G. Keith Smith, M.D.

It looks as if the Oklahoma legislature has provided the dowry to the Oklahoma State University osteopathic hospital that Mercy Hospital Oklahoma City was looking for.  The state budget provides for $18.5 million to bail out this hospital, interestingly, $250,000 more than they said they needed.  

Mercy, Oklahoma City was looking at an arrangement to “partner” with the Tulsa osteopathic hospital (no giant Tulsa hospital wanted anything to do with them, even with a dowry/bailout), but was waiting to see if they received this taxpayer gift.  

If anyone knows how to make money at a not for profit hospital, it is Mercy.  Of all the hospitals in the country, TIME magazine singled them out as price abusers.  I predict that the bills from the osteopathic hospital will soon reach the level of the bills at their mothership in Oklahoma City.  I also predict that the other Tulsa hospitals will raise their prices, knowing that all they really need to do is stay just below the new bankrupting standard across town.  

As the free market movement in health care gathers steam in Oklahoma, I also predict that these medical corporatists will find that they have miscalculated.  If patients are willing to travel to Oklahoma City from Mendocino, California, Charleston, South Carolina and Montreal, to mention just a few of our sources of referrals, patients from Tulsa will certainly drive to Oklahoma City to avoid medical bankruptcy.

Mercy got their wish then.  They married the Tulsa hospital bride with an extra $18.5 million in her purse.  Maybe they will use the extra $250,000 they hadn’t counted on receiving for a party, and invite taxpayers from all over the state and from whom this loot was extracted.

G. Keith Smith, M.D.

I have come to the conclusion that the main reason my medical free market and transparent pricing message has been so widely and warmly embraced is very simply that it is good news.  I have been viewed as a good news guy in a bad news industry.  That “here is what we do and here is how much it will cost,” has been received as such good news is an indication of how truly cartelized the medical industry has become. 

To be fair, the bad news of Obamacare, has made our message even more appealing.  Nothing about this Unaffordable Care Act is good news.  Insurance premiums and the costs of healthcare are skyrocketting due to this legislation, access to care is problematic due to physician retirements and employers are laying people off or moving them to part time positions in order to keep their doors open.  Recently, The Associated Press’s Ricardo Alonso-Zaldivar reports that some of the sickest and most vulnerable patients will be unable to afford the increasingly high out-of-pocket costs for the drugs they depend on for their very survival. 

All of this is quite predicable, actually, as Obamacare was, I believe, meant to fail.  The purpose of this legislation, seen in this rare slip by Rep. Barney Frank, was to introduce such price increases that the American people would beg the government for relief:  single payer.

This failure currently and long term, however, is beneficial to this administration’s corporate healthcare buddies on Wall Street.  Seriously, how would you like to provide a product or service(health insurance) the purchase of which the federal government made mandatory?  How would you like to know that your business (giant hospital) will collect from the distant taxpayers, rather than the patients you are supposedly meant to serve?  The giants of corporate healthcare are making record profits, profits that will pale when compared to their future ones as the great consolidation of this industry takes place. 

But I said I was a good news guy.  Here then is the reason for hope.  As the costs of healthcare and insurance spiral out of control patients and businesses will increase their out of pocket deductible exposure and do something that has long been absent in the medical industry:  shop.  Patients will shop for price and quality just like they do for everything else.  This, of course, is the unanticipated nightmare of the Obamacare bureaucrats, as real competition will appear (it already has, check out my pricing listed on our website) and actual price deflation will result.  The crisis this adminstration has attempted to create will paradoxically create the cure to the mess that the government and their cronies have made of the medical industry. 

Patients travel to our surgery center from all over the country to take advantage of our upfront and fair pricing.  Indeed, the first patients to show up after we put our prices online were Canadians!  In addition to the patients who travel to our center, many patients are using our pricing to leverage better pricing in their local medical markets.  As I stated on the John Stossel Show last month, a Georgia hospital recently agreed to charge a patient $4000 for a prostate surgery (rather than the $40,000 initially quoted) after the patient showed them our online price of $3600 and a plane ticket. 

Medical facilities and physicians all over the country are jumping on this free market medicine model.  The AMA continues, and deservedly so, to lose members, while membership in the free market Association of American Physicians and Surgeons (AAPS) soars.  The AAPS growth is largely due to its advocacy of third-party-free physician practices, a model that removes the bureaucrat from the exam room.  Big hospitals on physician hiring binges are finding that once they become employees, doctors go on vacation, working less and less, making this patient-disenfranchising model very unstable.  More employers are punching out of traditional insurance and seceding from this cartelized system by self-funding, taking the control of their employee health plans away from those insurance carriers whose interests differ from their own. 

I could go on.  The good news in health care is not Obamacare, but rather is in spite of Obamacare.  The free market competition that this legislation has unintentionally spawned will improve quality and lower prices just as competition has done (without exception) in every other industry.

G. Keith Smith, M.D.

If this is the best the statists can do we are in good shape.  Dr. Peter Ubel, no Rothbardian, asserts that price transparency could actually increase the price of healthcare (Lasik?) and that while cardiologists and other super specialists make too much money, primary doctors don’t make enough.  

Dr. Peter Ubel, like all  central planners, suffers from the fatal conceit Hayek brilliantly described in “The Road to Serfdom.”  Once again, prices emerge from a free market…they are not imposed.  That Ubel thinks or feels some doctors make too much money is irrelevant and more than likely relates to an unresolved envy issue with which he is struggling, not unlike that Mises dissected in “The Anti-Capitalist Mentality.”  

I wasn’t going to respond to this silly article but there is something to learn, after all.  In response to a question about the free market and price transparency movement we are seeing in the U.S., Ubel says this:

The free market is a wonderful thing, when it enables consumers to make informed choices about which products to buy. But medical consumers, a.k.a. patients, often have a hard time making the kind of savvy choices that will bring discipline to the market. Moreover, they are often in positions of making high-stakes, emotional decisions, in short time spans, without fully understanding their choices. To make matters worse, many physicians I’ve spoken with say they feel it would be inappropriate to discuss the cost of care with patients, especially when they face life-or-death decisions. Hard to imagine how the market, on its own, will work effectively in such circumstances. We need to bring more market efficiency to healthcare, but it is unrealistic to think that a completely unregulated free-market is going to solve our problems. 

Now the first thing to say, is that while he is pontificating and thinking deeply about things, we are doing everything he says can’t be done.  Also, patients are well-informed in spite of his arrogant characterization of them.  

Second, he has contaminated his view with a time twist.  Here’s what I mean.  He is judging the applicability of free market principles in the future, using a current time context.  Here is why that is absurd.

In Oklahoma City, there are car dealerships that are interested in selling you not only your first car, but every car you ever buy.  These businesses have built reputations over time, reputations of fair dealing and thinking long term, not the hit-and-run “gotcha” mentality at some car lots.  Everyone knows who the reputable dealerships are.  The same goes for roofers and plumbers and tire stores and banks and….and now healthcare.  Everyone in Oklahoma City knows that if they need surgery, The Surgery Center of Oklahoma is the place they can go that will treat their pocketbook with respect while rendering the best care.  The same goes for those needing a total joint replacement.  They go to the McBride Clinic Orthopedic Hospital.  The same goes for a colonoscopy.  They go to Digestive Disease Specialists.  The same goes for cancer chemotherapy.  They go to my friend Dr. Aleda Toma and her partners at Cancer Specialists of Oklahoma.  The same goes for mammography.  They go to Breast Imaging of Oklahoma.  The same goes for cardiac disease or surgery.  They go to my friend Dr. John Harvey and his partners at the Oklahoma Heart Hospital.  The same now goes for major gynecological and urological and general surgery requiring an inpatient stay.  Patients will very soon know more about Deaconess Hospital, the latest to join us in this price transparency movement.

Here’s my point.  The reputations of these facilities have taken time to create.  To say that after flipping the switch to free market, people won’t instantaneously know where to go for care, is to disallow the necessary time for discovery of which facilities represent the best value and is logically a cheap trick.  

Dr. Ubel thinks the price paid for healthcare is out of whack.  Here, he and I agree.  Dr. Ubel thinks there is some better way to allocate scarce resources than the free market.  This is where we disagree.  He has nothing to back up his stance other than his feelings.  I think the countless patients we have treated and simultaneously helped to avoid bankruptcy are sufficient to make my case.

G. Keith Smith, M.D.

The release by CMS (Medicare) of hospital charges and Medicare payments this week deserves a response, partly because the figures are wrong.  While most of the newspaper reports focused on the gigantic differences between what hospitals charged and what they were paid, the real story is the irrational and nonsensical pricing of the CMS central planners.  Also notable is that while this story appears to bash the hospitals to some degree, the true amounts they receive from Medicare are hidden, as the prices released don’t include the uncompensated care kickbacks or the provider tax rebates.  

The witholding of these amounts from the final numbers makes the payments to certain hospitals (physician-owned facilities like the McBride Clinic Orthopedic Hospital who don’t accept this money looted from the taxpayer) look high compared to the corporate and not-for-profit hospital payments, as their actual payments for the procedures and diagnoses are much higher than shown.  It’s bad enough that the hospitals lie about their income, but to have the federal government join in on the act while posing as the great champions of price transparency is disgusting, although not surprising.

This New York Times article about the CMS “revelation”asks the question, the answer to which followers of this blog now know by heart:  ”Why are the hospitals charging so much more than they know they will receive?”  If you are drinking the hospital Kool-Aide, you believe that this overcharging is justified to combat the discounts demanded by the insurance carriers.  You also believe that hospitals with large amounts of “indigent” care are charging more to offset these “losses.”  

But if you think that these giant hospital bills:

1) Provide the “losses” and red ink necessary to maintain the fiction of the not for profit status of these creators-of-personal-bankruptcy

                                                      &

2) Provide larger DSH (disproportionate share hospital), uncompensated care payments to the extent that the hospitals claim they don’t collect on their giant bills

…if you believe these two points, you know the true answer to the question posed by the NYT reporter. 

If you understand that the extent to which a hospital claims losses is the extent to which they collect DSH or uncompensated care payments, you also understand whythe patient with no insurance or no money at all, is likely to receive the highest bill of all, in order to maximize the take from the taxpayer!

There is a simple reason that the CMS pricing makes no sense.  True prices emerge from a market economy.  They are not imposed.  I have said many times that I won’t know if my online pricing is “right” or not until someone starts competing with me.  Prices send signals to the marketplace, signals indicating relative shortages and surpluses.  That the prices for various hospitals in the same community are not even close shows the truly fatal conceit of the CMS central planners.

Here’s the bigger question, though.  Why did CMS release this and why now?  I think that it is no mistake that the cost of health care was never discussed during the Obamacare debates.  Getting everyone “coverage” was the focus.  Now that “coverage” is mandated, cost is center stage.  Why?  

Imagine that you own an insurance company that has a good relationship with Uncle Sam.  Imagine that you have been successful in getting your government pals to mandate the purchase of your product (health insurance).  This is now a great revenue stream.  How do you maximize your profits, now?  How do you maximize your net?

You ratchet down the price paid for “care,” ideally to a price where few physicians or facilities will see patients or participate.  Presto!  You have fewer claims to pay and they are cheap! You are seriously in the money, now.  Lots of premiums rolling in, very few claims paid out. Simple math.  

This is, of course, how HMO’s and Medicaid work.  HMO’s collect premiums, pay so poorly that few physicians will participate and then actually pay some doctors a bonus to the extent that care is denied.  This creates huge profits for the home office. 

Medicaid vendors are typically paid a price per head.  In Arizona, for instance, this number is about $8000/ head.  If the physicians are paid a pathetic amount, few will participate and this will result in subtle price rationing where few claims roll in and long lines form.  This creates gigantic profits.

This is the whole idea behind Obamacare.  Make everyone buy insurance, then use the IPAB (independent payment advisory board) to step in to make sure that prices paid are below the market clearing price, using this low price as a rationing tool.  ”Best practices” will also eliminate many of the health care services that people need and want and the “health researchers,” if they want to keep their government grants will find whatever they are paid to find, that mammography or prostate screenings are not necessary for instance.  This has already begun.  My personal favorite rationing tool is “pay for performance,” where the sickest of patients, those needing the care can’t get near a physician, as doctors increasingly shy away from complicated patients who might damage their “profile.”

You would think that a bankrupt program like Medicare would be looking for the best deals they can find.  This revelation by CMS shows the effects of years of lobbying by the hospitals and other connected players: prices all over the place.  Hospitals are paid 40% more for physician services than private practice physicians are paid.  Wouldn’t you think that in order to save 40% on physician services, Medicare would seek out the private practitioners and shun the hospital employed doctors?  Chemotherapy administered by a hospital is paid at a 40% greater rate than at a private physician clinic.  Seems like Medicare would save a bundle by keeping patients away from the hospital chemo units.  Our online prices are half what the big hospitals are paid by Medicare for the same surgeries.  I could go on and on.  

These federal programs are not about getting care for the poor and elderly, as much as they are about funneling money to connected cronies in the medical industry.   This revelation from CMS reveals just as much about the government as it does about the hospitals.  I don’t think that was their intention, though.

G. Keith Smith, M.D.

Dr. Jeffrey Singer wrote this piece for Reason Magazine this week.  His article explains why the number of Canadians fleeing to the United States for surgery may have peaked and might indeed be falling.  As the Canadian system continues its death spiral, private health clinics and mini-hospitals operating on a cash basis are springing up all over the country, this new trend due to the heroic efforts of one physician, Dr. Jacques Chaouilli, profiled in Dr. Singer’s article.

Dr. Singer also clubs the U.S. system on the head and mentions the wave of private clinics and hospitals (The Surgery Center of Oklahoma amongst them) that are rising to meet demand and provide affordable and rationally priced care.  He very appropriately lays the blame for the mess in the U.S. at the feet of the federal government and their corporate health cronies.  Even the disastrous practice of hospitals employing physicians receives this article’s barbs.

It is very unusual for me to encounter an article like this where I agree with every single point the author makes.  I do agree with Dr. Singer on all but one point and I would look forward to discussing this with him at some point…and here it is.  

If the movement toward rational and transparent healthcare pricing continues, the resulting price war will bring prices down to a level where even those of modest means will be able to afford care, without government and even without insurance (catastrophic insurance will still have a place, I think).

Call me an optimist, but in the pricing trenches, I like what I am seeing so far.  If the “state” intervenes, however, the dismal future of medicine Dr. Singer predicts where only the wealthy and connected will have access is likely, however.  Let’s hope my optimism isn’t proven naive.

G. Keith Smith, M.D.

The April 27th edition of the Daily Oklahoman contains an article by Silas Allen about the impending closure of Oklahoma State University’s osteopathic hospital in Tulsa.  Hospital officials think they can stay open though if a bunch of taxpayers that never utilize their facility pony up $18.25 million bucks to bail them out.  This isn’t their first bailout it turns out.

In 2009, a trust was formed by the city of Tulsa to prevent a shutdown, a trust into which $5 million dollars of “state” money was pledged every year for 5 years.  St. John’s Hospital in Tulsa managed the hospital during this time, but their agreement has expired and they are no longer interested in being involved.  

To make its case for a bailout the hospital claims that it provides a vital role in preventing an even more severe doctor shortage in Oklahoma by providing residency training programs for students enrolled in the osteopathic school.  The thinking is that residents who train in Oklahoma will stay in Oklahoma to practice.  That this “stay-home-itis” would trump practice conditions and financial considerations young physicians examine when deciding where to locate is not credible as evidenced from all of the foreign trained physicians who practice in the state, but let’s move on.  

Here is a quote from the article…see if this sounds familiar:

“An economic impact study released Friday shows the OSU Medical Center contributes 2,375 jobs to the Tulsa area, generating more than $120 million in income.  

According to the internal study prepared by OSU’s Oklahoma Cooperative Extension Service, the hospital generated about $1.2 million in state sales tax during the 2011-12 fiscal year.”

Think of all of the jobs they could have created if they had lost $100 million dollars!  Why, they could have eliminated unemployment from this whole region if allowed to lose a billion.  Medicaid expansion, socialism and crony capitalism (corporatism) all share this faulty and absurd model of finance and economics, don’t they?  No one ever asks how many jobs were destroyed by the tax confiscation inflicted to keep this entity afloat, do they?  Even fewer recognize that this failure is due to the lack of a market for this enterprise.  

It turns out that the giant St. Francis Hospital wants nothing to do with the osteopathic hospital either.  If you guessed that there is one hospital system (one singled out for their abusive billing practices by TIME magazine) that is interested in “partnering” with the osteopathic hospital, you would be correct.  Here is the Tulsa World’s account of this “merger.”  Mercy Oklahoma City, however, wants no part of this marriage without a dowry, Mercy’s future bride much prettier with an $18.25 million taxpayer bailout in her purse. St. Johns and St. Francis don’t even want her with a stuffed purse!  Talk about ugly!

Maybe Mercy is afraid that there aren’t going to be enough doctors around for them to employ and they want their own doctor production factory.  Or maybe they are planning on charging so much for the “care” delivered there that the facility will become a profitable not for profit hospital.  In either case, the people in Tulsa will be ringside witnesses to the economics and finance of Medicaid expansion, crony capitalism and corporatism should this bail out and merger materialize.   This merger, of course, will be destructive of the goal of recruiting physicians to work in Oklahoma.  I still say letting the rural physicians own the hospitals in which they work (just like the old days) would be the greatest recruiting move ever for rural medicine, a much better move than the taxpayer shakedown about to happen in Tulsa.

G. Keith Smith, M.D.

The poor and the sick folks who currently make too much money to qualify for Medicaid in Oklahoma have pooled their meager resources to lobby hard for Medicaid expansion, buying expensive media ads under the name, “Oklahomans for a Healthy Economy.” O.K. Enough sarcasm.  These ads are funded by those who would benefit from more taxpayer Medicaid loot—the big hospitals.  If the poor had organized this push, for instance, they would not have minded mentioning the word “Medicaid,” which, of course, the ads never do.

I wish these hospitals would make up their mind.  On the one hand, they claim that Medicaid payments (more than what we have listed online) are killing their profits, set way below their costs forcing them to shift the losses to other patients/payers.  On the other hand they want to expand this program.  This is kind of like, “..our emergency room is a loss leader, but we are going to build on to it.”  None of this adds up.

The hospital lobby is pushing hard in Oklahoma because the governor of the state has taken a stand, a hard stand, to reject the Obamacare exchanges and its expansion of Medicaid.  Even our local media, heavily funded by corporate medicine, has turned on the hospitals, one media outlet recently characterizing the Obamacare vehicle these hospitals want so badly, as a Ford Pinto.  The editorial in the Sunday Oklahoman asks essentially if Oklahomans want to ride as a passenger in such a vehicle.

Sometimes I think that these hospital folks have forgotten some of the lessons of childhood, where, for instance, the more a child begs at the grocery store for a candy bar at the check out counter, the less likely they are to get one as the parent’s frustration with them grows.  I hope that our governor’s disgust with the hospital whining helps her to grow even more resolute in her stance.  This is politics, though, and while the governor has remained strong, the Republican version of crony politics continues to raise its head, attempting in new devious and renamed ways to funnel money to their hospital pals.   

The hospitals aren’t the only ones who can’t make up their minds, though.  Remember the government promise that the uncompensated care scam would end with Obamacare?  Remember the hospitals begging for Medicaid expansion because of the end of this revenue stream?  Well, it turns out that the hospitals are going to get to keep their uncompensated care scam, after all!  You would think that this would dampen their media and political push for Medicaid expansion.  Nope. And that’s not all.

Remember the Medicare payment cuts that were going to hit the hospitals as part of Obamacare?  Remember the hospitals using this, as well, to bolster their arguments for the need for an expansion of Medicaid?  Well, it turns out that they are now getting a raise from Medicare!

Why can’t any of these hospital or government folks make up their minds?  I’m thinking that the question most commonly asked at the Obamacare drawing board was perhaps,”..how much do you think we can get away with?” All of this wishy-washiness then makes sense.

G. Keith Smith, M.D.

P.S.  Here’s a great article on this issue by Michael Carnuccio, President of the Oklahoma Council of Public Affairs.

Here is a link to my CNBC Asia interview with Bernard Lo recently.  He was very well-informed, had done his homework about our facility and was a gracious host.

G. Keith Smith, M.D.

Here is a link to my portion of the interview with John Stossel for those of you that are interested.  This interview led to my interview tonight with CNBC Asia-Pacific with host Bernard Lo.  I’ll post that link as soon as I have access to it.  These two shows have reached huge audiences and the response has been impressive, particularly the number of people that are requesting price quotes.  Our website actually melted down due to the traffic Sunday night during the Fox News Channel broadcast of Mr. Stossel’s show.  

The price war has begun.  The competition in health care on quality and price has begun.  The beneficiaries will be patients and their pocketbooks.  Nothing will create better quality at lower prices than the free market.  Nothing will create unaffordable care and poor quality like state involvement in health care.  Thanks to all of you who are helping to spread this message, essentially good news in an otherwise bad news industry.

G. Keith Smith, M.D.

Let’s say that i have advertised the price of an anterior cruciate ligament reconstruction (all-inclusive) at $6990.  Let’s say that the implants (screws, fixation devices, etc) are included in that price (I don’t mark up implant costs).  Let’s say that 1 of the 10 surgeons at my facility that does this operation insists on using an extremely expensive implant, one coming from a manufacturer with which he has a “relationship”….no such partner exists here…this is just for illustration.  I can either send him  patients (business) which means we lose money at the surgery center, or I can charge a whole lot more if he does the surgery, which prices him out of range, or at least begs the question of why is he so much more?

This is the market at work.  While central planners would work to institute price controls in the market place, the unfettered market would place the outlier physician’s price under the microscope.  Transparent pricing would quickly reveal that something didn’t smell right.  While legislators would outlaw physician owned distributorships, transparent pricing would empty the waiting rooms of physicians who play these games.  

Who benefits from non-transparent pricing?  All of the folks who would suffer if their shenanigans were discovered, that’s who.  The only way that unethical physicians, pharmacies, hospitals, physical therapy clinics, etc. can thrive is for pricing to be veiled to some degree.  Otherwise, comparison shopping would create value questions, none of which would have satisfactory answers in the case of the gougers.

The answer to “implant” profits is not a tax on implant makers any more than the answer to fraud in medicine is government goons.  The answer is price honesty and a movement away from third party payment, government payment for healthcare, in particular.  What is Obamacare?  If you guessed “just the opposite,” you go to the head of the class.  

G. Keith Smith, M.D.