By John C. Goodman and Charles Sauer
Originally posted at Forbes, January 2016
Don’t take our word for it. You can try this out yourself. Just Google Surgery Center of Oklahoma and here is what you will find. For Achilles tendon repair, you will pay $5,730. That’s not an estimate with a huge variance around it. It’s a package price that includes doctor, nurse, anesthesia, room, drugs, supplies – everything.
For rotator cuff repair, the price is $8,260. For carpal tunnel release, it’s $2,750. All these prices are posted online for everyone to see. For more examples, see the table below.
The center is owned by Dr. Keith Smith, an Oklahoma anesthesiologist who started posting prices about the same time the Affordable Care Act (Obamacare) was enacted. Since then he has adjusted his prices (downward!) five times.
As Steven Brill so eloquently explained on 60 Minutes and in his book, America’s Bitter Pill, the average patient has no idea what anything is going to cost when he enters a hospital and no idea what he is being billed for when he leaves. Based on what payers actually pay, there is a three to one difference in spending for essentially the same services among the 306 hospital referral regions across the country. Within those regions, the differences are even greater. At the hospital level, there is a twelve to one difference across the country in what payers pay for an MRI scan of lower limb joints!
How refreshing, therefore, to find a hospital that quotes package prices in advance and is willing to compete for patients based on price and quality. Why are they doing it? For the simplest reason of all: to attract patients.
Five years ago, Dr. Smith was frustrated. His surgery center had the best surgeons, the best outcomes and the lowest prices (sometimes by as much as 80 percent). His lobby should have been packed. Patients should have been beating down his door. But they weren’t. In fact, the patient flow was stagnant. He was outperforming his competitors, yet no one knew it. So, Dr. Smith started posting his prices online, while at the same time calling his center “free market-loving, price-displaying and state-of-the-art.”
So what happened? Nothing happened. At least not initially. Nothing? Nothing.
Like other cities around the country, Oklahoma City is a place where employers routinely complain about health care costs. But not one of them bothered to notice that they could improve outcomes and cut their costs in half by choosing Dr. Smith’s center instead of the alternatives.
In fact, it took two whole years before the employers realized a huge opportunity was located right in their own backyard. It began with Jay Kempton, a third-party administrator whose company contracts with many of the local banks.
Fast forward to today. Not only are Kempton’s clients using Dr. Smith’s surgery center, but so is Oklahoma County and soon (if not already) Oklahoma State employees will be using it as well. The Alaska Teachers Union has offered to fly teachers and an escort all the way to Oklahoma for their surgeries. Canadians are also customers, choosing to travel to Dr. Smith’s surgery center rather than endure lengthy waits for free care back home.
There is more good news. Dr. Smith is no longer alone. Other surgery centers around the country are also posting prices, including Monticello Community Surgery Center in Charlottesville, Virginia, Ocean Surgery Center in Torrance, California, Orthopedic Surgery Center of Clearwater, Florida, and newer centers in Ohio and South Carolina.
Here is something surprising. The prices that these centers are posting are all competitive with each other. Some of Monticello’s prices in Charlottesville are lower than Dr. Smith’s Oklahoma City prices, while others are higher – just like the price differentials you’d expect to find between grocery stores in the same town. But all of these prices are lower than the expected costs at nearby large hospital systems. The centers seem to be aware that they are all within a quick plane ride of each other and therefore they are all potential competitors for the medical tourist market.
Then again, maybe that’s not surprising. That’s the way markets are supposed to work.