By Dr. Keith Smith, FMMA, Free Market Medical Association, October 2014
Welcome. Welcome all of you. I know I speak for Charles Sauer and Jay Kempton when I say that we are honored and frankly moved that so many of you have taken the time and trouble to attend our first and I think historic conference. While there are many distinguished guests here, I must say how particularly honored I am that one of my heroes, the legendary Dr. Jane Orient is here in our audience. Thank you Jane for making the trip.
Many in this room are blessed to be in a position where having embraced free market ideas, you have had the opportunity to implement them watching these ideas come to life, empowering actual healthcare consumers. Thanks to the courageous efforts of both the sellers and the buyers of health care in this very room, these ideas are no longer some economic theory, but rather the free market models producing the effects and results so many are attempting to emulate all over the country. I believe that what distinguishes the approach taken by the enlightened in this room as opposed to all others in health care is a focus on cost, not on health coverage. Coverage is an afterthought, after all, if the prices are reasonable and affordable. I believe that to understand the nature and origin of healthcare pricing is to understand the nature and origin of this association and so for the next few minutes I would like to share some thoughts I have had about pricing, its power and effect.
How many of you have experienced anger or frustration when a car dealer has revealed to you his desired price, or what he thinks the trade-in allowance should be for your vehicle? How many of you have exclaimed, “That’s robbery” when confronted with restaurant pricing on a menu? I would propose to you that we have been conditioned to react emotionally, rather than rationally to prices, conditioned to see prices as a “rip-off” or an “act of desperation,” rather than what they are. Prices are simply signals, signals sent by the sellers in the world, always a reflection of the perception of the scarcity or abundance of what they are selling. That the vast majority believe that this signal-sending price system (present in every other industry) does not or cannot apply to health care largely explains why we are in the mess we are in. Imagine the disorder and chaos resulting from the purchase of an automobile if the price was unknown to you until after the sale. The car dealer would be considered unethical for conducting his affairs in this manner and would be inclined, hiding behind a price shroud to find out what he could get away with. But doesn’t this describe the vast majority of healthcare purchases in this country? I do not mean to disparage the car dealer. As offensive as you may find his pricing, at least he shows his price to you before you have bought the car. Ethically, this places him in a more favorable position than hospital systems which unleash a bankrupting blitzkrieg of charges only after the point of sale.
I have come to the conclusion that it is the ethical and moral obligation of the seller of health care services to provide the prospective buyer a price in advance of the provision of the service. Any other way of conducting medical business affairs has the feel and characteristics of a bait and switch. While many maintain that the provision of advance pricing is impossible, those of you gathered here now know without a doubt that this claim of impossibility is a lie, an excuse to fleece the buyer and an excuse that is no longer credible.
Likewise, it is not the obligation of the buyer to root out the seller’s price as this cumbersome method of value discovery serves only the interests of the seller, not the buyer. In no other industry is the buyer placed at such a disadvantage as in health care and in no other industry is it more important for the buyer to possess every bit of knowledge he can. Ascertaining value is impossible and comparison-shopping is futile in the absence of transparent pricing. I confess that my first inclination a few years ago was to find out what the buyers of healthcare were paying to the hospital systems and with that as a comparison, beat their price. Imagine however, asking a car dealer his price only to be asked by him what other prices you had been quoted by other dealers. Or as Adam Russo has said, “why when I ask how much a medical procedure is going to be, am I told to show them my card so they can answer me.”
Thankfully, I realized that I needed to make the first move. Further, I needed to reveal my pricing to everyone, not just a select few and for this pricing to hold for everyone, regardless of any number of patients referred. Many of you now realize that these price revealing actions have allowed people to purchase care they previously assumed was otherwise unaffordable, people who had neglected their health entirely, based on a lack of visible pricing. We have accepted the proceeds of church bake sales at our facility, successful fundraisers only because they had a target price. As an aside, on one occasion, Dr. Lantier and I refunded the anesthesia fee, so a family could buy the gas and food they needed to return to South Carolina with their child on whom we had just operated.
Economists refer to the market-clearing price as that price where the buyer and seller have each achieved their maximum position. This means that at a lower price than the market clearing price, the seller walks away and at a higher price the buyer walks away, the transaction no longer fitting the definition of “mutually beneficial.” How can the buyer rationally proceed without knowing any price at all? The predictable result of price opacity is a constant rise in prices, as the sellers continuously over time take advantage of their position, stretching the limits of what they can get away with. And when any price crisis or disaster strikes, who then rides in to rescue us from our own folly? Our good friends in Washington never let a crisis go to waste, do they? It turns out that the only thing worse than no price transparency at all, is a price from the government which is arbitrary and frankly, wrong.
The notion that some brilliant bureaucrat is capable of discovering much less imposing a market-clearing price on the actors in the healthcare marketplace has proven to be a bankrupting experiment. The fallacy of government-imposed pricing is very recent and a product of the ideas of Karl Marx. It should come as no surprise that the same bankrupt government that has so corrupted the medical market place now wants even more price-setting power. True, rational and market clearing prices always emerge from competitive activity-they are never imposed. How can price competition occur, however, without visible prices? It is the simple yet bold action of many of you in this room, freely revealing or even posting your prices for all to see that has broken this stranglehold on a healthcare free market.
Interestingly, I owe much of my understanding of prices and the market to our incorruptible friends in Washington. How many of you believe $278 is too little to pay an anesthesiologist for 6 hours of his time for an open heart surgery? Or $78 for a total knee replacement? These payments, although instructive to me, were the last, indeed, that I received from Medicare. After accounting for overhead and taxes, it was clear to me that I was likely paying for the privilege of participating in the care of these patients. Criticized by my anesthesia partners for walking away from Medicare, I remember rhetorically asking them when they would quit. When they were paying to do the cases? Incredibly, that moment arrived and it was time for me to better understand the sick situation in which I found myself. It was no time for anger. I could complain about this for the rest of my career or I could do something about it.
Fortunately, by that time I had come to see prices as the signals they were and I felt obligated to respond to the folks at Medicare with a signal of my own: I quit. To continue providing services at these below market clearing wages would be to send a signal, would it not, one that indicated that I viewed the transaction as mutually beneficial. In my view, to send the wrong signal by continuing to work at these wages was an error. To sanction the bureaucrat as a capable price setter was even more troubling and dangerous. 130% of Medicare means absolutely nothing to me and should be considered illegitimate for everyone as an arbitrary number the justification for which is absent.
We have allowed the bureaucrats and apparatchiks to issue medical pricing from their ivory towers for many years now, all leading to the irrationally priced disaster we know as the U.S. health care system. Distortion of the proper signals regarding what was needed in the marketplace or what was present in overabundance, the complicated dance of the marketplace has been thwarted. The high price of health care in this country represents no failure of the free market, but rather an absence of market discipline. Shortages of items like toilet paper and shampoo have been commonplace in command economies like Cuba and the former Soviet Union, all due to the lack of market prices. This is health care in the U.S., after all, where, as recently revealed in Michigan, outrageously priced chemotherapy treatments were administered to patients who lacked a cancer diagnosis and badly needed treatments and surgeries remain unavailable to those in desperate need. In Great Britain, the same government entrusted to provide their citizens health care, by their own admission decided for budgetary reasons to murder hundreds of thousands of sick people, a bounty paid to their hired doctors for each patient sent to euthanasia’s death row. As evident in every other industry, the free and competitive health market would have driven the actual cost of care down to levels that would have spared these people’s lives. Cost is the issue. The market, not more heavy-handed government is the answer.
No discussion of healthcare pricing would be complete without a review of the repricing scam of the carriers. “Insurance companies must love you,” I have been told many times, even though nothing could be further from the truth. They actually hate us, as a significant portion of their revenue comes from charging for the discounts they can achieve on fictitious medical bills. The higher the bill is, the greater the opportunity, after all, to earn a big commission on a discount. This is one reason the carriers love the big expensive hospital systems and one of the primary reasons they want nothing to do with those of us who display pricing. They are provided no opportunity to reap this repricing revenue when the price is revealed upfront. I am familiar with one contract we have had with a carrier that proscribed any honest pricing that interfered with their ability to reprice and therefore profit from the claims filed. The hospital systems are all too happy to produce these giant repriceable bills knowing all the while they will only collect a fraction, as this sea of red ink is necessary to maintain the fiction of their not for profit and therefore tax-exempt status. These fictitious losses also form the basis for their uncompensated care kickbacks from the taxpayers. These scams represent opportunities seized by the predators in health care, made possible only by a price-opaque and non-market system.
There is a point that I wish to underscore in this discussion about medical pricing that cannot be overemphasized. That the entrepreneurs and physicians in this room have elected to post prices, based on the cost of providing goods and services (and in the absence of competitive pressure to do so), is truly remarkable. That these prices are many times a tenth of what the so-called “not for profit” facilities inflict on the sick is even more remarkable. The result is that the moral and ethical argument has been won by those in health care who are unapologetically embracing the principles and discipline of the market, providing care to those who could otherwise not afford it and sparing so many bankruptcy. A downstream result many of you may not realize is this: reasonably priced and high quality health care has rendered this issue non-partisan and has brought many who have previously derided the workings and magic of the market to take a closer look. In short, theoreticians can study the market and write about it, but to implement market mechanisms and to see them act so predictably and powerfully makes the strongest argument for market freedom in all areas of the economy.
One mother, who revealed herself to be extremely opposed to my philosophy, but who nonetheless brought us her child for a tonsillectomy her family could afford asked me the following question: “How can you argue with cheaper and better.” When those who are paying their own health care bills are flocking to the physicians and facilities they know will not bankrupt them, and they then tell everyone they know about their experience, the market begins to inflict its discipline on even those who have so assiduously worked to avoid it. This is the tremendous power wielded by those of us here, but it is a power of persuasion, a consenting dance shared by the actors in the marketplace, not the violent power of government and its cronies.
I have recently stated that many of the big health care systems act very much like a Mexican drug cartel, little or no tolerance for competitors being the rule. Certificate of need laws….contracts with insurance carriers routinely singling out competitors to be excluded… stacking deductibles for out of network care…..purchasing referrals by buying physician practices….there are countless other barriers and bribes placed in the way of would be competitors that have allowed the cronies in health care to limit their exposure to the competitive market discipline that is at work in every other industry.
But when a patient in Houston demands that their local hospital step up and match pricing for a surgery he or she has found in Oklahoma City, online, this serves as notice to those working so hard to stifle their competitors, that they are indeed in the middle of a revolution, a free and competitive health market. When a patient in Georgia, having successfully negotiated a surgical price from $40,000 to $4000, using the pricing on our website as leverage, tells me that we have indeed saved him $36000 and we didn’t even perform his surgery- when that happens, that hospital realizes that this could indeed get out of control and that a new day has arrived. When a patient tells his doctor who is a hospital employed doctor that he or she is going to a price transparent surgeon or facility because his employer will pay the entire bill, the cartel-like arrangement that hospital system has worked so hard to perfect begins to unravel. When self-funded employer groups carve out arrangements with facilities like mine and many others, shoving their carrier and PPO aside, realizing that they can do far better on their own, this courageous move works to serve notice that a new day…and a new way…has indeed arrived. The millions saved by companies that have taken these steps is now public record, available for all to see, and has silenced the chicken littles, the giant corporate healthcare elites whose bullying days with their clients are numbered.
My friend Steve Kelley in Philadelphia once told me “good things happen when healthcare buyers and sellers are in the same room.” He was pointing out that the absence of the price distorters, the ticket scalping intermediaries, inevitably leads to more rational pricing. The direct price negotiations to which I have been a party here in Oklahoma City, even involving a full-service hospital, Deaconess Hospital, have proven Steve correct. Indeed, this association serves that purpose, acting like as Match-dot com, providing an uncontaminated forum in which buyers and sellers can meet. Physicians and facilities can take solace from the fact that this association’s membership is currently dominated by the buyers, an indication of the huge market for honestly priced medical services. This demand will not be remotely satisfied in the near future, as the success, once apparent and publicized brings even more demand.
The fist of government has brought us the murderous National Health Service in Britain and Obamacare, neither system born of or guided by the principles of the market. The market and its miraculous system of price signals brings us the good news in health care, the higher quality and lower prices that always emerge from the competitive nature of mankind. As I have said, this Free Market Medical Association will serve as the meeting place for the buyers and sellers to interact, without the intermediaries who bring nothing of value to the table. This Free Market Medical Association, the caretaker of price transparency, will bring not just ideas, but market solutions to this cartelized industry.
The courageous souls in this room, all of you are the early adopters, the source of the good news revolution in health care, all revolving around a clear and cogent understanding of the relationship between markets and pricing. We are just the beginning, however, as the interest in these ideas is growing at an impressive rate, embraced by people all over the country, as evidenced by how far many of you in this room have traveled to be here. In this room are the people who have brought the power of the competitive market back to healthcare and have done this in spite of intense opposition from government and their crony pals. I predict that not long from now, we will look back to this gathering as the beginning of the great healthcare price deflation, the result of the market unleashed, the result of the passion and principle of those in this room.
Thank you for your attention.