An economic analysis of managed fee-for-service and direct reimbursement

This economic analysis compares the direct reimbursement approach with the managed fee-for-service approach to the delivery and payment for dental care. Asymmetrical distribution of information between patients and dentists characterizes the market and gives rise to a principal-agent problem. To solve this problem, third-party payers have devised various methods for managing delivery and payment for dental care by monitoring and encouraging providers to assure a certain level of quality at defined costs. Direct reimbursement has been promoted by dental care providers as an alternative to the traditional third-party payer model and has at its core the elimination of many of the currently used managed care control mechanisms. The authors conclude that managed fee-for-service plan concepts deal with current economic issues more realistically than do direct reimbursement arrangements. Furthermore, the authors predict that direct reimbursement prevalence would lead to higher average prices for dental care and a change in the mix of services skewed toward high cost, marginally beneficial treatments.