If there also is a government program that reimburses for X in almost all cases, then you could see the emergence of clinics that "exploit" the rule even if everyone involved believes they are behaving ethically.
There are feedback loops that then exacerbate the problem- for example a successful clinic might bring on additional dentists, who despite misgivings will be influenced by existing practice at the clinic and begin self justifying the procedures to conform to the senior partner. After all, they clearly know what they are doing, right?
While I have no idea if that's what happened here, it is well with in the realm of possibility. The government does bear some responsibility to ensure that thier programs and rules provide sufficient oversight and feedback to keep fringey participants within the bounds of what the government considers acceptable.