FTC Staff Comment to the Hon. Bill Bradley Concerning California A.B. 471 to Repeal Restrictions on the Number of Branch Offices a Dentist May Operate

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March 	30, 	1987
The 	Honorable 	Bill 	Bradley
California 	state 	Assembly
state 	Capitol
Sacramento, 	CA 	95814
Re: 	Assembly 	Bill 	471
Dear Assemblyman 	Bradley:
The 	Federal 	Trade 	Commission's 	San 	Francisco 	Regional
Office, 	and 	its 	Bureaus 	of 	Consumer 	Protection, 	Competition, 	and
Economics 1 	are 	pleased 	to 	respond 	to 	your 	request 	for 	comments 	on
Assembly 	Bill 	471, 	which 	would 	repeal 	existing 	restrictions 	on
the 	number 	of 	branch 	offices 	that 	a 	dentist 	may 	operate. 	For 	the
reasons 	discussed 	below, 	we 	strongly 	support 	the 	passage 	of 	this
bill. 	Repeal 	of 	branch 	office 	restrictions 	could 	lead 	to 	lower
prices 	and 	increased 	availability 	of 	dental 	care 	for 	California
consumers.
The 	Federal 	Trade 	Commission 	seeks 	to 	promote 	the 	national
policy 	of 	encouraging 	competition 	among 	members 	of 	licensed
professions 	to 	the 	maximum 	extent 	compatible 	with 	other
legitimate 	state 	and 	federal 	goals. 	For 	several 	years, 	the
Commission 	staff 	has 	been 	investigating 	the 	effects 	of 	state-
imposed 	restrictions 	on 	the 	business 	practices 	of 	professionals,
including 	dentists, 	lawyers, 	optometrists, 	and 	physicians. 	Our
goal 	is 	to 	identify 	and 	encourage 	the 	removal 	of 	restrictions
that 	impede 	competition 	and 	increase 	costs 	without 	providing
countervailing 	benefits 	to 	consumers.
I 	Current 	law 2 	regulates 	the 	number 	of 	offices 	a 	dentist 	may
maintain. 	The 	law 	permits 	a 	dentist 	to 	operate 	more 	than 	one
branch 	office, 	but 	only 	if 	he 	is 	in 	personal 	attendance 	at 	each
1These 	comments 	represent 	the 	views 	of 	the 	staff 	of 	the
Federal 	Trade 	Commission 	and 	do 	not 	necessarily 	represent 	the
views 	of 	the 	Federal 	Trade 	Commission 	or 	any 	individual
Commissioner. 	The 	Commission has, 	however, 	voted 	to 	authorize
the 	staff 	to 	present 	these 	comments 	to 	you.
2Ca l. 	Bus. 	& Prof. 	Code 	Section 	1658.

The 	Honorable 	Bill 	Bradley
Page 	2
of 	the 	offices 	at 	least 	fifty 	percent 	of 	the 	tir~ 	the 	office 	is
open. 3 	The 	applicable 	section 	has 	been 	construed 	to 	allow 	a
dentist 	to 	maintain 	only 	one 	branch 	office. 4 	Assembly 	Bill 	471
would 	delete 	these 	restrictions 	and 	allow 	interested 	dentists 	to
establish 	more 	than 	one 	branch 	office.
Proponents 	of 	restrictions 	limiting 	the 	number 	of 	offices 	a
dentist 	may 	own 	or 	operate 	argue 	that 	dentistry 	involves 	a
personal 	relationship 	between 	a 	dentist 	and 	his 	patient. 	They
believe 	that 	permitting 	a 	dentist 	to 	own 	or 	operate 	a 	large
number 	of 	offices 	will 	erode 	this 	personal 	relationship 	and
result 	in 	the 	lowering 	of 	dental 	care 	quality. 	We 	question,
however, 	whether 	the 	current 	statutory 	scheme 	actually 	furthers
this 	goal. 5
The 	existing 	statute 	requires 	personal 	attendance 	only 	in
the 	event 	a 	dentist 	owns 	two 	offices. 	The 	requirement 	of
personal 	attendance 	does 	not 	apply 	if 	a 	dentist 	owns 	only 	one
office. 	Accordingly, 	a 	dentist 	may 	expand 	within 	the 	same
building 	by 	hiring 	a 	number 	of 	dentists 	to 	perform 	the 	actual
work. 	Indeed, 	the 	one-office 	dentist 	need 	never 	see 	a 	patient 	or
even 	be 	in 	attendance 	at 	the 	office. 	In 	terms 	of 	personal
involvement, 	there 	may 	be 	no 	distinction 	between 	the 	single
office 	practitioner 	and 	the 	multi-office 	practitioner.
More 	important, 	the 	existing 	statute may 	harm 	consumers 	in 	a
number 	of 	ways. 	First, 	by 	limiting 	dentists 	to 	two 	offices 	it
may 	unduly 	deter 	the 	establishment 	of 	high-volume 	practices.
Such 	practices 	often 	realize 	significant 	cost 	savings, 	which 	can
result 	in 	lower 	prices 	for 	consumers. 	For 	example, 	dental
practices 	with 	mUltiple 	branch 	offices 	may 	be 	able 	to 	more
efficiently 	use 	mass 	media 	advertising 	to 	attract 	a 	large 	volume
of 	patients. 	This 	increased 	volume may 	enable 	these 	firms 	to
realize 	certain 	economies 	of 	scale, 	such 	as 	more 	efficient 	use 	of
their 	employees 	and 	equipment. 	High-volume 	firms 	may 	also 	be
able 	to 	obtain 	quantity 	discounts 	on 	purchases 	of 	dental
materials 	and 	supplies. 	The 	net 	result 	of 	these 	savings 	may 	be
3Ca l. 	Bus. 	& Prof. 	Code 	Section 	1658.1.
4 39 	Ope 	Att'y. 	Gen. 	230 	(1962). 	For 	example, 	Section
1658.1 	has 	been 	interpreted 	to 	prohibit 	so-called 	"pyramiding"
through 	separate 	partnerships, 	i.e., 	dentists 	affiliating 	to 	open
mUltiple 	branch 	offices 	to 	circumvent 	the 	statute. 	Id.
5 0 f 	the 	seventeen 	"healing 	arts" 	governed 	by 	the 	California
Business 	& Professions 	Code, 	only 	dentists 	and 	optometrists 	are
limited 	by 	law 	as 	to 	the 	number 	of 	offices 	an 	individual
practitioner may 	operate.
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The 	Honorable 	Bill 	Bradley
Page 	3
lower 	prices 	and 	increased 	availabili~y of 	dental 	care 	for
consumers.
Second, 	the 	current 	law may 	prevent 	dentists 	from 	allocating
their 	time 	among 	a 	number 	of 	locations, 	no 	one 	of 	which 	has 	a
sufficient 	volume 	of 	patients 	to 	support 	a 	full-time 	dentist. 	As
a 	result, 	consumers 	in 	the 	areas 	served 	by 	those 	offices 	may 	be
deprived 	of 	local 	dental 	care 	altogether.
Finally, 	by 	imposing 	financial 	hardship 	on 	recent 	dental
school 	graduates, 	the 	current 	law may 	inhibit 	new 	entry 	into 	the
dental 	services 	market. 	As 	the 	cost 	of 	establishing 	a 	dental
practice 	rises, 	recent 	graduates 	may 	find 	it 	difficult 	to 	open 	a
practice 	of 	their 	own. 	If 	mUltiple 	offices 	are 	allowed, 	however,
more 	experienced 	dentists 	would 	presumably 	hire 	newcomers 	to 	help
staff 	some 	of 	the 	branch 	offices, 	thus 	allowing 	them 	to 	gain 	the
experience 	necessary 	to 	start 	their 	own 	practices.
The 	new 	law would 	not 	only 	avoid 	tnese 	problems, 	but would
prov.ide 	other 	benefits 	as 	well. 	Studies 	have 	shown 	that 	prices
for 	professional 	goods 	and 	services 	are 	lower 	where 	"commercial"
(i.e., 	non-traditional) 	practices 	exist 	than 	where 	they 	are
restricted 	or 	prohibited. 6 	Studies 	have 	also 	provided 	A"~dence
that 	restrictions 	on 	commercial 	practices 	raise 	prices, 	but 	do
not 	necessarily' maintain 	or 	enhance 	quality 	of 	services. 7 	We 	are
not 	aware 	of 	any 	studies 	indicating 	that 	the 	operation 	of
mUltiple 	branch 	offices 	results 	in 	lower 	quality 	dental 	care.
Given 	this 	evidence, 	we 	anticipate 	that 	the 	proposed 	removal 	of
restrictions 	on 	branch 	offices 	will 	lead 	to 	lower 	prices 	and 	an
increase 	in 	consumer welfare, 	without 	any 	corresponding
diminution 	in 	quality.
6Cleveland 	Regional 	Office 	and 	Bureau 	of 	Economics, 	Federal
Trade 	Commission, 	Improving 	Consumer Access 	to 	Legal 	Services:
The 	Case 	for 	Removing 	Restrictions 	on 	Truthful 	Advertising
(~984); 	Bureau 	of 	Economics, 	Federal 	Trade 	Commission, 	Effects 	of
Restrictions 	on 	Advertising 	and 	Commercial 	Practice 	in 	the
Professions: 	The 	Case 	of 	Optometry 	(1980); 	Benham and 	Benham,
Regulating 	through 	the 	Professions: 	A Perspective 	on 	Information
Control, 	18 	J. 	L. 	& Econ. 	421 	(1975); 	Benham, 	The 	Effects 	of
Advertising 	on 	the 	Price 	of 	Eyeglasses, 	15 	J. 	L. 	& Econ. 	337 	(1972).
7Bureau 	of 	Economics, 	Federal 	Trade 	Commission, 	Effects 	of
Restrictions 	on 	Advertising 	and 	Commercial 	Practice 	in 	the
Professions: 	The 	Case 	of 	Optometry 	(1980); 	Cady, 	Restricted
Advertising 	and 	Competition: 	The 	Case 	of 	Retail 	Drugs 	(1976);
MCChesney 	and 	Muris, 	The 	Effects 	of 	Advertising 	on 	the 	Quality 	of
Legal 	services, 	65 	A.B.A.J. 	1503 	(1979); 	Muris 	and 	McChesney,
Advertising 	and 	the 	Price 	and 	Quality 	of 	Legal 	Services: 	The
Case 	for 	Legal 	Clinics, 	1979 	Am. 	B. 	Found. 	Research 	J. 	179 	(1979).

The 	Honorable 	Bill 	Bradley
Page 	4
For 	the 	foregoing 	reasons, 	we 	strongly 	support 	the 	passage
of 	AB 	471. 	We 	would 	be 	happy 	to 	answer 	any 	questions 	you 	may
have 	regarding 	these 	comments, 	or 	provide 	any 	other 	assistance
you 	may 	find 	helpful.
~'-...<.-Jtr<:.....-'Ul~;~~7	? 	:J
Grady
Director
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