Business & Tech

Delta Dental wants to lower reimbursements. Dentists have a different solution

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Delta Dental of Massachusetts has argued that its recently proposed contract changes, which would reduce some reimbursements to dentists, are necessary for the nonprofit insurer to grow and remain competitive.

But dentists, many of them concerned about absorbing the cuts, say the company should be looking elsewhere for savings: at its executive compensation, which exceeds the pay at other Massachusetts nonprofit insurers.

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In 2015, the last year for which tax filings are available, eight executives at Delta Dental’s parent company earned more than $1 million in total compensation, up from just one in 2011. Total compensation includes base salary, bonuses, and retirement benefits.

By comparison, Blue Cross Blue Shield of Massachusetts, which has eight times the revenues, reported total compensation of at least $1 million for seven executives in 2015, including almost $2.9 million for chief executive Andrew Dreyfus. The pay packages at Delta’s parent company were also more generous than at Harvard Pilgrim Health Care and Tufts Health Plan, two other nonprofit insurers.

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Delta’s top earner in 2015 was the former president, Fay Donohue, who received more than $7 million in total compensation despite working just a few months before retiring that year; much of that sum came in the form of retirement benefits and was previously reported in tax filings.

Others who earned seven figures that year included Steven J. Pollock, who took over as president midyear and earned $2.4 million in total compensation, and Sheryl Traylor, senior vice president of human resources, who earned $2.6 million.

Delta’s parent company, Boston-based Dental Service of Massachusetts Inc., or DSM, one of the country’s largest dental insurers, defended its compensation and benefits as appropriate when compared to peer companies.

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Although it is a nonprofit, DSM conducts much of its business through for-profit subsidiaries, including those it purchased or launched to sell plans in other states as the company grew.

But its hefty compensation numbers anger many dentists, who say the new contract Delta seeks in Massachusetts would slash reimbursement rates for a variety of dental procedures by as much as 30 percent. The company puts the reduction at closer to 20 percent.

Dentists believe the rate cuts would force them to rush through patient visits, and those who own their own practices worry about being able to stay in business.

“Delta talks about needing to increase their profit or needing to increase their revenue,” said Dr. John P. Fisher, a dentist in Salem who has practiced for 45 years. “I look at the executive compensation and I just think it’s borderline unconscionable that they’re getting salaries like that.”

Dr. Andrew S. Tonelli, who works at practices in Boston and North Reading, said it’s difficult to buy the argument that the company needs to grow revenue when its executives are already highly paid. (General dentists in Massachusetts make an average of $188,000 annually, according to the Bureau of Labor Statistics).

“That’s the insult to injury of the contract they put out there,” said Tonelli, a dentist early in his career who worries that the planned contract changes may hamper his ability to someday run his own practice.

DSM officials said they base their executive compensation, with the help of a consultant, on surveys of the pay and benefits offered at similar companies.

They said they compare their compensation levels to for-profit companies as well as nonprofits, because of the varied tax status of their subsidiaries — and because they compete against for-profits in recruiting executives.

Former Delta Dental of Massachusetts president Fay Donohue received more than $7 million in total compensation in 2015, despite working just a few months before retiring that year.

Bill Greene/Globe Staff/File 2013

Former Delta Dental of Massachusetts president Fay Donohue received more than $7 million in total compensation in 2015, despite working just a few months before retiring that year.

DSM competes locally and nationally with a range of companies, from Boston-based Blue Cross to publicly traded insurance giants such as Aetna, Cigna, and Metlife, where CEO compensation reached $16 million or $17 million in 2015.

The company, which began as a nonprofit launched by a group of dentists more than 50 years ago, is a sprawling organization with 46 subsidiaries, including 38 for-profits. With 24 million members in 30 states, the company said it generated $1.8 billion in revenue through all its subsidiaries in 2015.

The nonprofit side of DSM’s business files tax returns that are publicly available, but figures for the for-profit side of the business are private, making it difficult to fully evaluate the company’s finances. As with other nonprofits, DSM’s nonprofit business is exempt from paying taxes.

Nonprofit and compensation experts said DSM’s complex corporate structure — including its many for-profit subsidiaries — is not surprising, given the size and scale of its business.

And, experts said, it’s not unusual for such nonprofits to measure their compensation against big for-profit competitors.

An analysis by Equilar, a firm that studies executive compensation, found that Delta’s compensation was in line with the pay and benefits at other like-sized for-profit health care and insurance companies.

“Most nonprofits also compare themselves with for-profits because we’re all going after the same talent,” said Rick Cohen, director of operations at the National Council of Nonprofits.

He cautioned that “apples to apples” comparisons are difficult because every organization is different.

“What we’re talking about is a big, big company that pays their people a healthy amount of money,” said James Abruzzo, a nonprofit consultant based in Hoboken, N.J., “but maybe for that size of business, even though they’re a nonprofit, that’s not unreasonable.”

But Deirdre Cummings, legislative director at the Massachusetts Public Interest Research Group, or MASSPIRG, said that if Delta compares itself to for-profit companies, it should pay taxes on all of its business, as for-profit companies do.

“They’re avoiding taxes,” she said. “In a sense, the taxpayers are subsidizing these high salaries.”

So why is the company still structured as a nonprofit, when it admittedly acts much like a for-profit? Executive vice president Todd R. Cruse said it is committed to “social benefits” as well as to “financial sustainability.”

“The legal status of our various entities, as nonprofit or for-profit, does not change our enterprise-wide core values or our mission to improve the oral health of all,” he said in an e-mail.

The proposed contract would cover a new preferred provider organization, or PPO, the company wants to launch. The new PPO would pay lower rates to dentists than its Premier plan, which would still be offered. It argues that the new plan will appeal to consumers and employers looking to contain costs.

“Our effort to build a new PPO product is to attempt to continue to be successful in the market to meet the needs of employers and members,” spokeswoman Kristin LaRoche said.

Most Massachusetts dentists, about 4,200, have signed up for the new contract, according to the company. But Dr. Raymond Martin, president of the Massachusetts Dental Society, said many dentists were upset by the changes and signed only because they felt they had no other choice.

Martin said the company has changed from its early days as a nonprofit: “[It’s] a migration of something that’s more for the common good to something that’s more for shareholders or company good,” he said.

Delta is still awaiting approval from the state Division of Insurance before it can start selling the new PPO plan, which many dentists oppose. The dental society has asked for a public hearing before an approval is issued.

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com.Follow her on Twitter @Priyanka_Dayal.
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