What if you could buy healthcare like you buy anything else? If you know you need a knee replacement, imagine going to a website, picking an operation, and seeing the price, just like you do on Amazon or McDonald’s. Case closed.
In Oklahoma City, dozens of North Texans a month are doing just that at the Surgery Center of Oklahoma. Dr. G. Keith Smith’s business model almost seems too simple. The all-cash business doesn’t take any private or public insurance, doesn’t negotiate on price, and has no reams of paperwork to fill out to figure out the financial arrangements. Patients sometimes take a while to be convinced, but after more than 20 years in business, the word is spreading about this model of financing healthcare.
“The most common reaction is a too good to be true skepticism,” Smith says. “Oftentimes, patients have shopped around, and they’ve been quoted some price that’s four, six, or eight times what we have listed online. The whole idea that you get what you pay for is in their mind.”
Smith is an anesthesiologist who spent the early years of his career working with health systems but became disillusioned about the relationship between health systems, insurance companies, payers, and patients. The way he saw it, physicians and patients both operated in the best interest of each other, but the hospitals did not. Rather than a free market, he calls the healthcare system a cartel.
“When patients were financially brutalized, it was almost without exception at the hands of a hospital, oftentimes a not-for-profit institution,” Smith says. “I realized I was basically an accessory to a crime, aiding and abetting this situation. The only way as an anesthesiologist that I could do anything about that was to own and control my own facility.”
In 1997, Smith and his colleague Dr. Steven Lantier walked away from a successful practice to found the Surgery Center of Oklahoma, and it has been a success ever since. Their all-inclusive prices were often less than patients would pay after meeting their deductible and paying the remainder using coinsurance. The clear cash price attracted people from all over the country, and self-funded employers and health sharing ministries found the system enticing.
In areas around the country where healthcare costs are especially high, employers would often incentivize their employees who needed surgery to come to SCOK, paying for their flight and hotel stay along the way. It was cheaper for employers to pay for a surgery at SCOK and all the travel than using their insurance and an in-network provider in their region.
North Texas has some of the most expensive healthcare prices in the country, and Smith says the center sees about 25-30 North Texans a week. The clinic saw as many as 700 cases in a single month at its peak before the pandemic caused business to slow. It doesn’t employ any physicians but has 120 on staff that performs at the center.
Smith embraces the free market and says the surgery costs are like a bell curve. Most cases are standard, there are a few that are more complicated and costly to the center. The center sets prices accordingly, using an algorithm to determine the price of every surgery. If the surgery ends up costing the center more than the patient has agreed to pay, the center eats that cost. Over time, costs are adjusted to ensure the center remains profitable yet competitive.
The business is cash-only, but the price is still often lower than what patients can get through their insurance. Insurance companies negotiate with hospitals on the prices they will pay, but the original cost figure the hospital sets is often disconnected from reality because they know they will be discounting it significantly through insurance negotiations. That is how a surgery that SCOK says costs $5,000 is $30,000 if you ask a hospital. Insurance companies make more money from negotiating a larger discount.
Turquoise Health’s transparency tool says that a knee replacement will cost more than $30,000 for cash pay at Baylor Surgical Hospital Las Colinas. At SCOK, the posted cash cost is $15,499. It is unlikely that insured patients will pay $30,000 at Baylor Las Colinas, but patients have found SCOK to be a better deal after insurance is factored in. Other places in Dallas like the Dallas Medical Center have a lower cash price than SCOK, but insurance networks and referral patterns often impact where patients get the surgery, and many don’t shop at all.
Though he has had the opportunity to franchise his model, Smith is happy to consult with other medical entrepreneurs who want to launch a surgery center that is more reflective of the free market. Many independent surgery centers often shy away from posting prices online, as the health insurance and hospital networks are powerful enough to dissuade any direct affront to their way of business. But Smith hopes he will be copied by others and is used to taking heat along the way.
When Smith first began posting prices online in 2009, he was labeled a rogue. “I had a tinfoil hat put on my head as just a lunatic,” he says. He says hospital systems often use certificate of need laws to stop new surgery centers like his from being built. Certificate of need laws are meant to make sure hospitals don’t overbuild an area but can also restrict competition. Today, there is a federal price transparency law on the books pushing hospitals to do precisely what he did, and he feels vindicated.
These days, Smith is happy to meet with providers about launching their own version of transparent surgery centers, and copycats are slowly catching on. Smith noted WellBridge Surgical in Indiana, disrupting the region’s healthcare with upfront and transparent pricing similar to SCOK. “There is so much room for honest good guys in this marketplace that I have no fear that the business at the Surgery Center of Oklahoma is going to be affected hardly at all if there were 100 more facilities like mine appear tomorrow,” he says.
For facilities like this to proliferate, Smith says employers are going to have to wake up and take more control of where their dollars are being spent on healthcare. But old traditions die hard, and it is difficult for employers to establish new payment models, broker relationships, and outside-the-box thinking. But rising healthcare costs are pushing more and more employers to look for a different way, and Smith is hopeful.
“The self-funded industry has to discard the narrative that their brokers and consultants have sold them for so long now,” Smith says. “It’s really hard to admit that I’ve been duped, I’ve been lied to, because then you start to realize how much money has just been set on fire. But the sooner you wake up from that bad dream, the better.”
Will is the managing editor for D CEO magazine and the editor of D CEO Healthcare. He’s written about healthcare…