I blog about free markets in medical care and transparent pricing.
Put yourself in the shoes of a hospital administrator, upset by the fact that a surgery center in Oklahoma, owned by a bunch of greedy doctors, has posted bundled pricing online for all to see, and at prices that are 1/6th-1/10th of what is charged at your not-for-profit hospital.
How would you combat this? What would you have to say in your defense? I don’t think we have to guess. We can just go over some of the things that have been said in the past.
1) “We have an emergency room, an ICU and other special care units and these surgery centers don’t.”
2) “We have to maintain a staff presence 24/7, unlike the purely elective outpatient surgery centers.”
3)”We have to take all patients, regardless of their ability to pay.”
That’s probably enough for now. Let’s deal with these one at a time.
1) This statement is made with the idea that you will assume that their emergency room is losing money for them. Big corporate hospitals have commissioned studies from various academics over the years that have shown that this is true. Except it is false. Not accounted for in the “loss” numbers are all of the revenue that is generated after the patient leaves the emergency room and enters the serious money-generating activities like surgery, lab, x-ray, etc. Once these revenues are included, the never-ending expansion of the emergency room portal becomes more clear. There are, after all, not many emergency rooms outside of which a building crane isn’t permanently placed! If part of your business was identified as a money-loser, would you build on? One hospital in Oklahoma City is actually building free-standing emergency rooms. I don’t think they are doing this in the backyard of one of their competitors to lose money.
But let’s take the hospital administrator at his word and his emergency room is a money loser. Does this justify the markup of drugs, for instance, in their facility from $1 to $600? Does this justify a charge for the same surgery we do at our facility of 6 times more? Taking it further, are we all morally obligated to patronize this establishment at 6 times the cost of our surgery center, so that they can “cover” their “losses?” That few people pay for their care out of their own pocket has allowed them to get away with this. Now that the health cartel has helped to lead us to the edge of bankruptcy (and bankrupted countless individuals along the way) people are pushing back and asking questions. As health costs spiral out of control thanks to more of Uncle Sam’s involvement, this curiosity and pushback will continue, I think.
2) The expense of staffing an emergency room is basically the same whether patients come in or not. My point is that as Thomas DiLorenzo writes in his book “Organized Crime: The Unvarnished Truth About Government,” ..in industries with large fixed costs (such as the expense of building an electric power plant) the cost of serving each customer declines precipitously once the plant is up and running.” DiLorenzo points out further that the larger the industrial giant, the closer to “zero” the cost becomes to adding another customer, a situation that can actually grant the industrial giant a market monopoly due to such extreme economies of scale. The additional marginal cost to the giant hospital enterprise, I would argue, for seeing a patient that is unable to pay, is almost exactly the cost of the supplies needed to care for them, these supplies much cheaper than you would think, having been purchased in bulk as part of a large buying group.
Also keep in mind that the hospitals get paid even when they don’t get paid, courtesy of the uncompensated care rebate program. They make money to the extent that they claim they “lost” money.
3) The Surgery Center of Oklahoma is the favorite surgical destination of the uninsured in this entire area. I like to think of all of the patients that have had surgery at our facility because our pricing was reasonable. Almost all of these patients would either have never had their surgical procedure if they had to pay the hospital rates, or would have been bankrupted or in hock the rest of their lives. The truth is that we take a lot of the patients that the big hospitals shun, due to their unreasonable pricing. By minimizing or even eliminating our profit for the facility portion of our bill, we act more like a true “not for profit” facility than these tax exempt hospitals.
Also keep in mind that the “losses” sustained by these hospitals for having cared for those on Medicaid, come from payments made to the hospitals by Medicaid that are far greater than what we have posted on our website. And they call us “cherry pickers!”
We provide charitable care at our facility. The difference between us and the big hospitals is that we don’t then stick the taxpayers for payment. The extent to which people have been overcharged by these hospitals is represented in the new hospital building, ad campaigns, hostile takeovers of rural hospital competitors, buying physician practices and the sponsoring of sports franchises, to name just a few destinations of their health care booty. I anticipate that we’ll hear the above excuses and more from the hospital crowd as their zealous billing practices draw more scrutiny.
G. Keith Smith, M.D.