I blog about free markets in medical care and transparent pricing.
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.
One of the reasons that our prices are so low (a sixth to a tenth of what the so-called “not for profit” hospitals charge) is that our facility is completely owned and controlled by the physicians working here. This ownership arrangement allows us to limit the facility charge (traditionally that portion of the surgical/hospital charge that makes up the majority of the total bill) to one that includes a small, forecasted marginal profit. Stated another way, our ownership structure eliminates the most greedy and inefficient profit seeker from the equation: the “not for profit hospital.” Ironically, we are acting more like a not for profit institution than these hospitals who beg everyone to notice how charitable they are while simultaneously accounting for over 60% of personal bankruptcies in this country.
The hospitals don’t like the fact that doctors own their own facilities. They rather prefer that facilities own doctors. Here are some of the hospital talking points, followed by what they don’t want talked about.
1)Greedy doctors can’t be trusted with the conflict of interest that arises from facility ownership. They will do unnecessary surgery. The truth is that surgeons doing unnecessary surgery are found predominately in hospitals where they are employed. No physician wants to be partners/co-owners in a business laden with the liability of some unscrupulous surgeon/physician. Because of this, these folks are rarely found in facilities where physicians share liability with one another. The true conflict of interest resides with hospital employed physicians, who are not only told many times to upcode or up-charge for their care, but who are forced to refer their patients not to necessarily the best specialists or surgeons, but rather to the other physician employees in the hospital “network.” The outrageousness of this conflict, one which places the interests of the patient dead last, cannot be overlooked or overstated, in my opinion.
2)Greedy doctors will skimp on quality, as they first, can’t be trusted to police themselves and second, won’t use the latest technology because this expense comes right out of their pocket. The truth is that the lack of administrative layers allows for the purchase of new technology almost immediately once it is proven and available. We have had new surgical devices and technology delivered the same day as requested at our surgery center! This is one of the primary reasons that surgeons want to own and operate their own facilities: so that they will have what they need to perform surgeries in a state-of-the-art manner, without having to make their case to someone making more money than them with no clinical knowledge, whatsoever. Low quality surgeons tend to be removed or kicked out of facilities because, once again, no one wants to share their liability. So much for a lack of policing ourselves.
3)Greedy doctors will not see uninsured, Medicare or Medicaid patients in their facilities. This ”cherry picking” will leave all of the folks the payment for whose care is below cost, to be seen at the “not for profit” hospitals. We started quoting prices in 1997, the year we opened. Almost all of the patients were the uninsured, patients left in the street by the outrageous pricing of the big hospitals. What the giant hospitals don’t want you to know is that they have very successfully lobbied for much larger reimbursement from Medicare and Medicaid for their facilities, while simultaneously having incredible success lobbying for lower reimbursement for their physician-owned competitors! For the hospitals to subsequently claim that the physician-owned facilities are “cherry picking” neglects the fact that any patient that walks through the hospital doors is a cherry. Various rules and regulations apply to physician owned facilities that accept federal money, rules and regulations that don’t apply to the big hospitals. In spite of these facts, almost all physician-owned facilities deal with federal health programs. We have never taken a dime of federal money at our facility. I still see Medicare patients, but they leave their Medicare card in their car and we work out a fee that seems fair to both of us.
4)Patients will die unnecessarily in physician-owned facilities because a cardiologist or a neurosurgeon, while immediately available at a large hospital, would be completely unavailable in a specialty hospital or outpatient surgery center. This is ludicrous for two reasons. First, if I need a cardiologist at my surgery center, I pick up my cell phone and call one. They show up in minutes. In fact, I’ve been told that in hospitals that employee pulmonary doctors and cardiologists, getting them to show up quickly or even at all, is very unlikely! Private practice physicians, particularly specialists and surgeons, live and die by the quality of care they deliver to patients and the service they provide as consultants to the referring physicians. I was actually talking to a cardiologist on the phone about a patient in our recovery room years ago, when he walked into my recovery room unannounced to see the patient (and to see me talking to him on the phone!).
5)Left to their own devices, greedy doctors will order unnecessary lab tests on their patients to create more revenue for themselves. I have had relatives and friends have surgery at big hospitals in the past, only to have unnecessary EKG’s, lab and xrays done prior to the surgery. The surgeon didn’t want this. The anesthesiologist didn’t need this done. It was hospital policy. If you guessed that this is the hospital policy because it is a huge revenue generator, you get a gold star. Hospital-employee doctors are under constant pressure to order more MRI’s and xrays in order to “pump up their production numbers.” The hospitals having paid top dollar to buy out many of these physician practices routinely lean on them to churn patients for revenue in order to realize a return on their “investment.”
6)Physician owners are just in it for the money. Oops! Check out our prices online, compare them to the hospital prices and try saying this out loud with a straight face!
G. Keith Smith, M.D.
1). It is expensive to provide health care.
It actually is not that expensive. What most hospitals charge for healthcare is another matter altogether. Even the supply costs are not that expensive and as a health care facility owner/manager I can speak from experience. Understand that medical facilities are not economically unlike utility companies that incur high fixed costs at startup, but once they are up and running, the additional cost of adding another consumer/patient approaches “zero.” In other words, hospital overhead doesn’t significantly increase with the addition of more patients.
2). Big city hospital emergency rooms are a big money loser.
See #1. Also, if this were true why is there a crane in front of almost everyone of them, building on? This hospital department represents the portal to some of the most lucrative activities a hospital encompasses with imaging, laboratory and surgery. One hospital system in Oklahoma is building free standing emergency rooms! Enough said.
3). Cost shifting is necessary for hospitals to stay afloat.
I’d say they have overdone this a bit, as plenty of money is available for the sponsorship of sports franchises, hostile takeovers of physician practices (particularly those in rural communities), subsequent hostile takeovers of rural hospitals, building and advertising campaigns….I could go on. Also keep in mind that when hospitals admit to shifting costs to those who pay from those who don’t, they are admitting that they provide no indigent care, after all. All they are doing is fronting the money to one they are going to take from another, while complaining that they have “lost” money.
4). Not for profit means not make a profit.
It actually means, “don’t pay tax.” How would you like this deal? Charging giant sums and “writing down the balances” allows these entities to maintain the fiction of their “not for profit” status. As I’ve said before, “the one thing these not for profit hospitals are good at is making money.” Over sixty percent of personal bankruptcies are due to the medical bills that these “charitable” hospitals create.
5). Physicians referring their patients to the facilities they own represents a conflict of interest, while doctors employed by a hospital referring to their mother ship does not.
Doctors who over-utilize, doctors who do unnecessary surgery are out there. They typically work for corporate hospitals, though, as fellow physicians don’t want to be co-owners with these idiots due to the increased liability involved. Seriously, why is it not ok for physicians to own hospitals but it is ok for hospitals to own physicians? Hospitals lean on their employed doctors to order more MRI’s and lab and do more surgeries all the time, so that they will “earn their keep.” Exaggerating the complexity of daily hospital visits by hospital-employed physicians, using “cut and paste” electronic medical record technology, is also widely encouraged.
6). Upfront and transparent pricing is impossible in health care.
We have done it. Enough said. Hospitals can’t do this. Hospitals are doing this. Ok. I said more than I should have.
7). Free market principles don’t apply to health care.
Free market principles always apply, in spite of all attempts by the state to thwart them. Acting in concert and consistent with free market principles allows for the most rational and fair and least wasteful and most moral allocation of resources. Acting in concert with the free market and its characteristic open competition causes quality to soar and prices to plummet. Every time, no exceptions. Patients from all over the country are using our online pricing to leverage better deals in their local medical markets, as our facility and others embracing transparent pricing are only a short plane ride away! As hard as many hospitals are trying to avoid it, they are in a competitive marketplace whether they like it or not. Those in the medical industrial complex who say that free market principles don’t apply to their industry are typically those who benefit from avoiding competition at all costs.
8). Patients have no idea how to shop for quality health care.
I have found just the opposite. Most patients are adept at spotting a charlatan doctor or a poor quality facility. The first thing many notice is the “treated like a number” feeling. Patients tend to trust the doctors that will take time to talk with them and explain their condition and options, not force feed them some canned speech. Contrast this with patients going to see corporate hospital employee doctors, having no idea that these doctors are sending them to specialists and surgeons they are told to patronize, not specialists who are any good. I think that patients are better off shopping for quality themselves, rather than leaving this to the “network” of employed doctors. These doctor-employees are too conflicted and compromised.
9). The more you pay for healthcare the better it must be.
Actually the less you pay for health care the more likely it will be of higher quality! This is counterintuitive but let me explain. A new participant in the medical marketplace must compete in order to draw patients. Price is one way to compete. High quality is another. Medical entrepreneurs risking their own capital are like any others in that they compete on price and quality to mitigate the risk of losing their shirt. On the flip side, corporate medicine (most hospitals) has taken steps over the years to insulate their facilities from competitors (licensing requirements, certificates of need, etc.) and feeling less need to compete, don’t risk nearly as much by ignoring quality in their institutions. When someone recently said to a large hospital CEO,” ..shouldn’t it bother you that your hospital is the worst value, highest priced player in the market,” the CEO said, ”No. We have leverage.”
10). Obamacare was promoted by people who care about our health care.
The stock prices of corporate health care soared after Justice Robert’s ruling. These are the true beneficiaries and the reason this legislation was pushed. Rather than serve customers and profit from this market action, these corporate hospital players will extract their loot from the taxpayers, the quality of their product or service divorced from any quality or value perception by the patient. Poor patient care in hospitals will now be treated the same as poor outcomes in public schools. More money will be thrown at them. This model of rewarding incompetence will insure that the health care bureaucrats, those who promoted this “law,” will thrive.
- G. Keith Smith, M.D.
Years ago, I hired a carpenter to build a deck in my backyard. This scraggly guy showed up with a pencil behind his ear, a spiral notebook and a tape measure. I told him what I was looking for, what kind of wood and how big I wanted it to be. He made two or three suggestions, we agreed and then he went to work measuring and taking notes. Fifteen minutes later, he handed me a piece of paper with how much it would cost. Then he was gone.
In two days, he called me and said he would like a payment for the lumber and told me how much it was. I sent it to him. Five days later, he showed up with the lumber-already cut. This guy knew what he was doing.
At the time, it blew my mind that he showed up with all of the lumber already cut, ready to assemble/nail. As I look back, I realize that this man, like so many others in a true market economy, did the most amazing thing, the very same thing we have done at our surgery center and what so many hospitals say is impossible: he gave me an up front price.
Now you want to say, “Smith! Building a deck isn’t surgery.” Contractors like this man, however, have run into unanticipated problems that make certain jobs more difficult than others. Experienced contractors anticipate these future problems when evaluating a potential job, factoring this into their price. Most of the time they get it right. Sometimes they get it wrong. If their error rate isn’t factored into their price, they go broke. If their error rate is low, they are able to be much more competitive in the marketplace.
I think of this carpenter often. I certainly had him in mind when I formulated our internet pricing. I knew that some cases would be more difficult than others. I knew that we would probably lose on some and make a little better marginal profit on others. This is what all businessmen do every day in every sector of the economy-except healthcare, it seems.
Eleven years ago, we began construction of the large facility in which we now work in Oklahoma City. The general contractor and the architect gave us a number. Not an estimate. A number. They had factored in to their calculation variables that could represent setbacks, still allowing for a reasonable marginal profit. I had been providing occasional prices for the uninsured and poor having surgery for years by this point, but found the contractor’s confidence in what our new facility would cost, fascinating and incredible.
When I think about the number of times I have heard the hospital folks say that fixed, upfront pricing in health care is impossible, I think about these builders/contractors. I think about my carpenter. Having provided transparent pricing to surgical patients, I have found that in some cases I was wrong. In some cases I was too high, in some cases I was too low. Adjustments were made. Not at the expense of the patient, though.
Transparent pricing is necessary for any concept of value to have meaning. Transparent pricing is necessary in order for appropriate signals concerning scarcity or abundance/surplus to have meaning. Non-transparent pricing is a hallmark of command economies, as Professor Robert Higgs explains in his brilliant book, “Crisis and Leviathan,” one which I highly recommend. There can simply be no meaningful competition when the prices aren’t transparent and known up front.
Not all medical facilities need to exhibit transparent pricing in order for a competitive and market economy to emerge in health care. Indeed, our internet pricing has allowed individuals to leverage their local medical facilities, as otherwise they would have gladly jumped on a plane and come to us for surgical care, the price for which was quantifiable. In spite of big hospitals’ attempts to denigrate this idea, they have found themselves in a competitive environment, whether they like it or not. Whether patients are willing to fly to Costa Rica, New Delhi or Oklahoma City, they have a price in mind and the local hospitals are shoved against the wall with this pricing, forced to explain why they are ten times more expensive while simultaneously claiming to not make a profit. In the absence of any evidence that they are ten times better, their position (6-10 times more expensive) is a weak one.
In Oklahoma City, upfront pricing is available at our facility and several others. A group of gastroenterologists, a group of oncologists, a group of radiologists with a breast imaging center, a group of cardiologists and cardiac surgeons with a physician-controlled heart hospitals, a group of orthopedic surgeons-they all have their pricing configured. A tertiary hospital has recently joined in this effort, providing upfront pricing for inpatient procedures too complex to complete at our facility. This is a very exciting development.
Since hospitals are responsible for the vast majority of medical costs in this country, slashing these outrageous charges brings incredible savings without even touching physician pay. Since we own our facility, we are content with solid fees for our professional services with no desire to plunder and bankrupt our patients with gigantic facility fees, unlike the so-called “not for profit” hospitals. We actually act more like a “not for profit” entity than those claiming this tax-free status.
Hospitals and their shills who claim that up front pricing can’t be done, know that it can be done. They just don’t like what that means for them. They want to work on a “time and materials” basis, a recipe for waste and inefficiency, as waste and fraud generate more revenue with this model’s lack of accountability. The more materials used (with their outrageous mark-ups) the more they make. Forcing medical facilities to be transparent with legislation is a mistake, I believe, as this is a violation of the “non-aggression principle” and also will more than likely provide legislators the opportunity to sell exemptions, with little or no transparency resulting. With the movement for medical price transparency on a roll now, better, I think, to let the much more unforgiving market deal with those who refuse to be transparent. Those who won’t divulge prices will lose out to those who will.
At The Surgery Center of Oklahoma we will continue to advocate a free market in medicine, one that’s possible only when accompanied with and characterized by transparent pricing. We will continue to encourage and recruit others to join us in this effort, one that will likely bring such significant health care price deflation, that the “crisis” the government is attempting to create in order to usher in single payer, will be delayed indefinitely if not thwarted completely.
As I told someone recently, “..the genie is out of the bottle. Price transparency is here and here to stay, whether the government or the health cartel they have created like it or not.” My partners and I are proud to have played a role in the transparency effort, one which we believe will bring price sanity to surgical care in particular, but ultimately to the pricing for all medical care.
G. Keith Smith, M.D.
A fellow physician told me recently that he had seen a worker’s compensation patient who had been treated and released by another surgeon for a wrist fracture. He was now in my friend’s office complaining about his hips, knees, spine and shoulders. The patient’s records indicated that he had recently seen an occupational medicine doctor who had ordered 12 MRI scans, all performed at a facility in which he had an ownership interest. He then recommended that the patient have both knees and both shoulders operated on by his business associate, a surgeon who also has an ownership interest in the same MRI facility and one not known for his ethical leadership skills.
Before you conclude that this is an argument against physicians owning and controlling medical facilities, consider the following.
An orthopedic surgeon employee of a local hospital was called on the carpet for not ordering enough MRI scans on his patients. The next month he ordered 77 of them to get the administration off of his back.
How are these two stories different? In the first instance, rogue and unethical physicians have positioned themselves to take complete and utter advantage of the third party system known as worker’s compensation, a notoriously corrupt system where many times unscrupulous lawyers team up with unscrupulous physicians to insure that the medical bills, and hence, the “settlement” amount is maximized. These physicians and their actions hurt the reputations of all physicians, not just those of us who own and control medical facilities. After all, physician ownership of a medical facility represents a situation which almost invariably benefits patients financially when compared to any alternative.
In the second instance we are witness to the institutionalization of corruption and fraud, rather than an exception. Unlike the first example, a regrettable and shocking exception, the second is just the way business is done…business as usual. Remember that the hospital administration leaned on the physician employee, just as they had leaned on many others, to act in this unethical way, this theft becoming standard operating procedure, company-wide policy.
Whenever I hear the hospital cronies complain about conflicts of interest for physician facility owners, I ask the rhetorical question, “If it’s wrong for physicians to own hospitals, why is it o.k. for hospitals to own physicians?” Those in the hospital business that would denigrate physician ownership in general while hoping no one will notice the magnitude of their established and unethical ways, is not unlike the federal government’s prosecution of Bernie Madoff, all the while conducting a little Ponzi scheme of their own known as social security. Bernie stole a billion. Social security has stolen trillions. Also keep in mind that the federal government, Obamacare, in particular, has pushed hard for the “physician-as-employee” model, directly attacking the institution of the private practice of medicine and insuring the predominance of the giant hospital brand of fraud.
Are there some bad physician actors out there? Of course there are. At a meeting in Austin, Texas several weeks ago, I listened to health policy folks go on and on about a particularly notorious and unethical physician-owned hospital in Texas, while they defended the predatory and bankrupting giant hospital “systems” in their state, whose criminal practices are widespread and institutionalized. I would further make the point that most of the unethical physician actors are unwelcome in physician-owned facilities such as mine as the mere association with doctors like this would affect the reputation of our facility and that of each of us as private practitioners. This phenomenon of shunning actually increases the concentration of the unethical actors that are hospital employees, I would argue, a condition that bodes well for the profits of the institution with which they are affiliated, but bodes poorly for patients ending up in their lair.
What is the real problem? The real problem is the absence of the free market. It is the presence of third parties and the absence of the sticker shock that introduces the moral hazard into medical economics. When someone else is paying, patients are not inclined to question these aggressive money-making schemes by the bad actors, whether the occasional rogue physician-owners, or routinely abusive hospitals and their employed doctors. The introduction of price transparency is the beginning of the end of these scams, as a hard look at the pricing begs questions of value. ”Is a tonsillectomy at this big hospital 10 times as good, because it costs ten times as much!?” ”Is it necessary for me to have all of this expensive lab work prior to surgery at the hospital when the physician-owned facilities usually require no lab work whatsoever, in accordance with national standards?” ”Do I really need all of these MRI’s and surgeries?” ”Is this doctor sending me to this MRI facility because his employer is pressuring him to keep his numbers up?”
Let’s not let a few bad apples in the physician-owner group cause us to take our eye off of the most unethical promoters of unnecessary care: the giant, corporate hospitals and the doctors that work for them. It is they who have created and manipulated a dysfunctional, largely “corporatist” system to their outrageous advantage, subjecting countless individuals to bankruptcy, and shoved this country to the brink of insolvency.
G. Keith Smith, M.D.
Prior to the Hill Burton Act of 1946, many if not most of the hospitals in the U.S. were owned by the physicians who worked in them. Passage of this legislation created what we now think of as a community hospital. These new government hospitals brought to life all sorts of typical government baggage, including, not surprisingly, inefficiencies and higher costs. The appearance of these “community” hospitals also brought to health care an additional profit-seeker, one that was now unhinged from the physician’s control. I mean by this that the physician, no longer in control of the facility, was powerless to financially intervene on behalf of their patient when subjected to bills from these new hospitals. Think of this as the birth of the medical industrial complex.
Always greedy for more and more money, like any other government enterprise, and conjuring every excuse imaginable to get it, these hospitals were given the ultimate gift: Medicare and Medicaid. The creation of these entitlement programs put the taxpayers, rather than the patient, on the hook for the payment of hospital bills. It should go without saying that the hospitals much preferred collecting from the taxpayers than directly from the patients. Vicious price inflation in medical care was off to a good start.
Fast forward to today. Many health insurance policies now cost so much, that for many, the risk/benefit proposition of having this coverage makes no sense. This decision by many people to avoid the purchase of health insurance is a beautiful example of the market at work. These uninsured folks show up at the hospitals, though, sometimes with colds and sore throats, sometimes with brain tumors. That the insurance companies have priced themselves out of the market has now left their cartel pals, the big hospitals with some patients who are not able to pay. Not satisfied with the reimbursement from the uncompensated care scam they had previously arranged, the hospitals and insurance companies got together with their old pals in D.C. and came up with a solution: make everyone buy insurance for themselves and make everyone buy Medicaid for those who can’t afford to buy insurance. This move is not to help with access to health care. This move, just like the immediate post-Hill Burton history, was made to line the pockets of the corporate health care players, the hospitals and insurance companies. Unsatisfied with the success of their bankrupting collection practices with individual patients, they have once again successfully lobbied to transfer the burden of the bills they create to the taxpayers. This is history repeating itself.
One of the great ironies of Obamacare is the clause that prevents the expansion of or new construction of physician-owned hospitals. Crushing this trend was key to keeping this “pre-Hill Burton” medical model, one characterized by higher quality and lower prices, from getting too many people’s attention. The facility-owning physicians in this country, particularly those of us embracing and promoting price transparency, hope to bring the market back to health care, producing true health care reform that will benefit patients, not the corporate cronies for whom this legislation was written.
G. Keith Smith, M.D.
I thought some of you might like to read the remarks I delivered last night at the AAPS regional meeting in Austin, Texas.
Almost 16 years ago now, Dr. Steve Lantier and I left the operating rooms of the big hospitals and began our practice in operating rooms that we owned. Looking back on our decision to leave our very busy hospital practices behind and take this risk, I now realize that we did this in spite of all of the information we had, in spite of all that we had been told by those involved in health care. Our distrust of hospital administrators and the corporate medical world had become so complete that what I now understand to be an entrepreneur’s business calculation was made assuming that all we had been told was false. This, it turns out, was good judgment on our part.
At a recent conference conducted by the Mises Institute in Houston, one which seemed to focus on the difficulty entrepreneurs have in the current business environment, I came to the conclusion that we started our surgery center not based on a typical business pro forma type of plan, but based on the belief that everything we were hearing from hospital administrators about the business of health care was untrue, propaganda meant to discourage physicians from doing what we were setting out to achieve. The anxiety we endured in pursuing this venture was mitigated by how troubled the hospital administrators were by our even considering making this move.
Indeed, we had been told numerous times that the operating room staff needed to be down-sized, because the hospital simply couldn’t make ends meet, the revenue generated by surgical cases inadequate to pay sufficient staff. Large and unacceptable patient to nurse ratios in postoperative surgical areas were justified with the same lies. The lack of proper equipment and supplies necessary to perform certain surgeries and a lengthy committee process for acquiring any new supplies were the order of the day, rather than the exception.
Dr. Lantier and I were convinced that something about this didn’t add up. We knew for certain who we were dealing with when after the Murrah bombing one hospital administrator in Oklahoma City publicly complained that his hospital hadn’t received their fair share of the victims. We opened The Surgery Center of Oklahoma in May of 1997 and knew within 2 months that the highest quality of care with a full staff was not only possible, but could be accomplished profitably for about a tenth of what these so-called “not for profit” hospitals were charging patients.
The hospital lies and propaganda have continued for many years, culminating in the one great lie that led so many to naively embrace Obamacare: that hospitals were struggling financially due to all of the uninsured folks utilizing their emergency rooms, leading to what we all know as “cost-shifting.” I have written about this lie extensively and we all now know that the hospitals get paid even when they don’t get paid, in fact, to the extent that they claim they don’t get paid, they are paid more. This is the uncompensated care system they don’t want anyone to talk about, a gift from Uncle Sam and one which happens to be one of the engines for giant hospital bill creation.
I would never have understood the various lies conjured up by hospitals to maintain the fiction of their “not for profit” status had I not owned and operated a medical facility. One of the first clues that something was wrong was that most insurance companies, in spite of our quality and pricing, avoided dealing with us. The answer to “why wouldn’t an insurance company like better and cheaper” although a mystery then, is apparent to us now. A look at the diagram located in this prior blog (“Anatomy of a Cartel”) will help you understand this seeming paradox.
The only way to shine a light on this price-fixing cartel was to post prices online for all to see, a move we made 4 years ago next month. Incredibly, the first patients to take advantage of our pricing were Canadians, followed by patients from those parts of the country where the tight grip of the cartel and the subsequent lack of any semblance of market competition has rendered the high prices you would predict from such an arrangement.
Our facility is now frequented by people from all over the country and outside, patients with high deductibles, patients waiting in lines, patients with no insurance whatsoever, and increasingly, patients whose care is paid for directly by the companies for which they work, the “self insured.” You can imagine the conversations that I’ve had with the CEO’s of large companies who have been paying $30,000 for operations that they now see could have been obtained for $3500 at our facility. You can also imagine the conversations they have had with their insurance brokers who have known about our facility and pricing and have nevertheless failed to alert their client of our existence.
Our price-posting has had another effect. Rather than travel to Oklahoma City, more and more patients are using our pricing to leverage rational fees at facilities in their hometowns. Just last month, a Georgia patient whose primary care doctor was aware of our website pricing, was quoted $40,000 for a trans-urethral resection of his prostate, whereupon he informed his urologist he was headed to Oklahoma City, where we would do this for $3600. Overhearing the disgruntled urologist’s reaction to losing his patient to Oklahoma City, the hospital CFO asked for details. The $40,000 quote was reduced to $4000. I think it is fascinating that our pricing saved this patient $36000….and we didn’t even do the case.
Before you give the hospital CFO too much credit, though, remember the shell game. You see, he will simply claim that he lost $36000, to bolster his “not for profit” fiction, plug that into his uncompensated care calculation and collect a portion of this “loss” from the taxpayers. Everyone, including this patient, as taxpayers, would have been therefore better off if the Georgia patient had come to our facility, after all.
The big hospitals’ nightmare of price transparency has arrived. This Georgia hospital and any others encountering patients familiar with our pricing have been thrust into a market economy whether they like it or not. Having eliminated potential competitors with certificate of need laws all over the country, these corporate hospitals must now contend with our facility’s and others’ fair and rational pricing, just a short plane ride away. That other facilities are doing this with more on the horizon removes several teeth from protectionist legislation like certificates of need, I think.
The medical price deflation resulting from a new competitive healthcare market, poses an incredible threat to the central planners who are counting on the runaway pricing and market chaos resulting from Obamacare, that price “crisis” intentionally created to usher in the sequel to their plan: single payer. As physicians who are paving the way for many to pursue third-party-free practices, AAPS members’ contribution to this deflationary obstacle to Obamacare’s ultimate design may have, in an effort to save themselves and their patients, discovered the soft underbelly of this latest attempt by government to crush the private practice of medicine. The deflationary effect of shunning third parties, will, I think, when we look back years from now represent the undoing of this horrible and deadly law.
G. Keith Smith, M.D.
I’m having a hard time imagining Andy Griffith hiding behind a bush shooting residents of Mayberry with a radar gun. It’s even harder to imagine the residents of Mayberry buying sheriff Griffith a radar gun he could use to extract money from them, all in the name of keeping them safe.
Whatever you think of what I just wrote, I’m really having a hard time trying to discern the difference between the above and the business of many “not for profit” community hospitals. These hospitals often times use taxpayer-funded bonds (I really wish people would use the full name…”bondage”) to expand what amounts to an instrument of bankruptcy for the residents who invariably vote for these bond measures.
Think I’m overstating things? At least one community hospital in Oklahoma charges $9000 for a colonoscopy, a procedure that a physician-owned lab will do here in Oklahoma City for under $600 (and do it better, I would add). How many times have you heard someone say they received a $1000 bill from the emergency room for a laceration that required suturing or some other minor intervention? Followers of this blog know how our profitable prices compare to those facilities supposedly not making a profit!
62% of bankruptcies in this country are related to health charges. Here’s the crazy part: 78% of those bankrupted by their health bills have health insurance. As ostensible bond-holders of these back-breaking hospitals, you would think that some of these folks would get a break from these institutions.
Keep this in mind the next time a bond issue comes up in your community to expand this or that part of what will undoubtedly end up being a bankrupting speed trap for the sick and injured.
G. Keith Smith, M.D.
This Friday, the State of Oklahoma will award the Surgery Center of Oklahoma their “Entrepreneurial Excellence in Oklahoma” award. At 1:00 p.m. Dr. Lantier, myself and available staff will accept this award on behalf of the entire staff from the Department of Labor’s commissioner, Mark Costello.
The staff at the labor department extended invitations to various dignitaries and the media but Dr. Lantier and I would like to extend an invitation to anyone and everyone that would like to attend this presentation. Please join us this Friday in a rare display: government recognizing entrepreneurship, in particular, entrepreneurship free of state or federal grant (taxpayer) money.
We are very pleased to have been selected for this award and hope that other states will follow the lead of Oklahoma’s legislators past and present, in creating a climate where the free market can thrive in the delivery of medical care, an approach whose time has finally come, and one that has already shown itself to be the great medical hope of all, particularly the poor.
We look forward to seeing as many of you as can make it.
G. Keith Smith, M.D.
Here is a piece I recently wrote for RetireEarlyLifestyle.com I thought I’d pass along:
A little over 15 years ago, Dr. Steve Lantier and I began the operation of The Surgery Center of Oklahoma. We invited 10 surgeons to join us in this venture, physicians who like us were tired of the old hospital games. We had grown tired of the way hospitals treated us, the surgeons we worked with and the way they treated patients, frankly. We decided that we could complain about this the rest of our careers or try to do something about it.
From day one our mission was very simple. Provide a quality surgical experience that was second to none, charge patients fairly and honestly and never deal with the federal government programs, Medicare or Medicaid. In our 16th year now, we have never deviated from our mission.
Over the years, uninsured patients in the Oklahoma City and surrounding area came to know our facility as the place to go, as we would quote them prices over the phone, prices that were a tenth or less the amount they would be charged at the so-called “not for profit” hospitals here in town. As I tell people now, by virtue of our physician-ownership structure, we had eliminated the most inefficient and greedy profit seeker from the surgical price equation: the big hospital.
We very naively thought that insurance companies would flock to us, as in a market economy, high quality at very low prices usually brings ample business. On the contrary, insurance companies assiduously avoided us, steering with all the power they could muster (through various “out of network” penalties and deductible tricks) those who were under their policies to the large, more expensive hospitals. This “steerage” away from our facility led us to a point where about 4 years ago, we decided to post our prices online for all to see. We could not in our wildest dreams have foreseen the effect this move would have here in Oklahoma City and indeed, in the whole country (even outside of the country).
We had hoped to make ourselves more “known” to the uninsured population requiring surgery, but primarily wanted to expose the price-fixing arrangements between hospitals and insurance groups. The first thing that happened, however, shocked us. Canadians started calling. And then flying to Oklahoma City for their surgery. Individuals with high deductibles and increasingly, self-insured companies have been drawn to our upfront and bundled pricing as well, pricing that is all-inclusive, the facility, surgeon and anesthesia fees altogether.
Other physician-owned facilities in Oklahoma City, following our lead, are now providing price quotes for joint replacement and open-heart surgery. Oklahoma City has now become a medical tourist destination for people from all over the United States and beyond.
Upfront and honest pricing has been absent from health care for far too long. While our price transparency has led others locally to join us in this effort, it has spurred a national effort, as well. Some physicians and facilities are inclined to emulate our model simply because it is the right thing to do. Others are frantic to do so, as patients are coming to Oklahoma City, rather than have their operation in the town where they live, whether in Anchorage or Fort Lauderdale. Surgeons and hospitals far from here don’t like to see patients head out the door for Oklahoma City for any reason, least of all for not having provided them a price for their care. This fear of loss of business we believe will continue to fan the flames of price transparency in this country, leading invariably to a deflationary effect on pricing everywhere.
We are blessed to have met grateful patients from all over the country and beyond and there are so many great stories to tell. I often think of the Canadian woman who was told she would have to endure her painful uterine bleeding for 3 years before she could see a gynecologist for a hysterectomy. She was quoted $40,000 at a big name hospital (not including the surgeon or anesthesia fees) in the northeast U.S. We did her surgery for a fifth of that. I often think of the man from Minnesota who had ruptured a disk in his back and was unable to walk and in constant pain, with a numb and useless foot, as a result. He was quoted $80,000 after begging for a price by a big name hospital in his state. We did it for a tenth of that. He did well, but went home only to slip and fall, an injury that required another level of his back to be operated on. We did that surgery too, for only the cost of the supplies, the surgeon and anesthesia fees, waived.
While we hope our model catches on, we also look forward to meeting more patients requiring affordable surgery from all over the world.
G. Keith Smith, M.D.