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Free Market Price Transparency and Price Competition

Posted Jul 18 2013 12:52am

Stanley Feld M.D.,FACP,MACE

Physicians can take a leadership role in creating price transparency leading to price competition.

An excellent example is the Surgery Center of Oklahoma.

Dr. Keith Smith and Dr. Steven Lantier launched the Surgery Center of Oklahoma 15 years ago. I wrote about the Center’s guaranteed online all-inclusive surgery prices six months ago.

There are several innovative physician driven market driven pricing systems in the nation.

The Surery Center's price transparency is catching on. It is leading to price competition, which in turn is leading to reduced healthcare costs.

“What we’ve discovered is health care really doesn’t cost that much,” Dr. Smith said. “What people are being charged for is another matter altogether.”

Consumers are paying a high premium for buying healthcare insurance. The healthcare industry takes at least 40% off the top of healthcare premiums.

Hospital Systems inflate their prices for many reasons. Some insurance companies pay more than others for hospital systems’ services. Hospital systems do not know what the consumer’s insurance would pay when consumers come into the hospital so they register the highest prices on the consumer’s bill.  

Hospital systems try to charge as much as they can to collect as much as possible. The pricing is not based on reality.

Surgery Center of Oklahoma started posting their prices online about four years ago.

Click here to see the online prices at Surgery Center of Oklahoma .

When we first started we thought we were about half the price of the hospitals,” Dr. Lantier remembers. “Then we found out we’re less than half price.

 Then we find out we’re a sixth to an eighth of what their prices are. I can’t believe the average person can afford health care at these prices.”

It is important to note that most physicians do not know what hospital charges are.

The Surgery Center of Oklahoma has stated that they were founded on the simple principle of price honesty and transparency. The Surgery Center of Oklahoma’s return on investment and net profit is extremely healthy at the prices it charges.

The prices for procedures are all-inclusive quotes and are guaranteed.

 The result was to start a local price war. The Surgery Center of Oklahoma is disruptive to the hospital pricing in its community. This disruptive pricing is spreading across the nation. Consumers from all over have come to the Surgery Center of Oklahoma because the price is transparent and reasonable compared to hospital systems in their local area. One specific example is.

“Matthew Gang, 22, tore his patella tendon, dislocating his knee-cap playing basketball earlier this year.”

Mr. Gang is uninsured. He lives in California. Surgery in his California community was going to cost him about $30,000.

The Surgery Center of Oklahoma Internet price was $5,700.

 Matthew and his father Tom Gang flew from California to Oklahoma for surgery.

“It was well worth it,” Tom Gang said. “I need a rotator cuff surgery right now. I’m thinking about flying out there and having my surgery because it was such a positive experience for us.”

Other Oklahoma medical and surgical facilities have started joining Surgery Center of Oklahoma in posting prices and becoming price transparent. Hospital systems are realizing they will have to compete with low price transparent prices to attract patients.

Surgery Center of Oklahoma does accept private insurance, but the Center does not accept Medicaid or Medicare.

  “Dr. Smith said federal Medicare regulations would not allow for their online price menu .

 “They have avoided government regulation and control in that area by choosing not to accept Medicaid or Medicare payments”.

The difference in billed prices are staggering between Mercy Hospital in OKC, Intergris Baptist Medical Center and OU Medical Center vs. Surgery Center of Oklahoma. The prices are,

 .

  • Mercy Hospital charged $16, 244 for a breast biopsy; the procedure will cost $3,500 at Surgery Center of Oklahoma.
  • OU Medical Center billed $20,456 for the open repair of a fracture; the procedure will cost $4,855 at Surgery Center of Oklahoma.
  • OU Medical Center billed $21,556 for a gall bladder removal surgery; the procedure will cost $5,865 at Surgery Center of Oklahoma.
  • OU Medical Center billed $23,934 for an ankle arthroscopy; the procedure will cost $3,740 at Surgery Center of Oklahoma.
  • Integris Baptist billed $37,174 for a hysterectomy; the surgery costs $8,000 at Surgery Center of Oklahoma.

However, prices may be dropping elsewhere because of the transparency at Surgery Center of Oklahoma.”

Rather than crying about the issue of the lack of price transparency as Dr. Uwe Reinhardt did in my last post, someone is actually doing something about it. It is causing hospital systems and large clinics to lower prices and make them transparent.
 

“Second, the government should not be in the way.  President Obama has provided some non-transparent favors to hospital systems that are forcing physicians to be employed by hospitals

As patients are starting to demand price matching, some hospitals are giving in.

 “Hospitals are having to match our prices because patients are printing their prices and holding that in one hand and holding a ticket to Oklahoma City in the other hand and asking that hospital to step up,” Dr. Smith said. “So we’re actually causing a deflationary effect on pricing all over the United States.”

The economics are simple even though hospital systems deny it. One only has to recall the multiple million dollar salaries of hospital CEOs as well as other hospital administrator salaries to understand the hospital systems’ desires for less transparency.

Physicians are waking up and realizing they are not the main cause of escalating costs. The Surgery Center of Oklahoma is a wonderful example of a price transparent organization that is doing something to force price competition.

It is clear. The government is not going to create price transparency.

Physicians and patients must drive the adoption of a free market place.

Consumers must drive price transparency.

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 The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone

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