If you build it correctly, it will work, to turn a phrase. Even a health care system.
More and more doctors across the country want to reduce costs and bring price transparency to the system. In 1997, anesthesiologist Keith Smith left his hospital job and opened the Surgery Center of Oklahoma (SCO) in Oklahoma City. “I wanted to see if markets could actually work in our convoluted health care system,” he told me. “I didn’t want to be an accessory to a crime anymore. Our mainstream system is criminal because of the way it fails to prioritize the care of patients.”
During his first week in business, Smith got a call from a woman needing a breast biopsy. She asked him how much the procedure would cost at his clinic. He had no idea—no one had ever asked before. Smith called his surgeon and the testing lab for a quote, calculated his own cost for the 20-minute procedure, and gave her the estimated price—which ended up being well within her deductible, and a fraction of the price she was given when she pressed a local hospital for an estimate. Smith and his team decided to bundle prices for all their procedures and then made the radical move of posting the full costs on their website.
Almost immediately, Oklahoma hospitals, insurance companies, and legislators went on the offensive and tried to shut down SCO. Insurance companies made it mandatory for consumers to meet their deductible with in-network providers: if they went out-of-network to get a service, their deductible would reset to zero for the year. This made SCO’s otherwise-affordable services cost-prohibitive for many patients with insurance. The center’s waiting room emptied.
But SCO quickly discovered other types of consumers, such as companies with self-funded health-insurance plans, as well as international patients. Employers with self-funded plans take on the financial risk of providing health-care benefits to their employees instead of paying premiums to health-insurance companies like Aetna or Anthem. Though it’s generally larger companies that self-insure—Wal Mart is a well-known example—high costs in health care are driving smaller companies, including those with as few as 50 employees, to move in this direction as well. Self-insured employers have incentives to keep costs down, even if it means flying their employees for out-of-state treatments.
When self-insured companies from across the country learned that procedures at SCO cost a fraction of the bill at most other medical institutions, they began offering their employees incentives to go there, including stipends, paid time off, and even covering the cost for a friend or family member to accompany them. SCO also saw an influx of customers from Canada and Europe. Though these patients had government-funded coverage, delays in treatment for urgent conditions led them to pay out of pocket for treatment at SCO.
GREAT quote coming right up:
“Some people say that health care is too important to leave to markets,” Smith says. “I say it’s too important to leave to government!” Without the pressures of the market, Smith is convinced that there is no accountability and no incentive for health-care providers to pay attention either to value or quality.
Annnnd bingo, we have a winnah! Good on ya, Doc. But isn’t it remarkable how such plain, obvious common sense can sound downright radical to modern ears—and how we find ourselves going back to first principles to re-engineer a humane, functional health care system that will doubtless end up closely resembling the one we had until the government stepped in to screw the old one up so horribly?