Can Market-Based Pricing Save Healthcare? (with Dr. Keith Smith)

This video provides an in-depth exploration of the dysfunctional United States healthcare system, advocating for a return to market-based pricing and transparent, bundled services. Dr. Keith Smith, founder of the Surgery Center of Oklahoma (SCO), shares his journey and insights into how the current system, driven by misaligned incentives and government intervention, leads to price gouging and inefficiency. The conversation highlights the stark contrast between the prevailing "revenue generation" model in healthcare and Dr. Smith's "value delivery" approach, emphasizing mutually beneficial exchanges and patient empowerment through upfront pricing.

Dr. Smith recounts his early career as an anesthesiologist and the profound impact of Medicare's Resource-Based Relative Value Scale (RBRVS) in the early 1990s, which drastically cut physician payments while hospitals simultaneously grew in power and revenue. This experience led him to "rebel" and co-found SCO in 1997 with a mission to provide high-quality care with complete financial transparency, never accepting government money. The initial challenge of establishing bundled prices for procedures over the phone, and the eventual decision to post all prices online in 2009, are presented as pivotal moments in challenging industry norms and exposing systemic "scams."

The discussion delves into how the traditional insurance model, with its opaque pricing and complex billing, incentivizes higher charges and benefits intermediaries rather than patients or even many providers. Dr. Smith exposes practices like carriers profiting from repricing inflated claims, hospitals maintaining non-profit status through "lost revenue" claims (which are then subsidized by Disproportionate Share Hospital (DSH) payments), and volume-guaranteed discounts that deter network inclusion of lower-cost providers. The video also touches on the transformative power of self-funded employers, particularly those offering zero-deductible plans, in driving better outcomes and cost savings by empowering employees to make informed healthcare choices. The Free Market Medical Association (FMMA) is presented as a key resource for fostering this alternative, parallel healthcare economy.

Key Takeaways:

• Critique of Traditional Healthcare Billing: The prevailing model in the U.S. healthcare system is driven by revenue generation, often leading to practices like upcoding (e.g., a $3,500 bill for a minor ER visit) and a lack of transparency, which exploits patients and creates an inherently inefficient system.
• Physician Ownership and Patient Advocacy: Physician-owned facilities, where doctors have direct control over billing, can offer greater flexibility and advocacy for patients regarding their bills, in contrast to hospital-employed physicians who have no say in pricing.
• Distortion by Government Intervention: Medicare's Resource-Based Relative Value Scale (RBRVS) in the early 1990s drastically cut physician payments while simultaneously leading to hospitals becoming "grossly overpaid," creating a fundamental imbalance and distorting market signals.
• The Power of Bundled Surgical Pricing: Offering an "all-in" cash price for surgical procedures (including surgeon, anesthesia, facility, and pathology) eliminates financial surprises for patients and forces providers to operate efficiently and predictably, with the price itself serving as a proof of quality and repeatability.
• Strategic Price Transparency: Publicly posting prices online, as Dr. Smith did for the Surgery Center of Oklahoma, empowers patients to shop for care, allows them to leverage better deals, and exposes the inflated costs and hidden practices of the traditional system.
• Exposing Industry "Scams": The video reveals how various stakeholders profit from the dysfunctional system, including insurance carriers who make more money by repricing higher initial charges, hospitals that secure large volume discounts from carriers, and the use of "uncompensated care" claims to maintain non-profit status and receive federal Disproportionate Share Hospital (DSH) payments.
• Benefits of Self-Funded Employers: Self-funding, even for smaller groups (e.g., 24 employees), can lead to significant cost savings by giving employers control over their healthcare spend. Offering zero-deductible, zero-copay plans incentivizes employees to seek necessary care promptly, preventing conditions from worsening and ultimately reducing overall costs.
• Buyer-Driven Market Change: When self-funded employers and individual buyers insist on direct, honest, and transparent purchasing of medical services, it forces providers to adapt and offer competitive, upfront pricing, thereby driving market discipline.
• The Free Market Medical Association (FMMA): This organization serves as a crucial resource for connecting buyers (self-funded employers, consultants) and sellers (transparent providers, direct primary care physicians) in a market-driven healthcare ecosystem, fostering mutually beneficial exchanges.
• The "Parallel Healthcare Economy": Instead of attempting to reform the existing, deeply entrenched system, a more effective approach is to build an alternative, parallel market for medical services that operates on principles of transparency, value, and direct buyer-seller relationships, allowing the old system to "wither and die."
• Government as a Primary Conspirator: The federal government is identified as the "primary conspirator" in the dysfunction of the U.S. healthcare system, with its interventions and regulations creating the very problems (e.g., price controls, subsidies) that are often mistakenly attributed to a failure of the free market.
• Optimistic Outlook for Change: Despite the current challenges, there is a strong belief that increased awareness among the American people about the true causes of healthcare dysfunction will lead to a significant shift towards a more market-driven and efficient system within the next 10-15 years.

Tools/Resources Mentioned:

• Free Market Medical Association (FMMA): An organization that brings together industry professionals (buyers, sellers, intermediaries) to facilitate mutually beneficial exchanges in a transparent, free-market healthcare model.
• Paro Health: A sponsor of the podcast, described as a manager of a large employee benefits group captive focused on improving health benefits and making self-funding simple for midsize employers.
• Claim.do: A sponsor of the podcast, described as a medical claim auditing and member advocacy company providing fiduciary services to employer-sponsored benefit plans.
• PlanSight: A sponsor of the podcast, described as an end-to-end RFP solution for benefits agencies to streamline the insurance renewal process.

Key Concepts:

• Bundled Surgical Procedures: A pricing model where a single, all-inclusive price is quoted for a surgical procedure, covering all components such as surgeon's fee, anesthesia, facility costs, and sometimes pathology.
• Resource-Based Relative Value Scale (RBRVS): A payment system implemented by Medicare in the early 1990s that assigns a relative value to every physician service, which Dr. Smith argues distorted market pricing and led to physician underpayment.
• Disproportionate Share Hospital (DSH) Payments: Federal government subsidies provided to hospitals that claim to provide a significant amount of "uncompensated care," which Dr. Smith argues incentivizes hospitals to inflate charges and claim losses.
• Self-Funded Employers: Companies that directly pay for their employees' healthcare claims rather than purchasing traditional insurance plans, allowing them greater control over costs and plan design.
• Parallel Healthcare Economy: The concept of creating an alternative, market-driven system for healthcare delivery and financing that operates alongside the existing traditional system, allowing consumers and employers to choose a more transparent and value-based option.

Examples/Case Studies:

• Spencer's Son's ER Trip: An anecdote where a three-year-old's minor breathing issue resulted in a $3,500 bill for a "level four ER" visit, highlighting the problem of upcoding and opaque pricing in traditional hospitals.
• Surgery Center of Oklahoma's First Breast Biopsy: Dr. Smith's initial challenge in quoting a bundled price for a breast biopsy, leading to an all-in price of $1,900 compared to a hospital's $19,000 facility charge, demonstrating the immediate cost savings and transparency of the model.
• SCO's Experience with Blue Cross: A brief, 16-month period where SCO contracted with Blue Cross, which resulted in zero profit due to complex, illogical payment structures and gross underpayment for services, illustrating the challenges of integrating transparent models into traditional insurance networks.