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A Bright Spot in Health Care

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A Bright Spot in Health Care

Frustrated by bloat and bureaucracy, some doctors are creating their own free-market solutions. June 30, 2020
Health Care
Economy, finance, and budgets

While the world struggles to reopen after months of lockdown, many businesses, devastated by the measures taken to prevent the spread of Covid-19, won’t be coming back. Others will undoubtedly face enormous financial strains when they do resume, and they will be looking for ways to cut costs.

They’re not likely to get much help from Washington. Congress has shown a bipartisan willingness to direct money toward incumbent systems such as state governments, hospitals, and businesses. Lawmakers remain divided about how to achieve reforms that would reduce costs, especially in health care. Their reluctance to deal with the issue means that individual providers and customers must lead the way.

In virtually every realm except for health care, Americans expect to know the cost of a good or service before purchasing it. Consumers and employers have grown accustomed to scheduling and paying for medical appointments and procedures without any idea of the out-of-pocket costs after insurance coverage. Stories abound of people being charged for trips to the emergency room, even if not treated; being invoiced for going to an in-network hospital but unknowingly being treated by an out-of-network provider; and receiving surprise medical bills. Such unexpected outlays frequently lead to financial stress and even bankruptcy. In such an opaque market, it’s no surprise that employer costs for health care have been growing over the last decade.

These high costs have multiple causes, including post-World War II wage freezes, which led to the tax exemption for employer-provided health insurance—the original sin of American health policy; rising administrative and drug costs; perverse insurance-company incentives; and price-insensitive customers. According to the Centers for Medicare & Medicaid Services (CMS), the federal agency that administers Medicare and Medicaid, in 2018 U.S. health care spending grew 4.6 percent, reaching $3.6 trillion, or $11,172 per person—a 17.7 percent share of the nation’s GDP. The average among OECD countries is 8 percent, a proportion that the U.S. surpassed in the 1970s.

More and more doctors across the country want to reduce costs and bring price transparency to the system. In 1997, anesthesiologist Keith Smith left his hospital job and opened the Surgery Center of Oklahoma (SCO) in Oklahoma City. “I wanted to see if markets could actually work in our convoluted health care system,” he told me. “I didn’t want to be an accessory to a crime anymore. Our mainstream system is criminal because of the way it fails to prioritize the care of patients.”

During his first week in business, Smith got a call from a woman needing a breast biopsy. She asked him how much the procedure would cost at his clinic. He had no idea—no one had ever asked before. Smith called his surgeon and the testing lab for a quote, calculated his own cost for the 20-minute procedure, and gave her the estimated price—which ended up being well within her deductible, and a fraction of the price she was given when she pressed a local hospital for an estimate. Smith and his team decided to bundle prices for all their procedures and then made the radical move of posting the full costs on their website.

Almost immediately, Oklahoma hospitals, insurance companies, and legislators went on the offensive and tried to shut down SCO. Insurance companies made it mandatory for consumers to meet their deductible with in-network providers: if they went out-of-network to get a service, their deductible would reset to zero for the year. This made SCO’s otherwise-affordable services cost-prohibitive for many patients with insurance. The center’s waiting room emptied.

But SCO quickly discovered other types of consumers, such as companies with self-funded health-insurance plans, as well as international patients. Employers with self-funded plans take on the financial risk of providing health-care benefits to their employees instead of paying premiums to health-insurance companies like Aetna or Anthem. Though it’s generally larger companies that self-insure—Wal Mart is a well-known example—high costs in health care are driving smaller companies, including those with as few as 50 employees, to move in this direction as well. Self-insured employers have incentives to keep costs down, even if it means flying their employees for out-of-state treatments.

When self-insured companies from across the country learned that procedures at SCO cost a fraction of the bill at most other medical institutions, they began offering their employees incentives to go there, including stipends, paid time off, and even covering the cost for a friend or family member to accompany them. SCO also saw an influx of customers from Canada and Europe. Though these patients had government-funded coverage, delays in treatment for urgent conditions led them to pay out of pocket for treatment at SCO.

In 2014, Smith co-founded the Free Market Medical Association, a group of physicians committed to bringing price transparency and increased quality to American health care. “We founded the FMMA so that the nation could learn how we did this,” Smith explained to me. “We have offered total and complete transparency over our competitors, and we showed that this was a viable business model.” The costs of health care have risen steadily over the last five decades, but at Smith’s SCO, with only four exceptions where the cost of procedures decreased, prices have not changed since 1997.

Inspired by Smith, others across the country have joined FMMA. Sean Kelley is founder and manager of Texas Medical Management, the “free market medicine solution for surgical procedures.” From a family of physicians, Kelley learned that many unnecessary surgeries are performed as a result of perverse incentives created by insurance companies and price opacity. He founded TMM with the vision of helping patients and doctors interact, uninhibited by third parties, to solve health problems. “As states get the Covid-19 crisis under control,” Kelley told me, “and as elective surgeries begin to resume, this is an opportunity to reconsider how surgical procedures are delivered.”

Andy Poole—CEO of the Monticello Community Surgery Center, another institution in the FMMA network—shared a similar story. During his career as a health-care administrator in the Virginia hospital system, he saw how insurance companies and providers created bureaucratic bloat that hurt patients. “It is mind-blowing how long this convoluted system of ours has been allowed to endure,” Poole told me.

“Some people say that health care is too important to leave to markets,” Smith says. “I say it’s too important to leave to government!” Without the pressures of the market, Smith is convinced that there is no accountability and no incentive for health-care providers to pay attention either to value or quality.

The ideas that the FMMA was founded to promote are drawing some interest at the federal level. CMS has proposed a new rule, now in its final form, that would promote price transparency by obliging hospitals to disclose their rates and help prevent surprise billing by offering patients easy access to the prices of standard procedures.

“Our goal is to transform the medical industry by introducing markets and competition to an industry that has historically been immune to those things,” Smith says. “We knew we’d never get rich this way, but we wanted to make a living as doctors in an honest way. We’ve showed that it’s possible.”

Photo: clu/iStock

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