In 2005, the Sarrell Dental Clinic opened in donated space near Anniston’s Regional Medical Center, on East 10th Street. In its earliest days, the clinic’s furnishings — dental chairs, lights and donated drills, picks and brushes — were as simple as its goal: address the most critical health concern facing Calhoun County at the time.

A University of Alabama at Birmingham study had found that as many as 2,500 indigent families in the county couldn’t get into a dentist’s chair. Included were those families’ children. Even though many of the kids were covered by ALLKids, the State Children’s Health Insurance Program (SCHIP), or by Medicaid and could therefore pay something, their parents either couldn’t get appointments for them at dentists’ offices or didn’t know how.

In its first year, the clinic changed that for 3,168 patients. Program leaders said the numbers were the result of pent-up demand — kids who in many cases hadn’t seen a dentist in their lives. And the demand wasn’t just in Calhoun County. Over the next five years, seven Sarrell Clinics sprung up around the state, serving 35,853 patients in 2008. Leaders expect that number to grow to 75,000 by the end of 2010, with more than 130,000 served statewide in five years.

Revenue grew, too, from $2.3 million in 2006 to $6.75 million in 2009, nearly tripling in three years, according to the Internal Revenue Service and figures provided by the clinic.

The rapid growth had other effects, however. Some traditional for-profit dentists, who initially had supported the nonprofit project, saw the skyrocketing revenue and became uncomfortable. Suddenly the modest clinic on East 10th Street was the center of a statewide network seeing tens of thousands of patients at eight clinics and bringing in millions of dollars annually.

Success has led to conflict based on starkly different approaches to providing and paying for health care, dentists, experts and Sarrell officials say. And it comes at a time when this very topic is fueling a bitter national political debate. The conflict also has launched a federal investigation into questions of anti-competitive practices on the part of the Alabama Dental Association, whose members have argued Sarrell’s growth should be halted.

A level playing field

To many dentists, who are essentially self-employed entrepreneurs, what had in their minds begun as a charity has become something else entirely — the largest single provider of dental services in the state. Its nonprofit status means the Sarrell Clinic has to plow all excess revenue back into the program, but that means it will only continue to grow.

By January, the Alabama Dental Association’s board of directors was concerned enough that members discussed openly at a meeting in Montgomery their desire to see Sarrell’s growth halted. UAB’s School of Dentistry, which had provided its senior dental students to work in the nonprofit clinics in exchange for the experience those students gained, pulled its support in March. University officials cited conflicts over supervision of the students.

Private dentists represented by the Alabama Dental Association have complained there’s an absence of a level playing field. Sarrell, they claim, operates at an advantage, being the recipient of cheap leases, such as the $1 a year it pays Regional Medical Center for office space, and the benefit of not having to pay income tax.

This, in part, they argue, accounts for why Sarrell is doing such booming business.

“Absolutely, they have an unfair advantage,” said Bruce Cunningham, a Jacksonville dentist who helped start the clinic, but is no longer associated with it. “The clinic was created to treat the disadvantaged, but now they are behaving like a for-profit; therefore it is unfair.”

Warren Sarrell, a local retired physician who helped found the clinic and is its namesake, sees the situation differently.

“The old way of delivering dental service is no longer effective, and they are threatened by our new way. The real story is a highly successful businessman fixing a serious problem,” he wrote, referring to the clinic’s CEO Jeff Parker, “much to the chagrin of the dental profession. They do not understand how or why this was accomplished. The answer is truly a simple one, their model of health care is broken.”

Sarrell officials have been at odds with some private dentists and ALDA since members of the group were recorded in a late January meeting discussing ways to curtail Sarrell’s business. Sarrell’s top official has accused UAB alumni and ALDA officials of pressuring UAB’s School of Dentistry into ending its relationship with the nonprofit. UAB and ALDA have denied this is the case.

Zack Studstill, the interim executive director of ALDA, cited a recently launched Federal Trade Commission investigation as a reason for not commenting on the story.

Some dentists interviewed for this story were also critical of Sarrell, but asked not to be named, saying they feared litigation.

However, Benjamin Ingram, a Piedmont dentist, raised the basic issue of the clinic’s financial structure — i.e., a non-profit — to explain why the Sarrell Clinic has “many financial advantages over a profit clinic.”

Besides the lease and tax advantages, Ingram said, Sarrell has benefited from free dental equipment, free renovation of the facilities, discounts on equipment and sales tax, no business tax, no business license, the use of Jacksonville State University marketing and accounting students and professors and a board of directors for guidance.

Ingram is also critical of the clinic for not using its profits to support adult dental patients in Calhoun County.

The cost of doing business

While revenues increased at the clinic, so did expenses. In 2006, expenses were $2.2 million, and by 2007 they had risen to $2.9 million. In 2008, they were $4.3 million, and in 2009, they were almost $6.7 million.

Projected excess revenues for 2009 are between $250,000 and $500,000. This money, according to Sarrell, will be used, as it has in the past, to open new offices.

The salary and benefits of the clinic’s chief executive officer, Jeff Parker, climbed from $71,840 in 2006 to $168,630 (including $7,000 in benefits) in 2008.

The information is contained in IRS Form 990s, tax returns that are filed by organizations exempt from income tax. Figures for 2009 will not be available until after the filing deadline of May 15, but Sarrell provided a summation of revenue and expenses.

Parker’s five-year contract was approved unanimously in 2007 by the Sarrell Dental Board. It calls for an annual 5 percent pay raise for the duration of the contract. Benefits in the contract include life insurance for Parker, health insurance for him and his wife, dental and eye care for his parents and his wife's parent, as well as a 10 percent bonus if approved by the board of directors.

The clinic has eight offices across the state.

Sarrell is indeed doing a booming business, but it is not because of the lack of a level playing field, says Henry J. Aaron, an expert on health care economics at the Brookings Institution in Washington.

“What it sounds like is that the dental clinic is aiming at the lower end of the market, hiring salaried staff, renting cheap space, and cutting costs,” Aaron wrote in an e-mail to The Star. That some professional dentists represented by ALDA don’t like it and are alleging unfair competition isn’t anything new, he continued.

“This is an old line for entrenched guilds, alleging that more efficient producers are not playing fair,” he wrote. “Their arguments are usually just self-serving efforts to maintain a monopolistic advantage and keep prices for their services higher than they would be in a competitive market.”

Aaron also dismisses specific examples dentists have given for Sarrell’s unfair advantage, saying that cheap office space is certainly not a basis for complaint. Noting that other dentists could rent cheap office space, too, “and if they don’t then, presumably, that is a business decision and they have to live with it.”

While saying the issue of income taxes is more complex, Aaron points out that dentists working for nonprofits are not exempt from paying income tax.

Still, Jacksonville dentist Bruce Cunningham and others are critical of the Sarrell Clinic. Specifically, he says, the clinic is taking non-Medicaid, non-indigent patients. He argues that by doing so, the nonprofit privileges at the clinic have been abused.

In an e-mail, Parker responded to the criticism by saying that Sarrell does not see non-indigent patients except in emergencies.

He also referred to the IRS code for nonprofits, writing, “Under 501c3 rules, we must receive 67 percent of our revenues from mission program services. Therefore, we can take up to 33 percent of our revenues in private-pay patients (if we wanted) and by law, still maintain our status.”

But, Parker said the clinic doesn’t take anywhere near that many private insurance carriers.

“Although many private citizens request to use us rather than their local for-profit dentist,” he wrote in an e-mail, “we attempt to refer them back to their dental home, unless it is an emergency and their dentist is closed. In emergencies, we treat them and refer them back to their dental home.”

In another e-mail, Sarrell said the clinic’s by-laws have been amended since Cunningham served as a member.

In part, they now read: “Provide access to care to any person that presents to us with urgent needs that may be a patient of record of a non-Sarrell dentist, for palliative care of needs and refer back to their primary dental provider.”

What’s a reasonable going rate for a non-profit CEO?

Dr. Bruce Cunningham, a Jacksonville dentist, has taken issue with Sarrell CEO Jeff Parker’s compensation, saying, “the CEO’s salary is out of line. We hired him for $2,000 a month in 2005, now look what he’s making,” Cunningham said, referring to Parker’s pay in 2008 of $168,630, including $7,000 in benefits.

(Cunningham said his gross earned income for 2009 was $240,000.)

Benjamin Ingram, a Piedmont dentist, suggested comparing Parker's salary to those of other CEOs of local non-profits, pointing out that Charley Evans of the Jacksonville Christian Outreach Center gets no compensation and Phil Scott of the Piedmont Benevolence Center is paid $22,000 annually.

Ingram declined to say how much he made annually.

But Henry J. Aaron, an expert on health care economics at the Brookings Institution in Washington, D.C., dismisses the criticism of Parker’s salary saying, “By pay standards of executives with which I am familiar, the pay for the CEO is rather modest, if, as seems to be the case, he is doing a good job at cutting prices and expanding business.”

According to an August 2009 report by Charity Navigator, an independent agency that evaluates nonprofits, the average pay nationwide for a CEO running a nonprofit in 2008 was $158,075.

CEOs in nonprofits relating to health care, like Parker, made an average of $161,133. Also, CEOs of nonprofits with expenses between $3.5 million and $13.5 million, such as Sarrell, averaged $147,309, while those with expenses of more than $13.5 million were much higher.

The average pay for CEOs of nonprofits in the South was $139,966, much lower than in the Northeast at $196,113, and the Mid-Atlantic at $164,042. However, the pay was higher for CEOs of nonprofits in cities in the South. In Atlanta, the average CEO of a nonprofit made $173,691, while it was $178,819 in Nashville.

Some of the highest-paid CEOs of nonprofits were at the Salk Institute for Biological studies ($2,027,891), the Boy Scouts ($1,577,600) and Trinity Broadcasting ($419,500), according to the study.

The study also pointed out that IRS rules concerning CEO nonprofit compensation do not designate a threshold, but simply say nonprofit CEOs should receive “reasonable compensation.”

Warren Sarrell, the director of the Sarrell board and the clinic’s namesake, said Parker’s services at the clinic are so valued that the board maintains a $1 million life insurance policy, payable to the Sarrell Dental Clinic.

“Our growth, is due to one reason — Mr. Parker,” Sarrell said. “He has been so focused on accomplishing this goal, that dentists in Alabama see him as a threat. They see him as an enemy and not as a conduit to solving this huge problem.”

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