Surgery Center of Oklahoma: Better Living Through Free-Market Health Care
April 9, 2014
Patrick B. McGuigan
You had to be paying attention, or have it called to your attention. Thanks to a little bit of both, I’ve investigated another fascinating example of health care affordability in an increasingly insane health care market.
It’s a blessing to share the good news.
In mid-February, members of the Oklahoma County Budget Board approved, and then signed, a contract with Surgery Center of Oklahoma. In the long run, that one move may be regarded as among the most significant steps in county history to save taxpayers real money, in real time.
At their February 20 meeting, the budget board approved a “provider services agreement” between the Surgery Center and the county. County Clerk Carolynn Caudill, a Republican, requested approval.
Legality of the accord was approved by an assistant district attorney, who works for District Attorney David Prater, a Democrat.
The county commissioners—two Republicans and one Democrat—joined Caudill and Treasurer Forrest “Butch” Freeman to ink the pact with Dr. Keith Smith, founder and lead physician at the Surgery Center.
Sounds kind of technical. What’s the big deal?
Relieving taxpayers and consumers from some of the accelerating costs of the Affordable Care Act (ACA) should be applauded.
Oklahoma County’s health care plan for its employees is a self-financed plan, making county officials price-sensitive.
The contract with the Surgery Center includes a lengthy list of the procedures its physicians perform, and what the charge for those services would be.
As has been reported in many places—Perspective, Watchdog.org, Reason.tv, The Wall Street Journal, and many other news or “think tank” stories—the typical price at the Surgery Center runs from one-sixth to one-tenth of what it costs at mega-hospitals, including even those who include charity as part of their raison d’etre.
Based on direct evidence, I project more than a quarter of a million dollars in cost savings for Oklahoma County taxpayers, in just the first quarter. I base this on what’s happened in just the first month of the county-Surgery Center hook-up.
In late March, Caudill’s director of human resources, Jon Wilkerson, told me: “Oklahoma County has experienced tremendous results in only the first month of having a direct contract with the Surgery Center (benefits started in March). We added this as an optional benefit for covered employees, retirees, and eligible dependents on our self-insured health plan, and waived any out-of-pocket costs if they choose to have their surgery at the Surgery Center. To date, there have been 10 surgeries scheduled. The total cost for these 10 surgeries will be $58,565.00. The combined cost of these surgeries at other facilities would have been well over $200,000.”
The story gets even better—if keeping employees happy, healthy, and with more money in their pockets is one of the objectives of public-sector management.
Wilkerson told me: “These 10 employees would also have had to pay out-of-pocket costs averaging $3,000 each. We have received very positive feedback from employees regarding the quality of care and the cost.”
Although not an economist, I am a longtime student of government finance. Doing the math, Wilkerson shows direct savings of more than $140,000 for needed procedures.
To drive the point home, here’s Wilkerson’s succinct summary (short enough for a billboard, in fact) of this story: “These savings will directly impact our self-funded health plan and ultimately the taxpayers of Oklahoma County. Quality care at a transparent price.”
Some people believe county taxpayers are not the only ones who should be saving money. “The State of Oklahoma should immediately implement the same reforms implemented by Oklahoma County regarding the purchase of surgical procedures in their employees’ health plan,” says Jonathan Small, OCPA’s vice president for policy.
“In a fall 2013 legislative committee meeting, Dr. Smith testified that he tried to provide a rate of up to 30 percent less on some prices compared to the proposed contract from the state, but the staff of the state insurance plan declined because of pressure from medical providers who charge higher prices,” Small says. “If the state moved to such a plan and it saved 10 percent of total claims for state entities covered in the state insurance plan (approximately $197 million in 2012) this could save well over $20 million a year. This change should be implemented immediately; numerous private companies in Oklahoma are making such a change and saving hundreds of thousands a year in their health insurance plans.”
Dr. Smith and his partner, Dr. Steve Lantier, established the Surgery Center in 1997. They have long attracted patients—health care consumers—with price transparency and quality. (One of the interesting things about the Surgery Center is that many of its cooperating physicians also perform procedures, at much higher prices, in the city area’s big hospitals.)
It was only in 2009 that Smith and his colleagues focused on the astonishing power of up-front pricing in diverse areas of practice, including orthopedics, ear/nose/throat, general surgery, urology, ophthalmology, foot and ankle, and reconstructive plastics.
A simple decision—to post prices online, and stick to them—could transform the typical cost of many procedures.
The Surgery Center has emerged as arguably the best-known practitioner of market-oriented billing that explicitly avoids entanglement with government regulators—whether through the ACA, Medicare, or Medicaid—as well as the Big Hospitals and their allies in Big Insurance.
The Surgery Center works with self-insured companies, and now even with a local government, on a contract basis in which both parties retain independence. Agreements are voluntary and mutually beneficial.
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Turning away from the good news, here are sketches from not-so-random news stories in recent weeks.
First, concerning health insurance premiums, the way sufficient income is generated to finance health insurance plans. In February, Jon Street of the Watchdog.org network reported on Vermont Gov. Peter Shumlin’s adamant insistence that health care costs were not rising in his state. But the Manhattan Institute, a free-market research group, predicts premiums in the state will increase 157 percent under Vermont Health Connect, the state-based exchange.
Sarah Hurtubise, writing in The Daily Caller, reported on March 18 that health insurance premiums “have risen more after Obamacare than the average premium increases over the eight years before it became law.”
The private health exchange eHealth reported those findings, including a premium increase of 39 percent in the individual market since February 2013.
Hurtubise wrote, “Without a subsidy, the average individual premium is now $274 a month. Families have been hit even harder with an average increase of 56 percent over the same period—average premiums are now $663 per family, over $426 last year.”
From 2005 to 2013, the average premium increase for individuals was 37 percent—it was 31 percent for families.
Remember, in those instances where there is a subsidy, taxpayers pay the difference between the market price and the subsidized price.
Last fall, a Forbes analysis estimated that, across 49 states, individual market premiums would increase an average of 41 percent.
So, what about the long-term picture? With all these nightmare scenarios, where will we be in a decade or two?
One place to look is Massachusetts, which embarked many years ago on an effort to create a subsidized market that would be more humane and affordable. It was a classic state-level experiment, albeit on the more liberal end of the economic scale.
Actual events, as opposed to intentions, in Massachusetts, are a precursor to monopoly, unless conditions change.
Reports analyzed since 2008 for the Massachusetts Association of Health Plans have found recurring factors that are accelerating health care system costs, including delivery. The Lowell Sun reported in late March that “high-price settings” do not necessarily “correlate to a greater quality of care.”
The Sun reported that provider pricing, and its interplay with “market clout in price negotiations with insurers,” has emerged as a leading concern.
Again, these are indicators of monopoly, or at least concentration of more and more power in fewer and fewer hands.
Such things can certainly happen in government, but it’s not unheard of for some markets to become concentrated in fewer and fewer hands, especially when government is complicit in that process.
John Freedman, a physician who conducted the Bay State’s recent analyses, said “The large provider organizations are not only large in terms of volume but because they tend to be market dominant they demand higher prices.”
Read that last sentence again, slowly, my friends.
It is a hint of the future—unless it’s not. The alternative is really not that complicated, and it is not impossible to mimic in states other than Oklahoma.
The typical bill from the Surgery Center of Oklahoma is one page long, compared to three to four pages at a typical hospital laced with the distorting mandates of government regulations and insurance companies that rely on ties with government to flourish.
This bears repeating: In provision of frequently provided procedures, a variety of incentives are built into government-regulated “private” care that drive up prices. These include mark-ups on material and prescriptions, duplicative practices, government price-setting of “floors,” and consumer ignorance of pricing.
Information, not ignorance, is the name of the game at the Surgery Center. The future will have at least some hope if more actors in the market—individuals and companies, governments, and insurers—choose to act in ways that are sensitive to market discipline, not market concentration.
When I first wrote about the Surgery Center two years ago, I praised Dr. Smith and his colleagues for choosing to “light a candle, rather than curse the darkness.”
As things now stand, every month Dr. Smith and his colleagues still draw scores of patients from abroad and from across the United States. Copycats have opened along the Canadian border, so the Surgery Center doesn’t see as many Canadian medical tourists as it did two or three years ago.
Time to light more candles.
Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK.com. He is the editor of seven books on legal policy, and the author or co-author of three books, including Ninth Justice: The Fight for Bork. Last year the Washington Post political blog, “The Fix,” designated McGuigan one of the three best political reporters in Oklahoma.