b l e t s " and "milk o f magnesia" b e fo r e 1963. | 49 -| O was $ 1 7 .9 9 . D e n t i s t r y ’ s p o r tio n o f th e h e a lt h care I d o l l a r has s u f f e r e d a d e c l in e o f 1 5 .6 p e r c e n t in th e p erio d / i 1950— 1968. In 1940, d e n t i s t r y ' s p o r tio n was at a h igh j I o f 1 3 .9 p e r c e n t; in 1968 th e p r o p o r tio n had d e c lin e d to i !9.2 p e r c e n t (s e e Table 2 ) . E xp en d itu res on d e n t i s t r y ;out o f th e t o t a l consumer d o l l a r has r i s e n i n s i g n i f i c a n t l y |s i n c e 1958 when d e n t i s t r y accounted f o r 0 .6 4 p ercen t to j1968 when th e p e r c e n t was 0 .6 6 (s e e Table 3 ) . j S in ce 1950, th e f e e s fo r d e n t i s t r y have been i n i ' c r e a s in g f a s t e r than a l l p r i c e s in g e n e r a l. In the 1 jp erio d 1 9 3 5 -1 9 6 8 , d e n ta l f e e s in c r e a s e d by 1 5 8 .7 p erce n t |whereas the Consumer P r ic e Index in c r e a s e d 1 53.6 p e r c e n t, iHowever, t h i s i s l e s s n o ta b le than th e tremendous upsurge i in p r ic e s o f o th e r components o f m ed ica l c a r e . D en tal f e e s have in c r e a s e d 34.5 p erce n t w h ile " a l l m ed ical care" , 19 ?showed an in c r e a s e o f 4 5 .0 p e r c e n t in th e same p e r io d . j I t i s im p o s s ib le to se p a r a te in c r e a s e s in th e i iq u a li t y o f s e r v i c e s which might r a i s e th e p r ic e o f d e n ta l |s e r v i c e s from th e in c r e a s e in p r ic e caused by o th er | f a c t o r s . I t i s im portant to n o te t h a t some i n c r e a s e s in 1 i j ----------------------------------- ■^Bureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D ental P r a c t i c e , " Jou rn al o f the American D ental A s s o c i a t io n , LXXIX (Ju ne, 1 9 6 9 ), 1148. 1 ! 19Hann, p. 130 . TABLE 2 PERCENTAGE DISTRIBUTION OF HEALTH DOLLAR, 1935-1968 19bU 1967 196b 19 b£ ~ 1964 >903 1962 i 960 1950 19^*0 1935 Dentists 9.2 9.6 9.5 10.1 10.2 9.9 10.3 10.5 10.9 13.9 13.2 Physicians 26.7 26.6 26.9 27.3 27.3 27.5 27.2 27.7 29.2 30.2 32.0 Other professional services A.9 5.0 5.0 4.9 4.8 4.9 4.9 5.1 5.4 5.7 6.6 Drug preparations and sundries 15.2 15.7 16.5 16.8 16.8 17.7 18.2 18.9 19.6 21.0 20.7 Opthalmic products S orthopedic appliances 4.4 4.5 5.1 **.3 4.1 4.0 4.1 4.0 5.5 6.2 5.7 Privately control led hospitals and sanitariums 32.7 31.6 29.9 29.6 29.9 28.9 27.7 26.6 22.5 17.5 17.7 Health insurance 6.9 7.0 7.1 7.0 6.9 7.1 7.6 7 2 6.9 5.5 4.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: American Dental Association, Bureau of Economic Research and S t a tis t ic s , "1968 Survey of Dental Practice," Journal of the American Dental Association, LXXIX (December 1969), 1148. \ n o TABLE 3 PERCENTAGE O F TOTAL CO NSUM ER EXPENDITURES SPENT FO R SPECIFIED ITEM S O F H EALTH CARE, 1935 to 1968 1968 1967 1966 1965 196*1 1963 1962 i 960 1950 19*+0 1935 Dentists 0.66 0.67 0.65 0.65 0.65 0.62 0.6** 0.62 0.50 0.59 0.5** Phys icians 1.92 1.87 1.80 1.77 1.76 1.71 1.69 1.63 1.29 1.29 1.31 Other professional services 0.35 0.35 0.3** 0.32 0.31 0.30 0.30 0.30 0.25 0.25 0.27 Drug preparations and sundries 1.09 1.11 1.10 1.09 1.08 1.10 1.13 1.11 0.90 0.90 0.85 Opthalmic products 6 orthopedic appliances 0.31 0.32 0.3k 0.23 0.26 0.26 0.25 0.23 0.26 0.26 0.2k Privately controlled hospitals and sanitariums 2.35 2.22 1.99 1.92 1.93 1.80 1.72 1.57 0.7** 0.7** 0.73 Health Insurance 0.**9 0.1*9 0.**7 0.**5 0.**** 0.**5 0.**7 0.**2 0.23 0.23 0.17 Total 7.19 7.0k 6.68 6.*»9 6.**3 6.22 6.20 5.88 **.26 **.26 **.11 Source: American Dental Association, Bureau of Economic Research and S t a tis tic s , Journal of the America* Dental Association, LXXIX (Decembe r, 1969) , H**8 • j 52 p r ic e have been due to q u a l i t y i n c r e a s e s . T e c h n ic a l ad v a n c e m e n ts have en a b led d e n t i s t s t o d ecre a se c a r i e s , j ip e r io d o n t a l d is e a s e and d isc o m fo r t to some e x te n t and I !th e s e must be c o n sid e r e d . Demand: Third Party and Prepayment Plans R e c e n tly , in su ra n ce fo r d e n ta l care has become !more p r e v a le n t. The o r g a n iz a tio n and mechanics o f d e n ta l iin su r a n c e p lan s are d is c u s s e d e lsew h ere in t h i s ch a p ter. j jH ere, we are most i n t e r e s t e d in th e e f f e c t such in su r a n c e !p la n s would have on th e demand f o r d e n ta l c a r e . In some I p la n s , a t h i r d p a rty ( u s u a l ly em ployers o f some union jmembers) pays most o f th e c o s t s o f d e n ta l care as a f r in g e j b e n e f i t o f employment; i t i s e v id e n t th a t u t i l i z a t i o n o f Ith e p la n , w h ile b e t t e r , would s t i l l be l e s s than 100 p e r c e n t. I t i s p o s s i b l e to assume th a t few , i f any, in the I p o p u la tio n do n ot need d e n ta l care o f some k in d , y e t , ;th e number o f i n d i v i d u a l s who u t i l i z e th e p lan i s l e s s jthan 100 p e r c e n t o f th e e l i g i b l e p o p u la tio n even when ! 20 jth e p r ic e o f th e s e r v i c e i s 30 p e r c e n t o f market p r i c e . i The demand f o r d e n ta l s e r v i c e s has i n c r e a s i n g l y come from s p e c i a l consumer group s. Em ployer-union groups 20 This 30 p erce n t i s p a id through a surcharge in one p a r t i c u l a r c l i n i c o f which t h i s w r it e r has know le d g e . : 53 and v a rio u s p u b lic a g e n c ie s are demanding more d e n ta l I s e r v i c e s . D en tal programs by th e i n d u s t r i a l s e c t o r were !s t a r t e d during World War I in an attempt to in c r e a s e the i j e f f i c i e n c y o f em p loyees. These programs r a r e ly gave the ;employee an y th in g more than r e l i e f o f p a in , and compre- :h e n s iv e d e n ta l care was co m p letely beyond the realm o f !t h i s s e r v i c e . As la b o r unions n e g o t ia t e d fo r more and ;b e t t e r f r in g e b e n e f i t s , e v e n t u a ll y s a t i s f y i n g h ig h e r i p r i o r i t i e s , th ey became i n t e r e s t e d in d e n ta l h e a lt h i n - I P " 1 'su r a n c e . Labor unions w i l l no doubt contin ue to serv e l la s th e i n s t i g a t o r s o f most d e n ta l h e a lt h in suran ce p la n s . : T heir membership w i l l en joy b e t t e r d e n ta l c a r e , both in ! q u a n tity and improved q u a l i t y o f s e r v i c e . ! The government has p la y ed an in c r e a s i n g ly impor- j ta n t r o l e in th e demand f o r d e n ta l s e r v i c e s . F e d e r a l, | s t a t e and l o c a l governments o p era te in areas which o f t e n I [o v e r la p . D ental care programs f o r s p e c i a l groups such as I th e handicapped, th e aged and th e c h r o n ic a lly i l l have been ! | i n i t i a t e d by th e f e d e r a l government. U n t i l 1965, the main i j area o f concern f o r th e f e d e r a l government was in th e p re v e n tio n o f d e n ta l d is e a s e and th e corresp on d in g r e s e a r c h . 21 A few l o c a l unions have had ongoing d e n ta l p lans fo r 15 years or more. See Chapter 5 o f t h i s d i s s e r t a t i o n . These unions have sto o d as examples f o r o th e r unions se e k in g b e t t e r b e n e f i t s f o r t h e i r members. In 1965, the enactment o f T i t l e XIX o f th e S o c i a l S e c u r ity Act caused a g r e a t change in th e r o le o f th e f e d e r a l government toward d e n ta l h e a lt h . I t began t o d is p e n se i d e n ta l care among s p e c i a l groups o th e r than th e armed j f o r c e s , I n d ia n s , and f e d e r a l p r i s o n e r s . A cting p r i n c i - I p a l l y through th e Department o f H e a lth , Education and : W elfa re, and th e N a tio n a l I n s t i t u t e s o f H e a lth , the f e d e r a l ; government i s fin a n c in g d e n ta l care f o r c h ild r e n in low ! i income f a m i l i e s through such a g e n c ie s as P r o je c t Head- ! s t a r t , VISTA, and o t h e r s . ; R esearch in d e n ta l c a r i e s p r e v e n tio n and treatm en t j o f d e n t a l problems has been f o s t e r e d by in c r e a s e d monies , d evoted to r e se a r c h s in c e 1965 . An in c r e a s e d demand by h e a lt h l e g i s l a t o r s f o r d e n ta l h e a lt h r e se a r c h has been e v i d e n t . F urther p u b lic support w i l l probably con tin u e s in c e m ed ica l r e se a r c h funds are c o n sid e r e d w e ll used by c o n s t i t u e n t s . S ta te governm ents, l i k e th e f e d e r a l , have u s u a lly c o n c e n tr a te d on ed u c a tio n on d e n ta l h e a l t h , research, and d e n ta l d is e a s e p r e v e n tio n . I t i s at the s t a t e l e v e l th a t f l u o r i d a t i o n b i l l s and referendums are i n i t i a t e d . S ta te governments o f f e r support to l o c a l d e n ta l care programs through f i n a n c i a l a s s i s t a n c e , c o n s u lt in g , and t e c h n i c a l a s s i s t a n c e . L ocal a id i s p r im a r ily th e c e n te r o f d i r e c t d e n ta l a c t io n to in d ig e n t p a t i e n t s ; r e f e r r a l and h e a lt h j 55 e d u c a tio n play a dominant r o le in l o c a l s e r v i c e s . Supply and Demand E stim a tes In 1969, th e ADA e s tim a te d th e number o f d e n t i s t s to be 1 1 8,975 o f which 101,000 o f t h i s number were a c t i v e l y employed in d e n t i s t r y . 97,500 d e n t i s t s were in p r iv a t e I p r a c t i c e , 3,500 in th e armed f o r c e s , p u b lic h e a lt h p r o - j | grams, a d m in is t r a t io n , r e s e a r c h and te a c h in g . The r a t i o j o f a c t i v e d e n t i s t s t o p o p u la tio n in th e U nited S t a t e s was j 2 2 ' 1 :2 0 0 0 . 1 The above r a t i o has not changed s i g n i f i c a n t l y in ' th e p a st seven y e a r s . I t would seem th a t supply i s keep in g c o n s ta n t pace w ith the p o p u la t io n , i f not w ith o th e r v a r i a b l e s o f demand. Manpower s t u d i e s in r e c e n t years have e s tim a te d th e p r o j e c t e d demand f o r d e n t i s t s to be 23 much g r e a t e r than th e e s tim a te d p r o j e c t e d su p p ly . The Bane R eport, r e l e a s e d in 1959 and o f f i c i a l l y t i t l e d : P h y s ic ia n s fo r a Growing America, a Report on th e Surgeon G e n e r a l's C onsultant Group on M edical E d u ca tio n , p r o je c te d : th a t m ed ica l and d e n ta l s p e c i a l i s t s would be in such sh ort 22 American D en tal A s s o c i a t io n , D i s t r i b u t i o n o f D e n t i s t s in th e U .S. by S t a t e , R egion, and County (C h ica g o : American D en tal A s s o c i a t i o n , 1 970;. 2 ^Quentin M. Sm ith, "The Growing Shortage o f Den t i s t s in th e U .S .," Jou rn al o f P u b lic H e a lt h , XLVTII (January, 1 9 5 8 ), 38-TfT j 56 ! supply by 1975 th a t th e h e a lt h o f th e American p eo p le cou ld : be th r e a te n e d . However, W . Lee Hansen ta k e s I s s u e w ith the methods ' 2 ^ 1 'used by manpower s t u d i e s to judge demand and su p p ly . j I j Hansen argues th a t the Bane Report on ly s u p e r f i c i a l l y i 1 i e s t im a t e s need and f a i l s to c o n s id e r the fo llo w in g : | I 1. the ranges or d egrees o f p o p u la tio n change I i ! (in th e fu tu r e ; j 2. th a t the base y e a r , 1959, might not have had ' i i j 'an e q u ilib r iu m s i t u a t i o n ; th e r e was no b a s is f o r assuming j (e q u ilib r iu m in 1959; I : ! 3. o th e r v a r i a b l e s o f changing demand such as ' th e in c r e a s e d a gin g o f the p o p u la tio n and r i s i n g per ( c a p it a income. Hansen implements a new approach to judge s h o r ta g e s , i (based p a r t ly on th e r e l a t i v e income approach proposed ( 25 jby David S. Blank and George J . S t i g l e r . But, Hansen if i n d s f a u l t w ith t h i s approach, to o . C h i e f ly , h i s rea so n s j a r e : i 2 4 W . Lee Hansen, "Shortages and Investm ent in H ealth Manpower," in The Economics o f H ealth and M edical C are, Conference on th e Economics o f H ealth and M edical C are, 1962 (Ann Arbor, M ich.: U n iv e r s it y o f Michigan |P r e s s , 1 9 6 4 ), pp. 7 5-91. i i 25 i -'David S. Blank and George J . S t i g l e r , The Demand j and Supply o f S c i e n t i f i c P erson n el (New York: N a tio n a l |Bureau o f Economic R esearch, 1 9 5 7 ), PP. 1 9 -3 3 . 1. t h a t , a g a in , as in th e Bane R eport, th e ch o ic e I o f a base y ea r im p lie s e q u ilib r iu m ; I 2 . th a t "there i s no l o g i c a l b a s i s f o r d e t e r - I 2 6 !m ining the b e g in n in g o f a shortage;" 3 . th a t the a v erages used c o n c e a l adjustm ents : to sh o rt run changes. ; Hansen c o n s id e r s th e c o s t o f p r o f e s s i o n a l t r a i n i n g ^and p ecu n iary r e tu r n s d e r iv e d from t r a i n i n g in th e "rate I io f return" approach. This approach eq u a tes th e p r e s e n t j (value o f c o s t s to th e p r e s e n t valu e o f r etu rn s by the ( i n t e r e s t r a t e . S ta te d d i f f e r e n t l y , th e r a te o f retu rn i I in d i c a t e s how p r o f i t a b l e i t i s , in terms o f monetary c o s t s 'to i n v e s t in d e n ta l t r a i n i n g at a g iv e n p o in t in tim e. M ilton Friedman and Simon Kuznets have s i m i l a r l y i n v e s t i g a t e d t r a i n i n g as an in v estm en t which y i e l d s a monetary :r e t u r n . ^ By making com parisons between in v e stm e n ts in I v a rio u s p r o f e s s i o n a l e d u c a tio n over a p e r io d o f tim e , (Hansen f in d s th a t th e r a t e o f re tu r n to d e n t i s t r y was (1 3 .4 p erce n t in 19^9 and 1 2 .0 p e r c e n t in 1956. He con- i elu d es th a t: I pg j W. Lee Hansen, p. 81. ! 27 | 'M ilton Friedman and Simon K uznets, Income from j Independent P r o f e s s i o n a l P r a c t ic e (New York: N a tio n a l (Bureau o f Economic R esearch , 19*15), c h . i v . i ! 58 . . . r a t e s o f r e tu r n t o in vestm en t in m edi c a l and d e n ta l ed u c a tio n can be e s t im a t e d , and th a t the most v a l i d e s t im a t e s in d i c a t e a rap id d e c r e a se in s h o r t a g e s , i . e . , a r a p id ly d e c r e a s in g u nderin vestm ent in m ed ical and d e n ta l t r a i n i n g in r e c e n t y e a r s . 28 A lexander M aurizi a ls o c a l c u l a t e d th e r a te o f retu rn t o d e n t i s t r y in a method s i m i l a r t o th a t o f Hansen's However, M aurizi c a l c u l a t e s h is r a t e s o f retu rn a t the moment the stu d en t e n t e r s d e n ta l s c h o o l in s t e a d o f a f t e r g rad u ation from high s c h o o l as Hansen d o es. Hansen c laim s th a t a s tu d e n t d e c id e s to e n t e r d e n t i s t r y b e fo r e he e n t e r s c o l l e g e ; M aurizi argues th a t ev id e n c e shows t h a t th e in v estm en t d e c i s i o n i s sometimes made w h ile in 29 c o l l e g e . To th a t e x t e n t , M a u r iz i's r a t e s o f retu rn d i f f e r from H an sen 's. M aurizi c a l c u l a t e s the r a t e s to be 1 9 .1 p erce n t in 1948 and 1 8 .5 p e r c e n t in 1955 (se e Table 4 ) . P ecuniary and Non Pecuniary I n flu e n c e s on Supply Income p r o s p e c ts f o r d e n t i s t s are a t t r a c t i v e to a s p ir a n t s . In 1967, the mean n et income o f a l l non s a l a r i e d d e n t i s t s was $ 2 4 ,7 4 0 . The average non s a l a r i e d d e n t i s t spent 41 .9 hours- p er week and 4 8 .3 weeks p er year P fi W . Lee Hansen, p. 75. ^ M a u r i z i , p. 67, f o o t n o t e 7. i 59 j TABLE 4 I |RATES OP RETURN COMPARED WITH THE RATIO OP THE NUMBER OP !APPLICANTS TO DENTAL SCHOOL WITH BACHELOR'S DEGREES TO THE i Inumber op earned b a c h e l o r's degrees in the physical and i BIOLOGICAL SCIENCES Period Ratio Rate of return 1947-1951a .11 1 9 .1 1952-1954 .14 2 1 .0 1955-1957 .13 1 8 .5 1958-1960 .09 1 4 .8 1 9 6 l-1 9 6 3 b .10 17.9 j ________________________________________________________________________ i t Source: A lexander R. M a u rizi, "An Economic A n a ly sis o f : the D en tal P r o fe ssio n " (U npublished Ph.D. d i s - i s e r t a t i o n , S ta n fo rd U n i v e r s i t y , 1967 ) , Table I I I . 3, p. 71. j aM aurizi c a l c u l a t e d the r a t i o o n ly fo r the y ea rs i l 9 4 7 and 195I 3 due t o data l i m i t a t i o n s . | 1 ^ ; M aurizi c a l c u l a t e d th e r a t i o on ly fo r th e y ea rs !1962 and 1963, due to data l i m i t a t i o n s . ; 60 -5 0 | in h is o f f i c e (T ables 5 and 6 ) . 1 j B e s id e s the p r o sp e c t o f a s u b s t a n t i a l incom e, ; o th e r non pecu n iary a s p e c t s o f th e d e n ta l p r o f e s s io n | s e r v e t o encourage or d isco u ra g e th e number o f p r o s p e c - | t i v e d e n t i s t s in th e U nited S t a t e s . S e v e r a l su rv ey s i n - j d ic a t e th a t the d e n ta l p r o f e s s i o n s u f f e r s from comparison ! oi ! w ith th e m ed ical p r o f e s s i o n . Images o f d e n t i s t s and i I t h e i r p r o f e s s io n as seen by p r o s p e c t iv e d e n ta l s tu d e n ts i i s one im portant a s p e c t in u n d erstan d in g the fu tu r e supply I o f d e n ta l manpower. In one s tu d y , Gray rep o rted : s tu d e n ts appeared to have n e g a t iv e r e a c t io n s to th e work ; o f th e d e n t i s t , and alm ost t w o -th ir d s d e s c r ib e d h i s a c t i - ' 32 \ v i t i e s as r o u tin e and d u l l . " I 3 These s t a t i s t i c s are from th e Bureau o f Economic : Research and S t a t i s t i c s o f th e ADA. S in c e 1950, th e bureau i has conducted a Survey o f D en tal P r a c t ic e every t h ir d y ea r, j However, i t i s l i k e l y th a t th e r e i s an upward b ia s to the j data on r e p o r te d incom e, s in c e Hann p o in t s out th a t th e i resp on d en ts t o th e ADA survey are g r e a t e r p r o p o r t io n a ll y I from the age group which has th e peak income in d e n t i s t r y | (age 3 5 - 4 5 ) . Hann, pp. 132-33 (s e e a p p en d ix ). | 31w. Mann and Grace P arkin, "The D en tal S chool j A p p lic a n t," Jou rn al o f D ental E d u c a tio n , XXIV (March, i 960), 1 6 -3 7 . S h ir le n e B. Gray, "Image o f D e n t i s t r y , M edicine and Teaching as seen by High S ch ool S tu d e n ts ," Jo u rn a l o f D en tal E d u c a tio n , XXXII (December, 1968 ) , 4 5 0 -6 1 . Western and Anderson, pp. 1 99-204. 32Gray, p. 461. TABLE 5 AVERAGE INCO M E O F DENTISTS BY TYPE O F PRACTICE, 1967 All Dentists Non-salaried Dentists Type of Practice Percent of Respon dents Mean net 1 ncome Median net 1ncome Mean net 1ncome Median net 1ncome Mean Gross 1 ncome Net as Percent of Gross General Practitioner 85.2 $22,462 $20,990 $23,328 $21,988 $43,627 53.5 Specialist 14.8 31,132 27,000 36,146 32,500 62,828 57.5 Endodonti st 0.7 28,988 22,000 a a a a Oral Surgeon 3.6 32,462 28,700 36,690 35,000 70,311 52.2 Orthodontist 5.0 35,699 32,000 37,697 34,961 61,433 61.4 Pedodontist 1.8 26,622 24,600 29,385 28,600 53,797 54.6 Periodonti st 1.5 33,469 28,030 39,093 39,400 66,277 59.0 Prosthodontist 1.1 22,144 20,900 a a a a Public Health 0.7 19,073 17,400 — — — — Other sp e c ia lists 0.4 16,714 18,500 a a a a All types of practice 100.0 23,761 21,455 24.740 22,850 46.391 53.3 Source: American Dental Association, Bureau of can Dental Association, LXXVIII (April, Economic Research and 1969), 803. S t a t i s t i c s , Journal of the Ameri- aS ta tis tic s were omitted because of relative u n reliab ility. 62 TABLE 6 MEAN NUMBER OP OFFICE HOURS PER WEEK AND WEEKS WORKED PER YEAR, 1967, BY AGE. Age T o ta l Hours in O ffic e Weeks per Worked Year -29 4 3 .8 46.0 30-34 4 2 .8 49.0 35-39 42. 3 4 8 .8 40-44 4 2 .5 4 8 .7 45-49 41.9 48.4 50-54 41 .9 4 8 .2 55-59 41.4 47.9 60-64 39.1 4 6 .9 65-69 38.6 4 6 .6 70-74 36.4 4 5 .9 75- 34.4 4 2 .6 A ll ages 41.9 4 8 .3 Source: American D en tal A s s o c i a t i o n , Bureau o f Economic R esearch and S t a t i s t i c s , Jou rn al o f th e American D en tal A s s o c i a t i o n , LXXIX (A ugust, 1969 ) , 375. Another stud y o f f e r e d t h i s a n a ly s is : i . . . s t r e s s e d most were e i t h e r th e absence o f ! a c l e a r image o f th e d e n ta l p r o f e s s io n among I p o t e n t i a l c a n d id a t e s , or th e e x i s t e n c e o f ! an u n favorab le and in c o r r e c t image d eriv ed ! m ainly from e x p e r ie n c e in th e d e n t i s t ' s j | c h a ir . An image e x i s t e d o f d e n ta l p r a c t i c e j j as in v o lv i n g hard, u n i n t e r e s t i n g , monotonous j and u n c h a lle n g in g work. 33 j D e sp ite t h e s e non-monetary c o s t s , d e n ta l s tu d e n ts j 'choose d e n t i s t r y as a c a r e e r because o f th e o p p o rtu n ity i jfo r p u b lic s e r v i c e , the freedom to choose t h e i r own h o u rs, I i ' autonomy o f a c t io n , the f e e l i n g o f "power" d e n t i s t r y g iv e s ; | 34 ! ithem and th e s o c i a l s t a t u s o f b e in g a p r o f e s s i o n a l . ; ! ; | j The non p ecu n iary a t t r a c t i v e n e s s o f o th e r f i e l d s I : | i n comparison w ith d e n t i s t r y w i l l g r e a t l y in f lu e n c e den- : t a l manpower. D e n tis tr y i s c u r r e n tly f a c in g extreme com- i p e t i t i o n from p r im a r ily m e d ic in e , but a ls o from the :b a s ic s c i e n c e s th a t are now o f f e r i n g la r g e s c h o la r s h ip s ’and r e s e a r c h g ran ts to top s tu d e n ts . In a survey o f d e n ta l stu d e n ts approaching gradu a t i o n , D. M. More d is c o v e r e d th a t a s i z e a b l e p ro p o rtio n I o f d e n ta l s tu d e n ts chose d e n t i s t r y as t h e i r second c h o ic e 35 !a f t e r not b e in g a cce p te d in m edical s c h o o ls . ^ This 33 | -^Western and Anderson, p. 202. I 3A j Mann and P arkin, p. 19. 3^D. M. More, "The D en tal Student Approaching G rad -i u a tio n 1962," Journal o f th e American C o l l e g e ' o f D e n t i s t s , XXI (Septem ber, 1962 ) , p. 186. i i 64 i n d i c a t e s th a t d e n t i s t r y i s not a t t r a c t i n g th e most jcapable s t u d e n t s . This c o n c lu s io n i s s u b s t a n t ia t e d by :Maurizi who shows th a t whenever th e r a t e s o f r e tu r n to |a p h y s ic ia n drops r e l a t i v e to a l l o th e r o c c u p a tio n s , the i f q u a li t y o f d e n ta l stu d en t a p p lic a n t s drops. This i n d i c a te s th a t m ed ical s c h o o ls are fo r c e d to choose from low er q u a lit y s tu d e n ts and d e n t is t r y then has low er grade a p p l i c a n t s s in c e th o se who would have e n te r e d d e n t i s t r y now iwere a b le t o e n t e r m ed ical s c h o o l (s e e Table 7 ). i jLabor M o b ility ! The degree o f m o b ility o f d e n t i s t s i s s e v e r a ly j ihampered by l i c e n s e r e s t r i c t i o n s from s t a t e to s t a t e , iR e lo c a tio n o f a p r a c t i c e in t o a n oth er s t a t e r e q u ir e s a inew l i c e n s e and a formal exam in ation . Although th ere ; are l i t t l e s t a t i s t i c s a v a il a b l e co n cer n in g f a i l u r e r a t e s :in l i c e n s i n g , the system probably does h in d e r d e n ta l supply to some e x t e n t . The m edical p r o f e s s io n en co u n ters few er r e s t r i c t i o n s ; l i c e n s e by endorsem ents are u s u a lly a v a i l a b l e . j | Arguments in favor o f s t r i c t s t a t e l i c e n s i n g are ithe fo llo w in g : (a) the p r o t e c t i o n o f good q u a l i t y d e n t i s t s | in some s t a t e s from the in v a s io n o f p o o r ly ed u cated den t i s t s in o t h e r s ; (b) n i c e l y s i t u a t e d d e n t i s t s (in C a l i f o r - i n i a and F l o r id a , f o r example) r e s e n t in t r u d e r s . However, th e ADA’s survey o f 1968 in d ic a t e d t h a t 75-5 p erce n t o f TABLE 7 RATES OP RETURN TO PHYSICIANS AND DENTISTS Year Rate of Return Applicants Ratio3 Physi cians Dentists Medical School Dental School 1948 . 19.1 9,191 2:6 1949 24.2 24,242 1958 C O j^ r 1—1 6,469 2:3 1959 14.7 14,592 Source: A lexander R. M a u rizi, "Economic A n a ly sis o f th e D en tal P r o fe s s io n " (U npublished Ph.D. D i s s e r t a t i o n , S ta n fo r d U n i v e r s i t y , 1967 ) , Table 1 1 1 .4 , P. 75. ' aMedical School Applicants to Dental School i Applicants. of all respondents to their questionnaire approved of icomplete license reciprocity between states (see Table 8). j IPerhaps the force of dental opinion will cause this deter- j jrent to labor mobility to be eased in the near future. j ■ Difficulty in re-establishing a practice also | serves to limit the mobility of dentists. The building j ! | iof a patient list and a dental reputation requires a great | | t iamount of time and limits the income of the relocated j identist, especially in larger cities. A. R. Maurizi ianalyzed the relocation patterns of dentists among states, ; t : lutilizing these independent variables: the income of ^dentists in each state; the percentage change in dentist lincome and in population; per capita income and total 'personal income; the dentist population ratio per state; ithe number of places in dental schools (i.e., the native supply of dentists); fluoridation; and difficulty of j jentry (as measured by the percent of failures of out of .state dentists in the license exam) The important Iconclusion from Maurizi!s findings is that: ' { I ...although we are able to explain the move- | ment of dentists on the basis of their incomes i and other factors, we cannot report that this i movement has tended to "equalize" the incomes of dentists (a crude measure of the net ad vantages of movement) over time; that is, we are not now better able to explain dentist 36M a u rizi, pp. 153 -5 9 . TABLE 8 i | PERCENTAGE OP DENTISTS IN FAVOR OP COMPLETE LICENSURE ;RECIPROCITY AM ONG STATES, BY REGION AND EMPLOYMENT STATUS Region All Dentists Non Salaried Salaried Part Salaried iNew England 9 0 .5 88.9 91.9 9k.1 [Middle East 1 93-9 9 3 .3 93.9 9 6 .8 i jSouth East 1 6 1 .3 5 7 .3 8 3.k 68.k 1 South West kk.6 4 3 .1 6 5 .2 2 3 .3 [Central 9 1 .0 9 1 .3 90.0 89.4 i jNorth West 7 5 .1 74 .1 85-7 76.0 iFar West f 35.5 33.8 5 3 .5 2 8 .5 ju. s . 75.7 Ik.2 82.9 8 0 .1 [Source: American D ental A s s o c i a t io n , Bureau o f Economic | Research and S t a t i s t i c s , "1968 Survey o f D ental I P r a c t i c e , ” Journal o f the American D en tal A s s o c ia - i t i o n , LXXIX (O ctober, 1 9 6 9 ), 920. 68 incomes among s t a t e s w ith a g iv en s e t o f v a r i a b l e s . As we s h a l l l a t e r p o in t o u t, i t would appear th a t one reason fo r t h i s l i e s in th e v a rio u s l i c e n s e r e s t r i c t i o n s imposed by th e s t a t e s on th e m o b ili t y o f d e n t i s t s . 37 P r o d u c t iv it y Changes Changes o th e r than th o s e in th e r a t i o o f newly I graduated d e n t i s t s w ith r e s p e c t to d eceased or r e t i r e d i d e n t i s t s can a f f e c t the manpower o f d e n t i s t r y . F a cto rs i isu ch as i n c r e a s i n g p r o d u c t i v i t y , in c r e a s i n g d i v i s i o n and i j s p e c i a l i z a t i o n o f la b o r , and changes in work weeks account | f o r more and more o f th e a c t u a l in c r e a s e s in d e n t i s t sup- : p ly . U n t i l r e c e n t l y , the d e n ta l f i e l d has had few s p e c i a - ; l i s t s becau se d e n t i s t r y , in one s e n s e , i s a m edical s p e - I c i a l i t y in i t s e l f . Although g e n e r a l p r a c t i c i o n e r s are ; s t i l l in the m a j o r it y , the tr e n d towards s p e c i a l i z a t i o n | i s in c r e a s i n g . The major reason l i e s in d i f f e r e n c e s in i income; s p e c i a l i s t s earn s u b s t a n t i a l l y more than g e n e r a l I I p r a c t i t i o n e r s (s e e Table 5 ) . In 1 9 6 7 5 non s a l a r i e d s p e - | c i a l i s t s had a mean net income o f $ 3 6 ,1 ^ 6 , which was 55 j p e r c e n t h ig h e r than th e mean n et income o f th e g e n e r a l i qQ i p r a c t i c i o n e r . J With in c r e a s e d u t i l i z a t i o n o f group j 37I b i d . , pp. 1 4 6-47. I ^ B u r e a u Qf> Economic Research and S t a t i s t i c s , "1968 Survey o f D ental P r a c t ic e ," Jou rn al o f th e American D en tal I A s s o c i a t io n , LXXIX (November, 1 9 6 9 ), 1203. i I 69 p r a c t i c e arrangements (s e e f o llo w in g s e c t i o n ) , i t i s jnow f e a s i b l e f o r a la r g e r two or th r e e man d e n ta l o f f i c e I !to d e p a r tm e n ta liz e s e r v i c e s . In 1968, th e ADA e s tim a te d I jthat by 1970 th ere would be 9600 s p e c i a l i s t s in c o n s t r a s t |to 2808 in 1 9 5 5 .39 In crea sed q u a l i t y o f d e n ta l care products has ienabled d e n t i s t s to g iv e the same, or b e t t e r q u a lit y o f i jcare t o p a t i e n t s in l e s s tim e. With in c r e a s e d resea r ch Sand f a m i l i a r i t y w ith new trea tm en ts and p ro ced u res, den- j t i s t s are ab le to " r o u tin iz e " the course o f treatm ent ! jto some e x te n t and thus waste l e s s tim e. The ADA re p o r ts f i 'th at 9 p ercen t o f a l l d e n t i s t s resp ond ing to t h e i r 1968 iq u e s tio n n a ir e had e n r o l le d in e d u c a tio n co u rses th a t iyear (s e e Table 9 ) .^ ° F lu o r id a tio n o f community w ater s u p p li e s a ls o e n a b les th e d e n t i s t to be more p ro d u ctiv e 11o th e e x te n t th a t he i s then a b le t o se e and t r e a t more p a t i e n t s than b e fo r e due to the d ecre a se d c a r i e s s u sc e p - i ; t i b i l i t y o f h is p a t i e n t s . on i ~^I b i d . , p. 1201. This number in c lu d e s on ly r e c o g - ;nized s p e c i a l i s t s ; i . e . , l i c e n s e d , and members o f a n a t io n - |al s p e c i a l i s t s o c i e t y . There are undoubtedly more den- j t i s t s who handle only c e r t a i n ty p e s o f d e n ta l problems land are "self-m ade" s p e c i a l i s t s . ! lin • There might be a b ia s in t h i s f ig u r e s in c e th o se id e n t is t s who are c o n s c ie n t io u s enough to r e p ly to th e su r vey might g e n e r a lly be more concerned w ith s t a y in g ab rea st o f new developm ents. 70 TABLE 9 PERCENTAGE OF DENTISTS ENROLLED IN CONTINUING EDUCATION COURSES IN A DENTAL SCHOOL OR HOSPITAL IN 1967 BY AGE AND EMPLOYMENT STATUS Age All Dentists Non Salaried Salaried Part Salaried -29 .. 4 1 .7 40.9 44.9 36.7 30-39 51.8 51.4^ 51.4 53.9 40-49 51.8 51.5 4 9 .3 5 7 .3 50-59 4 4 .6 45.5 4 1 .8 37.0 6O-69 39.7 39.6 35.5 47.4 70- 35.0 2 9 .6 15.0 80.0 All ages 49.0 48.4 4 7 .8 5 5 .3 Source: American D en tal A s s o c i a t io n , Bureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D ental P r a c t ic e ," Jou rnal o f th e American D ental A s s o c i a t i o n , LXXIX (O ctober 1 9 6 9 ), 919. ; 7i With r e s p e c t t o th e u t i l i z a t i o n o f group p r a c t i c e s , jonly 4 p e r c e n t o f the d e n t i s t s in th e 1950 ADA survey were p a r tn e r s in p r a c t i c e , employed by o th e r d e n t i s t s , or s h a r in g some item s o f overhead e x p en se. In 1965, 16 p e r c e n t o f d e n t i s t s surveyed f e l l i n t o t h i s ca te g o r y . Group • p r a c tic e in i t s many forms does much to in c r e a s e th e • p r o d u c tiv ity o f th e i n d iv i d u a l d e n t i s t . Output, measured |by mean p a t i e n t v i s i t s p er y e a r , i s h ig h e r fo r a "com- i Ip lete" p a r tn e r than fo r a s o lo p r a c t i t i o n e r , 5143 p a t ie n t I j v i s i t s fo r th e p a r tn e r versu s 3572 p a t ie n t v i s i t s fo r j !the s o l o d e n t i s t (s e e Table 1 0 ) . In a p a r tn e r sh ip a rran ge- I jment, exp en ses are g e n e r a lly lo w er, appointment tim e can • be kept at a minimum, and c o n s u l t a t i o n s e r v i c e s can be i j u t i l i z e d and arranged w ith maximum e f f i c i e n c y . A d e t a i l e d ;d i s c u s s i o n o f th e o r g a n iz a tio n and s t r u c t u r e o f group • p r a c tic e s w i l l be taken up in the next s e c t i o n . • M aurizi has computed th e p r o d u c t iv it y change fo r | : d e n t i s t s over th e p e r io d 1955-1961 to be 2 .2 p ercen t I 4 1 ;(see Table 1 1 ). One p e r c e n t o f t h i s change i s th e r a te i Jof t e c h n i c a l advance w ith th e remainder o f th e in c r e a s e in p r o d u c t i v i t y a r i s i n g from the change in s c a l e o f o p era t i o n s . R e c e n tly , the ex p e c te d fu n c tio n s o f a d e n t i s t have changed. I n c r e a s i n g l y , due to e d u c a tio n a l prodding, ^Maurizi, p. 264. TABLE 10 j AVERAGE NUMBER OP PATIENTS AND PATIENT VISITS OP NON- | SALARIED DENTISTS IN 1967, ACCORDING TO TYPE OP PRAC- i ! TICE ORGANIZATION Type of Practice Organization Avg. no. of Patients Avg. No patient . of"' visits Me an Median Mean Median Non-salaried practice with out partners and with no sharing of costs of of fices, assistants. 1,288 1,000 3,572 3,122 Non-salaried practice with out partners, but shar ing costs of offices, assistants. 1 ,3 6 5 1,100 3,^26 3,200 Non-salaried practice as a partner in a complete partnership. 1 ,729 1 ,100 5 ,1 4 3 3,800 All types of practice organization. 1 ,3 2 1 1 ,001 3,629 3,182 'Source: American D ental A s s o c i a t io n , Bureau o f Economic ! Research and S t a t i s t i c s , Journal o f th e American | D ental A s s o c i a t io n , LXXIX (A ugust, 1969) , 379. 73 TABLE 11 PRODUCTIVITY INCREASES, 1955 - 1961 Annual P ercen ta g e Change______ Gross Gross Annual Pro- Income Composite Annual Composite d u c t i v i t y per Pee Income Fee I n c r e a s e I Year Hour per Hour I 11955 f $10. 8 $4l6 6 .2 3 .8 2 .4 11958 } 12 .8 4611 11961 1 4 .5 504 4.4 2 .9 1 .5 I Source: A lexander R. M a u rizi, "An Economic A n a ly s is o f | th e D en tal P r o fe ssio n " (U npublished Ph.D. d i s s e r - i t a t i o n , S ta n fo r d U n i v e r s i t y , 1967 ) , Table IV -8 , I p. 257. I 1 I 74 ;new d e n ta l grad u ates are u t i l i z i n g the s e r v i c e s o f d e n ta l !a s s i s t a n t s and o th e r p e r s o n n e l. Ten p erce n t o f d e n t i s t s | |in th e U nited S t a t e s s t i l l o p era te w ith no a s s i s t a n c e at ! j a i l . However, th e p e r io d 1965-1968 showed an in c r e a s e !o f 17 p e r c e n t f u l l tim e and 35 p e r c e n t part tim e a u x ili a r y ho p e r s o n n e l. The C ouncil o f D ental Education s t a t e d : i The grad ual r i s e o f th e p o p u la tio n per | d e n t i s t r a t i o has prompted wide d is c u s s i o n on I i n c r e a s i n g th e scope o f d u t ie s o f a u x ili a r y j p e r s o n n e l. Experiments . . . h a v e dem onstrated | th a t c e r t a in r o u tin e d u t ie s can be performed | by c h a ir s i d e a u x i l i a r i e s w ith no l o s s in q u a l i t y and th a t the p a t ie n t lo a d s o f p r a c - j t i c i n g d e n t i s t s can be s u b s t a n t i a l l y i n - | c r e a se d . f ! The new c h a lle n g e to d e n ta l a u x ili a r y j e d u c a tio n i s to r e v i s e cu rriculu m to in c lu d e I e d u c a tio n in c e r t a i n ta s k s t r a d i t i o n a l l y | performed by d e n t i s t s . 43 i The in c r e a s e d use o f a u x i l i a r y p e r so n n e l in d i c a t e s j [in cre a se d e f f i c i e n c y and economy o f use o f th e r e l a t i v e l y [higher e d u c a tio n a l s k i l l s o f th e d e n t i s t . I t has been 'estim a ted t h a t a d e n ta l p r a c t i t i o n e r can double h is output j(judged by p a t ie n t v i s i t s ) by u t i l i z i n g the h elp o f one ! hh j f u l l time and one h a l f tim e a s s i s t a n t . With in c r e a se d 42 " A u x ilia ry person n el" are d e n ta l a s s i s t a n t s , den t a l h y g i e n i s t s and la b o r a to r y t e c h n i c i a n s . 4 3 JBureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D en tal P r a c t ic e ," Jo u rn a l o f th e American D ental A s s o c i a t i o n , LXXIX (O ctob er, 1 9 6 9 ), 927. ii 1 1 , Dunning, p. 407. luse o f a s s i s t a n t s , d e n t i s t s are u sin g more than one c h a ir ;and d r i l l u n it per o f f i c e . In 1967, 5^.2 p ercen t o f the : j [ d e n t i s t s surveyed had two c h a ir s . T heir net income was I s u b s t a n t i a l l y h ig h e r than d e n t i s t s h avin g only one c h a ir | ( s e e Table 1 2 ) . j j The fu n c tio n s o f a u x i l i a r y p e rso n n el are a l s o in I ! the p r o c e s s o f change. There i s a tr e n d towards g r e a t e r [ S p e c i a l i z a t i o n o f fu n c tio n and in c r e a s e d c o o p e r a tio n between; [ d e n t i s t s and a s s i s t a n t s . Experiments w ith d e n ta l n u rses ; [s e r v in g A u s tr a lia n p u b lic s c h o o ls and p r o v id in g b a s ic j ; i f i l l i n g s and e x t r a c t i o n needs has proved very s u c c e s s f u l . [ [ ; i Chances th a t t h i s arrangement w i l l be u t i l i z e d in th e j ) I [U nited S ta te s are low , due to th e p ow erfu l fo r c e s o f th e i 'ADA which w i l l be covered l a t e r in t h i s ch ap ter. ;D en tal Care Plans Prepaid d e n ta l care has become one o f th e most jw id ely d is c u s s e d areas f o r employee b e n e f i t s . In th e p a s t , ;i t was commonly b e l i e v e d t h a t th e very nature o f d e n ta l ! care and the w idespread e x i s t e n c e o f d e n ta l d is e a s e made ! treatm ent u n in su r a b le . "... th e c l a s s i c p r i n c i p l e s o f I | sp rea d in g exposure on r i s k s a c t u a r i a l l y u n p r e d ic ta b le fo r j i n d i v i d u a l s but p r e d ic t a b l e w ith in g iv e n groups could li e : not apply in th e case o f d e n ta l c a r e ." However, low ^ J a m e s Bonk, "The D ental S e r v ic e Plan: An Adven tu re in In volvem en t," Journal o f th e American D en tal A sso- j e l a t i o n , LXXVIII ( A p r il, 1 9 6 9 ), 701. I TABLE 12 AVERAGE IN C O M E O F N O N SALARIED DENTISTS ACCORDING TO NUM BER O F DENTAL CHAIRS AND UNITS USED, 1967 Number of Chairs and Units Percentage of Respondents Mean Net 1ncome Median Net 1ncome Mean Gross 1ncome Net as Per centage of Gross 1 chair 13.0 $16,195 $14,972 $26,742 60.6 with 1 unit 12.8 36,138 14,550 26,667 60.5 2 chairs 54.2 23,022 21,317 41,096 56.0 with 1 unit 1.9 22,743 19,500 34,018 66.9 wi th 2 uni ts 51.5 22,968 21,150 41,257 55.7 3 chairs 25.5 29,122 27,717 59,976 51.1 with 2 units 1.9 22,648 20,000 45,140 50.2 with 3 units 22.4 29,609 27,998 57,949 51.1 4 chairs 4.9 35,184 31,975 71,141 49.5 with 4 unl/ts 3.9 35,215 31,975 71,327 49.4 5 chairs or more 2.3 38,382 33,050 75,902 50.6 All non-salaried dentists 100.0 24,740 22,850 46,391 53.3 Source: American Dental Association, Bureau of Economic Research and S t a tis t ic s , "1968 Survey of Dental Practice," Journal of the American Dehtal Association, LXXVIII (April, 1969), 805. i 77 i I i j i u t i l i z a t i o n o f d e n ta l programs i s the f a c t o r l a r g e l y i g - j jnored by in s u r in g companies th a t en a b les d e n ta l d is e a s e ito be in s u r a b le . I f a l l who were e n t i t l e d to d en ta l ; 1 j b e n e f it s used them, p la n s would soon be in bankruptcy. I The e a r ly stim u lu s fo r growth o f prepayment p lan s 'arose from union-management h e a lt h and w e lfa r e fu n d s. ! i i |Some employee funds alread y have p rovid ed fo r comprehen- j jsiv e m ed ical care and h o s p i t a l i z a t i o n . The coverage o f j id e n ta l care seemed to be the next l o g i c a l s te p in employee i : j b e n e f i t s . The N a tio n a l Opinion Research Center e s tim a te d l | I t h a t , j l | About one f i f t h o f th e a d u lts in t h i s j ! cou n try, th e n , are i n t e r e s t e d in some form ! o f p rep aid d e n ta l care p la n s and are in a i s i t u a t i o n in which i t i s at l e a s t r e l a t i v e l y f e a s i b l e to make i t a v a i l a b l e , at l e a s t as fa r as the a d m in is tr a tio n o f th e p lan s are j concerned. This e s tim a te o f th e e f f e c t i v e : p o t e n t i a l market must a ls o be m o d ifie d . . . a d ju ste d upward i f th e p la n s become more j w idespread and . . . downward depending upon j th e p a r t i c u l a r fe a t u r e s o f the p lan s which I are e s t a b l i s h e d . ^6 I I By 1968, over four m i l l i o n people were covered iby some form o f d e n ta l in su r a n c e , e x c lu d in g governm ental ! 4 7 jagen cies such as the armed s e r v i c e s and p u b lic w e lf a r e . I 1 us N a tio n a l Opinion Research C enter, P u b lic A ttitu d e s Toward Prepaid D ental Care P la n s , prepared f o r D iv is io n o f D ental R eso u rces, Bureau o f M edical S e r v i c e s , P u b lic H ealth S e r v i c e , Department o f H e a lth , E ducation, and W elfare, Report No. 76 (Chicago: U n iv e r s ity o f Chicago P r e s s , i 960 ) , pp. 131-32. 47 I 'Jay W . Friedman, "The D en tal Care Program o f the ; Los A ngeles H o tel-R e sta u ra n t Employer-Union W elfare Fund," j 78 jThere are now four major approaches to d e n ta l care p la n s: , th e d e n ta l s e r v i c e c o r p o r a tio n ; group p r a c t i c e p la n s ; union i I employee a s s o c i a t i o n or employer p la n s ; and commercial i n s u r a n c e p la n s . Each p lan w i l l be d is c u s s e d below . i j The ADA has o r g a n iz e d a Task Force on N a tio n a l ;H ealth Programs. The ADA has a very n a tu r a l i n t e r e s t in ;the outcome and s u c c e s s o f th e v a r io u s methods o f d e n ta l ’care p la n s . " Its main concern has been w ith the p r e s e r v a t i o n o f the s o lo p r iv a t e p r a c t i t i o n e r and e s p e c i a l l y I the f e e - f o r - s e r v i c e method o f rem uneration. These two I I ip r i n c ip le s . . . have been r a i s e d to th e l e v e l o f sa cred j Ji O cows." The A s s is t a n t S e c r e ta r y o f th e ADA, Carl ; S e b e liu s , s t a t e d in 1962: ! The p r o f e s s io n can a cce p t the r e s p o n s i b i - ' l i t y o f prepayment fo r d e n t i s t s and p a t i e n t s j a l i k e . . . . I f o rg a n iz ed d e n t i s t r y d o e s n 't take j up t h i s r e s p o n s i b i l i t y , o th er a g e n c ie s w i l l | s te p i n t o th e gap: unions and o th e r consumer grou p s, management, the in su ra n ce in d u s t r y , and government. And t h e s e a g e n c ie s may con s i d e r o th e r f a c t o r s more im portant than p r i - I vate p r a c t ic e d e n t is t r y and high stand ard s o f ] c a re . ^9 ! I The ADA Task Force i s re v ie w in g programs under th e Los A n g e les, 1969, p. 7 (mimeographed). i<8I b id . , p. 2. 1)0 Carl S e b e l i u s , "The American D en tal A s s o c i a t i o n ' s P o l i c i e s and P r i n c ip le s on Group Purchase o f D en tal Care," in C onference on A d m in istra tio n o f Prepaid D en tal Care Programs ( S e a t t l e , Wash.': 'Washington D ental S e r v i c e , 1962) P. 137. ; 79 50 f o ll o w i n g b a s i c stan d ard s: I j 1. p r i o r i t y o f s e r v i c e s ; j 2. manpower and ed u c a tio n r e s o u r c e s ; 3. d e li v e r y ;o f se r v i.c e s; ! 4. q u a l i t y review and payment methods; 5- consumer con cern s, j The d e n ta l s e r v i c e c o r p o r a tio n i s the v e h i c l e !chosen by th e ADA th a t w i l l " preserve th e p r a c t i c e o f j d e n t i s t r y as n e a r ly as p o s s i b l e in the form in which i t e x i s t s to d a y ." '’1 !D en tal S e r v ic e C orporations ! By 1969 , d e n ta l s e r v i c e c o r p o r a tio n s had been I j e s t a b l i s h e d in 37 s t a t e s , but only 27 were a c t u a ll y 52 io p e r a tin g and h a n d lin g some type o f co v er a g e. jThe c o r p o r a tio n s are non p r o f i t e n t i t i e s , e s t a b l i s h e d I iby s t a t e d e n ta l s o c i e t i e s to a d m in is te r p rep aid d e n ta l care t i SO j V iron D iefen b a ch , "ADA Task Force on N a tio n a l H ealth Programs: A P rogress R eport," Journal o f the Ameri can D en tal A s s o c i a t i o n , LXXXII (May, 1971)* 965- 51 J F. Gene Dixon, "Coverage O ffered through D ental S e r v ic e C orporation Programs," in Conference on Adminis t r a t i o n o f Prepaid D en tal Care Programs, p. 31. -^Robert D. E i l e r s , "A R eju ven ation P rop osal fo r D ental S e r v ic e C o rp o ra tio n s," Journal o f th e American D en tal A s s o c i a t i o n , LXXXI ( J u ly , 1 9 7 0 ), 89" ! ! 80 : p la n s . The p lan s may be s e t up on an in s u r e d b a s i s , 'with d e n t i s t members ta k in g th e r i s k or as only an admin- j ! S is t r a t iv e v e h i c l e . B r i e f l y , a d e n ta l s e r v i c e co r p o r a tio n has th e f o llo w in g f e a t u r e s : ! 1. p r o f e s s i o n a l sp o n so rsh ip ; j i i 2. non p r o f i t s t a t u s ; | | 3. perm its p a r t i c i p a t i o n by a l l l i c e n s e d den- j i | ; t i s t s w it h in the s t a t e ; i i | ! ^. p ro v id es b e n e f i t s on a s e r v i c e b a s i s ; j i 5- a llo w s freedom o f ch o ic e f o r both the p a t ie n t ' 5 3 ' ; and th e d e n t i s t . ! ; I In 1 969 , approxim ately two m i l l i o n p eop le in the ; 54 jUnited S t a t e s were e n r o l le d in d e n ta l s e r v i c e c o r p o r a tio n s . ! I Carl S e b e l i u s , A s s is t a n t S e c r e ta r y o f th e ADA l i s t s :th e s e advantages o f th e D ental S e r v ic e C o r p o r a tio n s: | 1. I t m ain tains adequate p r o f e s s i o n a l c o n tr o l over th e o p e r a tio n o f group purchase p la n s . j 2. I t p ro v id es an a c c e p ta b le s u b s t i t u t e f o r c l o s e d ' i jpanel d e n ta l care p la n s which might be proposed by organized I e ; o ! >JGeorge E. M itc h e ll and F e r r is M. Hoggard, J r . , jThe D ental S e r v ic e C orporation: O r g a n iza tio n and D evelop ment , U .S. Department o f H e a lth , E d u cation , and W elfare, P u b lic H ealth S e r v ic e P u b lic a t io n No. 1274. (Washington, D.C.: Government P r in t in g O f f i c e , 1 9 6 5 ), p. 1. •^Bonk, p. 701. ^^Sebelius, p. 139. I 81 :g r o u p s . ( i 3. I t p r o v id e s an a c c e p ta b le mechanism f o r the j a d m in is tr a tio n o f p la n s d evelop ed by th e f e d e r a l g o v ern - j Iment fo r p u b lic a s s i s t a n c e w e lfa r e programs (s e e Table i 1 3 ) . I Group P r a c t ic e Plans t This p la n i s c o n tr a c te d betw een a pu rch asin g group and a group p r a c t i c e conducted by two or more den t i s t s sh a r in g o f f i c e f a c i l i t i e s , p e r s o n n e l and c o s t s . The c h o ic e o f d e n t i s t s i s l i m i t e d to th o se w ith in th e i 5 6 j p r a c t i c e . Group p r a c t i c e p r o v id e s many forms o f o r g a n i s a t i o n ; among them are p a r t n e r s h ip s , e x p e n s e -s h a r in g a r - i Irangem ents, a s s o c i a t e or employment arrangem ents, p r o f e s - i 57 I s io n a l a s s o c i a t i o n s and p r o f e s s i o n a l c o r p o r a tio n s . The I Group H ealth D en tal C ooperative i s perhaps th e b e s t example I o f consum er-sponsored group p r a c t i c e p la n s . Some p lan s j i c o n s i s t o f p r iv a t e d e n ta l p a r t n e r s h ip s , s e r v in g p r iv a t e 58 p a t i e n t s as w e l l as p rep a id p lan p a t i e n t s . 56 J M i t c h e ll and Hoggard, p. i v . 57 C ouncil on D en ta l H e a lth , Group D en tal H ealth Care Plans (Chicago: American D en tal A s s o c i a t i o n , 1 9 5 5 ), p. *3. 58 J Max H. Schoen, "A Prepaid D en tal Program," D en tal P r o g r e s s , I I ( J u ly , 1 9 6 2 ), 256-63; "Group P r a c t ic e in Den- j t i s t r y ,'* M edical C are, V (May-June, 1967 ) , 176-83; "Group | 82 TABLE 13 SUMMARY OF DENTAL SERVICE PLAN PROGRAMS ; DECEMBER 31, 1968 ! j Number o f Number o f I Programs_______________________________________ Programs S u b scr ib ers ! P r iv a te : U nderw ritten 373 1 ,4 4 9 ,6 1 3 A dm in istered on Cost p lu s b a s is 18 17,862 T otal 391 1 ,4 6 7 ,4 7 5 P u b l i c : H eadstart 149 37,874 Follow through 1 75 Upward Bound 1 105 Community A ction 7 1,806 Child and Youth Care 1 250 Job Corps 2 260 P u b lic A s s is t a n c e ( S t a t e ) 1 149,355 P u b lic A s s is t a n c e (County) 1 225 M aternal and I n fa n t Care 3 630 O f f ic e o f Education 2 329 O f f ic e o f E ducation ( t i t l e 1) 3 350 C h ild r e n 's Bureau: Prescad 2 50,000 Neighborhood Youth Corps 3 8,000 Department o f H ealth: T i t l e XIX 1 3,000 Neighborhood H ealth Center 2 300 P r iv a te p r a c t i c e e x t e n s io n program 1 T o ta l 179 252,559 GRAND TOTAL, P r iv a te and P u b lic Programs 570 1 ,7 2 0 ,0 3 4 Source: James Bonk, "The D en tal S e r v ic e Plan : An Adven- tu r e in In volvem en t," Jou rn al o f th e American D en tal A s s o c i a t io n , LXXVIII ( A p r il, 1 9 6 9 ), 705. 83 Max Schoen, founder and one of the partners in jsuch a group practice arrangement, cited some of the ibenefits that accrue to dentists in a group practice: I As far as the dentist is concerned, one very important advantage might be termed "security" or "stability." Under i this heading comes relatively easier [sic] and more regular vacations. The practice is protected during periods of absence ... Expenses go on, but so does production^... Protection during periods of illness, during absence for post-gradu- ! ate study, or during attendance at con- ! ventions all fit in a similar category, i Under "security" comes the future poten- | tial of retirement benefits and, short ' of complete retirement, the possibility i of easing off without catastrophic reduc- ! tion of income. We also feel we are better • able to weather possible recession periods. I Our large patient load, coupled with the ; flexibility of a fair-sized organization, : ten ds t o avoid peaks and d ip s in volume o f j p r a c t i c e . 59 A group practice enables priorities of care to be jset for the insured group, whereby the most good can be idone for the group with a given budget. The development iof proper home dental care can be encouraged through ^Practice Owned by a P a rtn er sh ip U sing Some S a la r ie d Den- j t i s t s and C on tractin g D ir e c t ly w ith Purchasers o f Group IDental Care," Journal o f the American D ental A s s o c i a t io n , LXII ( A p r il, 1 9 6 1 ), 392-95- ; 59 Max H. Schoen, "Group P r a c t ic e Owned by a P a rtn er sh ip Using Some S a la r ie d D e n t is t s and C o n tr a ctin g D ir e c t ly w ith Purchasers o f Group D ental Care," Journal o f the American D ental A s s o c i a t i o n , LXII ( A p r il, 1 9 6 1 ), 393. i \ c h a ir s id e e d u c a tio n and o c c a s io n a l m e e tin g s . The id e a |o f a group p r a c t i c e i s a t t r a c t i v e to much o f th e p u b l ic . 'Reasons c i t e d were in c r e a s e d c o n s u lt a t io n and in c r e a s e d s p e c i a l i z a t i o n . ^ The group p r a c t i c e d e c r e a se s in s u c c e s s when the g e o g r a p h ic a l area covered i n c r e a s e s . A c e n t r a l o f f i c e ; i then becomes in c o n v e n ie n t . The op en -panel system may be more a p p lic a b le in an area o f low p o p u la tio n d e n s it y . I Schoen em phasizes t h a t group p r a c t i c e arrangements |do not u s u a lly op erate under c o n d itio n s o f economies o f j s i z e . He l i s t s th e s e rea so n s: 1. The number o f a u x i l i a r y p e rso n n el does not :d ecre a se w ith th e in c r e a s e d number o f d e n t i s t s . S a la r i e s fo r a u x i l i a r y p e r so n n e l are a major expense f o r p r a c t i c i n g ; d e n t i s t s (s e e Table 1 4 ). 2. S a la r i e s and working c o n d itio n s o f p e r so n n e l are u s u a l ly h ig h e r than the a v era g e , because many group p r a c t i c e s are in v o lv e d w ith la b o r u n io n s. 3. In ord er to a t t r a c t high a b i l i t y d e n t i s t s , the 'group p r a c t i c e must s e t s a l a r i e s c o m p e titiv e w ith the p r e v a i l i n g average income o f d e n t i s t s in th e area (s e e Table 1 5 ). fin N a tio n a l Opinion Research C enter, P u b lic A ttitu d e s Toward Prepaid D ental Care Plans , p. 131. TABLE 14 N E T IN C O M E A N D EXPENSES AS P E R C E N T O F M E A N G R O SS IN C O M E $ 20000-30000-40000-50000-60000-70009-80000-90000-100000 A ll income -19999 29999 39999 49999 59999 69999 79999 89999 99999______________ le v e ls Net Income 53.8 56.4 55.0 54.5 53.5 52.4 51.8 53.4 48.3 54.9 53*j O ffice rent and u t i l i t i e s 10.3 7.7 6.7 5 .8 5.3 5.4 5.0 4.6 4.4 5 .2 6.0 S a la ries (including comm's) 6.3 9.6 12.5 12.5 14.5 16.3 16.1 15.7 20.6 1 7 .7 14.1 Fringe b e n e fits (not in cluded in sa la r ie s 0 .2 0.3 0.5 0.5 0.6 0.7 1 .2 0.5 0.5 0.6 0.6 Insurance related to den t a l p ra ctice 1.0 1 .0 0.8 0 .8 0.8 0.7 0.7 0.6 0.6 0.7 0.8 D epreciation on dental and o f f ic e equipment 3 .1 2.6 2.7 2.7 2.5 2.3 2.6 2.1 3 .1 1 .8 2.6 Travel to dental meetings so c ie ty dues, jou rn als, lic e n s e fe e s , e tc . 1.5 1.4 1.3 1.3 1.2 1.3 1.4 1.2 1.0 1 .5 1.3 Commercial dental labora tory su p p lies 10.7 9.6 10.4 10.4 10.8 10.6 10.9 11.5 10.3 7.3 10.4 Dental su p p lies, drugs, e tc . 7.5 6.1 5 .8 5.8 5.8 5.6 5.0 5.7 5.8 4 .8 5 .8 A ll other overhead (laun- ' dry, o f f ic e su p p lies postage, c o lle c tio n expense, maintenance, e tc . 5.6 5.3 5.1 5.7 5.0 4.7 5.3 4.7 5.4 5.5 5.1 T O T A L 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: American Dental A sso cia tio n , Bureau of Economic Research and S t a t is t ic s , "1968 Survey o f Dental P ractice," Journal o f the American Dental A sso cia tio n . LXXIX (September, 1969), 691. CD VJl TABLE 15 AVERAGE COMPOSITE FEES REPORTED BY NON SALARIED DENTISTS FOR SELECTED CITIES S e le c t e d Mean Median C i t i e s Composite Composite Fee Fee New York $847.44 $ 805.00 Chicago 804.40 775.00 |Los A ngeles 1056.92 1045.00 !P h ila d e lp h ia 719.00 677.50 D e tr o it 857.65 817.50 A ll c i t y s i z e s 760.69 745.00 •Source: American D ental A s s o c i a t io n , Bureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D ental P r a c t ic e ," Jou rn al o f th e American D ental A sso- i e l a t i o n , LXXVIII (June, 1969 ) , 1364". ; 87 Savin gs on q u a n tity purchase o f s u p p li e s and |equipment are n e g l i g i b l e . ^ 1 I In 1970, th e C ouncil on D ental H ealth o f th e ADA I conducted a survey o f e x i s t i n g group p r a c t i c e s . Two- t h ir d s o f t h e i r sample o f group p r a c t i c e s had on ly two or th r e e members. Only 26 out o f 175 had more than f i v e members. The survey l i s t e d th e s e freq u en t resp o n se s to the g r e a t e s t problems in group p r a c t i c e : 1. la c k o f c o m p a t i b i l i t y and mutual stand ard s iand o b j e c t i v e s ; j 2. need f o r more space and room f o r e x p a n sio n ; j 3 . d i f f i c u l t i e s in r e c r u i t i n g and k eep in g a u x i l i a r y p e r s o n n e l . ^ A more d is a g g r e g a te l e v e l o f a n a l y s i s than sim ply lo o k in g at t o t a l c o s t s i s the study o f th e p r o d u c tio n func t i o n . Given a s u i t a b l e p ro d u ctio n fu n c tio n and f a c t o r p r i c e s , i t i s p o s s i b l e t o determ ine o p tim al in p u t combina t i o n s . To group p r a c t i t i o n e r s and th e DM U o f a c l i n i c i o p e r a tio n , t h i s in fo r m a tio n would be u s e f u l in a l l o c a t i n g ‘r e s o u r c e s w it h in th e p l a n t . An e s tim a te d p ro d u ctio n i ^1Max H. Schoen, "Cost and Q u a lity C ontrol in a Group P r a c t ic e P repaid D en ta l Program," (paper p r e s e n te d at th e ADA-APL/CIO J o in t M eeting on D ental Prepayment, C hicago, March 8, 1969 ) , pp. 2 -3 . 6 2 American D ental A s s o c i a t i o n , R eports o f O f f i c e r s and C oun cils (Chicago: American D en tal A s s o c i a t i o n , I 97O) p . 4 3" ! 88 fu n c tio n could gu ide us in making judgments about th e p e r formance o f non p r o f i t c l i n i c s w ith r e s p e c t to how e f f i c i e n t l y r e s o u r c e s are combined and whether the s c a l e o f p la n t f a c i l i t i e s i s optimum. A lexander M aurizi has e s tim a te d a p r o d u c tio n fu n c - O t i o n f o r d e n ta l s e r v i c e s s p e c i f y i n g a Cobb-Douglas form. The data are from the 1962 Survey o f D ental P r a c t ic e o f th e ADA. The output measures are the rep o rte d annual g ro ss income o f th e su rveyed d e n t i s t s or th e number o f p a t i e n t s i t t i n g s ( v i s i t s ) . I n i t i a l l y , th e number o f rep o rte d man-hours o f d e n t i s t s and a l l a s s i s t a n t s i s used as th e la b o r in p u t measure and th e number o f c h a ir s in th e o f f i c e as th e c a p i t a l m easure. The r e g r e s s io n ( s i n g l e e q u a tio n l e a s t sq u ares) u sin g g r o ss income as an output m easure, Y^, e x p la in s more o f th e v a r i a t i o n than th e r e g r e s s io n u s in g p a t ie n t s i t t i n g s , Y2 ; c o e f f i c i e n t s o f d e t e r m in ation are 0 .5 3 and 0 .3 1 r e s p e c t i v e l y . The sum o f th e r e g r e s s i o n c o e f f i c i e n t s are: u s in g g ro ss incomes measure, 0 .9 7 ; u s in g p a t i e n t s i t t i n g s , 0 .7 7 . Given the nature o f the d a ta , t h i s might in d i c a t e co n sta n t retu rn s to s c a l e . U n s a t i s f i e d w ith t h i s outcome, the la b o r inp ut i s r e d e fin e d as the number o f a s s i s t a n t s , L^, and annual hours o f d e n t i s t ' s tim e , L2 . The second a n a ly s is r e s u l t s in the ^Maurizi, ch. vi. sum o f the b e ta c o e f f i c i e n t s b e in g la r g e r than one (1 .5 8 ;when output i s and 1 .5 0 when output i s . However, is e p a r a tin g th e la b o r in p u ts in t o number o f a s s i s t a n t s and ;d e n t i s t ' s hours does n ot markedly change th e c o e f f i c i e n t s o f d eterm in a tio n ; f o r Y^, 0 .5 4 in s t e a d o f 0 .5 3 and fo r :Y2 » 0 . 3 1 , unchanged. C onsiderin g p o s s i b l e in c r e a s i n g retu rn s to s c a l e , M aurizi n o te s th a t more p a r tn e r s h ip s have been form ing over tim e , 1 9 52-1964, and an i n d i c a t i o n o f a d e c l in e in ‘th e p ercen t o f d e n t i s t s engaged in s o l o p r a c t i c e (s e e Table 1 6 ). He then e s t im a t e s th e fu n c tio n f o r a se p a r a te d ;data between g e n e r a l and s p e c i a l i s t s o lo p r a c t i c e and g e n e r a l and s p e c i a l i s t p a r tn e r s h ip p r a c t i c e . The g en - :e r a l i s t and s p e c i a l i s t s e p a r a t io n does not p r e s e n t s i g n i f i c a n t changes in th e c o e f f i c i e n t o f th e d e n t i s t la b o r 'i n p u t , but i t sh ould be n oted th a t th e c o e f f i c i e n t o f th e a s s i s t a n t ' s la b o r in p u t in c r e a s e s f o r th e s p e c i a l i s t c a t e gory. This i s probably b ecau se 97 p e r c e n t o f a l l s p e c i a l i s t s are o r t h o d o n t i s t s , who r e q u ir e and are t r a in e d to :u t i l i z e more a u x i l i a r y p e r s o n n e l (s e e Table 1 7 ). | The g e n e r a l i s t - s p e c i a l i s t s e p a r a tio n does not s i g n i f i c a n t l y improve the e s t im a t io n and i s not an adequate c o r r e c t io n fo r output d i f f e r e n c e s . Most i n t e r e s t i n g i s the c o n c lu s io n th a t "while th e r e i s an i n c e n t i v e t o expand o p e r a tio n s by forming p a r t n e r s h ip s , th e r e i s no in c e n t i v e 90 TABLE 16 GROW TH OP DENTAL PARTNERSHIPS Type o f I Employment iNon s a l a r i e d , w ith o u t p a rtn ers and no s h a r in g o f c o s t s 7 4 .3 7 4 .4 7 3 .7 7 3 .1 70.7 Non s a l a r i e d w ith ou t p a r tn e r s but sh a rin g c o s t s o f o f f i c e s , a s s i s - i t a n t s , e t c . 6 .6 8 .8 8 .2 8 .3 9 .1 jNon s a l a r i e d , as a | p a r tn e r i n a com plete j p a r tn e r sh ip 1 .6 1 .9 2 .6 2 .7 3.6 iSource: A lexander R. M a u rizi, "An Economic A n a ly s is o f ; th e D en tal P r o f e s s io n ," (U npublished Ph.D. d i s s e r t a t i o n , S ta n fo r d U n i v e r s i t y , 1967 ) , Table IV -2, p. 236. Percent o f Respondents 1952 1955 1958 1961 19~6? TABLE 17 ! PERCENTAGE OF NON SALARIED DENTISTS EMPLOYING AUXILIARY PERSONNEL AT TIME OF SURVEY, BY TYPE OF PRACTICE AND TYPE OF PERSONNEL General A ll Types P r a c t i t i o n e r S p e c i a l i s t o f P r a c tic e H y g i e n i s t : f u l l tim e 12.9 8.3 12.4 p art time 13 .3 3.9 12 .2 T e c h n ic ia n s : f u l l time 3.4 10.7 4 .2 p art time 1 .3 6 .0 1 .9 A s s i s t a n t s : f u l l tim e 82.8 88.4 83.5 part time 17.0 2 1 .5 17.5 S e c r e t a r ie s and R e c e p t i o n i s t s : f u l l tim e 24.9 45.5 27.2 part time 5 .5 6 .3 5 .6 Source: American D en tal A s s o c i a t io n , Bureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D ental P r a c t ic e ," Journal o f th e American D ental Asso c i a t i o n , LXXVIII (June, 1969 ) , 1356. f o r p a r tn e r s h ip s to expand o p e r a tio n s once th e y are | formed. This i s based upon th e fin d in g s t h a t , f o r j is o l o p r a c t i c e , the sums o f th e b e t a c o e f f i c i e n t s are j i ! t ;g r e a t e r than one (1 .6 5 and 1 .6 8 ) w h ile fo r p a r t n e r s h ip s , j ' | th e s e sums are 0 .9 8 and 1 .1 7 . In view o f th e in a d e q u a c ie s • ; ;o f the s i n g l e year c r o s s s e c t i o n d ata and th e ty p es o f ; measures u sed, t h i s c o n c lu s io n seems u n n e c e s s a r ily s tr o n g . ;There are output b ia s e s in tr o d u c e d by u sin g re p o r te d g r o ss ; ;income or p a t ie n t s i t t i n g s . Income d i f f e r e n c e s are not |n e c e s s a r i l y i n d i c a t i v e o f the q u a lit y o f s e r v i c e s or p a - ! j ;t i e n t m ix, which may d i f f e r between th e ty p e s o f p r a c t i c e j | i |o v e r r e g io n s in one y ear. The s p e c i f i c a t i o n i s only approx- ; im ated and th e s i z e o f p a r tn e r sh ip range i s unaccounted for; a p a r tn e r s h ip might be two d e n t i s t s , th r e e d e n t i s t s or m ore. I f M a u r iz i's data were f o r two y e a r s , i t i s p o s s i b l e t o get around some e s t im a t io n b ia s by r e g r e s s i n g the change in output on th e change in each in p u t. The - p r e v io u s ly unmeasured f a c t o r s such as e n t r e p r e n e u r ia l ‘ a b i l i t y might remain co n sta n t and drop o u t , in the ! tem poral d i f f e r e n c e s . The problem o f not m easuring qua- ! ’ i . | l i t y d i f f e r e n c e s in output among e n t e r p r i s e s would a l s o j j address in t h i s fo rm u la tio n as we might ex p e c t q u a l i t y to j ! ; | 621 Ibid., p. 235. 93 remain co n sta n t w ith in a g iv e n p r a c t i c e over two y e a r s . ! I I ;Union, Employee A s s o c i a t io n or Employer Plans In th e s e p la n s , th e group owns and o p e r a te s a f a c i l i t y and c o n tr a c ts w ith one or more d e n t i s t s to p ro- 65 v id e s e r v i c e s f o r the group. Such a plan i s i n v e s t i g a ted in Chapter 5 o f t h i s d i s s e r t a t i o n . Advantages o f t h i s arrangement allo w the p u rch asers ' ,g r e a t e r c o n t r o l and p r e d i c t a b i l i t y o f c o s t s than do a l t e r n a t i v e arrangem ents. I t a ls o o f f e r s a " p o t e n t i a l f o r u n i- |form ly h igh standard s o f d e n ta l p r a c t i c e which i s appre- ; ! ( ic ia b ly more d i f f i c u l t to a ch ie v e in d e n ta l s e r v i c e c o rp o ra -: t i o n programs and v i r t u a l l y im p o s s ib le o f attain m en t through 66 th e in s t r u m e n t a lit y o f an in su ra n ce company." However, S e b e liu s o f th e ADA s t a t e s th a t: . . . s u c h programs can be a t h r e a t to h ig h s t a n dards o f d e n ta l c a r e , and, e v e n t u a l l y , to p r iv a t e p r a c t i c e . While th e s e programs can not be e l im in a t e d , we can d isc o u r a g e t h e i r ; development by s e t t i n g up e f f e c t i v e and d e s ir a b le programs conducted by d e n ta l s e r v i c e c o r p o r a tio n s or r e l i a b l e commercial in su ra n ce j c a r r i e r s . 67 65 ^ M itc h e ll and Hoggard, p. i v . ^ H a r o ld K le in , "Coverage O ffered through a C lin ic Program ," in C onference on A d m in istra tio n o f Prepaid D ental Care Programs, p. *11" ! ; ^Sebelius, p. 1 3 8. 94 Commercial Insurance Plans | I ; These p lan s are in su ra n ce p o l i c i e s w r it t e n by | I commercial in su ra n ce companies and co v er s u b s c r ib e r s fo r j jpart or a l l o f th e c o s t o f d e n ta l s e r v i c e s performed by : the in s u r e d 's p r iv a t e d e n t i s t s . O rganization o f t h e s e p lan s d i f f e r , but u s u a l ly ithe d e n ta l coverage i s not a part o f an o v e r a l l in su ra n ce jprogram f o r h e a lt h c a r e . S e v e r a l a s p e c t s o f th e s e p la n s ! 68 : a r e : ' 1. fr e e c h o ic e o f d e n t i s t s on th e p art o f th e | p a t i e n t ; 2. in some p la n s , th e r e i s no fe e sc h e d u le ; th e 'b e n e f it s are based upon customary and r e a so n a b le charges f o r work performed; 3. th e r e i s a d e d u c tib le amount b e fo r e payments ;begin; 4. th e r e i s some method o f co-payment on th e part jof th e in su red so th a t th e p a t ie n t r e t a i n s a " f in a n c ia l ^ interest" in th e c o s t s o f care; j 5. th e r e i s a maximum amount o f b e n e f i t s payable i jto one person; fi ft J. P. Follmann, J r . , "Insurance Company Coverage ifor D ental Care," in Conference on A d m in istr a tio n o f Pre- jpaid D ental Care Programs, pp. 3 3 -3 4 . 95 6. th e r e are b a s ic e x c l u s i o n s from coverage such [ |a s p u r e ly co sm etic d e n t i s t r y or o c c u p a tio n a l i n j u r i e s . j j !In d u stry C ontrols The ADA, founded in 1858 , i s the parent o r g a n iz a t i o n o f th e d e n t a l p r o f e s s i o n . The membership o f th e ADA i s composed o f l i c e n s e d d e n t i s t s , who h o ld membership through t h e i r s t a t e and l o c a l s o c i e t i e s . Through the p o l i c i e s and r e g u l a t i o n s o f th e ADA, o rg a n iz ed d e n t i s t r y i s !e f f e c t i v e l y c o n t r o l l e d . The ADA u t i l i z e s s e v e r a l impor ta n t methods whereby the in d u s tr y i s r e g u la te d . Product d i f f e r e n t i a t i o n and p r ic e d i s c r i m i n a t i o n : To some e x t e n t , th e in d u str y s t i l l d is c r im in a t e s by em p h asizin g the q u a l i t y o f p r o s t h e t i c item s and m a t e r i a ls . This i s s i m i l a r t o th e case o f E n g lish d e n t i s t s who debated a t le n g th g i v i n g in su r a n c e p a t i e n t s p l a s t i c ( i n s t e a d o f v u l c a n i t e ) d e n tu r e s , becau se th ey f e l t they would then :have n o th in g to s e l l to t h e i r p r iv a t e p a t i e n t s . This i s ;tantamount to a surgeon p erform ing on a poor p a t i e n t w ith 'poor t o o l s and bad te c h n iq u e in order t o be ab le to charge i 69 ja w ea lth y p a t i e n t more fo r th e proper o p e r a tio n . This I ---------------- fi--------------- j ^Donald G. MacQueen, "A B a sic Plan f o r th e Pro- | t e c t i o n o f th e P u b lic and th e D e n t is t s in S o c i a l Programs," 96 gives vent to price differences and forms the rationale whereby a dentist might charge a higher fee to his higher income patients for a service essentially similar to that rendered to lower income patients at a lower charge. Therefore, the economic price discriminating model may be useful in characterizing the structure of this market. Prevention of advertising: If a dentist adver tises for patients (even in a few western states where advertising is permitted by law), the ADA will not ac cept him for membership in the society. This is valid reasoning on the part of the ADA, for any advertising will tend to develop competition, particularly in the realm of fees, and lead to the downfall of a discriminating monopoly structure. Price variation: Similar to the so-called "Cadil lac" services of physicians, price variation usually takes the form whereby the charge for one service is not equal to the cost of the time equivalents of labor inputs. For example, Schoen states that: ...fee schedules place a premium on removable prosthetic replacements, rather than on preventive and tooth saving procedures. In effect, these relative values, do nothing more than reinforce an irrational but lucra tive system that favors the dentist at the ; 97 70 expense of consumer welfare. I i I t j Protection of status quo: The Dental Service j I Corporation, as discussed above, is the means by which the ADA hopes to retain the present industry structure in the face of competing prepayment plans which jeopardize the industry. The Dental Service Corporation allows the traditional patient-dentist relationship, and fees are charged that are "usual and customary." In contrast to ;this plan, closed panel prepayment plans destroy the choice ;of dentists and the setting of customary fees. These ■closed panel plans provide service directly, instead of providing the means whereby services can be purchased. In i effect, dentists are not allowed to price discriminate between lower and higher income patients. Justification ;for the ADA's dislike of these closed panel programs may :stem from the philosophy stated below by the Executive Director of the New York State Dental Service Corporation: ...we have agreed that it is the purpose ' of our plan to provide the public with the | benefits of a dental insurance plan — not i to serve as a welfare program ... As a citi- ; zen, the dentist already is contributing to | the public welfare through taxation and j through his community charities. He should I not be called upon to contribute a third time in the form of cut rates for his ^Schoen, "Cost and Quality Control in a Group Practice Prepaid Dental Program," pp. 6 -7 . 98 p r o f e s s i o n a l s e r v i c e s . W e b e l i e v e the I p u b lic w i l l p r o f i t from t h i s p o s i t i o n b e- i c a u se , l i k e c u t - r a t e m erchandise, c u t - r a t e | d e n t i s t r y i s not l i k e l y to be o f the h ig h e s t i q u a l i t y . <1 i ! L ic e n se r e s t r i c t i o n s : As m entioned e a r l i e r in t h i s c h a p te r , s t a t e l i c e n s e r e s t r i c t i o n s i n h i b i t the mo b i l i t y o f d e n ta l manpower and th e f r e e adjustm ent o f demand and supply f o r c e s . These s ig n s o f i n e f f i c i e n c y in th e a l l o c a t i o n o f d e n ta l r e s o u r c e s only s erv e to enhance th e r e l a t i v e power o f th e ADA to the e x te n t th a t changes in :l i c e n s i n g requirem ents by s t a t e s are d r a fte d by a s s o c i a t i o n — r e c o g n iz e d d e n t i s t s and approved by o rg a n ized ’ d e n t i s t r y . R e s tr a in t o f c o m p e t it io n : This r e s t r a i n t i s e v i dent in th e ADA's movement to c o n tr o l th e r o le o f d e n ta l 72 :and la b o r a to r y t e c h n i c i a n s . In 1 9 5 7 s the ADA s u c c e s s f u l l y lo b b ie d to have th e F ed eral Trade Commission r e v i s e :th e ir 1955 r u le s f o r the commercial d e n ta l la b o r a to r y ■industry which seemed t o g iv e th a t in d u str y independent s t a t u s . This r e v i s i o n s u c c e s s f u l l y opposed r e c o g n it io n j ^ M e lv in L. D o lla r , "Dental F e e s, Method o f D e te r - im ination, R e la tio n s h ip to Treatm ent, Use in D ental Care 'Programs," in Conference on A d m in istra tio n o f Prepaid jD en tal Care Programs, p. 9 9 . 72 ' Robert W . McCluggage, A _ H isto r y o f th e American jDental A s s o c i a t io n (C hicago: American D en tal A s s o c ia t io n , (1959), PP- 431 -3 2 . 99 o f the la b o r a to r y In d u stry as an in d u s tr y "capable o f 73 perform ing any d i r e c t d e n ta l s e r v i c e f o r the p u b l ic ." In 1954, the ADA House o f D e le g a te s r e c i r c u l a t e d the "Program fo r M ain tainin g Proper and E f f e c t i v e R ela t io n s between the D ental P r o f e s s io n and thre D ental Trade Groups." This pamphlet em phasized th e P r i n c ip le s o f 7 Z i E th ic s which forbade d e le g a t i o n o f s e r v i c e s . Any e r o s io n o f the d u tie s o f d e n t i s t s as c o n tr a s te d t o t h e i r a u x ili a r y p e r so n n e l i s , in e f f e c t , expanding the supply o f a v a il a b l e d e n ta l s e r v i c e s - a f a c t o r which could le a d to " d e str u c tiv e " p r ic e c o m p e titio n . The in f lu e n c e o f th e ADA on th e c h a r a c t e r i s t i c s o f the in d u str y do not go u n n o ticed by some ( l e s s pop ular) members o f th e p r o f e s s io n or proponents o f n a t io n a l h e a lth p la n s . Gerald G ross, E d ito r o f th e Washington Report on the M edical S c i e n c e s , i s one such c r i t i c . Is the i n d i v i d u a l , or th e p a t i e n t , r e a l l y th e prime c o n s id e r a tio n ? The proper th in g to s a y , o f c o u r s e , i s th a t he i s . And y e t the monumental r i s e o f o rg a n iz ed d e n t i s t r y . . . and th e i n t e n s i v e lo b b y in g and p r e s s u r in g in th e h a l l s o f Congress f o r , or sometimes a g a i n s t , b i l l s th a t have a d i r e c t b ea rin g on d o l l a r retu rn s o f th e v o c a tio n concerned make one wonder i f som ething o th e r than the p a t ie n t i s n ' t No. [ s i c ] 1. Candor would come In m ighty handy h e r e . 73Ibid., p. it32. 100 . . . n o b i l i t y s e i z e s t h e s e l e g i s l a t i v e p a r t i sans and th e y go on and on, s a y in g how much the p a t i e n t or p r o s p e c t iv e p a t ie n t w i l l l o s e or s u f f e r i f such and such a b i l l i s p a sse d . This may or may not be th e c a s e . But what i s c e r t a i n i s , nam ely, th a t the members o f th e p r o f e s s i o n a l o r g a n iz a tio n in q u e s tio n sta n d t o l o s e so m eth in g, or th ey rea so n a b ly s u s p e c t th ey w i l l be th e l o s e r in some manner — t h i s i s not em phasized, fr e q u e n tly not even h in t e d a t . 75 '-'G e r a ld G. G ross, " N ational H ealth on th e Wash in g to n P la n ," in Conference on A d m in istr a tio n o f Prepaid D ental Care Programs, pp. 62- 6 3 . CHAPTER IV A METHODOLOGICAL NOTE Many of the statistical researches that I are carried on in the social sciences lack | the inspiration of any theory — static or ; dynamic. Relatively few of us like to per- | form the necessary mental experiments which ! should precede the assembling and the manip- | ulating of the data, if the results are to ; be significant. | Research is not good simply because it | is mathematical or statistical, or because | it makes use of ingenious machines. Re- i search is good if it is significant, if it I is fruitful, if it is consistent with estab- i lished principles, or if it helps to over throw erroneous principles.1 I | Explanation may mean reducing phenomenon to their 'elements (initiators) and "uncovering" the relationships I jbetween the elements. By a universal economic principle |is meant a relation of the form if A, then B, which holds i i | Henry Schultz, "Statistics in Economics," in jReport of Fourth Annual Research Conference on Economics and Statistics (Colorado Springs, Colo.: n.p., 1938) , p. Bit. i 101 : 102 at all times. This is the sufficient condition, i.e., !that the relation holds repetitively without exception. I : j ;The so-called Law of Demand is a formulate relation ! ' j :which is consistent in many applications to different j : ' | ‘distinct phenomenon. But this economic law is a law of j iprobability. It is not impossible that a consumer may have a priority for one good in some given time period, desiring one good above all others, and exhibit a contrary I demand relation. It is only improbable. It is not impos- ; jsible that, at sometime, everyone in the economy would |have the same ordinal preferences. It is only improbable. ! The statistical laws are of this kind. There is a high ;probability for different ordering and this leaves only a low probability for identical ordering. The larger the number of people the smaller the probability, but it can !never be zero. From the practical standpoint, the significance of the recognition of the laws as statistical may be in- :consequential. The theoretical, methodological consequences lare, however, most important. There are two quite dif- ] ferent conceptions surrounding the distinction of certainty and uncertainty of relations in economics which has given rise to at least two different approaches. ; One such approach has been referred to as the 103 2 absolutist. According to the proponents of this camp, environmental theories are platitudinal and the core of •3 ieconomics is valid regardless of social change. This j ;group of theorists then, view the observation of univer sal economic relationships as inaccessible because of |lack of precision in investigations and therefore, the economist must resort to probability laws. Other economists carry forth the attitude that jwhat is observed as a statistical law is the result of |an extremely large number of individual happenings. The I universal economic principles are, for these social sci entists, only mental formulations regarding previously observed regularities of phenomena within the environment peculiar to that time and spatial dimension. These prin- :ciples are only simplifications of a seemingly imponderable 'number of individual processes. They are, therefore, in reality only statistical constructs. However, for the absolutists, conventional theory ■is considered as either still applicable or based on in i ' correctly perceived facts (providing, of course, it was ! “— — —— — — —— i 2 ! Mark Blaug, Economic Theory in Retrospect (Home wood, 111.: Richard Irwin, Inc., 1962), p. ^George J . S t i g l e r , E ssays i n H isto r y o f Economics (C hicago: U n iv e r s it y o f Chicago P r e s s , 1 9 6 5 ), pp. 1 6 -2 2 . i i internally consistent in the first place. 1 ! There is no foundation for the assumption that j I these "laws" are universal in place or time; identifiable J ;and definable positions of an economic variable may be i i j followed by different future positions and we could not j predict the path of the variable even if we had, at ini- j ;tial observation, tools of ultimate precision. For many economists, theory has validity only in terms of its claim :to parallelism with observed phenomena ("facts"). The iempirical test gives support to the "truth content" of j i the hypothesis and therefore its axioms. I It is not that this other attitude is impermissible| by reason that a nexus for argument exists, but that it has given rise to another and tendentious attitude in the science which is logically unjustifiable: that of ;limiting our inquiry to the observable. This is an extra- ;logical restriction. While it is desirable to define our hypotheses so that they are testable, we must realize that the higher !the level of the hypothesis, the more it may contain i ;empirically intestable ingredients. For example, there I |are observables and unobservables in the world of economic ; u transaction. What can be observed are the transactions i i ; Kenneth E. Boulding, A Conceptual Framework for Social Science (Ann Arbor, Mich.: Michigan Academy of between two economic units. What cannot be observed is |the mental process of determination or the course from motivational influence to a conclusion of transactions, j It is only the transaction that we can observe, not the decision process itself. We cannot easily set up ingenious tools to aid our observational abilities, for the investigative intercourse itself would disturb the decision course. It is impossible to construct a general I theory which does not include this necessarily intestable ;ingredient. Therefore, it is overly restrictive, and perhaps self-defeating to insist as some economists have, that every hypothesis must be subject to conditions requiring all concepts to have operationally definable counterparts which can be disconfirmed. In other words, this approach would not allow economists to construct "higher level hypotheses" closely related to the "empirical generalities." It is absolutely necessary to be able to concep tualize relationships subject to logical, critical scru tiny, but not necessarily subject to impossible demands of absolute operationalism. For example, an approach of free inquiry may not "demonstrate" the flow of change in Science, Arts and Letters, Papers for 1 9 5 1 ), XXXVII, 275- 8 2 . 106 tim e but i t co u ld il lu m in a t e such changes o f a g iv e n s e t |o f f a c t o r s and p rovid e a g r e a t e r p r e d i c t i v e v a lu e to our !t h e o r i e s . An u n n e c e s s a r ily c o n s tr a in e d area o f concern can hamper th e performance o f th e s c i e n c e , when judged by the c r i t e r i a th a t v a lu a b le perform ance i s a f u n c t io n o f i t s a b i l i t y to answer not on ly q u e s tio n s o f a p r e v io u s ; time but th o se q u e s tio n s c o n s id e r e d o f import in th e ^ p r e se n t, even i f th ey c o n ta in u n q u a n t if ia b le f a c t o r s . | Of c o u r s e , i t can be co u n ter-a rg u ed th a t t h i s i i s on ly one c r i t e r i o n and not a n e c e s s a r y one. R equiring i th a t econom ics be judged i n terms o f f a c t s in c o n ju n c tio n ■ w ith p o l i c y c o n s id e r a t io n s i s im posing a c o n s t r a in t on in q u ir y a l s o . The argument o f some eco n o m ists here seems to be th a t such i n v e s t i g a t i o n s would expand th e area o f i stu d y . Presumably, b ecause more o f t e n than n o t , th e s e p o l i c y c o n s i d e r a t i o n s , consequent problems and q u e s tio n s re q u ir e r e s e a r c h i n t o q u a l i t a t i v e f a c t o r s . In g e n e r a l, ; th e q u a l i t a t i v e has been n e g le c t e d ; because o f i t s I i - l u s i v e p r o p e r t i e s , th e q u a l i t a t i v e i s not as e a s i l y : amenable to our p r e s e n t t o o l s o f a n a l y s i s . Of c o u r s e , when a d d r e s sin g th e se areas o f a q u a l i t a t i v e n a tu r e , care must be taken th a t we do not e n ta n g le o u r s e lv e s in the vagueness o f w ords, and a lth ou gh th e v i s u a l impact o f the metaphor may be e n t e r t a i n i n g , we must guard a g a in s t the 107 desire to employ analogy without first attempting a itruly rational conception. Econometric or statistical !methods usually fulfill high standards, but they too may ;be misused in the more confounding areas of inquiry. By following our studies into larger and larger dimensions, ;if nothing else, we expand the ambits of our knowledge. The opposing view is that the above rests on a value judgment that it is good, i.e., we ought to expand the limits of our discipline. The economist, if he is to ;be scientific, must not be a servant of his own value ;j udgments. i This, however, is as the psychologists say, "dis placement." Logic can only provide solutions in an at mosphere of freedom. The economist must be free from fear of encroaching upon the only artificial boundaries of knowledge; he must be willing to go where the logic takes him even though it might contradict his conception of what economic knowledge is (or ought to be). Therefore, we must applaud those economists who iinsist on the maxim of free thought. Accept that they |may not have yet "contributed" systems of thought capable of explaining the processes in question, but reject the criticism that they are not basically scientific. We are hypocritical if we artificially constrain our under taking and offer in support of this attitude, evidence ; o f th e f a i l u r e s o f th o se who do n o t. I t i s today completely! iu n d erstan dab le th a t t o e r r i s more than human. i I | This m e th o d o lo g ic a l n ote stan d s as th e background |to th e o r d e r l i n e s s o f the f o llo w in g c h a p te r s . The n ext ch ap ter c o n ta in s an e x p la n a tio n o f th e approach tak en j 'in th e e m p ir ic a l study and p r e s e n ts the r e s u l t s o f th e | h i s t o r i c a l i n v e s t i g a t i o n o f a non p r o f i t c l i n i c . A d e s - j i c r i p t i v e comparison i s made between the non p r o f i t c l i n i c | land a p r o f i t a b l e group p r a c t i c e c l i n i c . The l a s t s e c t i o n j j u t i l i z e s econ om etric a n a l y s i s in order t o i d e n t i f y the j ! ;o p e r a t io n a l o b j e c t i v e o f th e DMU. CHAPTER V EMPIRICAL STUDY I n tr o d u c to r y Statem ent A pp lied r e se a r c h in a non p r o f i t e n t e r p r i s e r e q u ir e s a p len a ry i n v e s t i g a t i o n and i d e n t i f i c a t i o n o f the m icroeconom ic e le m e n ts . W e may view t h e s e areas o f i n t e r e s t as f o llo w s : 1. The d e c i s i o n environment which a f f e c t s the e n t e r p r i s e a s : a. a l e g a l o r g a n iz a tio n b. th e c i r c u i t f o r th e d e c i s i o n maker's ch o ic e c . e x t e r n a l and i n t e r n a l g iv e n c o n s t r a i n t s ; 2. The d e c i s i o n making u n it; 3. The d e c i s i o n making u n i t ' s o b j e c t i v e s . D e s c r ip t iv e and h i s t o r i c a l i n v e s t i g a t i o n o f such an e n t e r p r i s e w i l l r e v e a l both q u a n t i t a t i v e and q u a l i t a t i v e ; in fo r m a tio n on th e above areas o f concern. Some econometric 109 110 a n a ly s is along t r a d i t i o n a l l i n e s o f r e se a r c h on c o s t - o u t - jput r e l a t i o n s w i l l h elp provide a sound b a s i s f o r fu r th e r I ! c o n s id e r a t io n s and in d i c a t e areas o f d i f f i c u l t y in the j | s t u d y . "An e m p ir ic a l stud y o f the o p e r a tin g b eh a v io r o f ith e i n d iv i d u a l e n t e r p r i s e should supply f a c t u a l inform a t i o n fo r v e r i f i c a t i o n o f t h e o r e t i c a l fo r m u la tio n s." '1 ' This statem ent by J o e l Dean summarizes the a d m itted ly o p t i m i s t i c but not uncommon approach to a p p lie d resea r ch ! on th e s i n g l e firm . A d e t a i l e d and plen ary i n v e s t i g a t i o n i o f th e in d iv i d u a l firm has the d e s ir a b le p rop erty o f p ro - i v i d i n g a sh arper focu s on the m icroeconom ic elem en ts men tio n e d above. In a d d it io n , s t a t i s t i c a l in fo r m a tio n on ■ th e m agnitudes o f the q u a n t i t a t i v e a s p e c ts are fu r th e r : il lu m in a t e d by th e q u a l i t a t i v e a s p e c ts uncovered in the i h i s t o r i c a l d e s c r i p t i v e . i The case study approach i s s u b je c t to th e f a m ilia r 1 c r i t i c i s m o f b ein g a study in sm a ll numbers and consequently ■ a c a u tio u s p o stu re sh ould be taken in regard to consumma- i t i o n o f h ig h e r l e v e l s o f g e n e r a l i z a t i o n . D e t a ile d and J comprehensive economic s t u d i e s on non p r o f i t firm s are few and in fr e q u e n t and s in c e even l e s s a t t e n t i o n has been 1 ■^Joel Dean, "Department S to re Cost F u n c tio n s," in S tu d ie s in M athem atical Economics and E c o n o m e tr ic s , ed. by Oscar Lange (London: Cambridge U n iv e r s it y P r e s s , ! 1 9 4 2 ), p. 222. | Ill g iv e n to th e case o f th e d e n ta l c l i n i c , w h ile econom etric ! a n a l y s i s on th e more g e n e r a l l e v e l has been c i t e d e l s e - j I j ! i | where in t h i s t h e s i s , i t i s b e l i e v e d th a t th e g a in s from j th e case s t u d i e s w i l l more than compensate f o r th e l i m i - i 1 t a t i o n s . i ; The LAHREU D ental C lin ic : j H i s t o r i c a l and D e s c r ip t iv e C o n sid e r a tio n s The Los A ngeles J o in t E x e c u tiv e Board o f H otel ; I land R estaurant Employees and B artend ers Unions (AFL-CIO), i |and th e R estaurant - H o te l Employers C ouncil o f Southern j C a l i f o r n i a , in the c o l l e c t i v e b a r g a in in g agreement o f 1952, o r g a n iz e d th e Los A ngeles H otel - R estaurant Employer - Union W elfare Fund. The Fund i s governed by a board o f tw e lv e t r u s t e e s , who s e r v e in honorary c a p a c ity and are ;chosen e q u a lly between em ployers and u n io n s. In 195*J the LAHREU W elfare Fund e s t a b l i s h e d a D en tal Committee to stud y the f e a s i b i l i t y o f a d e n ta l h e a lt h care program. iThe D ental Committee su b m itted a rep o rt to th e t r u s t e e s Ion May 13, 195*1.2 The Committee found th a t in su ra n ce companies would j _ ' | p j I am in d e b te d t o th e a d m in is tr a to r s o f th e Los jAngeles H o te l-R e sta u r a n t Employer-Union W elfare Fund: SDonald G. MacQueen, d e n ta l c l i n i c d i r e c t o r ; W alter H i l l , | c l i n i c a cco u n ta n t; and Jay W . Friedman o f th e UCLA School iof P u b lic H ealth fo r making a v a i l a b l e e x t e n s i v e data jconcerning the c l i n i c . i not in s u r e for d e n ta l care as the r i s k was co n sid e r e d u n p r e d ic ta b le in 1954. Prepaid open-panel programs spon sored by l o c a l d e n ta l s o c i e t i e s were non e x i s t e n t and o f th e few group p r a c t i c e s , none were w i l l i n g and a b le to p rovid e care f o r a la r g e number o f p e o p le . In s e e k in g t o provide a m ed ical care program, the W elfare Fund d id not encou n ter th e s e l i m i t a t i o n s . Quite to the c o n tr a r y , th e r e were e x i s t i n g in su r e d m ed ical care p la n s , as w e ll as group m edical p r a c t i c e s such as K aiser Permanente and Ross Loos p r o v id in g com prehensive m ed ical care f o r unions and o th e r s p e c i f i c consumer groups. But in th e d e n ta l care f i e l d th e v ia b le c h o ic e s were li m it e d to e i t h e r an open panel p rep aid program or a d i r e c t s e r v i c e c lo s e d p an el program. I t was thought th a t an open p an el might exhaust a v a i l a b l e funds q u ic k ly depending upon th e q u a n tity o f s e r v i c e demanded, whereas a d e n ta l c l i n i c u t i l i z i n g a c lo s e d p an el o f d e n t i s t s and a u x i l i a r y p e rso n n el could be p r o je c te d on a f i x e d budget. Assessm ent o f p a st m edical programs supported the c lo s e d p an el system over the open panel s o lo p r a c t ic e programs in so f a r as they might p rovide more s e r v i c e s o at l e a s t eq ual q u a l i t y . At t h i s time th e r e were on ly two o r g a n iz a tio n s o f f e r i n g what appeared t o be a somewhat comprehensive d e n ta l s e r v i c e in group p r a c t ic e on a p rep aid p la n . The 113 D ental Committee i n v e s t i g a t e d th e a lrea d y o p e r a tin g d e n ta l j c l i n i c o f the S t . Louis Labor H ealth I n s t i t u t e D en tal t I I S e r v ic e Plan. The I n s t i t u t e was sponsored by the Ware- ;house and D is t r i b u t i o n Workers Union Local 688 o f th e I n t e r n a t io n a l Brotherhood o f Teamsters and e s t a b l i s h e d the d e n ta l program in 1946. The workers under Teamster Local 688 were m ostly u n s k i l l e d warehouse workers and s to c k c l e r k s . I n i t i a l l y , th e average income was $135 a month.^ The program was fin a n c e d by employer c o n t r ib u t i o n s o f f i v e p e r c e n t t o th e non p r o f i t I n s t i t u t e . In 1953> a q u a l i t y stud y o f th e d e n ta l care was |done by a former Dean o f th e Harvard D ental S c h o o l, Dr. James Dunning. His o v e r a l l e v a l u a t i o n was to r a te th e : Labor H ealth I n s t i t u t e d e n ta l program as m a in ta in in g ; good q u a l i t y . ^ The C ulin ary U nion 's D en tal Committee concluded th a t the Labor H ealth I n s t i t u t e seemed t o dem onstrate 1 com prehensive care f o r low income workers at a y e a r ly : c o s t o f $9.36 p er p erso n . Perhaps a more thorough study I would have d i s c l o s e d th e m u ltitu d e o f th e Labor H ealth ■ I n s t i t u t e ' s problem s. ^Harold K le in , "A Report on D ental Care and D en tal Care Programs," prepared fo r R e t a i l Clerks L ocal No. 770, Los A n g e le s , 1958, pp. 4 3 -4 8 . (Mimeographed). I ^Ibid., p. 47. At p r e s e n t in 195*1, t h e r e i s a month to a m o n th -a n d -a -h a lf' s w a it f o r a d e n ta l appointment at th e Labor H ealth I n s t i t u t e . Emergency s i t u a t i o n s are d e a lt w ith as they a r i s e and w ith o u t d e la y , but the w ait f o r a non-emergency appointm ent i s e x tre m e ly lo n g . The framers o f th e Labor H ealth I n s t i t u t e D en tal Program knew the magnitude o f th e p r o gram th ey fa c e d ; how ever, th ey f e l t i f they could s u c c e s s f u l l y d e a l w ith th e b ack log o f d e n ta l problems th a t e x i s t e d in th e p eop le e l i g i b l e f o r th e Labor H ealth I n s t i t u t e th a t o ver a p e r io d o f time th e s t a b i l i z e d popu l a t i o n would b e g in to show a marked d ecre a se in t h e i r needs fo r d e n ta l s e r v i c e s . The D en ta l Program i s now sev en y ea rs o ld and no Important d e c r e a se in d e n ta l s e r v i c e s has b e come e v i d e n t . The h igh r a te o f tu rn o v er in th e p e o p le e l i g i b l e f o r care i s p r im a r ily r esp o n s i b l e f o r th e co n tin u ed h igh u t i l i z a t i o n o f d e n ta l s e r v i c e s . This tu rn o v er has p reven ted th e e x p e c te d s t a b i l i z a t i o n o f th e d e n ta l c o n d it io n o f th e p o p u la tio n at r i s k . U nless such a s t a b i l i z a t i o n does o c c u r , i t i s obvious th a t th e Labor H ealth I n s t i t u t e w i l l always be fa c e d w ith a tremendous o v e r lo a d on th e f a c i l i t i e s , p e r s o n n e l and money a v a i l a b l e f o r i t s d e n ta l program, and th e d i s s a t i s f a c t i o n o f the members w i l l be a c o n s ta n t p r o b le m .5 However, as s t a t e d e a r l i e r , th e D en tal Com m ittee’ e v a lu a t io n o f the e x i s t i n g c l o s e d p an el o p e r a tio n was h ig h ly f a v o r a b le . In th e rep o rt t o th e t r u s t e e s , the Committee s t a t e d : "Our o b j e c t i v e has b een , 'What can we buy in d e n ta l care f o r $26,000 a month' r a th e r than 'How much would i t c o s t to p ro v id e our group w ith complet d e n ta l care?'" ^ 5I b i d . , p. 43. g Jay W . Friedman, "The D en tal Care Program o f the jLos A ngeles H ote1-R estau ran t Employer-Union W elfare Fund, 115 It was In the above setting that the trustee idecision to sponsor a closed panel dental clinic was made, ; i • ! | land the governing objective was thought to be one of j ; i 1 \ * efficiency (see above, chapter II). ! ; I The LAHREU Welfare Fund requested the assistance j ; f of the local dental society. But no one was interested in accepting the responsibility of even suggesting an approach, let alone actually directing a closed panel j clinic. "Such a closed panel clinic on a prepaid basis j ' 7 ■ I was considered unethical by the local dental society." ; The board did succeed in attracting the interest ■of "an enterprising young dentist who was willing to ’ 8 ;gamble" and was not a member of the dental society. :The first director of the clinic was a former advertising dentist who ran a rather large private enterprise group practice. The original clinic director recruited a staff :Los A n g e le s , 1969, p. 7. (Mimeographed.) 7 Arthur J. V i s e l t e a r and Arnold I . K isch , The Los A ngeles C ulinary Union D en tal C lin ic : A Labor-Management I W elfare Fund Experiments w ith a D en tal B e n e f i t , Case :Study No. 4 , U. S. Department o f H e a lth , E d ucation , and iW elfare, P u b lic H ealth S e r v i c e , D iv i s i o n o f M edical Care A d m in istra tio n (A r lin g to n , V a .: n. p . , 1967) , p. 9. O Donald G. MacQueen, "Group P r a c t ic e Organized and M aintained f o r a S p e c i f i c Consumer Group," (paper p r e se n te d b e fo r e th e T ra in in g C onference on D ental Pre payment P la n s , sponsored by H ealth Programs, Branch o f D ental P u b lic H ealth and R esou rces, San F r a n c is c o , C a l i f o r n i a , December 4 , 1 9 6 2 ), p. 6. i 116 o f f i v e d e n t i s t s , one h y g i e n i s t , two la b o r a to r y t e c h n i c i a n s and e l e v e n a u x i l i a r y p e r s o n n e l. O r i g i n a l l y , th e f a c i l i t y ' s c a p i t a l equipment and le a s e h o l d improvements were l e g a l l y owned by th e d i r e c t o r . T h e r e fo r e , the i n i t i a l r e l a t i o n sh ip betw een th e Fund and th e program was sim ply a c o n t r a c t u a l on e, the t r u s t e e s o f the W elfare Fund c o n t r a c t in g fo r d e n ta l s e r v i c e from th e o f f i c e and f a c i l i t i e s o f th e f i r s t d i r e c t o r . However, in 1956, th e t r u s t e e s purchased th e f a c i l i t y to be h e ld in t r u s t fo r union members. The C ulinary Union has a lr ea d y s t a r t e d th e o p e r a tio n o f a D en tal Care Program fo r i t s members in th e Los A ngeles a rea . They have c o n tr a c te d w ith a p r iv a t e d e n t i s t on a p a y - f o r - t im e b a s i s . . . . This w i l l undoubtedly d istu r b many o f our members and a f f e c t t h e i r p r iv a t e p r a c t i c e s . . . Your A s s o c i a t io n has had no p art in i t and was not c o n s u lte d in any way . . . Everybody w i l l be wondering about what stan d ard s o f d e n ta l care w i l l be produced and who among our d e n t i s t s w i l l become em ployees o f p r iv a t e c o n t r a c t o r s .9 When th e c l i n i c f i r s t opened i t s d o o rs, th e s t a t e d budget was $26,000 a month based on a r a t e o f one cent per hour employment or $ 1 .2 3 per e l i g i b l e per month. Soon i t became apparent t h a t t h i s budget co u ld p ro v id e only th e most b a s ic minimum o f s e r v i c e s and s t i l l f a l l sh o rt o f th e demand f o r t h e s e s e r v i c e s . ^C. A. Moss, " P e r so n a lly Speak in g," Jou rn al o f the Southern C a lif o r n i a D en tal A s s o c i a t i o n , XXII’ (O ctober, 1 9 5 4 ), p. 25«. 117 The f a c i l i t y opened in 1954. W ithin a m atter o f days th e te le p h o n e was so jammed th a t i t | took hours to g et a c a l l through to th e c l i n i c . The demand was so g r e a t th a t appointm ents j had t o be made months in a d v a n c e , a co n d i- i t i o n which cou ld not be a llo w e d t o c o n tin u e . ! In th e b e g in n in g no one knew th e d e n ta l needs o f t h i s p a r t i c u l a r group. There was a s e t budget o f $26,000 per month from employer con t r i b u t i o n s to p rovid e d e n ta l care fo r 30,000 p o t e n t i a l p a t i e n t s . No one knew how many o f t h e s e p o t e n t i a l p a t i e n t s would use th e s e r v i c e s . 10 I f th e r e were no e x c e s s demands then we should f in d no e v id e n c e o f lo n g w a it in g l i s t s , qu eu es, i . e . , s h o r t a g e s . However, in th e e a r l y o p e r a tio n a p r i o r i t y system was s e t up, l i m i t i n g non emergency care to one member o f a fam ily at a tim e . The lo n g w a itin g time between r e q u e st and appointment at tim e s r e s u l t e d in a l o s s o f e l i g i b i l i t y f o r th e employee who was not a b le to work :the mandatory minimum o f 60 hours p er month between a p p o in tm en ts. The common view in th e l i t e r a t u r e o f th e in d u s t r y i s t o lo o k to th e "need" f o r h e a lt h care not to the :demand f o r s e r v i c e . The m istak e in lo o k in g o n ly at need ■is th a t th e c o n c lu s io n w i l l be to p la c e th e t o t a l burden jof adjustm ent on su p p ly . C onsequently w ith in 18 months th e budget was in c r e a s e d 46 p e r c e n t in order t o in c r e a s e th e s t a f f from 10MacQueen, " S p e c if ic Consumer Group," p. 7. 118 the o r i g i n a l f i v e d e n t i s t s to a s t a f f o f te n . But the |demand fo r s e r v i c e s con tin u ed in e x c e s s o f supply and the jmethod used to e lim in a t e the sh o rta g e was to d is c o n tin u e :coverage o f employee d e p e n d e n ts . (Not u n t i l 1959 were s e r v ic e s again exten ded to a l l d e p e n d e n ts.) Throughout the program supply adjustm ents have been a c o n tin u in g p o l i c y . In 1965 the program moved t o a new f a c i l i t y c o n ta in in g k2 (8' x 9 ') d e n ta l o p e r a t o r i e s , th ree w a itin g rooms, th ree x-ray rooms, darkroom, c o n s u l t a t i o n and recovery rooms, d i r e c t o r ' s a d m in is tr a tiv e o f f i c e s , an employee lunchroom, and two s t a f f lo u n g e s . 1 By t h i s tim e , the o p e r a tin g exp en ses had grown to over a m i l l i o n and a q u a rter a n n u ally w ith o ver e ig h t y th ou sand p a t ie n t v i s i t s (se e Table 1 8 ). However, in 1 9 6 7 s consumer su rch arges were in c r e a s e d by approxim ately 22 i p e r c e n t . Two years l a t e r th e fu n d 's budget had in c r e a s e d again to $100,000 per month or a monthly c a p i t a t i o n a llo w ance o f $6.60 per employee f o r a d e n ta l care coverage o f ■some 37,000 e l i g i b l e employees and dependents (s e e T ables i18 and 19)• By 1970 th e annual o p e r a tin g exp en ses were over one and a h a l f m i l l i o n d o l l a r s , o f which th e budget !fin a n ced approxim ately 80 p e r c e n t and the rem aining 20 jpercent was c o l l e c t e d as p a t ie n t su rch arges (s e e Table 1 8 ). 119 TABLE 18 LAHREU CLINIC OPERATING EXPENSE AND REVENUE Opera ting Year Costs Patient Percent Sur- Change charges Fund Budget Surplus + Deficit - 1965 1 ,1 4 1 ,8 1 3 — 155,644 987,540 + 1 ,3 7 1 1966 1 ,2 7 4 ,8 9 4 11.6 173,622 987,540 - 113,832 1967 1 ,3 3 7 ,2 9 6 4 .9 199,766 1 ,1 6 9 ,4 3 0 + 3 1,943 1968 1 ,4 7 0 ,2 7 0 11.0 295,600 1 ,2 8 2 ,2 2 6 + 100,256 1969 1 ,4 7 7 ,5 7 5 0 .5 1970 1 ,5 1 6 ,8 6 3 2 .7 'Source: LAHREU Clinic Records TABLE 19 CLINIC ELIGIBLES Year Average Number of Eligibles TW i 34,724 1965 35,196 1966 35,196 1967 36,488 1968 37,136 1969 36,380 197 0____________________ 35,382_____________ Source: LAHREU Clinic Records P r e se n t O r g a n iza tio n and O perating F eatu res 120 i As p o in te d out ab ove, I n i t i a l l y the D ental D ir e c to r iowned th e f a c i l i t i e s and was compensated on a p er c h a ir hour b a s i s . This arrangement was sh ort l i v e d as f in a n c i a l d i f f i c u l t i e s arose ca u sin g th e f i r s t d i r e c t o r to s e l l th e f a c i l i t i e s to th e W elfare Fund. In 1958 th e c l i n i c acq u ired i t s p r e s e n t d i r e c t o r ;who, w ith the t r u s t e e s , d e sig n e d the new c o n tr a c tu a l r e l a t i o n s . The f o ll o w i n g p a ssa g e s are from t h i s c o n tr a c t jwhich was f i l e d w ith the Board o f D en tal Examiners o f th e S ta te o f C a lif o r n i a . I t i s the i n t e n t i o n o f th e p a r t i e s h e r e to th a t t h i s plan s h a l l be co n tin u ed in o p era t i o n in f u l l con form ity w ith a l l e x i s t i n g laws o f th e S ta te o f C a lif o r n i a and a l l r e g u l a t i o n s o f a d m in is t r a t iv e a g e n c ie s c o n t r o l l i n g th e p r a c t i c e o f d e n t i s t r y as a p r o f e s s i o n , w ith proper sa feg u a rd s o f th e ; m aintenance o f r e q u i s i t e p r o f e s s i o n a l 1 s ta n d a r d s. Because th e C ulinary D ental Plan i s but one o f th e ty p e s o f b e n e f i t s made a v a i l a b l e by the t r u s t e e s under th e H ealth and W elfare I Program p rovid ed through th e Fund, and b ecause the t r u s t e e s are charged w ith the j r e s p o n s i b i l i t y o f m a in ta in in g th e Fund on a sound f i n a n c i a l b a s i s , th e t r u s t e e s have e s t a b l i s h e d a maximum o p e r a tin g budget fo r th e o p e r a tio n o f th e p la n , which o f n e c e s s i t y s e t s a c e i l i n g on e x p e n d itu r e s by the t r u s t e e s fo r d e n ta l c a r e . MacQueen understands the n e c e s s i t y f o r t h i s budget and i s a g r e e - j a b le to o p e r a tin g th e plan w ith in th e l i m i t s J o f th e budget. E f f e c t i v e A p r il 15, 1958, MacQueen ag ree s to j open, o p e r a t e , and m ain tain d e n ta l o f f i c e s at i 1 2 1 i 3639 B everly Boulevard In th e C ity o f Los ; A ngelesj or at such o th e r lo c a t i o n s as the j j p a r t i e s h e r e to may from time to tim e agree ; t o be a d v is a b le and f e a s i b l e . These d e n ta l | o f f i c e s s h a l l be s t a f f e d and op era ted under MacQueen's com plete c o n t r o l and d i r e c t s u p e r v is io n . The o f f i c e s s h a l l be s u f f i c i e n t to provid e such d e n ta l s e r v i c e s as are j | h e r e i n a f t e r agreed upon t o be rendered to j : e l i g i b l e s , as d e fin e d h e r e i n , and who s h a l l - ^ j s o l i c i t such d e n ta l s e r v i c e s from MacQueen. I By way o f summary, th e a d m in is t r a t iv e arrangements i are as f o l l o w s : i ! i 1. They conform t o a l l s t a t e laws and a l l regu - j l a t i o n s o f th e S ta te D ental P r a c t ic e A ct. As r e c e n t l y as j | ! j 1969 i t was s u g g e s te d th a t the f a c i l i t y be renamed to | ! i j d e s ig n a te i t as s o l e l y the p rop erty o f the W elfare Fund. I : There was some doubt as to w hether or not t h i s name change I i would c o n f l i c t w ith th e D ental Act which r e q u ir e s th a t j only a l i c e n s e d d e n t i s t may p r a c t i c e d e n t i s t r y . The i t r u s t e e s , aware th a t o rg a n iz ed d e n t i s t r y i s on record in j o p p o s i t io n to c l o s e d p a n e l s y ste m s, e x c e p t in i s o l a t e d I i n s t a n c e s , have chosen t o con tin u e o f f i c i a l l y r e f e r r i n g t o ; 12 i th e f a c i l i t y as th e o f f i c e o f the d e n ta l d i r e c t o r . ' I] I Donald G. MacQueen, "Group P r a c t ic e System s: ! T h eir R e la t io n s h ip to Socio-Econom ic Changes in th e D i s t r i - ! b u tto n o f D en tal Care" (paper p r e s e n te d at the C ouncil o f | D en ta l H ealth M eetin g, C hicago, I l l i n o i s , A p r il 2^4, i 960 ) , : j pp. 2 -3 . 12 i See above, Chapter I I I , f o r d is c u s s i o n o f th e p o s i t i o n o f o r g a n iz e d d e n t i s t r y . I 122 2. The Fund s e t s the maximum c l i n i c budget and jarran ges f o r a u d it in g to in s u r e a c o n tin u a l a p p r a is a l o f |o p e r a t in g e f f i c i e n c y (once a m onth). The t r u s t e e s are j ;concerned and w ish t o be inform ed by way o f a cc o u n tin g I data as to th e c l i n i c ' s p r o d u c tio n . 3. The t r u s t e e s o f th e W elfare Fund d ec id e the m a tter o f e l i g i b i l i t y . I t i s t h e i r d e c i s i o n as to how many dependents may be e l i g i b l e f o r care and what i s the r e q u ir e d le n g th o f employment f o r th e union members th a t jare t o r e c e iv e d e n ta l s e r v i c e . I 4. The d e n t a l d i r e c t o r i s a member i n good s ta n d in g o f th e American D en tal A s s o c i a t io n and conforms to |h ig h e t h i c a l s ta n d a r d s . 5 . I t i s th e s o l e r e s p o n s i b i l i t y o f the d e n ta l d i r e c t o r t o a l l o c a t e the b u d get. This in c lu d e s s a l a r i e s , | s u p p l i e s , o u t s id e f e e s f o r c o n s u lt a t io n and s p e c i a l i s t s e r v i c e s , and the m aintenance o f p la n t and equipm ent. 6 . I t i s th e s o l e r e s p o n s i b i l i t y o f the d ir e c t o r ;to s e t a q u a l i t y stan d ard f o r th e d e n t i s t r y p ro v id ed . I j As w e l l as f u n c t io n in g as an a d m in is t r a t o r , the |d e n t a l d i r e c t o r a ls o a c t s as a c o n s u l t a n t , an i n s t r u c t o r and ombudsman. Because the p r e s e n t c l i n i c d i r e c t o r i s d i s t i n g u i s h e d as a h ig h ly s k i l l e d p r o f e s s i o n a l , he i s fr e q u e n tly approached by the o th e r d e n t i s t s in regard to i n d i v i d u a l "problem" c a s e s , what te c h n iq u e s to employ, and I 123 guidance in i n t e r p r e t a t i o n o f p r o f e s s i o n a l knowledge. I Although t h i s i s not an org a n iz ed a c t i v i t y , i t does a id I |th e d i r e c t o r in a d m in is te r in g th e q u a lit y stand ard. l Frequent s t a f f m eetings are a l s o h e ld by the d i r e c t o r in an e f f o r t to m a in ta in a c o n s i s t e n t c l i n i c - w i d e u n derstan d in g and i n t e r p r e t a t i o n o f th e sta n d a rd s. He r e g u la r ly and s y s t e m a t i c a l l y a u d it s p o s t - o p e r a t i v e x -r a y s o f completed c a s e s . I f , in h is judgment, any p a t ie n t has r e c e iv e d in adequ ate c a r e , he inform s the d e n t i s t resp o n - | s i b l e fo r th e treatm en t e r r o r s and i n s t r u c t s him in 'proper te c h n iq u e s and p r o c e d u r e s. S erio u s com plaints o f a p a t ie n t or i n t e r s t a f f natu re always are brought to the 1 a t t e n t i o n o f th e d i r e c t o r . The c l i n i c has been s u b je c t to two l e g a l s u i t s in th e l a s t 12 y e a r s . This would ■appear to p r e se n t a f ig u r e c o n s id e r a b ly below the average if o r sou th ern C a lif o r n i a d e n t i s t s where 12 p e r c e n t o f the d e n t i s t s are sued every y ea r (s e e A ppendix). For t h i s :rea so n , in su ra n ce c o s t s are somewhat low er f o r th e group ■ o p e r a tio n . j In a d d itio n t o the above, the d ir e c t o r was a ls o r e s p o n s ib le f o r la y o u t d e s ig n o f th e p la n t and f a c i l i t i e s which opened in 1965; c o n s id e r a t io n o f the accompanying economic im p lic a t io n s w i l l be made l a t e r . I t seems e v id e n t th a t th e e s s e n t i a l d e c i s i o n making u n it o f t h i s c l i n i c i s the c l i n i c d i r e c t o r . 124 S p e c i a l i z a t i o n and D i v is io n o f Labor i | As o f December 31, 1970, th e c l i n i c had 93 e q u iv a - | |l e n t f u l l time em ployees (EPTE), o f which 21 were d e n t i s t s , 3.2 fu n c tio n as h y g i e n i s t s , 4 were x-ray t e c h n i c i a n s , 2 5 .2 d e n ta l a s s i s t a n t s , 16.1 la b o r a to r y t e c h n i c i a n s , 2 0 .5 c l e r i c a l w ork ers, 2 s u p e r v is o r s , one a cco u n ta n t, and one o r a l su rgeon . The s t a f f has in c r e a s e d 6 p erce n t over :th e f i r s t h a l f o f the l a s t decade and has d ecre a se d 4 p erce n t over the p e r io d 1966-1970 (s e e Table 2 0 ). W ithin th e o p e r a tio n o f a c l o s e d p an el system i t i s p o s s i b l e to d e p a r tm e n ta liz e and a s s i g n th e d e n ta l a c t i v i t i e s to p r o f e s s i o n a l s t a f f members who have e x h ib it e d a s p e c i a l i n t e r e s t and s k i l l in some area o f s p e c i a l i z a t i o n I t i s thought th a t one advantage o f such an o r g a n i z a t i o n i s in c r e a s e d p r o d u c t i v i t y . Presumably, t h i s ;in c r e a s e d p r o d u c t iv it y i s brought about by th e s a v in g o f time commonly l o s t in p a s s in g from one a c t i v i t y to a n o th er, th e g r e a t e r d e x t e r i t y o f a s p e c i a l i z e d workman who i s i n t e r e s t e d in th e o p e r a tio n o f h is p a r t i c u l a r t a s k , and ithe s t im u la t io n to in v e n t io n w it h in h is l i m i t e d a rea o f i 13 I fu n c tio n . The d i r e c t o r a s s ig n s d e n t i s t s to th e f o llo w in g seven departm ents: d i a g n o s i s , o p e r a tiv e d e n t i s t r y , 13 ^Adam Sm ith, An In qu iry i n t o th e Nature and Causes TABLE 2 0 LAHREU CLINIC FULL TIME EQUIVALENT EMPLOYEES Year D e n t is t s A s s is t a n t s H y g ie n is ts cl C l e r i c a l Lab T ech n ic ia n s T o ta l 1963 1 9 .1 23-2 3 .8 2 2 .2 22 .0 9 0 .3 1964 2 0 .1 23.6 2 .8 2 2 .4 2 0 .8 89.7 1965 18.9 2 3 .1 2 .8 2 2 .6 1 9 .8 87.2 1966 2 2 .8 27-5 2 .8 2 3 .5 2 0 .0 96.6 1967 2 2 .1 28 .0 3.2 2 4 .4 2 0 .6 9 8 .3 1968 2 4 .1 3 4 .8 3 .4 2 1 .0 2 1 .0 1 0 4 .3 1969 9 7 .2 1970 2 2 .0 2 9 .2 3.2 23.5 1 6 .1 93.0 Source: LAHREU C l i n i c R ecords. in c lu d e s one f u l l tim e e q u iv a le n t accou ntant and one f u l l tim e e q u iv a le n t e x e c u t i v e s e c r e ta r y i— ■ ro VJl 126 p e r i o d o n t ic s , e n d o d o n tic s, p r o s t h e t i c s , crown and b r id g e , i |s u r g e r y , and o r a l h y g ie n e . The b a s ic requirem ents fo r ■all d e n t i s t s a s s o c ia t e d w ith the c l i n i c are determ ined i |p a r tly by the d ir e c t o r and p a r t ly by the s t a t e D ental :P r a c tic e Act. These requirem ents are: ! 1. the o p era to r must be a d e n ta l s c h o o l grad uate; 2. th e o p era to r must h o ld a s t a t e d e n ta l l i c e n s e ; 3. the d e n t i s t must be a member or e l i g i b l e to imembership in the d en ta l s o c i e t i e s ; ' 4. each d e n t i s t i s chosen f o r h is a b i l i t y to ;m aintain a s a t i s f a c t o r y p a t i e n t - d e n t i s t rapp ort. D e n tis ts are on s a l a r i e s which are determ ined on th e b a s is o f th e average n et incomes o f l o c a l d e n t i s t s in p r iv a t e p r a c t i c e . The wages compare to an average fig u r e and we may co n sid e r th e s e wages to be the r e s u l t o f compe- : t i t i v e f o r c e s . Because th e s a la r y o f f e r s are determ ined in t h i s |manner, the age d i s t r i b u t i o n o f c l i n i c d e n t i s t s d i f f e r s from th e age d i s t r i b u t i o n o f a l l p r a c t i c i n g d e n t i s t s . The jmedian earn ings o f d e n t i s t s between the ages o f 25-34 are i |c o n s id e r a b ly below th a t o f th e age group 3 5-44. The [median earnings seem to d e c lin e in th e years 4 5 -5 4 , i n - 14 c r e a s in g t h e i r d escen t a f t e r the age o f 55* W e might o f th e Wealth o f N ations (London: n . p . , 1 7 7 6 ), p. 15- ! 127 i e x p e c t under a c o m p e titiv e f a c t o r market th a t the economic j |fo r c e s would m a n ife st in the age d i s t r i b u t i o n o f th e I c l i n i c . W e would f in d th e average n et income f ig u r e to i jbe in f lu e n c e d by th e low er ea rn in g s o f th e younger and o ld e r d e n t i s t s and i t would f a l l below the median net income o f d e n t i s t s in th e age group 3 5-44. These s a la r y o f f e r s would be e x p e c te d to a t t r a c t d e n t i s t s f a l l i n g i n t o th e 25-34 and over 45 age group c a t e g o r i e s . W e f in d j u s t over 60 p ercen t o f th e c l i n i c d e n t i s t s are over 45, 25 :percent are in th e 25-34 age group (s e e Table 2 1 ). The l a r g e s t employee group in th e c l i n i c i s the 'd e n ta l a s s i s t a n t s , numbering 2 5 .2 f u l l t i m e e q u iv a le n t :em ployees or 27 p erce n t o f the EFTE s t a f f . For each f u l l t i m e e q u iv a le n t d e n t i s t th e r e i s then 1 .2 f u l l t i m e e q u iv a le n t d e n ta l a s s i s t a n t s . The c l e r i c a l s t a f f i s th e :work fo r c e f o r such job assig n m en ts as appointment sch ed u l i n g , v e r i f i c a t i o n o f e l i g i b i l i t y on an IBM computer irecord sy stem , ch eck in g in p a t i e n t s , f i l i n g and r e t r i e v i n g ip a tie n t d a ta , and c o l l e c t i o n o f d a ily s u r c h a r g e s . The I c l e r i c a l s t a f f has f l u c t u a t e d betw een 1 9 .0 f u l l t i m e e q u iv a - | i l e n t em ployees and 2 2 .4 f u l l t i m e e q u iv a le n t employees i ■^Louis S. Reed, S tu d ie s o f th e Incomes o f P h y s i c ia n s and D e n t i s t s , U .S. Department o f H e a lth , Education and W elfare, S o c ia l S e c u r ity A d m in is tr a tio n , O f f ic e o f Research and S t a t i s t i c s (W ashington, D .C.: Government P r in t in g O f f i c e , 1 9 6 8 ), p. 116. 128 TABLE 21 LAHREU CLINIC DENTIST AGE-TIME DISTRIBUTION Age D e n t is t s Employeda P ercent Mean Years Employed -30 6 18.2 0 .7 30-34 2 6 .5 3.0 35-39 3 9 .1 3.7 40-44 2 6 .5 5 .0 45-49 7 2 1 .2 5 .7 50-54 3 9 .1 4 .0 55-59 0 0 .0 0 .0 60-64 3 9 .1 4 .2 65-69 3 9 .1 4 .0 70 - 4 12.2 9 .3 4 7 .8 = M EAN 33 4.4 Source: LAHREU C l i n i c Records aA ll f ig u r e s are fo r 1968. 129 In the l a s t f i v e y e a r s . This i s the r e s u l t o f normal ■turnover and not an a d m in is tr a tiv e d e c i s i o n t o in c r e a s e j lor d ecrea se t h i s s t a f f component. Some c l e r i c a l s t a f f j ! i : I 'members are a s s ig n e d a department r e l a t e d job area s in c e j ex p e r ie n c e has shown th a t in c r e a s e d e f f i c i e n c y a r i s e s from \ t h i s procedu re. For exam ple, an appointment c le r k becomes p r o f i c i e n t in h er judgment o f t im e -o p e r a tio n r e l a t i o n s i f a s sig n e d to one s p e c i f i c department and i s t h e r e f o r e i l e s s l i k e l y to develop p erio d s o f unused appointment u n i t s . ■(Appointment u n it eq u als twenty m in u t e s .) : The c l i n i c d ir e c t o r has d esig n ed the la b o r a to r y la y o u t and p la cem en t, k eeping in mind th a t un necessary ■communication betw een o p e r a tiv e s t a f f and la b o r a to r y t e c h n ic ia n s in c r e a s e s c o s ts o f o p e r a t io n s . A ll but one o f the d e n ta l t e c h n ic i a n s o p era te on the low er f l o o r o f ;the b u ild in g . Although a c c e s s i b l e by o p era to rs f o r reason s lof c o n s u l t a t i o n , unnecessary co n ta c t i s d isco u ra g ed by 'employing a dumb-waiter fo r sen d in g complex work orders down t o the main la b o r a to r y . For sim p le s e t - u p s and ■repairs, one t e c h n ic i a n i s s t a t i o n e d in a sm all la b o r a to r y |complex which h ouses the dumb-waiter at the end o f th e I p r o sth e tic wing on th e ground f l o o r . The r e l a t i o n s h i p o f th e d e n ta l l a b o r a t o r i e s to the g e n e r a l p la n t d e s ig n i s s i g n i f i c a n t . The d e n ta l o p e r a t o r ie s th e m s e lv e s , are r e l a t i v e l y sm a ll rooms, 8' x 9 T. This j 130 is the result of the Director’s decision to provide the I maximum number of operatories, given the overall floor I I j :space, again indicating an output maximizing behavior on j I i I the part of the DMU. Operatories are situated on the j j sides of an internal corridor for personnel traffic. Each j operatory has two entrances; one by way of the internal corridor, and one by way of an external patient corridor. Attention in planning of facilities has been given to func- I tional rather than aesthetic properties, further indicating; ;the influence of an operational objective of efficiency. The absence of plush offices and other properties which jcould enhance the Director's and employees' utility is j ;in conflict with some analytical conclusions of an earlier theoretical study. In an article by Alchian and Kessel, the theoretical implications and casual empirical genera lizations of monopoly enterprises and competitive enter- 15 prises are compared. The conclusions are that "... the owners of a i ;monopoly ... have their property rights attenuated because ithey do not have unrestricted access to or personal use of their company's wealth." This "suggests that the whole Armen A. Alchian and Reuben A. Kessel, "Compe tition, Monopoly, and the Pursuit of Money," in Aspects of Labor Economics, National Bureau of Economic Research (Princeton, N.J.: Princeton University Press, 1962 ) . j I 131 analysis can be formulated not in terms of monopoly and i (competition ... but in terms of private property rights." Further, : There is basically no analytic difference between the two [monopoly and competition] since an analysis made in terms of monopoly and competition identifies and emphasizes circumstances that affect property rights. The same analysis can be applied to non pro fit organizations ... with almost identical results.1® I Alchian and Kessel employ the utility maximizing (hypothesis in order to explain behavior within such or ganizations. The "divergence between private and economic costs" implies inefficiencies with respect to the pecuniary They would conclude that the implications for the non profit enterprise are: More properly, it is not inefficiency at all but efficient utility maximizing through non pecuniary gains. If wealth cannot be taken out of an organization in salaries or in other forms of personal pecuniary property, the terms of trade between pecuniary wealth and non pecuniary business-associated forms of satisfaction turn j against the former. | Office furniture and equipment will be of | higher quality than otherwise. Fringe benefits : will be greater and working conditions more pleasant. The managers will be able to devote a greater part of their business time to com munity and civic programs. They will reap the prestige rewards given to the "statesman- businessman" class of employers. Vacations l6Tbid., p. 165. ! 132 will be longer and more expensive. Time j off for sick leave and for civic duties | will be greater. Buildings and equipment ! will be more beautiful. 17 The Alchian-Kessel analysis would contend that, i !if we compare a random sample of secretaries in non profit ■enterprises with a random sample of secretaries in profit oriented business, "the former will be prettier no matter who we select as our judges ..." Indeed, the implications lof the above behavior is encompassed within the Alchian- Kessel analysis; however, their causal chain of reasoning has been limited to only one possible set of non pecuniary, jutility maximizing behavior. What Alchian and Kessel lhave not incorporated in their explanation is the distinc tion between the utility maximizing by a DMU and the operational objective of an enterprise. The operational iobjective serves as a further constraint and therefore channels the decision course. This distinction is of ■paramount importance when explaining the empirical obser vations which contradict the Alchian-Kessel implications I for the non profit firm. 17Ibid., p. 1 6 7. 133 Surcharges' and Demand i The LAHREU D en tal Committee, th e W elfare Fund j i : ;T ru stees, and th e f i r s t c l i n i c d i r e c t o r , a l l ex p e c te d th e j : i I c l i n i c u t i l i z a t i o n to be f a r below th e s e r v i c e a c t u a l l y j ‘demanded when th e c l i n i c f i r s t opened. Some o f th e f o l l o w - i in g were c o n s id e r a t io n s in e s t im a t in g c l i n i c use: 1. The non emergency c h a r a c te r o f most d e n ta l j problems and d is e a s e - u n lik e many m ed ica l problems - ‘does not u s u a l ly accompanying a f e a r o f r i s k o f l i f e . I D ental d is e a s e may p r o g r e s s alm ost i n v i s i b l y . ; 2. A v i s i t to th e d e n t i s t i s u s u a lly thought ; Jof as more o f t e n in c u r r in g p a in , than a v i s i t t o th e p h y s ic ia n . 3. Treatment may be time consuming, j ^ . H ealth s t a t i s t i c s i n d i c a t e d th a t th e m a jo rity ;o f i n d i v i d u a l s d id not v i s i t a d e n t i s t so much as once ! a y ea r. I i The above p a r t i e s in e s t im a t in g th e u t i l i z a t i o n ; r a te fo r d e n ta l b en 'e fits e v i d e n t l y d id not f u l l y compre- i hend the nature o f demand. The d e n ta l b e n e f i t was to be I com prehensive, in c lu d in g x - r a y , o r a l e x a m in a tio n s, p r o - | p h y l a x i s , en d o d o n tia , o r a l s u r g e r y , p e r i o d o n t i c s , op erative: f i l l i n g s and to o th g u id a n ce, and p r o s t h e t i c s . Of th e s e s e r v i c e s , on ly p r o s t h e t i c s was to carry an a d d it io n a l 134 charge above th e p rep aid monthly employer c o n t r ib u t io n . I For th e e l i g i b l e p o p u la tio n in the a g g r e g a te , th e d e n ta l !b e n e f i t might in d eed be l e s s e x p en siv e than th a t o f o u t- \ 's id e fe e fo r s e r v i c e s o lo p r a c t i c e , due to th e p o s s i b l e i economies o f group p r a c t ic e and c lo s e d p a n els m entioned ; e a r l i e r . But, what was im portant in the i n i t i a l c l i n i c demand, g iv en the nature o f the d e n ta l b e n e f i t , was th a t fo r th e e l i g i b l e i n d i v i d u a l , the v a r ia b le money c o s t f o r most p a t ie n t v i s i t s and s e r v i c e s were zero . j Economics cannot i d e n t i f y the valu e th a t a d e n ta l ; l I s e r v i c e has fo r any s p e c i f i c i n d i v i d u a l , but i t does s t i p u l a t e t h a t , w hatever h i s p r e fe r e n c e p a tte r n , th e l e s s one must g iv e up in exchange, the more the in d iv i d u a l w i l l 1 u t i l i z e the s e r v i c e . For th e in d iv i d u a l th e n , a d e n ta l v i s i t was l i k e a fr e e good. D ental s e r v i c e s cannot be ;t r e a t e d as an yth in g o th er than a normal economic good. Under th e new a d m in is tr a tio n s in c e 1962, a d d it io n a l ;su rch arges have been in tro d u ced p r o v id in g a r e l a t i o n s h i p :betw een su rcharges and demand. In 1966, the c l i n i c , average number o f d e n ta l v i s i t s per person p er e l i g i b l e jp o p u la tio n was s t i l l 44 p ercen t h ig h e r than the n a t io n a l average. Between 1966 and 1970 su rch arges averaged 18 j p e r c e n t o f c l i n i c income (s e e Table 1 8 ) . In 1966 s u r - ! charges amounted t o $173,622 or 15 p ercen t o f c l i n i c income. Two years l a t e r , su rcharges had r i s e n t o 23 percent 3-35 o f t o t a l incom e, or $ 2 9 5 36.05. Part o f th e in c r e a s e i s !due to in c r e a s e d o u tp u t; f o r exam ple, p a t i e n t v i s i t s [in c r e a se d 6 p e r c e n t over t h i s tim e p e r io d , VA fe e produc t i o n had in c r e a s e d 2 2 .5 p e r c e n t , c h a ir s i d e hours in c r e a s e d 1 3 .5 p e r c e n t. Part o f the in c r e a s e was due to a r a i s e in su rch arges o f ap p roxim ately 22 p e r c e n t. The f o ll o w i n g year f in d s p a t ie n t v i s i t s d e c r e a s in g by 9 .9 p e r c e n t , c h a ir s id e hours by 4 .5 p e r c e n t , and VA fe e p ro d u ctio n by 7*2 p e r cent (s e e Table 2 2 ). T his would i n d i c a t e a tim e la g ; i n v e s t i g a t i o n o f monthly data shows th a t p a t i e n t v i s i t s f o r 1968 run h ig h e r in each o f the f i r s t s i x months than ■in th e corresp on d in g months o f 1967 . In th e s ev en th month, p a t i e n t v i s i t s are s i g n i f i c a n t l y low er than th e c o r r e s p o n d i n g f ig u r e o f th e p r e v io u s y e a r . This i s a l s o tru e o f the n in t h , t e n t h and t w e l f t h months o f 1968 . The amount o f su rch arges depends upon the e l i g i b i l i t y s t a t u s o f th e i n d i v i d u a l . The average surcharge p e r p a t ie n t v i s i t fo r a dependent in 1966 was $3-80 or 2.375 tim es as much as the average su rcharge per p a t ie n t v i s i t f o r an em ployee-un ion member (s e e Table 2 3 ). This I s perhaps i l l u s t r a t i v e o f a valu e judgment on th e part jof th e W elfare-Fund t r u s t e e s . ) j The c l i n i c accou n tan t c a l c u l a t e s th e o p e r a tin g I ■surplus o f d e f i c i t each month and i f a d i f f e r e n t i a l p e r s i s t s over tim e , he th en a d v is e s th e c l i n i c d i r e c t o r and 136 TABLE 22 LAHREU CLINIC PATIENT VISITS, CHAIRSIDE HOURS AND VA FEE PRODUCTION P a tie n t C h a irsid e VA Fee Year V i s i t s Hours P roduction 1966 8 0,107 36,909 1 ,2 1 5 ,6 0 3 1967 84,013 39,782 1 ,4 1 1 ,2 0 2 1968 85,933 42,703 1 ,4 9 0 ,3 1 1 1969 77,414 40,880 1 ,3 8 2 ,4 4 0 1970 76,252 37,642 1 ,3 0 9 ,1 6 0 S o u r c e : LAHREU C lin ic R ecord s. TABLE 2 3 SURCHARGES PER PATIENT VISIT Mean Percent Year Employee Dependent E l i g i b l e Change 1966 $1.60 $ 3.80 $ 2.63 1967 1 .5 6 3.46 2 .4 7 6 .1 1968 2 .3 8 4 .8 1 3.56 34.0 |Source: LAHREU C lin ic R ecords. 137 an in c r e a s e or d ecre a se in su rch arges i s made. The s u r - icharge i s now r e c o g n iz e d as a means o f managing th e quan t i t y o f c l i n i c s e r v i c e s demanded. Q u a lity L ev els The q u a lit y o f d e n ta l h e a lt h s e r v i c e s i s a very d i f f i c u l t a sp e c t o f care to e v a lu a te o b j e c t i v e l y . A l e v e l o f q u a l i t y , in a broad s e n s e , may e a s i l y be con c e p t u a liz e d by an i n d iv i d u a l p r o f e s s i o n a l p r a c t i t i o n e r , ibut th e p r a c t i c a l im p li c a t io n s o f any one i n d iv i d u a l s t a n d a r d i s s u b j e c t i v i t y . There e x i s t s no consuetudinary ;measures o f q u a l i t y . In f a c t , organ ized d e n t i s t r y has in th e p a st made very few attem p ts to r e se a r c h p r a c t ic a b l e g u id e li n e s fo r the e s ta b lis h m e n t o f c o n s i s t e n t standards o f comparison. The d e n ta l p r o f e s s io n has avoided t h i s sub j e c t w ith a l l th e o b j e c t i v i t y o f a v e s te d i n t e r e s t . I t a s s e r t s th a t q u a lit y o f care i s a fu n c tio n o f method o f p r a c t ic e and payment. C losed p an el and c a p i t a t i o n payments mean poor q u a l i t y ; s o lo p r a c t i c e and fe e fo r s e r v i c e payment mean high q u a l i t y . But . . . | the d e n ta l p r o f e s s io n w i l l r e f e r t o the I u n i v e r s i t y c l i n i c s f o r t h e i r high q u a l i t a - j t i v e sta n d a r d s, not to s o lo p r a c t i t i o n e r s . | These c l i n i c s a r e , o f c o u r se , c lo s e d p an els o f stu d e n ts and t e a c h e r s . 1^ As m entioned e a r l i e r in t h i s s tu d y , th e q u a lit y o f care in group p r a c t ic e arrangements has th e p o t e n t i a l o f 1 ®Jay W . Friedman, p. 12. 138 i b e in g s u p e r io r b ecau se o f th e e f f e c t s o f p e e r d i s c i p l i n e , jin t e r n a l c o n s u lt a t io n between th e p r o f e s s i o n a l s t a f f , j c o n t in u it y o f r e c o r d s , th e advantage o f s p e c i a l i z a t i o n with-j I : i !out fr a g m e n ta tio n , and g r e a t e r o p p o rtu n ity f o r implemen- i i t a t i o n o f q u a lit y c o n t r o l and s t a n d a r d iz a t io n . However, w hatever th e case may b e, we are s t i l l j ; l e f t w ith the problem o f i d e n t i f y i n g j u s t what measures are p o s s i b l e . Of what im portance i s i t t o say: " th is ; |i s 'poor' q u a l i t y or t h i s i s ’h i g h 1 q u a lity ? " i ! j ! The concern o f th e consumers and co n se q u e n tly the ; i t r u s t e e s o f a non p r o f i t o r g a n iz a tio n sp o n so r in g a d e n ta l ;c l i n i c im p lie s the a p p l i c a t i o n o f some measures i n order ;to i d e n t i f y g r o s s ly in a d eq u a te s e r v i c e s . These measures may be to o s u b j e c t i v e , p r im a r ily s e r v in g as a guide to Iprovide a t o c s i n and are to o l i m i t e d fo r our p u rp o se s. : The e x i s t e n c e o f a d i a g n o s t i c department w ith in th e c l i n i c p ro v id es th e d e n ta l d i r e c t o r w ith a c e n t e r fo r a d m in is te r in g th e q u a l i t y sta n d a rd . M ain tain in g c o n s i s t e n t i n t e r p r e t a t i o n o f and communication on th e q u a lit y jstandard i s accom p lish ed m ostly through r e g u la r s t a f f jm eetings and p a r t ly by d i r e c t a u d it in g o f x - r a y s . | The d e n ta l d i r e c t o r and th e Fund t r u s t e e s have both made use o f " o u tsta n d in g l o c a l d e n t i s t s w i l l i n g to s e r v e as m onitors on th e p e r i o d i c q u a l i t y su rv ey s o f the 139 19 d e n ta l s e r v ic e rendered ..." ; In 1968, a r a th e r e x t e n s iv e q u a l i t y au dit was imade o f a random sample o f treatm ent reco rd s and d e n ta l ,x -r a y s o f p a t i e n t s who had v i s i t e d th e c l i n i c at l e a s t 20 once during th r e e c o n s e c u tiv e years o f e l i g i b i l i t y . The tim e p erio d covered ranged from th e b eg in n in g o f the program to the time o f th e a u d it . The a u d ito r d eveloped a dual c r i t e r i a o f o b j e c t i v e and s u b j e c t i v e judgments. ;The i n d iv i d u a l p a t i e n t s r e c e iv e d a number p r o v id in g an ii n t e g e r - o r d in a l m easure, which was p r e v io u s ly d e fin e d as to th e q u a lit y o f tr e a tm e n t. For exam ple, a - 1 , - 2 , or - 3 in d ic a t e d u n necessary treatm en t as the e x t r a c t i o n o f t e e t h t h a t cou ld have been sa v ed , or to o freq u en t pro- ip h y la x is, w h ile a +1 would be r a te d as adequate treatm en t in c lu d in g s i l v e r amalgam r e s t o r a t i o n s , but c a s t go ld r e s t o r a t i o n s might be c o n sid ered o f b e t t e r q u a lit y and be 21 r a te d a +2. The a n a l y s i s was f u r th e r d iv id e d i n t o i n i t i a l treatm en t and subsequent trea tm en t w ith i n t e r e s t i n g 19 ; Donald G. MacQueen, "Labor-Management Sponsored Group P r a c t ic e Arrangements," U npublished paper, ( t y p e w r it te n ) . i 20 , j Jay W. Friedman, pp. 103-0^. i p i "A g o ld r e s t o r a t i o n i s on ly g iv e n a h ig h e r r a t in g i f i t i s in d ic a t e d . I f not i n d i c a t e d , i t might r e c e iv e a low er r a t in g as an example o f u n n ecessary treatm en t or poor judgment." P erson al communication from Max H. Schoen, |May 1 9, 1971. 1 140 im p lic a t io n s f o r th e econ om etric study o f the c o s t-o u tp u t ' r e l a t i o n s in th e next ch a p ter. The r e s u l t s o f th e q u a l i t y I a u d it showed the average r a t in g on the -1 to +3 s c a l e I to be +1, fo r the f i r s t treatm en t s e r i e s w h ile th e average s c o r e f o r a l l treatm en t s e r i e s was + 0 .9 8 , i n d i c a t i n g the e x i s t e n c e o f a s i n g l e q u a l i t y l e v e l over a p e r io d o f y e a r s . Given a c o n s i s t e n t approach to d en ta l c a r e , the a p p lic a t i o n and acceptan ce o f th e same g e n e r a l p r i n c i p l e s )and p o l i c i e s , th e same d i r e c t o r ( d i r e c t i o n ) and a degree : o f u n ifo rm ity in sta f-f s e l e c t i o n , i r r e s p e c t i v e o f s t a f f s t a b i l i t y (tu r n o v e r ), one sh ould observe at l e a s t c o n s i s - | 22 ;ten cy i f not improvement in th e l e v e l o f t e c h n i c a l q u a l i t y . Production and F a cto r Comparisons Comparisons o f o u t p u t - c a p i t a l and o u tp u t-la b o r in d ic e s o f the non p r o f i t c l i n i c w ith th o se o f p r o f i t o r ie n te d firm s o f v a rio u s s c a l e f a c t o r s may g iv e i n s i g h t and serv e as a background to the c o s t-o u tp u t r e l a t i o n s h i p jwhich com prises the m a te r ia l i n v e s t i g a t i o n o f Chapter VI. I * ! Below i s a t a b l e (Table 24) l i s t i n g the p ro d u ctio n f ig u r e s fo r d i f f e r e n t numbers o f d e n ta l u n it s used by non s a l a r i e d d e n t i s t s , a p r iv a t e d e n ta l group, and the 22 Jay W . Friedman, p. 105. TABLE 24 CAPITAL, LABOR, OUTPUT COMPARISONS a b Number o f P roduction d e n ta l in d o lla r s u n it s p er FTEa p er FTE d e n t i s t d e n t i s t c Labor hours a v a il a b l e d b / a e T o ta l P rod uction per Labor Hour Comparisons 1 26 ,662 2024 26 .667 14.76 P r iv a te Non s a l a r i e d 2 111,257 2125 20 ,628 19.*10 d e n t i s t s in th e U nited 3 57 ,949 1988 19,316 2 9.15 S t a t e s in 1967 4 7 1,327 2002 17,832 35.65 1 .8 73,649 46118 40,915 38.48 LAHREU C l i n i c 1968 2 .0 70,872 40186 35,*136 38.79 1970 2 .2 62,7*11 19526 28,519 34.70 P r iv a te C lin ic 1968 2 .0 75,002 22069 37,501 41.64 1970 S o u r c e : Data used f o r e s t im a t e s was from: mic Research and S t a t i s t i c s , "1968 American D ental A s s o c i a t i o n , LXXIX American D en tal A s s o c i a t io n , Bureau o f Econo- Survey o f D ental P r a c t ic e ," Jou rn al o f th e (Septem ber, 1969 ) , 691; LXXVIII ( A p r il, 1 9 6 9 ) , 805. E stim a tes fo r 1968 andL 1970 f o r th e LAHREU C l i n i c are made from C lin ic R ecords. P r iv a te c l i n i c e s t im a t e f o r 1968 h o u rly p r o d u c tio n i s b ased on : stud y by Jay W . Friedman, "The D ental Care Program o f th e Los A ngeles H o t e l- R estaurant Employer-Union W elfare Fund," Los A n g e le s, 1969, p. 86. (MimeograjhadQ The 1970 e s t im a t e s are from u n p u b lish ed d ata. aFTE = f u l l tim e e q u iv a le n t . 142 LAHREU c l i n i c . The p r iv a t e group p r a c t i c e c o n s i s t s o f Sboth p r iv a t e f e e f o r s e r v i c e p a t i e n t s and p rep aid p lan ; p a t ie n t s . In 1968 th e LAHREU c l i n i c employed tw ic e as 'many f u l l t i m e e q u iv a le n t d e n t i s t s as did th e p r iv a t e f a c i l i t y . The p ro d u ctio n f ig u r e s fo r the non p r o f i t c l i n i c are a d ju s te d f o r th e d i f f e r e n c e between th e low er V e te r a n 's A d m in istra tio n Fee Schedule (used fo r a cco u n tin g p urp oses) and th e C a lif o r n i a D en tal S e r v ic e Table o f A llow an ces. ;In 1968, on ly th e C a lif o r n i a D ental S e r v ic e f e e s are to ;be co n sid e r e d comparable to th e p r iv a t e grou p 's a d ju ste d f e e s . However, the C a l i f o r n i a D ental S e r v ic e Table o f A llow ances may have been some 25 p ercen t low er than the 2 8 "customary" p r iv a t e f e e s o f i n d iv i d u a l p r a c t i c e s . Be cause o f u n a v a ila b le or tenuous d a ta , many o th e r v a r ia b le s have not been a d ju ste d f o r , such as the case o f mix 'd if f e r e n c e s and d i s t r i b u t i o n o f s e r v i c e s . Thus, the com parisons are not adequate f o r i n d i c a t i n g sm all d i f f e r en ces but th ey do s erv e as s a t i s f a c t o r y f i r s t approxima t i o n s . Table 24 would i n d i c a t e th a t p ro d u ctio n o f the ^For a d e t a i l e d a n a l y s i s w ith s im il a r r e s u l t s , s e e Jay W . Friedman, pp. 8 3 -8 6 . For th e e f f e c t o f fe e s c h e d u le s , se e Max H. Schoen, "Fee Schedu les and t h e i r E f f e c t on Hourly Renumeration," r e p r in te d from the Journal o f th e Southern C a lif o r n ia S t a t e D ental A s s o c ia - t i o n , XXXIV (June, 196b). ” ' i I j i p r iv a t e c l i n i c i s approximated by th a t o f th e non p r o f i t :c l i n i c and t h a t both are more e f f i c i e n t e n t e r p r i s e s than |th e s i n g l e p r o p r ie t o r s h i p . C onclusion s The p r e s e n t o r g a n iz a t i o n a l c h a r a c t e r i s t i c s o f the LAHREU c l i n i c conform to the o r g a n iz a t i o n a l assum ptions o f both the average c o s t m in im izin g model and th e con s t r a in e d output m axim izing model. W e have i d e n t i f i e d th e iDMU and th e d e c i s i o n environm ent. However, th e f o r e go in g d e s c r i p t i v e i n v e s t i g a t i o n does not p ro v id e a d e f i n i t e answer as to which model b e t t e r s e r v e s to e x p la in th e sh o rt run b e h a v io r o f th e firm . At t im e s , p r i n c i p l e o p e r a tin g f e a t u r e s would seem to imply b e h a v io r a l a s p e c ts i c o n s i s t e n t on ly w ith th e c o n s tr a in e d output m axim izing m odel, but we a l s o f in d o th e r o b s e r v a tio n s which may in d i c a t e th e average c o s t m inim izin g h y p o t h e s i s . The d e s c r i p t i v e and s t a t i s t i c a l com parisons o f th e p r o f i t o r i e n t e d c l i n i c and our p r i n c i p a l firm has pro v id ed e v id e n c e o f o p e r a tin g e f f i c i e n c y . This would sup port our l e a s t c o s t p r o d u c tio n h y p o t h e s i s , but i t does not d i c t a t e an output l e v e l im p lie d by e i t h e r t h e o r e t i c a l model. The above study s e r v e s t o i l l u s t r a t e th e d e v e lo p ment o f th e g overn in g o b j e c t i v e , which was found t o be th a t o f p r o v id in g maximum ou tput from a s t i p u l a t e d budget. 144 O b servation s would a l s o seem to ev id e n c e an |o p e r a t i o n a l o b j e c t i v e on th e p a r t o f th e DM U to choose i jsome co n sta n t q u a l i t y l e v e l , and maximize q u a n tity o f I ioutput s u b j e c t t o g iv e n r e s o u r c e s . But, w ith the e x i s te n c e o f a p a r t i a l rem itta n c e demand curve and a system o f f l e x i b l e s u r c h a r g e s , i t i s not c e r t a in th a t th e firm ;does not a c t u a l l y co n ta in th e output at a l e v e l a ccep - :t a b le to th e DM U as h y p o th e s iz e d in th e average c o st ;m in im izin g model. ■ The o p e r a tin g o b j e c t i v e i s o f primary concern , in our attem pt to se p a r a te th e seem in gly ambiguous ev id en ce 'T h e r e fo r e , th e i d e n t i f i c a t i o n o f th e o p e r a tin g o b j e c t iv e I o f a firm cannot be determ ined s o l e l y from b e h a v io r a l ; o b s e r v a tio n s but the s t a t i s t i c a l d ata must a ls o be s u b je c te d to t e s t i n g u s in g c o n v e n tio n a l econ om etric methods in I order t o c l a r i f y r e a c t io n s to s h i f t s in r e le v a n t e n v ir o n m ental p aram eters. ■ "Tfie n ext ch ap ter employs th e s e a n a l y t i c a l methods ; in an attem pt to i s o l a t e th e f i n a l elem ent o f th e system . CHAPTER VI ECONOMETRIC CONSIDERATIONS The Cost-Output R e la tio n j The i n d i v i d u a l firm employs many fa c t o r s o f pro d u c t i o n in ord er to p rovid e a r a te o f output per u n it o f I tim e. The r e l a t i o n s h i p o f c o s t s and output w i l l depend upon the c o n d it io n s o f and the a v a il a b l e in fo rm a tio n on ;f a c t o r su p p ly , th e ou tp u t supply p e r io d , and th e t e c h n o l o g i c a l s t a t e . When th e market f o r a f a c t o r i s c h a r a c te r iz e d as jp e r f e c t l y c o m p e t it i v e , t h i s conveys the in fo r m a tio n th a t the firm as a pu rch aser o f t h i s in put to p rod u ction i s :not so la r g e w ith r e s p e c t to the t o t a l number o f firms !which purchase t h i s f a c t o r , so as to a p p recia b ly in f lu e n c e ithe p r ic e i t w i l l pay to o b ta in t h i s f a c to r y by varying |the r a te o f o u tp u t. The term " p e r f e c t ly c o m p e titiv e f a c t o r market" i s sim ply a shorthand e x p r e s s io n d e s c r ib in g a s i t u a t i o n where th e firm i s f a c in g g iv e n reso u rce p r i c e s . 145 146 The second p o s s i b l e f a c t o r su p p ly c o n d itio n Is r e f e r r e d to as m o n o p so n istic c o m p e titio n , where th e firm can a f f e c t th e f a c t o r p r ic e s by a d j u s t in g i t s r a te o f o u tp u t. A la r g e firm may be a b le to en joy a somewhat d i f f e r e n t money f a c t o r p r ic e than a sm a ll firm when pur ch a sin g c e r t a in r e s o u r c e s . I f th e purchase i s made w e ll in advance o f f a c t o r employment and th e supply i s s to r e d o ver tim e , the r e a l o p p o rtu n ity c o s t may eq ual th e imme d ia t e p r ic e d i f f e r e n c e , r e f l e c t i n g th e b e h a v io r o f sim ple c o m p e titiv e m arkets. The c o st r e l a t i o n s h i p s may be understood in terms o f v a ry in g supply p e r i o d s . W e are i n t e r e s t e d in th e con cept o f a sh o rt run supply p e r io d . The sh o rt run r e f e r s to a p e r io d o f time w herein , fo r a l l p r a c t i c a l p u rp o se s, th e r e e x i s t s some f a c t o r which i s n o n - v a r ia b le , and th e firm i s th e r e f o r e c o n s tr a in e d by t h i s so c a l l e d f ix e d f a c t o r . The common example i s th e e x i s t i n g p la n t w ith i t s g iv en c a p a c i t i e s . The tr a n s fo r m a tio n o f f a c t o r s o f p ro d u ctio n in t o th e s e r v i c e or product output i s e x p l i c i t l y s t a t e d by the p ro d u ctio n f u n c t io n . The p ro d u ctio n fu n c tio n d e s c r ib e s the t e c h n i c a l s t a t e "and th ey are t h e r e f o r e taken from d i s c i p l i n e s such as e n g in e e r in g and i n d u s t r i a l ch em istry ." '1 ' "^George J. S t i g l e r , The Theory o f P r ic e (New York: Macmillan Company, 1 9 4 7 ) s p. 109. 147 W e may i l l u s t r a t e th e in p u t - o u t p u t - c o s t r e l a t i o n s ! fo r a firm producing a homogeneous output w ith a p e r - j • f e c t l y c o m p e titiv e f a c t o r market by the g e n e r a l p rod u ction ! fu n c tio n : 1 (6-1) S = s ( I 15 . . . , In ) where: : ( 6 - 2 ) 1^ > 0 are in p u t f a c t o r s (j = 1, . . . , n ) . D enoting t o t a l c o st as C, we have a c o st eq u a tio n i f o r th e sh o rt run: I n (6 -3 ) C = 2 c .1 . + N ; J-l J J ;where c. are th e r e s p e c t i v e p r ic e s o f in p u t f a c t o r s and J ;N eq u a ls the n o n -v a r ia b le c o s t s even at zero o u tp u t. 'Assuming the firm to op erate e f f i c i e n t l y , c o s t can be i l l u s t r a t e d by i t s r e l a t i o n s h i p to output (S): I (6 -4 ) C = c (S ) + N ; I t i s co n su etud inary to r e f e r to th o se f a c t o r 1 q u a n t i t i e s and consequent c o s t s th a t may be changed during ip ro d u ctio n as v a r ia b le f a c t o r c o s t s and to th o se w hich, j I f o r a l l p r a c t i c a l c o n s i d e r a t i o n s , cannot be v a r ie d , as i j f i x e d f a c t o r c o s t s . A s e r i e s o f c o s t curves can then I | be c a l c u l a t e d d e p ic t i n g a l l p o s s i b l e optimum outcomes | jw ith in the sh o r t run time p e r io d . I ! In o rd er t o c l a r i f y th e d e c i s i o n r e a c t io n s to ; 148 s h i f t s in r e l e v a n t environm en tal param eters we w i l l c a l c u - i : la t e a system o f c o s t fu n c tio n s f o r our s t u d y 's primary i j firm u sin g a p p ro p ria te s t a t i s t i c a l te c h n iq u e s . S in ce j ■the i n v e s t i g a t i o n o f our primary firm i s not a c o n t r o ll e d lab oratory, experim ent and th e r e f o r e our organism e n c o u n te r s; a number o f sim u lta n eo u s i n f l u e n c e s , i t has thus f a r been ! d i f f i c u l t t o p r e c i s e l y a s c e r t a i n th e c a u s a l i t i e s . I f we had a t our d i s p o s a l a ccu ra te d ata f o r th e e n t i r e system , we might employ econ om etric t o o l s to se p a r a te from the i Rmilieu on ly th o se r e le v a n t i n d iv i d u a l e f f e c t s o f i n t e r e s t . But s u f f i c i e n t v a r i a t i o n in a l l v a r i a b l e s i s not u s u a l ly : Rencountered in r e a l i t y , nor can we presuppose th e models are not s p e c i f i e d . However, a l l i s not l o s t i f we can s p e c i f y s i t u a t i o n s under which o b s e r v a tio n s would be the r e s u l t o f ;major s h i f t s i n v a r i a b l e s o f i n t e r e s t , w h ile o th e r i n f l u en ces are e i t h e r random or n e g l i g i b l e . Our main dimen s io n o f i n t e r e s t i s th e c o s t-o u tp u t r e l a t i o n s h i p o f which a s y s t e m a tic i n v e s t i g a t i o n and s t a t i s t i c a l exam in ation may iprovide the d is c e r n i n g fe a t u r e s we so d e s i r e . I T h e r e fo r e , we b e g in by c o n s id e r in g under what icircu m stances might th e two sh o rt run models d is p la y s i m i - , l a r r e s u l t s and under what c o n d itio n s might they produce 1 i I j d is s im ila r r e s u l t s . I n i t i a l l y , demand i s presumed g iv e n I and our concern i s w ith th e v a rio u s p o s s i b l e forms o f th e | jcost f u n c t io n . N ex t, we assume a c o s t fu n c tio n and ! 1 4 9 i examine i m p li c a t io n s o f s h i f t s in th e demand f u n c t io n . I f the c o s t - o u t p u t r e l a t i o n s h i p were such th a t j i I I the average c o s t curve were "U-shaped," th e average c o s t ; i ! i !m in im izin g model would p r e d ic t a low er r a te o f output ! I i and a h ig h e r surcharge than th e output and su rcharge r a t e s i :under th e output m axim izing model (s e e F igure 4 a ). I f J average c o s t s were d e c l i n i n g over the r e l e v a n t output ran ge, both models would p r e d ic t the same q u a n tity o f :output and surch arge r a t e s as i l l u s t r a t e d in F ig u re 4b. I :This i s a ls o tr u e i f average c o s t s were co n sta n t w ith j |r e s p e c t to output (F igu re 4 c ) . Assuming th e average c o s t ; ;fu n c tio n were r i s i n g over o u tp u t, then th e ou tput maxi m izin g model would d i c t a t e a h ig h e r q u a n tity and a low er surch arge (F igu re 4d) . I t i s i n t e r e s t i n g to n o te th a t i f th e average ic o s t curve were t o s h i f t upward p r o p o r t io n a ll y at a l l l e v e l s o f o u tp u t, the average c o s t m in im izin g h y p o th e s is would p r e d ic t no change in e i t h e r q u a n tity or su rch a rg e, ;w h ile th e output m axim izing h y p o th e s is would d i c t a t e |an in c r e a s e in th e surcharge r a te and a d ec r e a se in I output (F igure 5 a ). A gain, assuming th e s h i f t in c o s t s f to be upward, but in t h i s i n s t a n c e , n o n -p r o p o r tio n a l, th e average c o s t m in im izin g h y p o th e sis would imply a ; d e c r e a se in o u tp u t. C o n v e rsely , th e m axim izing h y p o th e s is would i n d i c a t e an in c r e a s e in surcharge and an accompanyingj FIGURE 4 150 S q s q (a) (b) s q s q (c) (d) d e c r e a se in output (F igure 5b ). j Now, l e t the demand curve in c r e a s e w h ile assum ing j ic o s t s to e x h i b i t a U-shaped sh o r t run cu rve. In F igure j : i !5c, we s e e th a t under t h i s s i t u a t i o n th e output m axim izing j ! model i n d i c a t e s an in c r e a s e in o u tp u t, w h ile th e average : c o s t m in im izin g h y p o th e s is im p lie s no change in th e r a te o f o u tp u t. These v a r io u s outcomes are l i s t e d in Table 25. In e s t im a t in g the e m p ir ic a l c o s t fu n c tio n f o r our primary . firm , we w i l l th en attem pt to f i n d a tim e p e r io d and ;accompanying data which p r o v id e s us w ith an in s t a n c e w h ere-i iin the i m p li c a t io n s o f th e two h y p o th e se s are opposed. i Survey o f P reviou s E m p irical Evidence Although th e c o s t output r e l a t i o n as d e s c r ib e d above appears c o n c e p tu a lly s im p le , th e s t a t i s t i c a l d e r i v a t i o n from e m p ir ic a l data i s a r a th e r form id ab le t a s k . ■Econometric e s t im a t e s o f sh o r t run c o s t f u n c t io n s r e l a t i n g c o s t and o u tp u t, g iv e n s c a l e , and u sin g tim e s e r i e s d ata f o r a s i n g l e firm have been made by s e v e r a l e c o n o m is ts. J o e l Dean s t a t i s t i c a l l y determ ined c o s t output { r e l a t i o n s in s i x d i f f e r e n t c a s e s : one f o r a f u r n itu r e I i i f a c t o r y , one f o r a h o s ie r y m i l l , one f o r a l e a t h e r b e l t jsh op , and th r e e departm ents o f a la r g e r e t a i l s t o r e .^ 2 J o e l Dean, "Department S to r e Cost F u n c tio n s," in | S tu d ie s in M athem atical Economics and E c o n o m e tr ic s , ed. by , FIGURE 5 152 S I T (b) S t (a) s t I 0 q (c ) 153 TABLE 25 SUMMARY OP PARAMETER CHANGES AND MODEL DIVERGENCE Model Ave. Costs Demand Surcharge Q uantity C M "U" t p ro p o rtio n 0 0 0 O M A "U" * p ro p o rtio n 0 t 1 C M "U" non- | p ro p o rtio n 0 I T O M * "U" non- / p ro p o rtio n 0 t i C M "U" 0 f 1 0 O M "U" 0 I 1 t C M 'L" shaped J 1 i O M ’L" shaped i I i N o t e s : C M = Average Cost M inim izing O M = C onstrained Output Maximizing 0 = c o n sta n t or unchanged. 154 A s i m i l a r p a tte r n o f a n a l y s i s was used in each o f th e i s t u d i e s . F i r s t , an ag g reg a te output in d ex was c o n s tr u c te d 'C o n sid era tio n was then fo cu sed upon th e r e c t i f i c a t i o n o f th e a cco u n tin g c o s t data; t h i s in c lu d e d the removal o f f a c t o r p r ic e changes not r e l a t e d to output and o th e r i r r e l evant c o s t i n f l u e n c e s . The s t a t i s t i c a l method was th a t o f l e a s t squares m u lt ip le r e g r e s s i o n a n a l y s i s . Of the s i x t o t a l c o s t fu n c tio n s which Dean e s t i m a te d , f i v e were found t o be in c r e a s i n g l i n e a r , and one ;a convex curve r i s i n g at a d e c l i n i n g r a te as p h y s ic a l |volume was in c r e a s e d . Average c o s t s were found to be d e c r e a s in g at a d e c r e a s in g r a te th ro u g h o u t, w h ile f i v e i o f th e m arginal c o s t e s t im a t e s p ic tu r e d co n sta n t m arginal c o s t s and one d e c r e a s in g at a co n sta n t r a t e . Two s t u d i e s on th e U n ited S t a t e s S t e e l Company : attem pted to s t a t i s t i c a l l y determ ine sh o r t run c o s t fu n c- ' t io n s f o r the m u lti-p r o d u c t firm u sin g q u a r te r ly and Oscar Lange (London: Cambridge U n iv e r s it y P r e s s , 1942); ; S t a t i s t i c a l Cost F u n ction s o f a H osiery M i l l , S tu d ie s in | B u sin ess A d m in is tr a tio n , V ol. XI, No. 4 (C h ica g o : Chicago I U n iv e r s ity P r e s s , 1941); The R e la tio n o f Cost to Output ! f o r a L eather B e lt Shop, T e c h n ic a l Paper No. 2 ( n . p . : I N a tio n a l Bureau o f Economic R esearch , 1 9 4 1 ); S t a t i s t i c a l D eterm in ation o f Costs w ith S p e c ia l R eferen ces t o Mar- j g i n a l C o s t s , S tu d ie s in B u sin e ss A d m in is tr a tio n , V ol. V II, No. 1 (C hicago: Chicago U n iv e r s it y P r e s s , 1 9 3 6 ). 155 annual d ata over a 12 y ea r p e r io d .^ One o f th e s e s t u d i e s u t i l i z e d a c t u a l a cco u n tin g r e c o r d s ; th e o th e r made use o f l e s s d e t a i l e d and l e s s d e s ir a b le p u b lis h e d f i g u r e s . The r e s u l t s o f both s t u d i e s were p u b lish e d in the same y ea r. In the W y lie -E z e k ie l a r t i c l e , c a p a c ity output f i g ures are shown to be changing over the time p e r io d con s id e r e d which v i o l a t e s the b a s i c assum ption o f a sh o rt run a n a l y s i s . T h erefore the r a th e r tenuous r e s u l t s are not summarized or re p o r te d h e r e . In 19*17 J . A. Nordin p u b lis h e d th e r e s u l t s o f a c o s t curve i n v e s t i g a t i o n on a l i g h t p la n t . T o ta l c o s t s w ith r e s p e c t t o output were shown t o vary in a manner d e s c r ib e d by a second degree f u n c t io n . The a c tu a l r e l a t i o n s h i p was : Y = 1 6 .6 8 + 0.125X + 0.00*J39X2 A n a ly sis o f v a r ia n c e su pp orted th e c u r v i l i n e a r form o v er a l i n e a r r e l a t i o n . Another c o s t output study was done in 1952 by ■^Thomas 0. Yntema, S t e e l P r i c e s , Volume and C o s t s , Temporary N a tio n a l Economic Committee Papers ( n . p . : U nited S t a t e s S t e e l C orp oration, 19*10), I I . Kathryn H. Wylie and M. E z e k i e l , "The Cost Curve f o r S t e e l Production," Jou rn al o f P o l i t i c a l Economy, XLVIII (December, 19*10), < 777-821. I ^J. A. N ordin, "Note on a L ight P l a n t ' s Cost 1 Curves," E co n o m etrica , XV ( J u ly , 19*17), 231-35. 156 ; 5 J e s s e W . Markham f o r a firm m anufacturing Rayon. Here :th e average c o s t t o ou tp u t was found r i s i n g a t an i n - j : I I j c r e a s in g r a te in th e sh o rt p e r io d a n a l y s i s . j J . Johnston has e s tim a te d the sh o rt run c o s t fu n c t i o n s f o r a road tr a n s p o r t firm and f o r a m u lti-p r o d u c t j food p r o c e s s in g firm .^ In the case o f th e tr a n s p o r t firm , j Johnston fin d s t h a t t o t a l c o s t e x h i b i t s a l i n e a r output ; r e l a t i o n and th a t: i . . . t h e sh ort run average c o s t fu n c tio n i s i thus downward s lo p in g to th e r i g h t th rou gh - ; out i t s l e n g t h , an in c r e a s e o f 10 p e r c e n t 1 j in output b e in g a s s o c i a t e d on th e average w ith a 3 p e r c e n t r e d u c tio n in c o s t s per u n it o f o u tp u t. 7 I In the m u lti-p r o d u c t fir m , Johnston found th a t the ' " accou nting data made i t p o s s i b l e to an alyze the c o s t - g output v a r i a t i o n s from two d i f f e r e n t a n g le s ." He f i r s t s tu d ie d the r e l a t i o n f o r i n d iv i d u a l p r o d u c ts , and th en w ith v a r i a t i o n s in ag g reg a te o u tp u t. The r e g r e s s i o n i s '’J e s s e W . Markham, C om petition in th e Rayon In d u s- ; tr y (Cambridge, M ass.: Harvard U n iv e r s it y P r e s s , 1 9 5 2 ). j ^J. Joh n ston , " S c a le , C osts and P r o f i t a b i l i t y in i Road P a ssen ger T ran sp ort," Journ al o f I n d u s t r i a l E conom ics, i IV (June, 1 9 5 6 ), 207-235 "Cost-Output V a r ia tio n s in a j M u ltip le Product Firm," Manchester S chool (1 9 5 3 ), I PP - ! ^J. J o h n sto n , "Scale C osts and P r o f i t a b i l i t y in Road P a ssen g er T ran sp ort," p. 217. 1 O J. Joh n ston , "Cost-Output V a r ia tio n s in a M u lt i p l e 1 Product Firm," p. 140. i 157 o f th e form: : Yt = a + bXt + ut . i The summary c o n c lu s io n s are t h a t "in every ca se t o t a l d i r e c t c o s t s may be co n sid e r e d a l i n e a r f u n c t io n o f io u tp u t. M arginal c o s t i s t h e r e f o r e c o n s ta n t o v e r th e ob served range o f output . . . , " and t h a t the "average v a r ia b le c o s t curve q u ic k ly approaches th e m arginal c o s t ! 9 j l i n e a s y m p t o t i c a ll y ." ; Most o f th e above s t u d i e s in e s t im a t in g sh ort ‘run c o s t f u n c t io n s have found m argin al c o s t to be co n sta n t land average c o s t to be d e c l i n i n g r a th e r than U-shaped. !However, the e v id e n c e i s l i m i t e d , and th e c o n t r a - t h e o r e - i t i c a l c o n c lu s io n s may be in p art due to th e l i m i t e d range ;o f o b s e r v a t io n s . I E s tim a tio n C r i t e r i a and Techniques In th e above s t u d i e s and in th e one we are about i to u n d ertak e, a fundamental problem or perhaps n u isa n c e i in a tte m p tin g a p p lie d r e s e a r c h fo r a s t a t i c f u n c t io n i s j t h a t the r e s e a r c h e r must p lu ck from dynamic d a ta som ething | as c l o s e as p o s s i b l e to a s t a t i c s i t u a t i o n . The f o ll o w i n g j c r i t e r i a are s u g g e s te d s i n c e th e o b j e c t i v e i s to determ ine ^Ibid. , p. 1H6. 158 the p a tte r n o f sh o rt run c o s t s and th e data must j u s t i f y ian i l l u s i o n o f t h i s s i t u a t i o n : i 1. Changes in p la n t co m p o sitio n and la y o u t should |be h e ld at a minimum during the tim e s e r i e s s t u d ie d . For exam ple, th e number o f d e n ta l o p e r a t o r i e s , space and space r e l a t i o n s sh ou ld not change. 2. The tu r n -o v e r r a te o f management p e r so n n e l sh o u ld approach z er o . 3. The tim e p e r io d chosen sh ou ld provid e a s u f f i c i e n t number o f o b s e r v a tio n s in output f l u c t u a t i o n s so jas to show a wide range o f c o s t s and output r a t e s , i 4. The te c h n iq u e s o f a c c o u n tin g record s are to ;be c o n s i s t e n t and tra n sfo rm a b le o ver t h i s p e r io d . 5. W e must r i d th e recorded c o s t data o f autono mous f a c t o r p r ic e changes not a t t r i b u t a b l e to th e in f lu e n c e o f output changes. The adjustm ent o f ob served c o s t data •for f a c t o r p r ic e changes each p e r io d by an in d ex fo r the :f a c t o r market an d /or g e n e r a l p r ic e i n f l a t i o n s must be made. 6. Random changes are not a d ju s ta b le and mani- j f e s t as u n ex p la in ed v a r i a t i o n s in the a n a l y s i s . | A fte r a ssessm en t and c o r r e c t io n o f d a ta , we turn t o the c o n s id e r a t io n o f a p p ro p ria te methods o f s t a t i s t i c a l e s t im a t io n and t e s t i n g . In e s t im a t in g th e r e l a t i o n s h i p between th e two v a r i a b l e s , t o t a l c o s t and o u tp u t, we c o n s id e r a g e n e r a l 159 p olyn om ial as: (6 -5 ) Y = a + bXt + . . . + zX^ + ut where q denotes the degree of the function, the coef ficients of X are maximum likelihood estimates obtained by least squares, and u is a disturbance term. A priori, the short run cost output relation may be either of the first, second, or third order. The function which provides the best representation of the relation may be tested for by computing the standard error of the estimate for each regression and noting whether the coefficients of higher order terms are significant. However, th e r e are problems o f e s t im a t io n and t e s t i n g when em ploying eq u a tio n ( 6 - 5 ) . For exam ple, we would l i k e the e s t im a t e s o f param eters to have th e a g r e e a b le p r o p e r t ie s and t h e r e f o r e be u n b ia se d , c o n s i s t e n t , e f f i c i e n t , and s u f f i c i e n t . 10 I f the f o llo w in g f i v e assump t i o n s are s a t i s f i e d , th e l e a s t squares method o f e s t im a t in g y i e l d s maximum l i k e l i h o o d e s t im a t e s o f param eters w ith the above p r o p e r t i e s : Maurice G. Kendall, The Advanced Theory of Sta tistics (London: Charles Griffin and Co., L td., 1 9 5 2 ), II. Lancelot Hogben, Statistical Theory (London: George Allen and Unwin, Ltd., 1957) . ; 160 1. The e r r o r i s a random r e a l v a r i a b l e . I t jtakes on d i f f e r e n t v a lu e s , each one w ith a p r o b a b i l i t y . |The v a lu e s may be i n f i n i t e in number. Some p ( u ) , ;d e fin e d f o r a l l u, 0k_5PkJ: 1 and u / p (u )d u ) = 1 I 2. The e x p e c te d valu e o f th e e r r o r f o r a l l t iis z e r o . The e r r o r term i s norm ally d i s t r i b u t e d : ! E ufc = 0 fo r a l l t , and ! ( - 1 / 2 ) ( u -eu /P ) 2 | p (u ) = ( 1 / pVTff ) e I ! I 3. The v a r ia n c e o f u^ i s co n sta n t in tim e. 'Causes u n d e r ly in g the random term remain unchanged, a l - ■ though in any p e r io d some may f a i l to o p e r a te . ' 0 < P u ( t ) = cov (ut ,u t ) = Pu < °° f o r a l l t • I | 4. The random terms o f d i f f e r e n t p e r io d s are not ia u to c o r r e la te d . In each p e r io d the d eterm in in g causes o f i !u are independent o f t h e i r p a s t or fu tu r e a c t io n . | E (ut ,u t _ . ) = 0 f o r a l l t and f o r i ^ 0. 5. The e r r o r i s f u l l y independent o f th e ex p la n a to r y v a r i a b l e s . cov (ut ,Xt _j_) = 0 f o r a l l t and a l l i . 161 The second assum ption i s j u s t i f i e d i f we can show jthat the v a r i a b l e s l e f t out o f e q u a tio n (6 -5 ) are numerous j land not i n t e r l i n k e d . ! : i ! A ctu al c o s t s are in f lu e n c e d by many v a r i a b l e s . j Because th e c o s t-o u tp u t concept i s a n e c e s sa r y a b s t r a c t io n , ; ;we assume th a t the many v a r i a b l e s not e x p l i c i t in our s i n g l e eq u a tio n are not i n t e r l i n k e d . 11 Some b e h a v io r a l im p lic a t io n s o f h o m o sk e d a stic ity 'are th a t in d iv i d u a l s may not improve t h e i r a b i l i t y to idiscern over tim e; e . g . , as in d iv i d u a l s age th ey may not d is c e r n more or l e s s over tim e , and as output in c r e a s e s measurement e r r o r s w i l l not in c r e a s e . I f h e t e r o s k e d a s t i c i t y o c c u r s , our l e a s t squares y i e l d s i n e f f i c i e n t e s t im a t e s and i f known, we must then d e f l a t e the r e s i d u a l s appro- 12 i p r i a t e l y . A u to c o r r e la tio n i s another p o t e n t i a l problem in iusing tim e s e r i e s . I f t measures months, then our e r r o r term i s a f f e c t e d by d i f f e r e n t w ea th er, d i f f e r e n t number o f days per p e r io d and so on. W e may t e s t fo r s e r i a l ‘ c o r r e l a t i o n by way o f th e d i f f e r e n t s t a t i s t i c s which have i been d e v is e d f o r t h i s problem, and i f a u t o c o r r e la t io n in i j : ■11 | Gerhard T in tn e r , E conom etrics (New York: John iWiley and S on s, I n c . , 1 9 5 2 ), c h p ts . i i i and i v . 1 i I 1 p j S te fa n V a lv a n is , Econom etrics (New York: McGraw- H i l l Book Company, 19 5 9 )j P~ ?9"! I i 162 Uj. i s i n d i c a t e d , make allo w a n ces in our e s t im a t in g t e c h n iq u es . ^ The f i f t h assu m p tion , r e q u ir in g th a t th e r e s i d u a l o f a g iv en r e l a t i o n i s d i s t r i b u t e d such th a t i t i s f u l l y independent o f ex p la n a to r y v a r i a b l e s might be v i o l a t e d in some economic r e l a t i o n s h i p s . The e f f e c t o f such i n t e r dependence would make th e d i r e c t a p p l i c a t i o n o f l e a s t sq uares y i e l d b ia s e d and i n c o n s i s t e n t e s t im a t e s o f para m e te r s . W e would th en be concerned about en c o u n te r in g t h i s problem. In order to determ ine whether or not t h i s i s l i k e l y in e s t im a t in g our c o s t f u n c t i o n s , we i n v e s t i g a t e th e d e c i s i o n model thought t o have g e n e r a te d th e ob served data. For exam ple, c o n s id e r th e output m axim izing model o f Chapter I I . Assume t h a t th e d e c i s i o n making u n it has a know ledgeable e s tim a te o f th e p a r t i a l rem itta n c e demand fu n c tio n f o r s e r v i c e s in terms o f p a t i e n t s e r v i c e u n it s (S) such as: (6 -6 ) pt = a0 " al St ■ ^ G e r h a r d T in tn e r , E c o n o m e tr ic s , ch. x; Methodology o f M athem atical Economics and E c o n o m e tr ic s , I n t e r n a t io n a l E n cy clo p ed ia o f U n ifie d S c ie n c e , V o l s . I and II (Chicago: U n iv e r s it y o f Chicago P r e s s , 1 968 ) , p. 8 3 . Laurence R. K le in , A Textbook o f E conom etrics (E van ston , 1 1 1 .: Row, P ete rso n and C o., 1 9 5 3), pp. 317-318. 163 The e x p e c te d t o t a l revenue f u n c t io n i s then i 1 j (6 -7 ) Rt = Et + aQSt - a1St . t f ;where R ^ . i s t o t a l revenues and i s th e fund b u dget. The firm has some t o t a l c o st f u n c t io n , which f o r our purposes we w i l l assume here t o be l i n e a r : (6 -8 ) Ct = b Q + b ^ + ut . jThe output m axim izing r u le y i e l d s : i I b o i<6- s ) s t = " Et + Vt ( 1 - -V^o-V |where vt i n d i c a t e s th e d i f f e r e n c e between a c t u a l and iplanned o u tp u t. With e q u a tio n s ( 6 -8 ) and (6 -9 ) we have: i (6 -1 0 ) e St ufc = e u^vt -and i f th e r e s i d u a l s are in depen dent o f one a n o th e r , th e l e a s t squares e s t im a t e s o f our c o s t fu n c tio n would be .the maximum l i k e l i h o o d e s t im a t e s o f th e p aram eters. The ;ut i s in dependent o f th e output (S^) i f u^ i s u n r e la te d to vfc. Our models at b e s t are s t i l l an im p e r fe c t r e p r e s e n t a t i o n o f th e d e c i s i o n p r o c e s s . For exam ple, we would not e x p la in where ob served d i f f e r e n c e s in output l e v e l s 16 k come from except for shifts in demand. But it is likely that our investigation would find explanation of signifi cant changes in the demand function due to exogenous changes in the incomes and preferences of our patient population. Concommitant with this situation we should not expect the DMU in practice to attempt real estima tions of demand parameters and make appropriate output or surcharge decisions in each period. The surcharge rates do not appear as flexible as either model would seem to dictate. Such is the nature of statistical predic tion. It is perhaps not too well under stood in parts of economic literature. Too often economic theory is formulated in terms of exact relations (similar to alleged laws of natural science), with the frustrating consequence that it is always contradicted by facts. If the numerous causes that can not be accounted for separately are appro priately accounted for in their joint effect as random disturbances or as measurement errors, statistical prediction in a well defined sense becomes possible. Output Measures and Patient Mix Differences The dental clinic, even with quality constant, is a multi-service firm, because it treats each patient Jacob Marschak, "Economic Measurement for Policy and Prediction," in Studies in Econometric Method, ed. by William C. Hood and Tjailing C. Koopmans (New York: John Wiley and Sons, 1 9 5 3 ), pp. 1 -2 6 . 165 a c c o r d in g ly . Every p a t i e n t p r e s e n ts a s p e c i f i c d e n ta l problem o f v a r y in g co m p le x ity . Thus, a c r u c i a l r e se a r c h ! ;problem i s how to measure o u tp u t. Attempts have been made and numerous p r o p o sa ls have been p u b lis h e d d e a lin g w ith the same typ e o f problem 15 in s t u d i e s o f v a r io u s m u lti-p r o d u c t h o s p i t a l s . W ithin th e h o s p i t a l l i t e r a t u r e we can see th a t none o f th e mea su res are w id e ly a c c e p te d , as none are w ith ou t l i m i t a t i o n s . ;More im portant to our in q u ir y i s th a t none o f t h e s e ;s u g g e s te d measures are c o m p le te ly t r a n s f e r a b le t o th e . ‘case o f the d e n ta l c l i n i c . I d e a l l y , c l i n i c output would be measured in terms o f homogeneous u n it s o f d e n ta l h e a lt h c a re . This approach 16 would c o n s id e r h e a lt h care output as i t a f f e c t s the p a t ie n t . Such an i d e a l output in d ex i s u n a v a ila b le , t h e r e f o r e we ^See M. S. F e l d s t e i n , Economic A n a ly sis f o r H ealth S e r v ic e E f f i c i e n c y , e s p e c i a l l y ch. i . Hervert E. Klarman, The Economics o f H ealth (New York: Columbia U n iv e r s it y P r e s s , 1965 ). W. John Carr and Paul J. F e ld s t e i n , "The R e la tio n s h ip o f Cost to H o s p ita l S i z e ," . I n q u ir y , IV (June, 1967 ) > ^5— 65. Mary Lee Ingbar and L e s te r D. T a y lo r , H o s p ita l C osts in M assa ch u setts (Cam b r id g e , M ass.: Harvard U n iv e r s it y P r e s s , 196b ). A ls o , ;see th e summaries in J u d ith K. Mann and Donald E. Y e tt, I"The A n a ly s is o f H o s p ita l C osts: A R e v ie w - A r t ic l e ," Journ al o f B u s in e s s , XLI ( A p r il, 1968 ) , 1 91-202. I 1 fi ■ Anne A. S c it o v s k y , "An Index o f th e Cost o f j M edical Care - A Proposed New Approach," in The Economics ! o f H ealth and M edical Care (Ann Arbor, M ich.: U n iv e r s it y o f M ichigan P r e s s , 196*1), pp. 128 -4 1 . must be co n ten t to s c r u t i n i z e th e a v a i l a b l e approxim ations land judge which o f th e p o s s i b l e i n d ic e s i s th e most appro- i i j p r ia t e . I Output might be co n sid e r e d in v a rio u s p h y s ic a l I j or v a lu e term s; the f o ll o w i n g i s a l i s t o f p o s s i b i l i t i e s : j ) 1. Output measured in terms o f th e number o f | . p a t i e n t s t r e a t e d . 2. The number o f p a t i e n t s whose c a se s were comple-- t e d . j 3. The number o f p a t i e n t v i s i t s . j k. The number o f p a t ie n t s e r v i c e s . j ; 5- The number o f c h a ir s id e (denta]) hours. . ! ; 6. The d o l l a r market v a lu e o f the s e r v i c e s | ! ren d ered. W e might a p r i o r i fa v o r an output measure which : i s in terms o f p a t i e n t s , s in c e th e c l i n i c t r e a t s p a t ie n t s ; and not d e n ta l hours or p a t ie n t v i s i t s . The b e t t e r s u r r o g a t e would be th e more homogeneous measure. One s e r v ic e ! i s not the same as an oth er; the number o f p a t ie n t s e r v i c e s | would be im portant in c o n t r o l l i n g f o r lon g run c r o ss s e c - I t i o n a n a l y s i s , but in th e i n d iv i d u a l firm , t h i s measure i | i s h etero g e n e o u s in n a tu re. Measuring output as th e num- i ; b er o f p a t i e n t s im p lie s th a t the number o f p a t ie n t v i s i t s I or c h a ir s i d e hours are o f no in f lu e n c e on d e n ta l h e a lth ca re . I f we use p a t i e n t v i s i t s as our measure we assume j 167 th a t the valu e added t o d e n ta l h e a lth i s p r o p o r tio n a l |to the number o f v i s i t s to the d e n t i s t . | Another c o n s id e r a tio n i s th a t th e number o f pa t i e n t s se e n in a tim e p e r io d does not s y s t e m a t i c a l l y r e - j f l e e t the number o f com pleted s e r v i c e s whereas th e number ;of p a t i e n t v i s i t s i s probably a b e t t e r and more c o n s i s t e n t ; i n d i c a t o r o f o v e r a l l s e r v ic e s rendered per time p e r io d . .The p a t i e n t mix may be ex p ecte d t o vary in tim e. For lexample, in the c l i n i c system an i n f l u x o f new e l i g i b l e s iwould in d i c a t e a h ig h e r r a te o f s e r v i c e though th e number jof p a t i e n t s t r e a t e d may be l e s s . This would come about i j i f th e new e l i g i b l e s ' average d e n ta l problems exceed th e jdental problems o f th e average p a t i e n t . A p o r tio n o f a j c l i n i c ' s p a t ie n t s are more or l e s s on m aintenance care iwhile o th e r s are new to th e program and on i n i t i a l care, iA study by the D iv is io n o f D ental R esources o f th e P u b lic H ealth S e r v ic e e s tim a te d th a t i n i t i a l care req u ir ed 6 .1 hours o f c h a ir tim e as opposed to 3-2 hours o f c h a ir time 17 f o r m aintenance c a r e . The in d ex u sin g number o f p a t i e n t s jas output would be h ig h ly a f f e c t e d by changes in th e p a t ie n t jmix o f th e c l i n i c . U nless the c l i n i c p o p u la tio n i s s t a b l e i ! j - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - { ^ U . S. Department o f H e a lth , Education and Welfare,! Comprehensive D ental Care in a Group P r a c t i c e , P u b lic ’ Health S e r v ic e P u b lic a tio n No. 395 • (W ashington, D.C.: Government P r in tin g O f f i c e , 1 9 5 4 ), p. 28. , 168 over tim e , th e number o f p a t i e n t s would be a poor ch o ic e i |f o r an output m easure. P a t ie n t c o s t i s very much depen- I jdent upon the amount o f s e r v i c e r e c e i v e d , which in part |would be r e f l e c t e d in e i t h e r a measure o f v i s i t s or d e n ta l hours n e c e s s a r y , given c o n s i s t e n t treatm en t p ro ced u res. However, i f we have s i g n i f i c a n t changes in p ro d u c t i v i t y cff v a r io u s p r o f e s s i o n a l p e r so n n e l during the itim e p e r io d under stu d y , then a more r e l i a b l e in d ex o f |o u tp u t would be a valu e added measure l i k e number s i x |a b o v e . ; As i t can be s e e n , many o f th e above in d ic e s h ave, | i f pushed to the extrem e, n o n s e n s ic a l i m p l i c a t i o n s , : w h ile o th e r s may prove d i f f i c u l t w ith r e s p e c t t o data ; c o l l e c t i o n . Those output measures which s u r v iv e a p r i o r i con s i d e r a t i o n are then s u b je c te d t o th e s t a t i s t i c a l c o st output a n a l y s i s . ; Data C o lle c t io n and R e c t i f i c a t i o n i The d ata used in e s t im a t in g th e form o f the fu n c - I t i o n a l r e l a t i o n were o b ta in e d from th e c l i n i c ' s e la b o r a te i a cco u n tin g record s fo r th e y ea rs 1966 through 1970. The record s a ffo r d e d 60 c o n s e c u tiv e o b s e r v a tio n s o f many o f the v a r io u s c o s t and output m easures. The record s in c lu d e d f ig u r e s on the number o f 169 patient visits per period, a dollar value of services jbased upon the Veteran Administration's Dental Pee Schedule 'the number of patient services, the number of dental labor hours and consequent salaries and wages, the expenses for dental merchandise and supplies, rent and depreciation, taxes, utilities, laundry expenses, licenses, maintenance, and outside consultation and surgery fees. An a r b itr a r y elem ent in expense a cco u n tin g i s ;th e method used t o account f o r the s e r v i c e s o f th e b u i l d - :in g s and d e n ta l equipment. The a l l o c a t i o n o f f i x e d jc o s t was a d ju ste d to a s i n g l e p a tte r n . The r e l a t i v e s i z e !of t h i s expense item i s sm all as might be ex p e c te d in a ■ service e n t e r p r i s e (s e e Table 2 6 ). The fixed allowance for rent and depreciation for plant and facilities might be excluded from cost 'figures. This was done although such expenses account :for only 5*2 percent of total costs and there were not any strong a priori arguments to do so. Other costs of Ilaboratory merchandise, operatory supplies, utilities land laundry are directly influenced by the quantity of ! I services rendered and after rectification for factor price changes, these are included in total costs. Com pensation for labor (salaries and wages) are calculated by a stationary composite index of labor costs. Outside |surgery, orthodontic evaluations and professional consul- 170 t a t i o n s are in c lu d e d at recorded c o s t . i i lE stim a tlo n o f Cost F un ctions i E m p irical t o t a l c o s t f u n c t io n s were o b ta in ed u s in g jr e g r e ss io n a n a l y s i s . The f i r s t , second and t h i r d degree (polynom ial e q u a tio n s o f (6 -5 ) are: TC = Y = 59573. + 0.23674 S Y = 179497. - 1 .8 7 4 2 3 S + 0.00915 S2 ! Y = 107665. + 0.05296 S - 0.00790 S2 | + 0.00005 S 3 i jwhere the output variable (S) is in terms of the VA Pee i !d o l l a r v a lu e . A second s e t o f curves were f i t t e d fo r ;output in terms o f p a t ie n t v i s i t s . The c o e f f i c i e n t o f I (c o r r e la t io n f o r p a t i e n t v i s i t s was only 0 . 3770 , c o n s id e r a b l y l e s s than t h a t o f d o l l a r o u tp u t, 0 . 7668. The Durbin- iWatson c o e f f i c i e n t s were 0.9024 and 1.8192 r e s p e c t i v e l y . The s e l e c t i o n o f a p olyn om ial r e g r e s s i o n e q u a tio n imay be made by u s in g a t e s t o f s i g n i f i c a n c e to d eterm ine ; if an in d ex o f d e te r m in a tio n i s s i g n i f i c a n t l y h ig h e r ithan t h a t which i s o b ta in e d f o r the n ex t low er order o f ! 2 ipolynom ial. W e then t e s t to se e i f th e S term in c r e a s e s j jthe a s s o c i a t e d sum o f squares by a g r e a t e r amount thah would be e x p e c te d by chance. The index o f p a r t i a l d e te r m in a tio n i s t e s t e d f o r a s i g n i f i c a n c e l e v e l by computing the s t a t i s t i c t . The second d egree eq u a tio n e x h i b i t s improvement in terms o f the sume o f s q u a r e s, where the computed t valu e i s j u s t g r e a t e r than th e t valu e at 0 .0 0 1 l e v e l o f s i g n i f i c a n c e . The t h ir d d egree e q u a tio n has a computed t valu e s i g n i f i c a n t a t only th e 0 .7 l e v e l o f s i g n i f i c a n c e . T h e r e fo r e , th ere i s not an improvement in f i t in moving from the s e c ond to the t h ir d degree e q u a tio n . The second degree equa t i o n appears t o g iv e a f a i r l y good f i t and any fu r t h e r r e finem ent does not seem to be p rom isin g. T o ta l c o s t s are then: TC = Y = f ( S ) where B > ° 8 -ix > 0 thus average c o s t s are such th a t: AC = Z = g(S ) and H > ° 3 - % > 0 3 Average c o s t s are then i n c r e a s i n g a t an in c r e a s i n g r a te over th e ob served output range. 172 :C onclu sions i Over the p e r io d 1966- 1968 , output i s in c r e a s i n g i !due to in c r e a s e d demand f o r s e r v i c e s . One important f a c t o r in th e in c r e a s e d demand i s th e in c r e a s i n g e l i g i b l e ‘p o p u la tio n over th e s e years (Table 2 7 ). Another v a r ia b le p o s i t i v e l y a s s o c ia t e d w ith the in c r e a s i n g demand i s the r i s i n g average income o f the e l i g i b l e p o p u la tio n j (Table 2 7 ). I W e a ls o f in d t h a t the surcharge r a te i s in c r e a se d !in 1968 (s e e Chapter V). However, in the p e r io d 1969- j1970, demand fo r s e r v i c e s i s d e c r e a sin g in resp onse to la f a l l i n g average income and a d e c r e a sin g e l i g i b l e popu l a t i o n . What would be the ex p e c te d resp on se o f the DM U o p e r a tin g a cco rd in g t o th e average c o st m inim izing hypo- | t h e s i s w ith r e s p e c t to su rch arges? Under t h i s model (as c o n s tr u c te d in Chapter I I ) , th e DM U i s not m o tiv a ted to change the e x i s t i n g surcharge r a t e s under c o n d itio n s o f ;f a l l i n g ' demand when the t o t a l c o s t fu n c tio n i s c h a r a c te r i z e d as above. Only i f demand were to f a l l to some very ilow l e v e l where u t i l i z a t i o n was below the minimum accep - I 1 !t a b le l e v e l , s a y , th e h i s t o r i c a l l y lo w e s t u t i l i z a t i o n r a te o f 1966 (s e e Table 2 7 ) , where we might fin d th e adm inis t r a t i v e t r u s t e e s in t e r v e n i n g , would we ex p ect any d ecre a se in th e su rch arge. 173 TABLE 26 LAHREU CLINIC ! EXPENSE Year F ixed Expense A ll o p e r a tin g exp en ses 1966 66 ,4 6 8 1 ,2 7 4 ,8 9 4 1967 66 ,8 8 8 1 ,3 3 7 ,2 9 6 1968 79,380 1 , 470,270 1969 79,380 1 ,4 7 7 ,5 2 5 1970 79,536 1 ,5 1 6 ,8 6 3 S o u r c e : LAHREU C lin ic Records TABLE 27 LAHREU CLINIC ELIGIBLES, INCOME , AND UTILIZATION RATE Average Gross mean Utilization, Year number of income per patients as per- eligibles eligible cent of eligibles ,1966 35,196 4,430 45 .7 '1967 36,488 4,920 4 7 .8 ■1968 37,136 5,424 47.9 ,1969 36,380 5 ,400 4 7 .8 ,1970 35,382 5,202 4 6 .5 !Source: LAHREU Clinic Records i However, u t i l i z a t i o n was above t h i s l e v e l through o u t 1970. At the same tim e , we f in d th a t a d e c is io n t o I low er th e surcharge r a t e s i s made by the DMU, and in ;A p r il 1970, su rch arges are d ecre a se d by approxim ately one- t h ir d . This a c t io n i s thus i n c o n s i s t e n t w ith the m in i m izin g h y p o th e s is and a t y p i c a l m a n ife s ta tio n o f the o u t- :put m axim izing h y p o th e sis where th e d e c r e a sin g demand c a l l s fo r th a d e c i s i o n to d ecre a se th e surcharge r a t e s . Econom ists have devoted r e l a t i v e l y l i t t l e a t t e n - ; t i o n to the d e n ta l h e a lt h care f i e l d and even l e s s to I th e study o f th e p r iv a t e n o n - p r o fit e n t e r p r i s e . The i i n s t i t u t i o n a l framework, market s t r u c t u r e , and conduct ■ o f p r o v id in g d e n ta l care s e r v i c e s are changing. Many o f th e d e c i s i o n s reg a r d in g the a l l o c a t i o n o f d e n ta l h e a lth care r e so u r c e s are made by a d m in is tr a tiv e d e c is io n : makers, n o n - p r o fit or governm ental. This study has been : an in q u ir y i n t o th e nature o f the n o n - p r o fit d e n ta l c l i n i c in c o n s id e r a t io n o f economic th eo ry and e m p ir ic a l resea r ch An attem pt has been made to p rovid e i n s i g h t in t o the o p e r a t io n a l and d e c i s i o n making p r o c e ss o f th e non p r o f i t firm . Based upon axioms o f r a t i o n a l i t y and s e l f i n t e r e s t , the approach has been to advance a th eory and a l t e r n a t i v e models which in c o r p o r a te e x p l i c i t m o tiv a tio n a l c o n c e p t s , s p e c i f y i n g the b e h a v io r a l fu n c t io n s . The proposed models are m a th em a tica lly fo r m a liz e d 175 and the p r o p e r t ie s o f each system are d e r iv e d , employing ;a m in im izin g , a l t e r n a t i v e l y m axim izing, assum ption. j iT h us, we a r r iv e a t th e average c o s t m inim izing model or, | a l t e r n a t i v e l y , the c o n s tr a in e d output m axim izing model. An a n a ly s is o f the d i s t i n c t i v e economic ch arac t e r i s t i c s o f the d e n ta l h e a lth care f i e l d was undertaken. ; The approach i s to c o n s id e r th e s o - c a l l e d s p e c i a l ch a ra c- ; t e r i s t i c s o f the in d u str y as amenable t o th e t r a d i t i o n a l ■ t h e o r e t i c a l framework o f economics so as to expand the ’ c o n v e n tio n a l a n a l y t i c . With t h i s a t t i t u d e i t was p o s s i b l e - to il lu m in a t e th e f u n c t i o n a l i n t e r r e l a t i o n s h i p s and make : c l e a r th e d i s t i n c t i v e f e a t u r e s o f t h i s in d u s tr y . A d e t a i l e d and p len ary i n v e s t i g a t i o n o f a primary n o n - p r o fit firm was o b ta in ed u t i l i z i n g a com parative a n a ly s is o f h i s t o r i c a l - d e s c r i p t i v e and s t a t i s t i c a l methods. ■ The e m p ir ic a l r e se a r c h se r v e s to support the proposed non- . p r o f i t th eo ry . F i n a l l y , an econom etric a n a l y s i s s u p p lie d a d d it io n a l ev id en ce on th e v a l i d i t y o f one o f th e a l t e r - : n a t iv e m od els, th a t o f a c o n str a in e d output maxim izing I b eh a v io r. j Among the s u b j e c t s found r e le v a n t to th e p r e s e n t study but worthy o f f u r th e r r e se a r c h are the f o ll o w i n g : : (1) the exp an sion o f demand due to in c r e a s e d a v a i l a b i l i t y ; of t h ir d p arty p ayin g p la n s , in c r e a s e d p er c a p it a income | and e d u c a tio n a l l e v e l s ; (2) the i n c r e a s i n g p r o d u c t iv it y j 176 o f d e n t i s t s ; (3) the in c r e a s e d u t i l i z a t i o n o f group p r a c t i c e o r g a n iz a tio n s ; (^) in c r e a s e d ex p e r im e n ta tio n in th e use o f d e n ta l a u x i l i a r y p e r s o n n e l to a l l e v i a t e d e n ta l manpower s h o r ta g e s ; (5) r i s i n g concern in p r o v id in g com p r e h e n siv e d e n ta l care and th e development o f in d u str y wide q u a l i t y sta n d a rd s; (6) in c r e a s e d government fun ding f o r d e n ta l h e a lt h care s e r v i c e s f o r s p e c i a l g r o u p s. APPENDIX TABLE A-l INCIDENCE OP DENTAL MALPRACTICE CLAIMS Year Number of Claims Incurred losses, basic limits 1955 1626 $ 1 ,5 4 7 ,0 7 9 1956 1755 1 ,6 3 9 ,6 1 4 1957 1728 1 ,9 3 8 ,7 5 2 1958 i860 2 ,3 5 9 ,9 3 8 1959 1845 2 ,2 4 2 ,9 3 8 I960 1437 2 ,2 8 7 ,1 5 5 1961 1449 2 ,3 6 7 ,4 5 3 1962 1500 2 ,1 9 3 ,6 7 2 1963 1368 2 ,3 4 3 ,9 2 1 1964 1347 1 ,9 5 2 ,2 9 8 1965 1800 2 ,8 4 7 ,4 8 0 1966 1509 2 ,9 0 9 ,4 3 3 ! jSource: Harvey Sarner, "Incidence of Dental Malpractice ; Claims," Journal of the American Dental Associa- ; tion, LXXVIII (June, 1 9 6 9 ), 12 71. 179 TABLE A-2 AGE COMPARISON OF THE RESPONDENTS OF THE AMERICAN DENTAL ASSOCIATION DENTAL SURVEY WITH THE GENERAL POPULATION OF DENTISTS. 10 -29 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- Source: American D ental A s s o c i a t io n , Bureau o f Economic R esearch and S t a t i s t i c s , "1968 Survey o f D ental P r a c t i c e , " J ou rn al o f th e American D ental A s s o c i a t i o n , LXXVIII (January, 1 9 6 9 ), 131. N o t e s : = p e r c e n ta g e d i s t r i b u t i o n o f d e n t i s t s = p e r c e n ta g e d i s t r i b u t i o n o f resp on d en ts 180 TABLE A-3 PERCENTAGE OF NON-SALARIED DENTISTS W H O PURCHASED DENTAL EQUIPMENT IN 1967 AND MEAN COST OF EQUIPMENT PURCHASED BY i j ALL NON-SALARIED DENTISTS BY REGION ' • Region P ercen t Mean Expenditure Buying Equipment New Used T o ta l New England 51.1 $1434 $170 $1604 Middle East 47.8 1097 93 1190 South East 48.6 1460 102 1562 South West 5 1 .1 1474 143 1617 Central 52.0 1301 129 1430 North West 5 4 .7 1129 219 1348 Far West 51.1 1679 89 1768 United States 5 0 .3 $1339 $118 $1457 Source: American D ental A s s o c i a t io n , Bureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D ental P r a c t ic e ," Journal o f the American D ental A sso c i a t i o n , LXXVTII (May, 1 9 6 9 ), 1045. TABLE A-4 Per c e n t a g e d i s t r i b u t i o n and m e a n c o mp osi te p e e op n o n-s a l a r i e d d e nt ist s a c co rdi ng to { LEVEL OP GROSS RECEIPTS, BY AGE OF DENTIST Gross ] Receipts % -39 Mean 40- % ■49 Mean 50 % -59 Mean 60- % Mean A ll % . ag« Meai $19,999 5 .2 716 2 .5 645 9 .4 695 32.8 688 8.1 693 20,000 - 29,999 1 1 . 8 723 10.2 692 23.2 713 2 8 .5 727 15.2 715 1 30,000 - 39,999 2 4 .1 730 21.2 714 26.5 718 21.0 790 23.2 729 40,000 - 49,999 2 6 .4 767 2 5 .1 745 1 7 .1 773 8.8 a 2 2 .5 760 50,000 - 59,999 1 4 .2 778 17.4 789 10.4 819 3 .8 a 13.4 791 60,000 - 69,999 9 .1 835 11.2 822 5 .6 a 1 .7 a 8 .3 837 70,000 - 79,999 4 .8 872 4 .6 831 4 .3 a 1 .3 a 4 .3 866 80,000 - 89,999 1 .9 804 3 .5 878 2.1 a 0.8 a 2 .3 865 90,000 - 99,999 0.6 a 1 .3 a 1.0 a 0.0 a 0.8 a 100,000 — 1 .9 858 3.0 a 0 .5 a 1 .3 a 1 .9 863 Total 100.0 767 100.0 760 100.0 760 100.0 100.0 Source: American D ental A s s o c i a t io n , Bureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D en tal P r a c t i c e , " J ou rn al o f th e American D en tal A s s o c i a t io n , LXXIX (Septem ber, 1 9 6 9 ), 6 8 9 . aS t a t i s t i c s o m itte d b ecau se o f r e l a t i v e u n r e l i a b i l i t y . 00 TABLE A-5 M EAN NUMBER OF OFFICE HOURS OF NON-SALARIED DENTISTS PER W EEK IN 1967, ACCORDING TO LEVEL OF GROSS RECEIPTS AND TYPE OF OFFICE ACTIVITY Gross Receipts Hours at the Chair Hours in the Laboratory Other hours working in office Free hours in office Total hours in Dental Office $19,000 28 .4 4 .4 2 .5 3 .8 39.1 : 20,000 - 29,999 33.0 3 .8 2.6 2 .5 41.9 30,000 - 39,999 35.0 3 .3 2 .4 1.6 4 2 .3 40,000 - 49,999 35-7 2 .8 2 . 6 1 .4 42 .5 : 50,000 - 59,999 3 6 .3 2 .3 2 .5 1.2 4 2 .3 60,000 - 69,999 36.0 2 .4 3.0 1.2 42 .6 70,000 - 79,999 3 5 .8 2 .2 3.1 0 .9 42 .0 80,000 - 89,999 35.6 1 .7 2.8 1.0 4 1 .1 90,000 - 99,999 36.4 1 .9 3.5 0 .7 4 2 .5 100,000 - 36.0 1 .3 3 .3 0.6 4 1 .2 Source: American D en tal A s s o c i a t io n , Bureau o f Economic R esearch and S t a t i s t i c s , "1968 Survey o f D ental P r a c t i c e , Jou rn al o f th e American D en tal A s s o c i a t i o n , LXXIX (Septem ber, 1 9 6 9 ), 691. i— 1 CD ro TABLE A - 6 MEAN NUMBER AND TYPE OP FULL-TIME PERSONNEL EMPLOYED BY NON-SALARIED DENTISTS IN 1967, ACCORDING TO LEVEL OP GROSS RECEIPTS Gross Receipts Dentists Hygienists Technicians Assistants Secretaries & Reception ists TOTAL $19,999 0 .0 0 0 .0 1 0 .0 0 0 .3 6 0.05 0 .4 2 2 0,000 - 29,999 0.03 0 .0 2 a 0 .7 1 0 .0 8 0.84 30,000 - 39,999 0.02 0.04 0 .0 3 0 .9 7 0.15 1 .2 1 40,000 - 49,999 0.02 0 .0 9 0 .0 1 1 .0 9 0 .2 5 1 .4 6 50,000 - 59,999 0 .0 2 0 .1 5 0 .0 5 1 .2 0 0 .3 3 1 .7 5 60,000 - 69,999 0 .0 5 0 .2 4 0.08 1 .3 8 0 .5 1 2 .2 6 70,000 - 79,999 0.09 0.32 0.16 1 .4 9 0 .5 6 2 .6 2 80,000 - 89,999 0 .0 6 0 .5 0 0.1 2 1 .4 1 0 .5 4 2.63 90,000 - 99,999 0 .1 2 0.32 0.2 0 1 .7 4 0.80 3 .1 8 100,000 - 0 .4 3 0.45 0.3 0 2 .2 8 1 .0 6 4 .52 Source: American D en tal A s s o c i a t io n , Bureau o f Economic Research and S t a t i s t i c s , "1968 Survey o f D en tal P r a c t i c e , " J ou rn al o f th e American D en tal A s s o c i a t i o n , LXXIX (Septem ber, 1 9 6 9 ), 691 . aLess than 0 .005 TABLE A-7 DISTRIBUTION OF COSTS, 12 MONTHS, 1960^ (Average Cost per Month) D e n t i s t s , in c . H y g ie n is ts MacQueen, Corn A s s t ' s & S u p e rv iso rs X-Ray C l e r i c a l & S u p e rv iso rs A d m in is t., A c c t 's . J a n it o r s Lab T ech n icia n s F rin ge b e n e f i t s , P/R ta x e s M a te r ia ls & S u p p lie s P r o f e s s i o n a l S e r v ic e s O u tsid e Lab Phone, U t i l i t i e s Laundry Rent G eneral Expenses 1 — 1 H r o ro r o r o r o CO on -< ] VO H CO U 1 VO CO U l v o V * V # V # V * V * w u V * V * O o o o o o o o o o o o O o O O o o o o o o o o o o o o o o o o o o o o o o o o o o o o o $27,390 '(32'.3%) $2,532 (3.058) $9,632 (11.335) $1,855 (2.2%) $6,825 (8.i ;) $1,186 (1.458) $770 (0 . 958) 3 $11,619 (13.7%) $ 4 , 209 (4.9%) $ 9 ,8 1 8 (11.5%) $ 2 ,4 5 1 (2.9%) $306 (0.4%) n $658 (0.8%) J $1,154 (1.4%) J $ 2,792 (3.3%) J ~ $ l , 8 7 1 (2.2%) Example o f a c t u a l perform ance summary com piled by c l i n i c accou n tan t f o r use by DMU. Note a l l f i g u r e s are average c o s t p er month. co Jr i TABLE A -8 ! I LAHREU CLINIC RECORDS COMPARISON OF OPERATING COSTS: 1959: 12- 15-58 thru 12 -14-59 1960 : 12- 15-59 thru 12 -1 4 -6 0 i t ! Ave. Cost Ave. Cost % 1 Departments Per Month Per Month In - ! 1959 I 960 cre a se : D e n t i s t s , S a la r i e d $21,367 $25,390 18.8 : Dr. MacQueen 2,000 2,000 none O utside P r o f e s s i o n a l s 2 ,378 2 ,7 5 7 15.9 1 H y g ie n is t s 2,034 2 ,532 2 4 .5 ! D en tal A s s i s t a n t s 6,764 8 ,743 2 9 .1 i X-Ray T ech n ic ia n s 1 ,3 9 7 1 ,855 32.8 ; Appointment and R ecep tion ! 1 Clerks 4,456 5 ,462 22.6 Lab T ech n icn an s, I n c . , S u p e r v iso r 8,698 11,619 33.6 A u x ilia r y Lab P erso n n el 428 529 23.6 i A d m in is tr a tiv e , A ccou n tin g, i i S u p e r v is o r , S e c r e ta r y and J a n it o r 3 ,198 3,687 1 5 .3 I TOTAL PERSONNEL 52,720 64 ,565 22 .5 R ela ted P a y r o ll Costs 2 ,3 9 3 4,209 75.9 ‘ M a te r ia ls and S u p p lie s 7 ,863 9,818 2 4 .9 G eneral Expenses: U t i l i t i e s , Phone 576 658 1 4 .2 Laundry 870 1,155 32.7 Rent 2 ,578 2 ,792 8 .3 Other 1,666 1 ,871 1 2 .3 T o ta l Cost Per Month (a v era g e ) 68,666 85,069 23.9 Average Hours C lin ic Open- p er Month 234a 294 2 5 . ^ a 1959: 40 hour week to 6-1 5 -6 9 u Although the c l i n i c was open 25.6 p e r c e n t more in I 960, o p e r a tin g c o s t s were up on ly 23.9 p e r c e n t. t BIBLIOGRAPHY iBooks jA ckoff, R u s s e ll L. 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Creator Mitry, Darryl Joseph (author)

Core Title The Economics Of A Non Profit Enterprise In The Dental Health Care Field

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Degree Program Economics

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Advisor Tintner, Gerhard (committee chair), [Schaer], Max A. (committee member), Morgner, Aurelius (committee member)

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Identifier 7206086.pdf (filename),usctheses-c18-554518 (legacy record id)

Legacy Identifier 7206086

Dmrecord 554518

Document Type Dissertation

Format dissertations (aat)

Rights Mitry, Darryl Joseph

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA