Three years ago, Dr. Keith Smith, co-founder and managing partner of the Surgery Center of Oklahoma, took an initiative that would only be considered radical in the health care industry: He posted online a list of prices for 112 common surgical procedures. The 51-year-old Smith, a self-described libertarian, and his business partner, Dr. Steve Lantier, founded the Surgery Center 15 years ago, after they became disillusioned with the way patients were treated at St. Anthony Hospital in Oklahoma City, where the two men worked as anesthesiologists. In 1997, Smith and Lantier bought the shell of a former surgical center with the aim of creating a for-profit facility that could deliver first-rate care at a fraction of what traditional hospitals charge.
The major cause of exploding U.S. heath care costs is the third-party payer system, a text-book concept in which A buys goods or services from B that are paid for by C. Because private insurance companies or the government generally pick up most of the tab for medical services, patients don’t have the normal incentive to seek out value.
The Surgery Center’s consumer-driven model could become increasingly common as Americans look for alternatives to the traditional health care market—an unintended consequence of Obamacare. Patients may have no choice but to look outside the traditional health care industry in the face of higher costs and reduced access to doctors and hospitals.
In Oklahoma City, there’s an alternative health care market taking shape in which hospitals offers competitive flat fee prices to self-funded companies. And it’s all modeled after the Surgery Center.
This was the brainchild of Jay Kempton, who is the president of The Kempton Group, which administers health care plans for self-funded companies. When Kempton met Keith Smith, he had been looking for a way to help his clients deal with their exploding health care costs. “Cutting edge procedures are justifiably expensive,” Kempton concedes. “But what we also see are soaring increases in relatively garden-variety procedures, like a knee resurfacing or a carpal tunnel release. Those things should not be experiencing 10 or 15 percent inflation every year.”
So Kempton and Smith came up with a cost-saving arrangement: If their employees agreed to be treated at the Surgery Center instead of a traditional hospital, they would be spared the cost of all co-pays and deductibles.
“It makes me mad that people are bankrupted by our current health care system when many times the costs are completely unjustified,” says Smith.
Is Kempton’s model replicable in other places? There are obstacles. Oklahoma has an unusually entrepreneurial health care sector, which stems from a 1989 decision to roll back the state’s Certificate of Need (CON) laws. CON laws, which are still on the books in 35 states, require all medical facilities to get permission from a planning board before opening, which in practice provides a way for traditional hospitals to use political influence to keep new entrants out of the market.
A new provision buried in Obamacare effectively prohibits doctors from starting their own hospitals or expanding the hospitals they already own, which has been widely interpreted as a give-away to the American Hospital Association.
The Surgery Center is exempt from this statue, since it’s technically not a hospital and it doesn’t accept Medicaid or Medicare. So Smith and Lantier are considering expanding to accommodate their growing clientele.
Smith believes that despite the obstacles, market-driven facilities like his will thrive and proliferate as consumers catch on to costly collusion between big government and big health care.
Says Smith: “Everyone can see what the prices are at the Surgery Center, and that affordable health care is possible. So the jig is up.”
I have already excerpted more than I should have, so if you are interested in health care costs and their impact on virtually everything in our lives you really should read the whole thing.
H. M. Stuart