Ep #470: Revealing the Hidden Layers of Healthcare Costs - with Dr. Keith Smith

David Saltzman: 0:00

You know, when we last spoke with the man that I call the Godfather of Price and Quality Transparency, it was eight years ago, almost to the date of this recording. What's changed, what hasn't, and what's being done We'll find out on this episode of Shift Shapers.

Host: 0:19

This is the Shift Shapers podcast, Connecting benefits advisors with thought leaders and entrepreneurs who are shaping the shifts in the industry. And now here's your host, David Saltzman.

David Saltzman: 0:32

And I want to welcome back from the way back machine Dr Keith Smith. He is co-founder of the Surgery Center of Oklahoma and some other stuff that he does to occupy his time that we'll talk about as we go along. Keith, welcome back.

Dr. Keith Smith: 0:45

Thanks for having me.

David Saltzman: 0:47

It's our pleasure Give us a little bit about your story and how you ended up at co-founding the Oklahoma Surgery Center.

Dr. Keith Smith: 0:56

Well, in 1990, I started my private practice in Anesthesia and very shortly realized that the hospitals were not my friend. They were not the patient's friend, they were not the surgeon's friends. The surgeons that I worked with, and increasingly our pay by the government and Blue Cross, united, signet, etna, were getting squeezed and the hospitals were making a bundle amounts they'd never made before. All the while they perfected their poor-mouthing propaganda sort of strategy and you still hear it today. The hospitals are all going broke and we have to pony up money for them and overpay them and bail them out. That all started really back in the early 90s. At the same time that physician pay was being squeezed and the hospitals were getting rich, it became apparent that the patients were being increasingly terrorized, sent to collections, leans, placed on their property, and I was raised in a home that thought the golden rule meant something. And I'm a big fan of mutually beneficial exchange. I'm not a fan of coerced behavior, I'm not a fan of mandates of any kind. Big individuals are naturally cooperative, and that really is not what I signed up for when I became a physician. I wanted to help people and enter into exchanges that I had hoped would be mutually beneficial. So another anesthesiologist and I had had enough.

Dr. Keith Smith: 2:46

In 1997, we walked away from very successful anesthesia practices, but we just couldn't do it anymore. We opened our own facility with an aim toward not only being a medical but also a financial advocate for patients. And you know what? We were right. We were hoping that we could charge a fraction of what hospitals charged for the same service I would argue better service and patients could pay a whole lot less money and get a whole lot better care. And here we are in 2023. The surgery center has been open 26 years. We have lots of people out there banging the drums for us John Stossel, ron Paul, steve Forbes.

Dr. Keith Smith: 3:34

It really was a radical move. Looking back, it was much more radical than we had any idea at the time. It was, according to some people that I know, an industry-changing move and it even has had some policy ramifications. Larry Van Horn, my friend, the economist from Vanderbilt, told me that the Trump Executive Order Mandating Price Transparency was directly derived from what we had done in 2009 when I posted all of our prices online. So we opened this surgery center. It was very free, market-minded and did well.

Dr. Keith Smith: 4:18

All of the attacks we sustained by the cronies and the legislators backfired until about 2006 when they stacked deductibles, so patients had no insurance benefit out of network until they had met their in-network benefit, and that almost closed us, because up to that point, the price patients paid at an in-network hospital was more just meeting their deductible than our entire price, and so that was a source of a lot of our business and that all went away.

Dr. Keith Smith: 4:55

So in 2009, I just posted all of the prices online and Canadians showed up. That was the first thing that happened, and then all these uninsured folks and then beneficiaries of self-funded insurance plans and the cost-sharing ministries, and that's the source of our business. Now we don't deal with any insurance plans. We don't set money from the government. We never have. We've never taken a dime of money from government since we opened. So it's been a wild success. It's inspired many, many others and I, frankly, every day I go to work I feel vindicated, with a smile on my face and think about how much money people actually keep in their pockets now Receiving care that they otherwise could not have afforded because of what we did really back in 1997 when we started.

David Saltzman: 5:50

Well, and you have had probably a thousand arrow ectomies, because the pioneers are always the ones with the arrows in them. But I remember when you posted prices, you caught Holy Hell from almost everybody, didn't you?

Dr. Keith Smith: 6:03

Yeah, and one of my favorite quotes is a Gandhi quote where he says you know, first they ignore you, then they laugh at you, then they fight you, then you win. And that's exactly our experience. I mean, you know, at first they kind of ignored us and laughed at us and we were the objects of scorn and contempt and ridicule. Then they called us cherry pickers. You know, all we were doing is picking the low hanging fruit. And what about the poor? And then it became clear it was the poor who actually were coming to our shores. You know, it was these expensive hospitals that were driving poor people away. And then we, increasingly, were perceived more as an underdog than anything.

Dr. Keith Smith: 6:52

So yeah, we've had a lot of attacks. I remember those things sort of nostalgically, but the more I think about all of the battles that we entered, even the ones that we won, it's exhausting. I almost. I can almost feel how stressed and exhausted I was at the time. Every one of those attacks came up. It's almost too overwhelming to relive all of them. But you're right, we survived. But there were no shortage of attempts to slay what we had in mind.

David Saltzman: 7:38

Oh no, I remember it well. So it's been eight years since we last spoke. Are we there yet?

Dr. Keith Smith: 7:48

Defined there.

David Saltzman: 7:50

Well, are we where you think the endpoint of this is, or are we just getting started?

Dr. Keith Smith: 7:55

Oh no, we're just getting started. We are at a tipping point and I reminded the members of the Free Market Medical Association at our last meeting just a month ago we are a rebellion, we are not a revolution. I do not want to take the place of the goons and the cronies and take over what they do. We, we are a rebellion, we're an alternative. But that alternative is very creepy For the status quo because it's a daily reminder that cheaper and better is the alternative. Throwing the keys to the government and letting them take it all over is an alternative, some would suggest, but that's a disaster where you overpay and and the care is under delivered. So I would say we are at a tipping point.

Dr. Keith Smith: 8:51

I think that this economy what the government has done to the money and you know just praying money like crazy. You know we're seeing price inflation and so the more expensive things get, the less margin there is for things that seem, or even are suspected to be overpriced. So that is played In our hand and and we also have, you know, some big gorillas out there, like the cost-sharing ministries and some big self-funded companies that that are now filling the squeeze, you know, up to this point, for many self-funded companies, medical services has been a rounding error. They didn't really care what it costs, but they do now. So, yeah, I think a combination of things as as what we've done, what it means, receives more notoriety as the economy gets squeezed, the more and more people are seeking an alternative, and and I think we really are we are really near a tipping point. I don't think we're anywhere near where this will end up.

David Saltzman: 9:58

You know it's interesting. The phrase that we use frequently is on the podcast is that when? I think it was my friend, craig lack who Originally coined it. But we've created an entire class of people who are functionally uninsured, and I think there are a number of folks, especially as we've Driven the market into self-funded plans because there's been really nowhere else to go. Folks are starting employers and plan sponsors are starting to actually look at these costs, as you pointed out, and they're their thought is there's got to be a better way. I have had more conversations in the last two months about different kinds of self-pay arrangements Then I've had in the 40 years I've been in the business. Are you? Are you hearing that from other quarters as well?

Dr. Keith Smith: 10:41

Yes, yes, it's coming, and really one of the most exciting things that's happened is in a, I think, what can only be described as a real jiu-jitsu move, self-funded employers, rather than increasing barriers to employees care through deductibles and copays, have made deductibles and copays zero, and and it seems too good to be true, but they can make it zero because of the alternative movement that we've started. So if there's reasonably priced, high quality care to be purchased, then that is a very safe and appealing move for an employer and for those employers who embrace that idea, they have such a competitive advantage in the labor market. My gosh, some people don't even care what they're paid when they take a job. All they care about are the benefits. What do you mean? There's no deductible or copay. What do you mean? Nothing is deducted from my paycheck for some god-awful health plan that exposes me to deductible that I cannot afford.

Dr. Keith Smith: 11:57

So, yes, you're right, there are many, many alternatives that are being offered, and what's really exciting is this move to really secede from the other system and embrace this alternative. And it's very creepy for the status quo and the other side. I've actually am conversational and have contact with some people who are on the other side who have very discreetly told me they know this is coming. They just don't want it to come any sooner than it has to. But when the market sends that signal, when the buyer declares their sovereignty and sends a hard signal into the marketplace, then even the status quo will bow down. As I tell people, they'll have to kiss the free market's ring. They will have to provide service in a transparently priced, high-quality way or they'll lose that business. And some of these buyers are so large that the sellers can't afford to do that.

David Saltzman: 13:08

Well, and you couple that with some of the new regulations that have come out in the CAA notifications, in ERISA, where plans have got to act in the best interest of their members, which they should have been doing all along. Right, but the plan signatories can be held personally liable If they don't. All of a sudden now I think we've got people's attention.

Dr. Keith Smith: 13:33

I think that's right and you know that's really the dirty phrase that David, you're not supposed to utter is fiduciary responsibility, and ERISA Lawyer, I know, tells me that the lawsuits that are filed on behalf of self-funded employees who've really seen the plan administrators breach that responsibility, those lawsuits will dwarf big tobacco. So these are big numbers. I mean, what is this? A $4 trillion industry, something like that. So these lawsuits will be insane and I think that I think employers are beginning to really grasp the idea that they actually do have the fiduciary responsibility ERISA requires them to assume.

David Saltzman: 14:22

Well, and what I'm hearing from some of my folks who are on the regulatory side is that there are planned documents that are now being written that require members to use these facilities, where transparent costs are disclosed up front, where quality information is disclosed up front. So let's talk a little bit about quality, because we've spoken a lot about dollars and cents, but if the quality is crappy, it doesn't matter what the price is. How do you put the quality metrics out there and assure folks that they're not only getting a less expensive cost for their procedure, but they're getting outcomes that, in many cases, are superlative?

Dr. Keith Smith: 15:01

Well, my friend and co-founder of Free Market Medical Association, jay Kempton, travels all over the place and he'll ask somebody at a hospital will you give me pricing for knee replacements? Yeah, yeah, and Jay follows up. Will you stand behind it? Wait, what do you mean? I mean, if you mess up, will you stand behind it? Oh no, we don't know about that. At least got his quality answer right there Back up. Will you give me a price for total knee replacements? No, we don't know what that's going to cost until the procedure's finished. At least got his answer there.

Dr. Keith Smith: 15:51

If I can't tell you the price of something upfront, that means there is a lot of uncertainty involved. That means that our outcomes are very uncertain and that means you probably should look elsewhere. So I would argue, the strongest indication of does somebody know what they're doing, is this a quality experience? Is number one will they tell you how much it is upfront? Because if they will, if they'll say a gallbladder removal is $6,836, like I will that means that's a very predictable experience for you and it's going to go well. If it's $10,000, that means that there's a lot of fudge built in there to cover things when they don't go well. The other indication is, and will you stand behind it? So there are a lot of ways to measure quality.

Dr. Keith Smith: 16:43

I recommend people read Marty McCary's book Unaccountable. Marty's a scientist. He kind of threw his hands up about quality metrics and said, basically, do a survey of the staff who work at that facility and ask them would you have Dr X, do your gallbladder removal in this facility? And he makes the point that Cleveland Clinic has five stars. Well, they have five stars because that's a great place to have cardiac surgery, but it's a terrible place to have your hip replaced. And so what does it mean for the hip replacement patient who's looking at a five star hospital? So I recommend people read Marty McCary's book Unaccountable. There's nothing in that book with which I would disagree when it comes to quality metrics, the difficulty in creating them and even the worst difficulty in interpreting them.

David Saltzman: 17:40

How do you overcome that?

Dr. Keith Smith: 17:43

I think you overcome it when people really wrap their minds around the idea of price transparency. So if someone will say this is how much this is, that means they know what they're doing. There are very simple questions like how many of these have you done? How many infections, how many revisions have you had? How many of you had to redo that sort of thing? What are your qualifications? Where did you train? Are you board certified? Of course, board certification doesn't mean anything unless you don't have it. That just doesn't mean anything. So there are some simple questions how many have you done? How many have you had to redo? What is your infection rate? And that's why, on my website at Surgery Center of Oklahoma, we actually publish our infection rates. We do it also because we're darn proud of it. But any physician, any surgeon that I work with and there's 137 on staff now, david any one of them will tell you how many of these have I done and how many have I redone. And any sort of questions beyond that on quality are just not very fruitful.

Dr. Keith Smith: 19:01

All of the Medicare data is so skewed and, remember, a lot of this is self-reported, so it's biased and flawed. And there's one more thing people should know A doctor, a surgeon who knows that they are being profiled, they will act differently. So if the results of this open heart surgery, if they're bad, then I know that's financially bad for me, that's bad for my practice. If this case doesn't go well, over time, everyone being human, the sickest patients, will find their way to the back of the line. The people who represent the highest risk of a complicated outcome will have more and more difficulty securing care because surgeons who are financially profiled and punished for bad results will be more unlikely to take those people on. So there are even access to care consequences for even walking down this quality measurement path. So there's a lot of things, a lot of objections to it and a lot of things to consider. It's complicated.

David Saltzman: 20:22

Well, you know there's a long way to go and but, as you said, we're getting there and maybe we're about to turn the corner. I sure hope we are. I will pledge to the audience that we will have you back way sooner than eight years. I couldn't believe it when I looked up how long it would been.

Dr. Keith Smith: 20:37

Yeah, me too.

David Saltzman: 20:38

And let you keep giving us reports on kind of where we're going and how we're proceeding. But at least we're moving in the right direction and that's a good thing. Dr Keith Smith, co-founder of the Surgery Center of Oklahoma. Keith, thanks so much for sharing your wisdom with us.

Dr. Keith Smith: 20:51

Thanks for having me, David.

Host: 20:56

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