Smile Direct Box

 

The Outcome Will Ripple Throughout Dentistry.

A federal lawsuit underway in the U.S. District Court for the Northern District of Georgia is likely to impact dental boards, their members, and dental practices across the United States.

The case’s outcome will also have enormous consequences for SmileDirectClub (SDC), the 800-pound teledentistry gorilla.

Among other contested issues, the lawsuit will test whether the members of a dental board—comprised primarily of dentists—can be held liable for “restraint of trade” when they act to prohibit unlicensed personnel (such as those who work in SDC “SmileShops”) from facilitating do-it-yourself oral health care; in this instance, teeth-straightening.

Suffice it to say that many millions of dollars—perhaps even billions—are riding on the outcome of SmileDirectClub, LLC v. Georgia Board of Dentistry [Case No. 1:18-c-02328].

The genesis of this precedent-setting case dates to SDC’s launch in 2014 when it rocketed out of nowhere to grab 95% of today’s booming doctor-directed, at-home, clear aligner industry. The Nashville, Tennessee-based company enjoys a private market valuation of about $3.5 billion, and filed papers earlier this month to raise gross proceeds of $100 million from a U.S. initial public offering (IPO).

Smile Direct Club is a dental industry disruptor. Its stated mission: “To democratize access to safe, affordable, and convenient teeth-straightening solutions…”

Rather than visit a dentist or orthodontist in person, SDC allows consumers who wish to align their teeth to do so by mailing in a self-made impression or visiting one of the company’s SmileShops, where a non-dentist will make a scan of their smile.

SDC then turns to a network of dentists and orthodontists to review the impressions, patient-submitted photos, and medical history. Soon, a box arrives at the consumer’s home containing a set of clear aligners with a treatment plan. At least twice during the process, a dentist or orthodontist will check in with each patient, who can also have any questions or concerns addressed by phone, email, chat, or social media.

 

PATIENTS SAVE 60%

At the end of the process—assuming it works as advertised—SDC patients get a beautiful new smile, including whiter teeth, for about 60% less than the conventional method of visiting a brick-and-mortar dental office.

“We straighten and brighten most smiles gently, remotely, and in an average of six months for quick, clear confidence,” SDC boasts on its website.

Not surprisingly, SDC has drawn the wrath of many dentists in the U.S., Canada, Australia, and the United Kingdom, where it markets to customers. Publicly, the objections focus heavily on consumer protection, with critics arguing that patients aren’t well served by SDC’s brand of teledentistry, and may be at risk.

 

“There is more to creating a healthy, beautiful smile than moving the visible portions of your teeth.” —American Association of Orthodontists

 

Privately, no doubt, dentists and orthodontists realize that SDC’s exponential growth represents a frontal assault on their bottom lines.

The American Association of Orthodontists (AAO) told Business Insider that it has filed complaints with dental boards and attorneys general against SDC in 36 states, and issued a consumer alert about SDC and its smaller competitors, including Candid Co., Smilelove, SnapCorrect, and Orthly.

GBD President Gregory G. Goggans, DMD
GBD President Gregory G. Goggans, DMD

“Some online orthodontic companies make their treatment sound so easy,” the AAO noted in its alert. “An in-person evaluation and in-person supervision throughout treatment can be very important, because there is more to creating a healthy, beautiful smile than moving the visible portions of your teeth.”

[Editor’s Note: The current president of the Georgia Board of Dentistry and a named defendant in the SDC lawsuit, is Gregory G. Goggans, DMD, an orthodontist and member of AAO. He also serves as a George State Senator for District 7.]

Thus far, SmileDirectClub told Business Insider, AAO’s complaints have mostly been ineffective, as 12 of the states “affirmatively closed their inquiries with no action taken.” Moreover, SDC said in a statement, “The remaining cases have had no action taken for months or even years.”

But SDC’s legal “no-hitter” may be facing its most significant challenge to date in Georgia, in the federal case first filed in May 2018.

In that lawsuit, SDC is the plaintiff, suing the Georgia Board of Dentistry (GBD) over a regulation [Georgia Rule 150-9-.02(3)(aa)], that GBD passed in response to SDC’s arrival in the state in 2017. [SDC filed a similar complaint against the Alabama Board of Dental Examiners.]

 

A CONSPIRACY IN RESTRAINT OF TRADE

Basically, the GBD regulations say that digital dental scans taken in the Peach State must be performed by an expanded duty assistant acting under the direct supervision of a licensed dentist who is on-site.

 

Smile Direct Club claimed in its legal filings that if it is required to conform with the Georgia Board of Dentistry regulation, the additional cost “could ruin its business.” —Atlanta Journal‑Constitution

 

SDC’s attorney’s went after GBD hard, according to coverage in the Atlanta Journal-Constitution (AJC), claiming not only that the dentists on the board were engaged in a “conspiracy in restraint of trade,” but also that GBD has no authority over the SDC scan technicians, since the techs aren’t engaged in the practice of dentistry or dental hygiene, but merely providing “administrative services” to SDC-affiliated dentists.

Smile Direct Club, according to court documents, acknowledged that if it is required to conform with the GBD regulation, it would be “virtually impossible for SmileDirect, and its affiliated Georgia-licensed dentists and orthodontists, lawfully to conduct business in Georgia without making costly and prohibitive changes” to its current business model.

In May of this year, U.S. District Judge William “Billy” M. Ray, II, dismissed SDC’s claim that its scan techs don’t fall under the purview of the GBD. 

“SmileDirect’s acts of taking digital scans of a patient’s mouth for the purpose of having a dentist or orthodontist approve of a treatment plan for correcting a malposition of the patient’s teeth falls squarely within the definition of the practice of dentist,” Judge Ray wrote.

 

SUFFICIENTLY PLAUSIBLE

The Judge’s May ruling on other aspects of the SDC suit, and GBD’s motion to dismiss all claims against it, was a split decision. Judge Ray did dismiss some claims against GBD, which is protected by “sovereign immunity” as an arm of the State. (Indeed, dental boards are by definition and design restraints of trade, tasked legislatively with protecting public safety.)

Judge William M. Ray, II
Judge William M. Ray, II

But the Judge permitted other counts against GBD board members to proceed, without ruling on their merits.

Importantly, for its potential impact not only in Georgia, but as the outcome pertains to all state dental boards, Judge Ray allowed SDC’s complaint—that the GBD and its members “agreed and acted upon a policy excluding non-dentists” unreasonably restrains trade in violation of The Sherman Anti-Trust Act—to move forward.

“These allegations are sufficient to plausibly allege concerted action,” the Judge wrote in denying GBD’s motion to dismiss SDC’s claims on these related counts. “While SmileDirect ultimately may not be able to prove concerted action to unreasonably restrained (sic) trade, the Complaint is sufficient to survive the motion to dismiss as it relates to the Board members,” Judge Ray ruled.

[Editor’s Note: The preliminary decision that individual dental board members can be held personally liable for restraint of trade when interpreting, and not strictly enforcing, legislation could be a watershed.]

 

“There is no known evidence that digital scans taken under the ‘direct supervision’ of a licensed dentist or orthodontist are safer or more accurate than SmileDirect’s scans.” —Smile Direct Club court filing

 

NOT A SINGLE COMPLAINT

SDC’s filings raise several interesting questions for all dental boards and national organizations, such as the American Dental Association, to consider, regardless of the final resolution of the federal case in Georgia.

SDC maintains that it has “performed hundreds of thousands of scans nationwide without a single complaint of an adverse patient outcome.” Moreover, SDC informed the court, “There is no known evidence that digital scans taken under the ‘direct supervision’ of a licensed dentist or orthodontist are safer or more accurate than SmileDirect’s scans.”

These SDC’s assertions have not been validated in court.

If true, however, it does seem that regulators and professional dental organizations will have to grapple with why consumers should be deprived of scans by trained, non-dental, technicians, if they are perfectly safe and also allow consumers to save money on the costs of such scans.

Moreover, SDC’s entire business model highlights a sore point for many consumers: Why does orthodontia (and many other dental procedures) cost so much? There is little question that SDC has captured patients who would otherwise see conventional brick-and-mortar dentists and orthodontists. But the SDC approach has also attracted many consumers who would never otherwise have been able to afford to have their teeth straightened.

 

“The answer isn’t SmileDirect‑style dentistry; it’s figuring out how we’re going to make dental care available to more Americans.” —Arthur L. Caplan, New York University Professor of Bioethics

 

Those who argue against the SDC approach do so most adamantly based on the possible health and safety risks to consumers.

“Orthodontic treatment involves the movement of biological material, which if not done correctly led to potentially irreversible and expensive damage such as tooth and gum loss, changed bites, and other issues,” AAO writes in its consumer alert.

Professor of Bioethics Arthur L. Caplan, PhD
Professor of Bioethics Arthur L. Caplan, PhD

Speaking to the Atlanta Journal-Constitution, Arthur L. Caplan, PhD, a professor of bioethics at New York University’s Langone Medical Center, says he has been watching SDC and finds “worrisome” having “manipulation done to your mouth by someone who never sees you.”

"The answer," Dr. Caplan says, "isn’t SmileDirect-style dentistry; it’s figuring out how we’re going to make dental care available to more Americans.”

 

INVESTORS WILL BE WATCHING

In addition to the dental profession, investors will be watching the outcome of the SDC lawsuit in Georgia and Alabama. (In Alabama, SDC received a temporary restraining order precluding the Board of Dental Examiners from taking any action against the company.)

In its Form S-1 filing with the Securities and Exchange Commission, dated August 15, 2019, Smile Direct Club acknowledges that its business, and hence shareholder value, “could be adversely affected by ongoing professional and legal challenges to our business model or by new state actions restricting our ability to provide our products and services in certain states.”

While such disclosures are common in IPO registration documents to cover all possible legal contingencies, in this instance, the threat—as Smile Direct Club spelled out in court—is not only theoretical, it’s palpable.

[Editor’s Note: SDC has an incentive to claim big damages from the Georgia Board of Dentistry’s actions in order to survive GBD’s motion to dismiss the antitrust aspects of the case.]

The fate of Smile Direct Club, nationwide dental boards, the dental profession in general, investors in SDC, and consumers, almost certainly will be impacted by the ultimate rulings of the courts.

 

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