Why Aren’t There More Free Market Surgery Centers and Clinics?
[This is a transcript of a talk given June 17, 2021, at the Mises Institute’s Medical Freedom Summit in Salem, New Hampshire.]
On behalf of everyone at the Surgery Center of Oklahoma and the Free Market Medical Association, thank you for the opportunity to speak to you today.
Just over twenty-four years ago the operation of the Surgery Center of Oklahoma began with a simple mission: deliver the highest quality of care at a reasonable and disclosed price. We fancied ourselves free marketeers, not aware of how far we had yet to go to accurately claim this title. Our mission was the opposite mission of the hospitals where we had previously worked. Then, as now, hospitals are focused almost exclusively on revenue, many times inflicting surprise and bankrupting bills on their victims. As physicians working in these hospital systems, we were unwitting accessories to these crimes. We intended to operate our facility differently, intending to serve as both medical and financial advocates for our patients. The Surgery Center of Oklahoma is now viewed as a model of medical services delivered free market style partly because of this simple mission, but more recently due to posting all-inclusive pricing online and the effects this move has imposed on the medical and surgical market. I’d like to begin by describing the state of the industry at the time we decided to walk away from it.
I’d become convinced by the early 1990s that government had no money it had not first stolen and to accept government payment was to receive stolen property. In 1993, three years after I started my anesthesia practice, I therefore stopped accepting government money and stopped filing Medicare claims. I treated Medicare patients outside of the Medicare scheme and usually free of charge. When I began practicing in 1990, Medicare paid me about $1,100 for the anesthesia services required for an open-heart surgery. In 1992, this payment was cut in half. A year later that amount was cut in half. The last two payments I received from Medicare were as follows: $285 for a six-hour cardiac anesthetic and $78 for the anesthesia services required for a knee replacement. These fees had been imposed through a mechanism referred to as the resource-based relative value scale, more appropriately called the Rosemary’s baby of healthcare. According to the folks at Harvard who gave birth to this creature, every physician service had a price and they knew what those prices were. I had read enough about economics by this time to know that this imposed pricing was not personal, as punishing as it seemed. Prices are signals, after all, and Medicare was sending me a signal regarding what they thought the service I provided was worth, or they meant to intentionally cull the ranks. I felt obligated to respond with a rational signal of my own and as I’ve mentioned, I quit participating in their scheme. I still had much to learn about pricing, but I did notice that underpriced services became scarce and overpriced services became abundant.
Private insurance carriers seized on the fear created by this deep slashing of physician fees, drastically reducing the amounts they paid to physicians. Hospitals, not about to allow a crisis to go to waste, cashed in on their opportunity to cheaply purchase physician practices. To legitimize their bold strategy, hospitals cranked up their propaganda machine, proclaiming loudly then as they do now that they were going broke. Hospitals flush with cash even laid off critical nursing staff to justify this narrative. I’ve always found it interesting that hospital emergency rooms, the supposed primary source of their financial woes, always seem to have a building crane out front. Who builds on to their loss leader? And yet the lack of paying patients in the emergency room was part of the poor-mouthing narrative in the early ’90s, just as it was during the debates leading up to the un-Affordable Care Act.
To further bolster this bankrupt-hospital narrative, physicians and surgeons were told there was no money to buy the equipment and supplies they needed. It was becoming increasingly obvious that it was time to get out. I had no desire to be controlled by the rising administrator class. The only choice for me was to find a way to practice outside of the hospital environment, no longer an accessory to the hospital’s financial crimes against patients.
The Golden Rule and the concept of mutually beneficial exchange is a large part of what drove me to become a physician. While the vast majority of physicians embrace honest and mutually beneficial exchange, it turns out that the vast majority of hospitals do not. Hospital commerce is the equivalent of a financial drive-by shooting, particularly commerce conducted by the not for profit systems. I believed then as I do now that a facility owned and controlled by the physicians who work there was the model most likely to ensure that patients were not financially brutalized. My great-uncle was the only physician in a small Oklahoma town for years, living in the top floor of his house, the bottom floor serving as his clinic and the town’s hospital. He was completely accountable for the entirety of what his patients were charged. He could do everything about what they were charged, including charge them nothing, and this he did regularly. Dr. Walter Bayes was a hero in the town of Chickasha and very well to do. Ownership of the facility or institution by doctors was the rule until government intervention in the 1950s and ’60s made this model more difficult. The explosion of hospital charges in the 1990s, at the same time they claimed they were going broke, created an opportunity for physicians to once again own facilities and demonstrate the superiority of the model. This disintermediated model was superior, as it allowed for the elimination of the greediest profit seeker from the equation: the not-for-profit hospital.
In April of 1997 Dr. Steve Lantier and I walked away from our hospital anesthesia practices and opened the facility thirty days later with ten surgeons with whom we had a good working relationship. We had no idea if we would break even, make money, or go broke trying. We had no pro forma. We had no business experience. All we knew was that hospitals were awful and inefficient places charging patients gigantic prices. The opportunity seemed obvious. Our faith in this dream and in the idea that if you are cheaper and better you will beat the competition formed the basis of our business plan. We also decided that we would never accept a dime of government money, and to this day never have.
The first week we were open, we received a call from a patient who
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