Finding common ground on price transparency

G. Keith Smith puts people to sleep for a living, working as an anesthesiologist and chief medical director at the Surgery Center of Oklahoma in Oklahoma City. But as a social critic, he has the ability to get pulses racing in a hurry.

Smith blogs on the Surgery Center's website, and he has made it quite clear he believes the Patient Protection and Affordable Care Act violates our collective right to freedom. He also recently chided a pediatric patient and her parents for being overweight, calling it the "Chris Farley effect" on health insurance premiums. Some other memorable headlines from his blog: "German Fascists Offended By U.S. Healthcare" and "Health Exchanges: Constructing Your Own Gallows."

I would dismiss all this as the kind of crank drivel expected to emanate from the most scarlet of these United States. But Smith has done some things I believe make an enormous amount of sense for healthcare finance.

Three years ago, he decided to post the prices for more than 100 procedures performed by the Surgery Center. They're total package prices, including the surgeon and anesthesiologist's fee. A second-stage mastectomy with implant placement costs $5,555. A hernia surgery tops out at $4,500. A knee arthroscopy is $3,740. Most hospital chargemasters put these procedures at around $20,000 and up--without the fees for the surgeon and anesthesiologist.

"Very many people would be able to pay for these procedures out of pocket," Smith told FierceHealthFinance, and I'm mostly inclined to agree. As a result, his center has been able to attract a lot of self-funded businesses sending over their employees and even patients from out of state shopping for better prices. It performs about 700 procedures a month.

According to Smith, his center's price transparency has forced the local hospitals to lower some of their prices, although they still don't post any of them. He's now considering offering oncology services and procuring and selling chemotherapy drugs at cost.

"Maybe cancer doesn't have to represent a bankrupting experience," Smith says, noting that many hospitals mark up their cancer drugs by a factor of 12 or more.

Not surprisingly, he's a vocal critic of hospitals, calling not-for-profit facilities "not show a profit" and slams high executive pay. Again, these are views that are not alien to this space. I've recently been analyzing hospital CEO pay data in California, and compensation has gone up about 20 percent between 2007 and 2009--a period when millions of people in the Golden State lost both their jobs and health insurance.

In Smith's perfect world, every provider would be compelled to post their prices, creating a free market effect to keep them relatively low. "You would buy insurance for something like a liver transplant," he observes. In other words, a catastrophic policy that would cost a fraction of what premiums run now.

Instead, he claims the Affordable Care Act will do the opposite, continuing to drive premiums upward.

"This bill was written by the insurance companies and the big hospitals, and their stock prices went up right after the Supreme Court upheld it, so you know who will benefit," says Smith.

Given the cost trends in Massachusetts and the fact that these stocks did indeed go up after the Supreme Court's decision, he has another good point.

Obviously, I don't agree with everything Smith has to say--he says his views are Libertarian, but after a 45-minute interview, they seemed to hew closer to Darwinian. His center doesn't accept Medicare and Medicaid patients--he believes they should rely on charity care instead. He also doesn't hesitate to balance bill those whose carriers initially reject a claim--a practice illegal in many states. And, as I noted, his blog is a regular exercise in flamethrowing.

But if people like Smith and myself can agree on some of the troubling trends in healthcare finance, it might be up to those in the middle to start taking a closer look at them. - Ron (@FierceHealth)