I blog about free markets in medical care and transparent pricing.
Austrian economists, most notably Ludwig von Mises, have written about the business cycle (and the booms and busts that result) and the role that easy credit, created by low interest rates, plays. Government intervention such as artificially low interest rates, or confiscatory taxation, the spoils of which are awarded to certain connected players in the game, causes “investment” in activities that would otherwise lack the resources necessary for their existence. Thomas Sowell once said that if there is truly a need for anything, even charity, the market will provide for it. If the government is paying for something, it has displaced the market’s proper role, or no need existed in the first place. Whatever you think about Sowell’s statement, I think that this concept is helpful to those attempting to ascertain for themselves what government’s proper role in society is.
“Investment” or spending, the result of inappropriately low interest rates or taxation, invariably leads to mal-investment, if you believe the Austrians. Hint: their economic model is the only one that has predicted every economic downturn. Austrian economists shrug, say “DUH!,” and never seem to be surprised by anything that happens in the economic world. Bottom line: if anything is supported by tax dollars, or cheap debt, it is not stable and has a correction in its future. This is the boom and the bust.
Years ago, I began to view Medicare in this way. Since the source of Medicare money was a robbery, I felt that my neighbor would always push his legislator to cut physician reimbursement. All my neighbor knew was that he was being robbed to pay some doctor for the care for someone across town he didn’t know. This is not a stable business plan. Making my long-term plans based on this revenue source seemed a bit foolhardy. I believe the same instability characterizes anything subsidized by the taxpayers.
This instability also applies to medical research funded by the government. Grant writing is an art, one that is aimed at securing federal funds with little-to-no concern with the utility of the planned “research.” The most imaginative grants are the ones that in a premeditated fashion plan for incomplete results, requiring “further study.” This keeps the money rolling in. Sure, there are serendipitous discoveries occasionally, but the goal is always the money.
State governments, including Oklahoma’s, where I live, dole out taxpayer money to “research groups,” hoping to help them along, as this “creates jobs.” Readers of this blog are by now familiar with Bastiat’s “What Is Not Seen,” his irrefutable point that this money, had it been left in the taxpayers pocket would have gone to other uses, sadly never seen or known, due to this theft. Gifting these research companies this taxpayer loot also bestows a credibility of sorts on them, one which helps these companies more likely to successfully make application for and receive…ready?…federal funds, the source of which is yet again, another stick-up. I always find it bothersome when state level actions, such as those here in Oklahoma, result in federal funds raining down on Oklahoma. Legislators are basically using the loot from their stickup to lobby for an even grander larceny of their constituents by Uncle Sam. We can do without these “favors,” I think.
G. Keith Smith, M.D.
If I didn’t have my hands full I would like to open a surgery center across the street from the not for profit hospital in Tulsa that has bestowed such large amounts of “community benefit” on local residents. I would display prices called “community benefit pricing” on a large neon sign out front. I might even run weekly specials.
We would include in our medical staff only those who have refused to succumb to the large hospital system, those independent practitioners whose understanding of the doctor patient relationship precludes employment by a hospital.
So here’s the question: what would be the effect on the quality and cost of medical care provided in the Tulsa market? Let’s forget for the moment that the likelihood of success in getting this venture going is practically “zero” as those threatened by this move would more than likely keep it from happening. Back to the question.
What happens to the service you receive from the hardware store down the street if their only competitor goes out of business? Conversely, what happens to the service you receive from your favorite restaurant when another restaurant opens right next door to them? What happens to the price of a hammer or hamburger with this competition? Why do you think that health care is any different?
You say,”the more surgeons that practice in a town, the more surgery that is done!” You would be correct. I’m talking about facility competition, however. You see, physician fees are an almost insignificant component of the overall cost of health care. It’s the facility fees that make up the lion’s share of the cost. Even a 10% cut in facility fees would represent a savings that would dwarf eliminating physician fees altogether! The website fees at our facility are 1/5 to 1/10 of the charges at our local “not for profit” hospitals for the very same procedures. This represents an 80-90% savings of the facility fee. And our facility is profitable.
I think this Tulsa hospital would do the same thing that our prices have forced some of our local hospitals to do: lower their prices. I have blogged before about the patient that told me he was quoted the exact same price for his surgery by a local hospital not known for providing low-cost care, as that listed on our website. Our price, however, included the physician charges and so represented a better deal for him. This price difference can’t be sustained for very long. The competition for patients will force the prices down and increasingly, the embarrassment of “not for profit” price gouging will have its effect on prices, as well.
At the bottom of the neon sign would be a running total, a number that represented the “community benefit” our new little surgery center venture bestowed on Tulsans. This number would be the difference between our fees and the fees across the street. Bastiat’s “what is not seen.” Money people didn’t have to pay. Money that stayed in their pockets. Money that stayed in their self-funded plans.
Watch for a physician-owned facility in the Tulsa area to embrace price transparency. That will be for the price of medical care in Tulsa, what the Surgery Center of Oklahoma’s deflationary effect on prices has been for Oklahoma City. And that will be a true benefit to the community.
G. Keith Smith, M.D.
Last last Friday brought us yet another sad story from Canada. Readers new to this blog should be aware that many Canadians in long waiting lines at home have opted to come all the way to Oklahoma City for the affordable and high quality care available at our facility. Here is the picture: a painful gynecological condition that had left a woman basically house-bound and clinically depressed; a condition that is curable with a routine outpatient procedure; 18 months to see the gynecologist; no time estimate about when she might see the inside of an operating room after that, and certainly no guarantee that she wouldn’t be “bumped” for something considered more urgent.
Her husband makes the call that many Canadians have made: a big name outfit in Minnesota. Her procedure will cost $40,000. This amount doesn’t include the surgeon or anesthesia or “incedentals.”
Making a long story short, she had her procedure here at our facility for about 1/5th of that. Our price included the facility, the surgeon, the anesthesia charges (including an epidural for postoperative pain control) and an overnight stay at our facility. Here’s the punchline: we made a profit. We would be happy to take care of patients with her condition at this price all day long.
I can’t help but think of Basiat when the price difference is so vast between our facility and the next best price. Always remember to think of “what is not seen,” that is, what use will be made of the $40,000 that this patient didn’t spend on her procedure. There are two glaring lessons here: the abject failure of the Canadian system and the resulting human suffering it has directly caused and second, the prevalence of medical price insanity in the United States.
Ludwig von Mises proved that without prices, and by that he meant rational prices, no economic system makes sense and cannot survive. In order for prices to be rational, they must be transparent, visible to the buyer. I believe that this idea will catch on and that those refusing to provide transparent pricing will receive the beating that only the free market can provide. We are happy to have helped this poor patient and also to have denied once again, one of the “big box boys” a $40,000 meal.
G. Keith Smith, M.D.