Surgery Center of Oklahoma Blog

The Oklahoma Council of Public Affairs is a state-based think tank that champions free market ideas.  This is the outfit that produces the incredibly inconvenient research and data that cannot be ignored by the typical legislator or state employee.  There is no lobby strong enough to intimidate this group including the government education lobby.  They have been very supportive of free markets in health care and this blog and our surgery center, in particular.

They have recently taken on Medicaid.  They have  challenged the notion that cost-shifting as a result of underpayment by the uninsured or underinsured is a significant  problem and have once again produced objective data that shows that this is a myth.   They are also not fans (as you would suspect) of the provider tax that just passed.  OCPA is not on a path to popularity.  They are finding facts and doing real policy research and calling it as they see it.  As Walter Williams once said,…”that won’t get you invited to very many government garden parties.”

It is not everyday that principle trumps expediency in life or in print.  Hat’s off to the crew at OCPA!  Keep up the good work.

G. Keith Smith, M.D.

How do HMO’s work?  Physicians are paid a “capitated rate.”  That means that for every patient (capitated means “head”) the physician receives a set amount of money….regardless of the care rendered to the patient.  Typically at the end of the year, the extent to which the physician has been successful in limiting the patient’s health costs results in a bonus…to the physician that denied them care!  The patient typically has no “out of pocket” expense.  What sort of incentives are produced by a system like this?  If you said,” the patient is likely to seek the physician regularly because it doesn’t cost them anything,” go to the head of the class!  If you said,”the physician doesn’t want to see any patients because he has already been paid for seeing them whether he sees them or not,”  you too, go to the head of the class.  So the patients can’t get an appointment and the physician’s waiting room is empty!!  Who wins?  The insurance company or employer that offers this “insurance product” wins because no one gets any care and costs are minimal!

Several different versions of this abomination have been tried.  Sometimes it is just called something else.  The lesson is that if your physician is paid the same whether they see you or not you are going to have a more difficult time getting in to see them (and if you do, good luck getting them to give a flip about your condition).  It is interesting that this type of medical economic system was invented in fascist Germany in the 1930′s.  One new twist on this is the physician hospital employee.  A colleague of mine told me last week that he had difficulty at a local hospital getting a pulmonologist (lung doctor) to see one of his patients because….you guessed it!…he and all of the other lung doctors had recently become salaried employees and are paid the same regardless of whether they see 1 or 100 patients a day.  What a great way to eliminate customer service.

Can you imagine how motivated a restaurant would be to serve you if they were paid the same regardless of the number of patrons entering their establishment?  Or the plumber or electrician that is paid the same regardless of how much work he does? What insanity!  What is it that leads people to believe that the same market forces that shape our behavior and discipline everyone involved in commerce don’t apply to medical service?

True competition and the free market will lower costs and lead to an improvement in the quality of medical care for everyone just as these concepts and market forces have for every other economic aspect of our lives.

G. Keith Smith, M.D.

How much do medical facilities typically “mark up” the price of their supplies?  The answer to this may shock you.  For many supplies, they are not actually included in the inventory of the facility.  This is what we call “consignment.”  What this means is that the company that makes the particular metal plate, screw, anchor, or medical device just stores the device where it is going to be used instead of at their warehouse.  Only when the device is used is there a bill sent to the facility where the surgery occurred.  Keeping this in mind, how much sense does it make for the facility to inflate the price charged to the patient or the insurance company by 300%?  Or how about 1000%?  Medical devices (such as total joint components) are typically “marked up” about 300%, i.e., the hospital pays $5000 and the patient or insurance is billed $15,000.  Pharmaceuticals are typically “marked up” 1000%.  Yes, that’s right.  A drug that costs $10 is billed out at $100.

Some devices or implants are expensive….like cochlear implants.  These are devices that restore hearing to the deaf.  These devices are implanted many times into children that would otherwise not hear at all.  Sounds like  a situation where gross profiteering would be unethical, huh?  Many times charitable organizations will pay for all or help with the cost of this life-changing procedure.  This device is $27, 000.  The big hospitals charge $81,000 for the device.  What?  You thought they were not-for-profit entities didn’t you?  Charitable organizations for the deaf have figured out that they can restore hearing to 3 deaf children at our surgery center for every 1 child operated on at one of the big hospitals because we “mark up” the implant…..ready?….none.  What?  But we are for profit. How can this be?  Why would a not-for-profit facility need 3 times as much money as we do to not make a profit?

As I have mentioned in a previous post we provide copies of invoices for these implants and others to the patient to show that there is no “markup” whatsoever for the device or implant.  And here is the amazing part.  At our prices we are still profitable.

There is plenty wrong with health care in the old USA.  But only to the extent that the free market has been denied its role in disciplining those providing the service.  Price posting by competing facilities would go a long way toward curbing the abuses of implant “markups.”

G. Keith Smith, M.D.

One year ago this weekend the horrific hail storm that hit Oklahoma destroyed the roof and much of the interior of our facility.  I made 3 phone calls when I first arrived at the surgery center to ask for help with the clean up.  Within an hour, forty (yes, forty) employees and their families were working very hard to deal with the mess (remember this was a Sunday night).  The floors were dry and the patient monitors, anesthesia machines, operating room equipment and medical records were covered (all done that night!) and spared any damage.  The skylights (completely destroyed by the hail) were covered with tarps that employees had brought from home.  With more rain in the forecast it was important to have a temporary roof installed so that the work inside the facility could begin.  Many thanks to Tim Schlenke and his crew from Metro Roofing (my apologies to you Tim if I misspelled your name) for their work late into that Sunday night.  Jeff Vanhoose and his foreman (Tiny…who is not Tiny but one of the best guys I’ve ever met) insured that the needed work got started and stayed on schedule.  No one working on the facility could believe how clean it was just one day after the storm.  Everything was removed from the building and placed in storage pods…by our staff.  Indeed, our staff set the tone I believe for all of the subcontractors that worked on the facility.  The work of the staff had just begun, however.  Moving the equipment back into the facility involved cleaning and sterilizing…well…everything.  Detailed inventories of damaged soft goods were critical.  Ready for the unbelievable part?  Remember, everything out of the building, the damage repaired, everything cleaned (and sterilized) and replaced and operational again in two weeks.  This quick turn around would never have been possible without our staff’s work.  And it wasn’t just the long hours they put in.  There was a natural cooperation and coordination of effort that caused many projects and difficulties to be dealt with right then.  I can’t remember how many times someone would say “well, we took care of that issue in the waiting room.”  ”What issue,” I would say. You know…then the description of something about which I was not aware.  The staff had handled it….like they owned the place.  I remember telling my partner Steve Lantier that if he and I had accomplished anything we had been successful in instilling ownership of the facility in the staff.  There are so many to thank for their contributions to this effort I hesitate for fear of leaving someone out.  My constant sidekick throughout this ordeal, our head nurse Marilyn Robertson, deserves special mention, though.

You should know that the same dedication and pride of workmanship that was exhibited by our staff after the storm is shown every day in the operation of our facility.  My hat is off to the finest group of people I have ever worked with.

G. Keith Smith, M.D.

The Surgery Center of Oklahoma opened 14 years ago this month.  Dr. Steven Lantier and I actually made the deal for the purchase on a hunting trip with Health South execs we did not know were going to be there.  Originally there were 12 partners and many challenges.  We performed two surgeries our first day, the 28th of May, the first a nasolacrimal duct probe on a 1 year old little girl, the second that afternoon a laparoscopic cholecystectomy.  Our initial goal for year one was to average 10 cases a day.  Within 6 weeks of opening we had passed that number.  At the end of the first year we were consistently performing 250 cases/month.  By the end of the second year we were performing 300 cases/month consistently.  We resisted the urge and temptation to add partners to quickly increase our volume of cases.  By 2002, the facility was bursting at the seams and 400 case months were not uncommon.  This was becoming increasingly difficult on the staff as we only had 3 operating rooms.  The partnership made the decision to build our current facility and we moved in Valentine’s weekend, February, 2003.  Performing large case numbers in a small facility and moving to our new facility would not have been possible without our fine staff.  I have never worked with a more dedicated group of individuals.  My next post is dedicated entirely to the staff of the Surgery Center of Oklahoma.

G. Keith Smith, M.D.

This week our urology pricing should go online!  Very exciting to add a new modality to our surgery center.  I always get a kick out of the process of formulating a price for surgical services.  Many times physicians have no idea what a fair price is for their professional fees!  The fees at our surgery center are a function of time and materials.  Operating room time is expensive and the supplies that are needed for completion of a surgery are expensive and have to be accounted for.  The anesthesia fees are with rare exception a function of time and are not particularly difficult to come up with.  I have done this for years as we have taken care of uninsured patients since 1997 that wanted to know “how much will it cost…total?”  That this transparency is absent in medicine is a huge problem.  Imagine not knowing the cost of a single item at the check out stand at a grocery store but once you are in line you are committed to buying everything in the cart, regardless of price.

I don’t think that we will see transparent pricing from most medical facilities any time soon.  There is too much money to be made from the unsuspecting medical consumer at this time.  But as Thomas Sowell has pointed out, the right question to ask in any economic situation is “compared to what?”  Sowell has joked that when an economist was asked how his wife was, he said, “compared to what?”  I think his point is that you can’t properly evaluate any price or economic system by itself..you always have to evaluate it in comparison to some other price or system. The Austrian economists would say, I think, that any anticipated expenditure is naturally compared to the next best alternative (my apologies to the Austrians reading this if this isn’t exactly right).  Some people might say that $2860 is too much to pay for an inguinal hernia repair (our price online).  Sowell would say…”compared to what?”  We have had patients come to our center from Alaska that were told that their hernia repair would cost them $20,000 up front with unknown costs coming after the procedure!  For those Alaskans our prices were low compared to what they were facing in their home towns.  Our prices have been on line now for over 2 years.  We have been the answer to Sowell’s question many times for many patients.

G. Keith Smith, M.D.

Does the physician facility owner act differently  in his own facility?  Do rental cars get the same care and attention as the car that you own?  I have found that surgeons with short fuses and hot tempers are tolerated where they are non-owners,  whereas their partners in co-owned facilities are not amused by these antics as this behavior makes retention of outstanding personnel difficult.  How can this be? Wouldn’t the facility owner’s tyrant attitude be un-checked in the facility  he owns?  Or is it possible that the scrub tech or nurse that was the target could be the favorite of another surgeon (who will not take kindly to another running them off)?  Most of the time this anger from surgeons is on behalf of their patients and their frustration that no matter what they say, nothing will change for the better.  As facility owners, physicians have total control over what needs to change to enhance patient care and the frustration is therefore much less.  I have  also found in my twenty years of anesthesia practice that surgeons in operating environments where they have no financial stake are often times very needy and demand all manner of gadgets and bells and whistles that are many times completely unnecessary  for the completion of a surgical procedure. At our facility, the surgeons are constantly exposed to comments by the staff like, “Dr. X doesn’t do it that way,” or “..if you use this instead we save $75.”  In a big hospital the surgeon would say,”!@#$%^^&&*(*&&^!”..or something like that..basically…”why do you think I care?”  These cost saving tips and efficiency tips are welcome and wanted in our facility and in others where there is cost accountability.

Another thing to consider:  hospitals are paid by insurance companies for what they use…surgery centers are paid for what we do.  What? You mean the hospitals are actually incentivized to be wasteful and expensive?  And surgery centers are paid the same regardless of what their costs are for completion of a surgical procedure?  This accountability has forced physicians in outpatient centers to look the cost dragon in the eye, something that rarely happens in the big hospitals.  It has made us aware that some physicians cannot possibly complete certain operations profitably while others can.  These inefficient and wasteful physicians (rarely found in physician-owned facilities, interestingly) are actually better for the profits of hospitals as the hospital is compensated for all of the stuff that is used in addition to what is done.  Incredible, isn’t it?  What other business could work this way and survive?  Once surgeons are hospital employees (having been the victims of a hospital hostile takeover)  will their utilization of unnecessary supplies increase in accordance with the wishes of their employer?  Whose bread I eat his song I must sing…or something like that.

G. Keith Smith, M.D.