G. Keith Smith, M.D.

Here is Representative James Lankford (R, OK) at 16:35 into the hearing mentioning our facility.  Representative Lankford has been fearless in his endorsement of our free market and transparent approach to medical care and pricing since first going to Washington in spite of intense pushback from the hospital lobby. 

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.

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.

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.

My father recently asked me if any of the hospital administrators whose billing practices have bankrupted countless patients ever had face to face contact with those whose lives had been ruined by their greed.  Or, he asked, were they like drone operators, destroying people’s lives in a remote, impersonal way safe in their office?

Look around.  Hospitals building everywhere.  Sponsoring sports franchises.  Buying advertising in high-priced media outlets.  Ceaselessly buying physician practices.  Buying rural hospitals destroyed due to having bought all of the small town physician practices and diverting their referrals.  Building on to their emergency rooms.  Building free-standing emergency rooms, so-called loss leaders for their institutions.  Multi-million dollar “logo” changes.  Giant and well-payed administrative staffs. This is what you see.   One of my partners told me the other day that after reading TIME Magazine’s article on abusive hospital billing practices, in which Oklahoma City’s own Mercy Hospital was named, that the rotating cross on top of their hospital should be replaced with a dollar symbol! He is seeing things pretty clearly, I think.

Contrast what you see with what you are hearing.  Hospitals are going broke.  They can’t make ends meet.  The uninsured are breaking the hospitals’ backs from emergency room over-utilization.  Hospitals won’t survive unless Medicaid is expanded (funny that they want this expansion yet this is a program they simultaneously claim underpays them and justifies their cost-shifting to others!).  These are the lies that are primarily responsible for bringing us Obamacare.

The truth is that economically, hospitals are not unlike utility companies in that they have high fixed costs.  As Thomas DiLorenzo explains in his brilliant book, “Organized Crime: The Unvarnished Truth About Government,” once the plant is built and the power lines are present, the cost of adding an additional utility customer approaches “zero.” Once the emergency room is built and staffed, the actual cost of adding an additional patient approaches “zero,” other than the actual supply costs.  As a physician who owns and operates a medical facility, I can tell you that the actual supply costs are not that high even in a surgical environment. 

Also keep in mind that while the hospital spokesmen claim that they have to take everyone regardless of their ability to pay, they get paid even when they don’t get paid, throught the uncompensated care scam.  As I’ve written previously, as the hospitals wave the charity flag with one hand they are fleecing the taxpayers through this scam with the other. 

When Jim Epstein of Reason Magazine was here to do his piece on our facility, he discovered that the amount Medicaid paid local hospitals exceeded what we had listed online.  Keep in mind that these “horrible reimbursements” by Medicaid are one of the primary excuses used to justify cost-shifting by these hospitals.  And think about this:  if the costs for the indigent are shifted to others who do pay, how is it that the hospitals are providing indigent care?  Seems to me they are getting paid for everyone that comes through their doors when you think about it this way, the uncompensated care scam notwithstanding.

We make a profit at the prices we have listed online.  These prices are 1/6-1/10th the prices charged for the same procedures at most “not for profit” hospitals.  This is what you can see for yourself.  What you hear if you listen closely is a quiet panic engulfing those in the medical industrial complex now that this free market, transparent pricing model is getting noticed and gaining ground.  This movement, if left to its own devices will reduce the cost of care and raise the quality bar, just like competition does in every other sector of the economy. 

G. Keith Smith, M.D.

Imagine that you own a company with 100 employees.  Your company has provided traditional health insurance to your employees at a cost of $45,000/month until about 3 years ago when you discovered that you could “self-insure.”  You made this move because for many years in a row, the dollar amount of the health claims submitted by your employees didn’t amount to the dollar amount of your insurance premiums.  You realized that had you paid for your employees’ health needs out of your operational revenue, you would have been financially better off.  Very simply, you now pay this $45,000/month to a fund/trust you set up within your company, out of which health related expenses for your employees are paid.  You back this “fund” up with insurance that kicks in for catastrophic claims.  

This catastrophic claim deductible (called an attachment point) amounts to your liability or exposure for any given employee’s health needs.  This catastrophic insurance is commonly referred to as “stop loss” insurance.  As a result of your decision to do this, you now have $1,000,000 in this “fund” or “trust” that would have otherwise been paid to an insurance company.  Rather than have an insurance company say what is or is not “covered” you can help your employees with their expenses more personally and more efficiently, having eliminated the insurance company middleman. 

Let’s say that your attachment point is $30,000.  This means that if an employee has $28,500 of health claims in a year, you pay every dime out of your “fund.”  If they have $90,000 of claims, you pay $30,000, the stop loss insurance paying the rest.  This is oversimplified, but you get the idea.

Actuaries make their living by applying mathematical models to help self-funded health plans “guess” what their loss experience will be.  This information helps determine what the attachment point should be and also helps determine what sort of cash reserves a company should keep on hand.  What is the statistical likelihood that one of your 100 employees will develop cancer?  What is the statistical likelihood that 5 of your 100 employees will incur claims of over $30,000?  These are the types of things that, although uncertain, are predictable within limits. 

Part of the problem that actuaries have with their calculations, however, is that one never knows what a cardiac surgery or a hip replacement or a gall bladder removal or a tonsillectomy will cost.  There has been simply no way for actuaries to get this information in advance.  You can see where this is going, can’t you?

The significance of transparent and upfront pricing that we have embraced and that more and more physicians and facilities are embracing is revolutionary for the self-funded plans, as employers taking this approach can now with much more certainty, ascertain the “risk” their plan must endure.  Furthermore, as the costs of healthcare have skyrocketed over the last few years, smaller and smaller companies are venturing down the “self-funded” path, making this decision based on cost savings and partly to maintain some autonomy. 

To quote Jim Epstein from Reason Magazine:  “Enter Obamacare!”  This central planner’s dream catcher has made the risk-benefit proposition of self-funding an even better decision, as self-funded plans are not subject to many of the provisions of this legislation.  I have maintained all along that Obamacare was meant to fail, a Trojan horse meant to introduce chaos and even higher prices into the medical economy, just the nightmare the state needs to justify rescuing us with the sequel…single payer. 

“That’s crazy,” many of you have said!  The Unaffordable Care Act was meant to reduce costs and protect patients and make sure that everyone had “coverage!”  Keep dreaming.  Uncle Sam doesn’t want you to have “coverage.”  Uncle Sam wants you to buy approved coverage, that is, coverage from their crony pals.  That is the purpose of the exchanges.  The price of insurance has already risen, with up to 100% increases in premiums expected (that’s right, doubling) for January renewals.  Residents of states that have embraced Medicaid expansion will (an expansion pushed for hard by none other than the big hospitals) soon hear these same hospitals whining about all of the new Medicaid patients that are not covering the costs of the care they receive and using this as their excuse to continue to aggressively “cost-shift” to others.  Translation?  The charges and costs everyone will see at these big “not for profit” hospitals will escalate, particularly in the states where Medicaid expansion and exchanges are embraced!

Back to the self-funded bunch.  The government can’t just let these businesses stay on the sidelines, refusing to wade into the price whirlpool, can they?  70% of private insurance claims are paid by these self-funded trusts.  The government has made promises to their crony buds in the hospital and insurance industry.  This self-funded bunch must be reigned in or the scheme to mandate the purchase of health insurance through exchanges that will operate under government oversight (rationing) will fail.  As a bureaucrat, how would you devise a plan to stop the growth in the number of companies “seceding” from the system by self-funding and possibly even bring some that are already self-funded into the drowning pool?

The answer is here, here and here.  If the National Association of Insurance Commissioners is successful in destroying the “stop loss” industry in each of the states, few-no companies will take the self-funded risk, as they have no effective “back-stop” for catastrophic losses.  Bingo!  Everyone is now drowning together!  Crisis complete.  There is no doubt whatsoever in my mind that this attempt to destroy or hamstring the stop-loss industry proves that a single payer system is the goal of the statists, a system that will allow the medical industrial complex to extract wealth even more directly from the taxpayers, rather than profit by providing a service to consumers/patients. 

If the state insurance commissioners move (some are already doing this) to raise attachment points or otherwise hamstring this stop-loss industry, you will know that those state commissioners are playing on Uncle Sam’s team.  This stop-loss industry represents the biggest obstacle in this country to a Soviet-style single payer system, in my opinion.  The efforts to crush this industry are not something the “state” wants you to know about, as this will make their ultimate goal even more ridiculously obvious. 

G. Keith Smith, M.D.

The Office of the Inspector General has decided that physician owned distributorships are unethical and probably illegal.  Physician owned distributorships are companies that doctors set up to procure surgical implants from the manufacturers, implants that are then sold to the hospital once marked up by this intermediary.  I am no fan of this arrangement, as in most every case, the intermediary (the physician owned distributorship) brings no value, representing simply another layer that gets paid along the way.  There are exceptions to this but not many.  Are many of these “companies” formed to line the pockets of the physicians who set them up?  Without a doubt. 

It should be obvious that a free market would destroy these distributorships.  If surgery center “A,” for instance, is charging too much for its implants, they are ripe for competitive destruction by surgery center “B” having decided to avoid ripping people off with these fictitious markups and thus pricing their surgeries at a correspondingly lower rate.   These distributorships are viable only because the folks receiving health care are typically not the ones paying the bill, or as Jim Epstein of Reason Magazine says,” there is no sticker shock.”  

I want to be clear.  I am no fan of these distributorships because they fail the Austrian economic test, that of looking at all economic transactions from the viewpoint of the buyer.  There is simply no advantage conferred upon the buyer via this arrangement.  The hypocrisy of attacking these distributorships cannot go without comment, however.

Hospitals mark up implants 300-1200% as a matter of course.  That’s right.  A $25,000 cochlear implant will be marked up to $80,000 and a $9400 pacemaker will be marked up regularly to $100,000.  Scorpion anti-venom, obtained for $3750, morphs into a $40,000 charge in Arizona.  These criminal practices while well known to the federal government have never been addressed.  In fact, to the extent that many hospitals don’t collect on these outrageous markups, they get a secret kickback from Uncle Sam through the uncompensated care scam, where reported “losses” come back to them in the form of Disproportionate Share Hospital payments.  

So let me get this straight.  It is criminal for physicians to set up sort of phony companies through which to funnel the implants they are going to use for the purpose of making a little dough, but it’s ok for the hospitals to mark up their implants by a factor of 10, and their pharmaceuticals by 70,000%?

I know of a not-for-profit hospital system that has set up a hospital owned distributorship.  That’s right.  This for profit distributorship procures all of the supplies (implants too) for all of the hospitals in this organization, obtaining these supplies at significant discounts due to their size in the marketplace.  They then…...mark these supplies up when they sell them to themselves!  This helps to maintain the fiction of their not for profit status and furthers their take from the uncompensated care system, because they don’t pay all of the bill they give themselves, and undoubtedly report the unpaid portion as a “loss.”  

All of this insanity goes away with transparent and upfront pricing.  All of it goes away when patient consumerism is promoted.  None of this goes away as long as the federal government continues to create a distraction by vilifying the petty activities of physicians, while they ride shotgun for their hospital buddies whose bankrupting supply charges  represent institutionalized larceny, the scale of which is difficult to comprehend.

G. Keith Smith, M.D.