Anyone who has ever tried to shop around for prices on medical care knows how dysfunctional the market is. It's not because huge amounts of money isn't changing hands; it's that nobody really knows what anything costs at any given moment in time.
When I first moved to Los Angeles from Buffalo, my then-wife was pregnant with our first child and we were on a grad-student plan that didn't travel far beyond Western New York. Reason's benefits might not kick in until after our son was born, so I called around to area hospitals to try and find out what things cost. Four hospitals refused to give me any information, saying that they could not (and would not) price out anything. Part of that's understandable—what if something went seriously wrong?—but the people I spoke to refused to even say what basic charges were for things like delivery room time, anesthetics, and the like. Of course they have rate sheets for all that but share them with potential customers? Go fuck yourself, buddy.
For good reason: These costs are completely contingent on a wide variety of factors, especially what insurance plan you have or whether you have insurance at all. More recently, I've had the same problem trying to price out basic blood tests (a lipid panel) in southwestern Ohio, as simple and mechanical a procedure as exists. Without clear pricing, we'll never get far in radically improving the cost and quality of care for non-emergency services. In areas that are not traditionally covered by insurance—think Lasik surgery, cosmetic dentistry, and plastic surgery—a very different model obtains and you see exactly the sort of market-driven efficiencies that we see in virtually every other part of our commercial lives. The surgeon Jeffrey Singer has written about how various insurance contracts bar him from even discussing discounted cash payments with patients who announce they have insurance.
Time has a great story about bringing basic market forces to medicine. Titled "What Happens When Doctors Only Take Cash," the article uses the Oklahoma City Surgery Center as a model for a different way of doing business. Co-founded by the outspoken libertarian Keith Smith and Steven Lantier, two anesthesiologists, the center takes no insurance whatsoever. Instead, they take cash only and advertise and guarantee their prices and services. The result is pretty goddamned amazing:
The all-inclusive price for every operation is listed on the website. A rotator-cuff repair for the shoulder costs $8,260. A surgical procedure for carpal tunnel syndrome is $2,750. Setting and casting a basic broken leg: $1,925….
The Surgery Center would charge $19,000 for [patient Art Villa's] whole-knee replacement, a discount of nearly 50% on what Villa expected to be charged at his local hospital. And that price would include everything from airfare to the organization's only facility, in Oklahoma City, to medications and physical therapy. If unforeseen complications arose during or after the procedure, the Surgery Center would cover those costs. Villa wouldn't see another bill.
The savings for Villa's surgery were so awesome that his company footed the bill. Others are following suit:
Villa, for example, says his decision to go to the Surgery Center saved his company money, since his $19,000 bill is less than it would have been charged, even with a negotiated discount, by a traditional hospital. The Oklahoma state public employees' insurance fund, which covers 183,000 people, recently did similar math. In 2015 it announced a new rule: If patients go to a traditional hospital, they pay their deductible and co-payment. If they go to a cash-based provider that meets the fund's criteria, including the Surgery Center of Oklahoma, they pay nothing at all.
At the heart of this are the price signals that help us guide decisions in all parts of our lives. If you don't know what things cost at a given point in time, there's really no way to make an informed decision. Smith laid out for Time how he and Lantier came up with what to charge:
They asked their fellow doctors how much compensation was expected per procedure, factored in necessary expenses like surgical equipment and medical implants, then tacked on a 10% to 15% profit margin. Since their surgery center does not employ the army of administrators that is often required to haggle with insurers and follow up on Medicare reimbursements, their overhead is smaller. The whole operation is 41 people. "Finding an average price doesn't require complicated math," Smith says. "It's arithmetic." Since posting the price list eight years ago, they've adjusted it twice, both times to lower rates.
With about half of all medical dollars being spent by the government and much of the rest covered by completely inscrutable insurance-company payment systems, good luck figuring out what anything costs at any given point in time. Ironically, Smith notes that Obamacare's forced march toward high-deductible plans (still a rarity among insured people) is actually fueling more cost-consciousness among patients (who should be called customers! enough with the mystifying of medical care as something more than other types of services!). After all, if your deductible is $6,000 or $15,000 or something you're unlikely to reach in a given year, you have more incentive to track your costs.
Indeed. I started this post with anecdotes about the difficulty of finding medical prices and I'll end with another. A few years back I had switched to a high-deductible plan and was prescribed something—a statin or antidepressant, I can't remember which, but it was a drug for which many brand names and many generics exist. My doctor prescribed a name brand and I asked him how much it would cost per month. He replied, I have no idea. I pressed him a bit and he had his staff call my insurer and find out. It turned out it would be something on the order of $80 a month while a generic drug would do basically the same thing for about $8.00 a month. He prescribed the latter and said we could always switch if it wasn't getting the job done.
Start multiplying those sorts of interactions throughout the medical-care system and big things start to happen. You supercharge it with outfits like the Oklahoma City Surgery Center. What happens when doctors only take cash? The lucrative field of medicine gets demystified, prices go down, services go up, and everybody except insurance companies come out ahead. Paying cash on the barrel head isn't the full limit of how to increase the quality of medical care while driving prices down, but it's an essential part of any serious reform that doesn't simply involve rationing the quantity of care. Different conditions apply (obviously) for emergency situations, but those sorts of costs are exactly what real insurance—as opposed to the pre-payment plans we effectively call "insurance"—are designed to cover.
Back in 2012, Reason TV's Jim Epstein visited the Oklahoma City Surgery Center and talked with Keith Smith and patients. Watch this video to see the future of medicine—if we're lucky, that is.