The FREE Market in the Healthcare Industry
Interview with Dr. Keith Smith Part II – Surgery Center Of Oklahoma
Mandeville, LA – Exclusive Transcript – “Final question, I read your blog post a couple days ago, the one that had to deal with you breaking ranks. You had received a phone call from a TPA, third-party administrator. You had a conversation which you kind of transcribed. I took it to mean that your point was that one of the larger hospital chains that deals with insurance companies with inflated prices was calling to try and find out how much one of your services cost, not so that they could use it, but so that they could compare their price and see how out of scale they were.” Check out today’s transcript for the rest…
Begin Mike Church Show Transcript
Mike: Folks, if you want to find out about the Surgery Center of Oklahoma, it’s easy to find. You can just Google search it or go to SurgeryCenterOK.com. Are there any limitations on the types of surgeries that you offer at the Surgery Center? Do you cover orthopedics, cardiac? You already talked about the gynecologist stuff. Anything that you don’t do?
Dr. Keith Smith: Yeah, there are some things we don’t do, but we’re being surrounded here in Oklahoma City by other healthcare facilities that are embracing this model. Cardiac surgery, joint replacement — there’s a large full-service hospital, Deaconess Hospital, that’s joined us in this effort and has broken ranks with all the other big hospitals. They love what we’re doing. Cancer therapy is available. In Oklahoma City, there’s a real revolution going on where people are embracing the free market and sort of discarding the old, unsustainable system. Our facility is an outpatient surgery center. We’re limited to outpatient surgeries. If somebody emails me, many times I can get them connected with an oncologist or a heart surgeon. That’s all available here in Oklahoma City for a fixed price up front.
Mike: I may have to move to Oklahoma. Final question, I read your blog post a couple days ago, the one that had to deal with you breaking ranks. You had received a phone call from a TPA, third-party administrator. You had a conversation which you kind of transcribed.
I took it to mean that your point was that one of the larger hospital chains that deals with insurance companies with inflated prices was calling to try and find out how much one of your services cost, not so that they could use it, but so that they could compare their price and see how out of scale they were. Was that why you wrote the post or did I misread that?
Dr. Smith: The purpose of the post “Breaking Ranks,” this was a giant insurance company, one that would not contract or deal with us since we opened in 1997, wouldn’t even talk to us on the phone. They have this deal with their big hospital pals and they just don’t deal with us at all, regardless of our quality and pricing. They gave me a call. They said: Listen, we are paying the claim for someone who needs a rebuilt eardrum, a tympanoplasty. If we have it done at one of these hospitals that’s one of our pals, they’re going to kill us. They’re going to charge us an arm and a leg. Will you do it and how much will you charge? I just gave them a price. After I hung up, I realized they’ve broken ranks. This whole syndicate is unraveling. These behind-the-veil deals with the hospitals and their insurance carriers, it’s breaking down. That was the significance of that call. I’ve never gotten that call.
They faxed over and I signed a contract holding me to that price for that single case. That’s a patient that rather than be charged $35,000 for a tympanoplasty is going to come to my facility and it’s going to be $4,800. The reason this call happened is this giant insurance carrier is administering the benefits for a self-funded company. The CEO of this self-funded company, an oil and gas company, he called this insurance carrier that administers his claims and said: Hello? The Surgery Center of Oklahoma is across town. Why don’t you call them and see if you can get a price instead of just bankrupting our health plan with this insanity. The carrier got pressured from the CEO to make that call. As the knowledge gets out, this whole thing, all of these scams, all these backroom deals will unravel. That was the significance of that call.
Mike: Wow. So in other words, the way these things work, which is not market-based — I’ve been talking about this for years, that the only way you can get a handle on any pricing of anything is to have people pay for it. If they don’t pay for it —
Dr. Smith: That’s right.
Mike: If you don’t actually pay for it, if you don’t exchange money or gold or silver or chickens or whatever the barter may be at the time of the sale, then the market can’t allocate supply and won’t have a handle on demand. This is why my buddy Tom Woods, the economist, says that the pricing system is the greatest economic tool that has ever been designed or created or used by man. What it sounds to me like is that someone, you, Dr. Smith, and your colleagues at Surgery Center of Oklahoma have said: This is not that difficult to find out, not that difficult to administer. We just need to charge prices that are published. Let me ask you, you’re heartened to see you have competition, right?
Dr. Smith: Yeah. That was the whole point. We wanted to encourage everyone to do this. Understand that I cut my teeth on my understanding of prices from Von Mises’ book Socialism. The prices, rather than elicit an emotional response, just need to be seen as signals, whether there are surpluses or shortages on the buyer and seller side. We want everyone to understand that. In fact, I’m starting an association with three friends of mine, the Free Market Medical Association where there’s going to be a forum. There’s going to be a platform for every physician and facility in the United States, and even outside the United States, that wants to embrace price transparency and rational pricing. It’s going to be a resource for everyone to look at price shop and price compare so that they can make a decision of value, which is how we do everything else.
Mike: It’s like my buddy David Simpson says, we have insurance for all the wrong reasons these days. You should have insurance as a backstop against a catastrophe. When you have insurance, the purpose of buying insurance is so that you don’t use it. The insurance companies actually encourage you, it’s better for them if you don’t use it. You should only buy it for an instance in which you would have a need for an invasive procedure like the one you’re talking about. To hear you talk about it, it’s not the $470,000 deal we’ve been led to believe because I’ve got a knee that needs replaced. It can actually be done in an operating room that can be rented by the hour, actually. I’m going to rent an anesthesiologist to knock me out. I’m going to need an orthopedic surgeon who’s going to charge an hourly rate. You’re going to need some titanium to put in your knee. And you’re going to need some follow-up care. We can price this out. This isn’t hard to do. It’s no different than fixing a car. There may be a few variables here, but at the end of the day you should actually be able to attach a price to it. Yes, it is expensive, but relatively speaking, you’re going to keep the knee for 20 years. Amortize it out. It’s not that bad, is it?
Dr. Smith: That’s right. I have that price on my website. A total knee or hip replacement is not a procedure that we do at our facility. It’s done at the facility next door, the McBride Orthopedic Hospital. They’re not comfortable listing their prices online because of federal rules and regulations, so I put their prices on my website. That total knee, including the surgeon, anesthesia, facility, and the cost of the titanium implants is $19,000 and change. You can see it on my website. They do as many or more total joint replacements there as anyplace in the whole United States. It’s very learnable. It’s very understandable.
We can’t let the insurance companies off the hook. They, along with the hospitals, are the primary beneficiaries of this crony legislation. The insurance companies have their own little scam called re-pricing. This is very important for people to understand. You think: Wait a minute, insurance companies want to make money. Why wouldn’t they want people to go to my facility where they have to write a smaller check for better care? The reason is — this is so counterintuitive — the insurance companies make more money the higher the bill. The higher the bill from the hospital, the more money the insurance company makes, and they do this by selling discounts. If an insurance company gets a $100,000 bill and they ride in on their white horse and reduce that hospital bill to $20,000, someone is going to pay for that $80,000 of fictitious savings. That’s called re-pricing. Sometimes it’s the employer group. There are various ways this happens and these bills are paid. But if you think through that, they’re actually incentivized to seek out the highest bills they can find. The greater the amount of the discount, the greater their commission on that fictitious savings that they offer. That’s why they want no part of affordable healthcare. That’s why they want no part of dealing with me. That’s why this insurance company that called me on this “Breaking Ranks” blog, that is so groundbreaking. That means they turned their back on their re-pricing commission because they were afraid they were going to lose their client. The re-pricing scam, uncompensated care, all of this is a syndicate. It’s like a Mexican drug cartel the way they work.
Mike: Fantastic. I am so heartened to hear this. I can tell by the reaction already that people are excited to hear that there is an actual free market in medical services for a change, and that we’re not all going to be beholden to and subject to this cartel, as you point out, that is looming over all our heads with the requirement that we all have insurance. The irony here to me is that this is so simple that a caveman could do it. You could make a GEICO commercial out of selling medical services. Surgery Center of Oklahoma is so simple a caveman could do it.
Dr. Smith: Well, think about what you just said. If you’re paying $1200 or $1500 a month to an insurance company, at the end of the year, had you banked that money, you could have bought a total knee replacement.
That’s the good news. The good news about the (Un)Affordable Care Act is that the government never gets it right. What they’ve done, by protecting their insurance pals with these giant deductible policies that have tripled in cost, what they’ve done is very inadvertently created a consumer market. Many of the prices
that we have on our website are less than people’s deductible and copay would be going through their insurance. In fact, the largest-growing segment of our business are people who have insurance who are asking us to treat them as if they don’t. They’re saying: Listen, your price for a hernia repair, $3,060, is less than my deductible and copay. Will you just treat me like a cash player and I’ll write you a check and we’re done?
Dr. Smith: What the government has done is create exactly what we need. Of course, that was never their intention, but we need a consumer market where — this is going to be hard. This is going to be a reboot for people to get their wallet out and instead of buy crazy expensive insurance, buy healthcare. It’s incumbent upon the people that do what I do, that run facilities, and physicians, to be honest and upfront with their pricing. Then we’re off to the races and we’ll see a great deflationary movement in pricing. We’ll see quality soar, just like competition has brought value to Lasik and plastic surgery where the market is alive and well. That’s why I want all the doctors and all of the hospitals and facilities in the United States to embrace this idea. It’s very possible. It’s very reachable. I’m very optimistic that, very unintentionally, these thugs in DC that have tried to line the pockets of their insurance and hospital pals, they’ve actually given us a shot at free market in healthcare that used to be the envy of the world.
End Mike Church Show Transcript