One Surgeon Explains Why Transparent Pricing Works for His Facility and Patients
The Surgery Center of Oklahoma in Oklahoma City first posted its bundled surgery prices online 10 years ago, starting a mini-revolution in surgical price transparency. From the ASC’s perspective, something had to change as business was lagging due to the major payers excluding the ASC from their networks, says G. Keith Smith, MD, managing partner of the Surgery Center of Oklahoma.
“We faced a situation where our state’s insurance commission allowed insurance companies to stack deductibles on patients, so out-of-network costs were not competitive,” he says. “We established a reputation for quality and affordable pricing, and we knew we were cheaper and better, and, still, our waiting room was getting increasingly empty. It didn’t make any sense, so we put our prices online.”
Smith offers several reasons why his ASC started offering transparent pricing, and why other ASCs might consider taking similar action.
• Transparency is good for business. Soon after the Surgery Center of Oklahoma published its prices online, Smith says business increased.
“The first patients who arrived when we put the prices online were Canadians,” Smith says. Canadians found the ASC’s prices online and thought it was affordable, so they started arriving in Oklahoma City for surgery. Since then, new international patients have hailed from Turkey, the United Kingdom, Nigeria, France, and South America.
Self-funded companies that want more affordable surgery for their employees also began to send employees to the ASC, Smith says. While the ASC does not accept government funding, Smith says the facility has entered into contracts with employers in all states, except Hawaii. The employers will fly their employees and a companion to Oklahoma City, pay their entire surgical bill and all travel expenses, and still save money, according to Smith.
• Starting a price war is good for the healthcare market. “We’re big fans of market pricing and capitalism, and we thought it’d be healthy to start a price war,” Smith says. “It wasn’t long after we put our prices online that we got calls from patients who were using our pricing to leverage a better deal in their own town.”
Smith frequently hears that the Surgery Center of Oklahoma’s transparent pricing is used in liability claims, workers’ compensation disputes, and in court cases in which a hospital is balance-billing, bankrupting, and price gouging a patient.
“That was another goal — to start a price war with fair comparison pricing,” he says. The ASC selects its prices based on what it needs to perform the surgery. “There is no unnecessary fat,” Smith says. For example, the ASC doesn’t employ an administrator; Smith fills that role.
• Disrupt the healthcare industry. Over the years, Smith has learned how challenging it is to buck the existing healthcare marketplace. The system is stacked against transparency, he says. According to Smith, preferred provider organizations (PPOs) benefit from a system that is not transparent because they can claim to have achieved big discounts on costs for their clients. Since PPOs receive commissions for the discounts they obtain, Smith argues this incentivizes those organizations to send patients to hospitals that charge the most for services so they can recoup those high costs in discounts that make more money for them. Smith offers an example of when a hospital charges a much higher price for a drug than the facility paid to add that drug to their supply, a practice Smith says is common in the United States.
“A PPO will [tell] the employer, ‘We got this $100 bill for aspirin, and we’ve beaten this hospital to a pulp, achieving a 95% discount,’” Smith explains. “Then, you only have to pay them $5 because of our power in the marketplace.”
But Smith notes the hospital did not pay anywhere near $100 for the aspirin. He says the hospital is happy to accept the $5 payment and still claim they lost $95 on the transaction. As a nonprofit, the hospital can claim it was care for which they were not compensated, Smith explains. Further, Smith argues the PPO is happy to obtain the $95 discount because it results in a bigger commission. Meanwhile, employers and patients pay more in healthcare costs because a penny aspirin cost them $5.
“The healthcare market does not work,” Smith says. “When the market works, there are mutually beneficial exchanges between buyer and seller.” Smith says the healthcare industry does not operate like a free market, where prices are higher when demand, service, and quality dictate a higher price, and where prices are lower when competition forces organizations to lower prices to fair and transparent levels. But Smith notes price transparency among ASCs is changing this dynamic.
“I get emails regularly from facilities and surgeons who will say, ‘I’ve had our third patient walk out of our facility and fly to Oklahoma City to have their surgery, and this is getting out of control,’” Smith says. “My response is always the same: ‘I will help you copy us.’”
• Be transparent with quality and outcomes. ASCs that offer price transparency also must demonstrate transparency on quality to show that the lower price does not mean poor outcomes or service, Smith notes. For that reason, Surgery Center of Oklahoma publishes annual infection rates online. (Editor’s Note: The Surgery Center of Oklahoma lists its infection rate data for 2006-2017 online at: https://bit.ly/2IqcYkI.)
• Learn from pioneers in price transparency. Smith and Jay Kempton founded the Free Market Medical Association in 2014 to help other organizations move toward price transparency. The organization has 480 members who are attracted to the idea of free market healthcare and price transparency, Smith says. The legacy of providers increasing prices and providing big discounts to PPOs, which in turn charge patients and employers for those discounts, will one day disappear, Smith predicts.
“Their days are numbered,” he says. “I’m seeing more and more organizations abandon the network and use reference-based pricing.”
These ideas will continue to attract providers and consumers of healthcare, he predicts.
“We’re not at a tipping point, but I would argue and make a compelling case that we’re much closer to a tipping point than anybody would like to admit.”
An Oklahoma surgery center first posted its bundled surgery prices online 10 years ago, starting a mini-revolution in surgical price transparency.
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