I thought some of you might like to read the remarks I delivered last night at the AAPS regional meeting in Austin, Texas.

Almost 16 years ago now, Dr. Steve Lantier and I left the operating rooms of the big hospitals and began our practice in operating rooms that we owned.  Looking back on our decision to leave our very busy hospital practices behind and take this risk, I now realize that we did this in spite of all of the information we had, in spite of all that we had been told by those involved in health care.  Our distrust of hospital administrators and the corporate medical world had become so complete that what I now understand to be an entrepreneur’s business calculation was made assuming that all we had been told was false.  This, it turns out, was good judgment on our part.

At a recent conference conducted by the Mises Institute in Houston, one which seemed to focus on the difficulty entrepreneurs have in the current business environment, I came to the conclusion that we started our surgery center not based on a typical business pro forma type of plan, but based on the belief that everything we were hearing from hospital administrators about the business of health care was untrue, propaganda meant to discourage physicians from doing what we were setting out to achieve.  The anxiety we endured in pursuing this venture was mitigated by how troubled the hospital administrators were by our even considering making this move.

Indeed, we had been told numerous times that the operating room staff needed to be down-sized, because the hospital simply couldn’t make ends meet, the revenue generated by surgical cases inadequate to pay sufficient staff.  Large and unacceptable patient to nurse ratios in postoperative surgical areas were justified with the same lies.  The lack of proper equipment and supplies necessary to perform certain surgeries and a lengthy committee process for acquiring any new supplies were the order of the day, rather than the exception. 

Dr. Lantier and I were convinced that something about this didn’t add up.  We knew for certain who we were dealing with when after the Murrah bombing one hospital administrator in Oklahoma City publicly complained that his hospital hadn’t received their fair share of the victims.  We opened The Surgery Center of Oklahoma in May of 1997 and knew within 2 months that the highest quality of care with a full staff was not only possible, but could be accomplished profitably for about a tenth of what these so-called “not for profit” hospitals were charging patients.

The hospital lies and propaganda have continued for many years, culminating in the one great lie that led so many to naively embrace Obamacare:  that hospitals were struggling financially due to all of the uninsured folks utilizing their emergency rooms, leading to what we all know as “cost-shifting.”  I have written about this lie extensively and we all now know that the hospitals get paid even when they don’t get paid, in fact, to the extent that they claim they don’t get paid, they are paid more.  This is the uncompensated care system they don’t want anyone to talk about, a gift from Uncle Sam and one which happens to be one of the engines for giant hospital bill creation. 

I would never have understood the various lies conjured up by hospitals to maintain the fiction of their “not for profit” status had I not owned and operated a medical facility.  One of the first clues that something was wrong was that most insurance companies, in spite of our quality and pricing, avoided dealing with us.  The answer to “why wouldn’t an insurance company like better and cheaper” although a mystery then, is apparent to us now.  A look at the diagram located in this prior blog (“Anatomy of a Cartel”) will help you understand this seeming paradox.  

The only way to shine a light on this price-fixing cartel was to post prices online for all to see, a move we made 4 years ago next month.  Incredibly, the first patients to take advantage of our pricing were Canadians, followed by patients from those parts of the country where the tight grip of the cartel and the subsequent lack of any semblance of market competition has rendered the high prices you would predict from such an arrangement.

Our facility is now frequented by people from all over the country and outside, patients with high deductibles, patients waiting in lines, patients with no insurance whatsoever, and increasingly, patients whose care is paid for directly by the companies for which they work, the “self insured.”  You can imagine the conversations that I’ve had with the CEO’s of large companies who have been paying $30,000 for operations that they now see could have been obtained for $3500 at our facility.  You can also imagine the conversations they have had with their insurance brokers who have known about our facility and pricing and have nevertheless failed to alert their client of our existence. 

Our price-posting has had another effect.  Rather than travel to Oklahoma City, more and more patients are using our pricing to leverage rational fees at facilities in their hometowns.  Just last month, a Georgia patient whose primary care doctor was aware of our website pricing, was quoted $40,000 for a trans-urethral resection of his prostate, whereupon he informed his urologist he was headed to Oklahoma City, where we would do this for $3600.  Overhearing the disgruntled urologist’s reaction to losing his patient to Oklahoma City, the hospital CFO asked for details.  The $40,000 quote was reduced to $4000.  I think it is fascinating that our pricing saved this patient $36000….and we didn’t even do the case

Before you give the hospital CFO too much credit, though, remember the shell game.  You see, he will simply claim that he lost $36000, to bolster his “not for profit” fiction, plug that into his uncompensated care calculation and collect a portion of this “loss” from the taxpayers.  Everyone, including this patient, as taxpayers, would have been therefore better off if the Georgia patient had come to our facility, after all.

The big hospitals’ nightmare of price transparency has arrived.  This Georgia hospital and any others encountering patients familiar with our pricing have been thrust into a market economy whether they like it or not.  Having eliminated potential competitors with certificate of need laws all over the country, these corporate hospitals must now contend with our facility’s and others’ fair and rational pricing, just a short plane ride away.  That other facilities are doing this with more on the horizon removes several teeth from protectionist legislation like certificates of need, I think.

The medical price deflation resulting from a new competitive healthcare market,  poses an incredible threat to the central planners who are counting on the runaway pricing and market chaos resulting from Obamacare, that price “crisis” intentionally created to usher in the sequel to their plan:  single payer.  As physicians who are paving the way for many to pursue third-party-free practices, AAPS members’ contribution to this deflationary obstacle to Obamacare’s ultimate design may have, in an effort to save themselves and their patients, discovered the soft underbelly of this latest attempt by government to crush the private practice of medicine.  The deflationary effect of shunning third parties, will, I think, when we look back years from now represent the undoing of this horrible and deadly law.

G. Keith Smith, M.D.