Building a business with unwanted customers

January 20, 2012: 10:52 AM ET

A Newark, N.J. dental operation is turning a profit by focusing on the patients that most dentists shy away from: Medicaid kidz office

FORTUNE -- Diego Cobo was trying hard not to cry when he returned to his family in the waiting area at the dentist's office. The three-year-old just had just had a cavity filled, and it hurt. "Maybe you shouldn't eat so many candies," his mom said to him. Diego thought for a minute, then pointed to the teeth on the side of his mouth that wasn't numb with Novocaine, and said, "Maybe I can eat candies with these teeth?"

If Diego is like the majority of patients at Newark, N.J.-based Dental Kidz, he will be back soon enough with more cavities. Dental Kidz targets patients on Medicaid and other subsidized health care. The practice is jointly owned by husband-and-wife team Chris and Lezli Harvell -- he handles everything outside of the clinic, and she's a dentist.

Most dentists don't want to touch kids on Medicaid with a 10-foot pole, much less a dental scraper. But Chris Harvell believes that treating the underserved can make for good business. And in New Jersey, which has one of the worst records for pediatric dental care in the U.S., kids have so few options that a good provider, even to those with little income, can make a profit.

"I used to be deathly afraid of the dentist. I used to have tons of cavities," says Harvell, a former Booz Allen consultant turned business student turned entrepreneur.

Harvell tries to keep Dental Kidz's office inviting.  It's brightly lit, with an open floor plan, Crayola-colored seats for small patients, high ceilings, and mock hardwood floors. Mariah Carey's power pop version of "All I want for Christmas" is playing. Kids in the back squirm into their examination chairs, some are crying.

Despite his early fear of dentists, Harvell married one, and recognized a serious shortage of quality care in the Newark area. In 2008, before launching Dental Kidz, he crunched numbers that he requested from the state dental board and department of human services and found that there were about 210,000 children within a five-mile radius of the city, 40% of which receive Medicaid benefits, and only 15 pediatric dentists.

Medicaid's ups and downs

Nationally, dentists shy away from treating Medicaid patients. Many complain that this patient population has a far higher no-show rate than patients with private insurance, according to a May 2011 report called "The State of Children's Dental Health" from the Pew Center on the States. Those empty chairs eat at profits.

Medicaid compensation often falls woefully short of the cost of care: 33 states reimbursed under 60.5 cents for every dollar a dentist charged, according to the Pew study. The study also graded individual states' progress providing adequate pediatric dental care. New Jersey was one of five states to receive an F. More

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