Keith Smith on Free Market Health Care

Episode Summary

Executive Summary: Keith Smith describes how the Surgery Center of Oklahoma built a transparent, cash-pay surgical model with bundled, upfront prices, no insurance contracts, and surgeon incentives aligned to value rather than volume. The conversation argues that opaque hospital pricing, third-party payment, and regulation distort care, while market competition, price transparency, and direct patient choice can reduce waste and improve outcomes.

Main Topics: Founding the Surgery Center of Oklahoma (Priority: 5/5): Smith explains that he and another anesthesiologist left hospital practice in the 1990s after seeing rising costs, opaque billing, and declining attention to patients and clinical staff. They opened a doctor-owned center committed to direct price disclosure and high-quality care. Transparent, bundled cash pricing (Priority: 5/5): The center posts all-in prices online, includes facility, anesthesia, and other bundled services, and aims to eliminate surprise billing. Smith says prices have largely remained unchanged since 1997, with some items effectively lower due to better supply costs and expanded bundles. Critique of hospital pricing and insurance incentives (Priority: 5/5): Smith argues that hospital list prices are fictional, serving accounting, insurer, and government reimbursement games rather than patients. He claims insurers benefit from inflated charges because discounts can be repriced and sold as savings to employers. Quality control through reputation and market accountability (Priority: 4/5): Because patients choose the center directly and it accepts no insurance, Smith says the facility depends on honesty, visible outcomes, and avoiding unnecessary procedures. Unethical or aggressive surgeons are removed from staff when red flags appear. Self-funded employers and medical travel (Priority: 4/5): Smith describes a growing market of self-funded employers that fly workers to Oklahoma for care when prices are lower than local options. He sees this as proof that transparent pricing can attract patients nationally and internationally. Handling complications and unforeseen costs (Priority: 4/5): The center’s policy is individualized: if the center or surgeon is responsible, fees may be waived or reduced; if a patient creates the problem by ignoring instructions, they may be asked to cover supplies. The model is presented as flexible and patient-centered rather than rigidly contractual. Access and the poor (Priority: 4/5): Smith argues that lower prices from competition are the best long-run way to help low-income patients, while truly unable-to-pay cases should be handled charitably on an individual basis rather than through centralized systems that ration care.

Key Arguments: Price transparency changes behavior: when patients know the true all-in cost, they shop, compare, and reward honest providers. Hospital and insurer pricing are often distorted by fake list prices, negotiated discounts, and reimbursement schemes that reward inflated charges rather than efficiency. Fee-for-service at the Surgery Center of Oklahoma aligns surgeon pay with actual procedures while reducing institutional overhead and waste. Direct patient payment creates stronger accountability; if outcomes are poor or unnecessary surgery is detected, the facility’s reputation suffers immediately. Many hospitals encourage waste because reimbursement is tied to what they use or bill, while the Oklahoma center is punished for waste because it cuts into margin. Self-funded employers are a major force for market discipline because they bear the real cost of care and are willing to steer employees to lower-priced, transparent providers. The poor are best helped by lower market prices plus targeted charity, not by a centralized system that obscures costs and rationing decisions.

Data Points: Interview date: September 12, 2019 - Introduced by Russ Roberts at the start of the episode Opening year of Surgery Center of Oklahoma: 1997 - Smith says he and Steve Lantier left hospital practice and opened the center that year Breast biopsy all-in price: $1,900 - First quoted bundled price given to a patient in the center’s first week Hospital quote for the same breast biopsy facility charge: $19,000 - Patient reported the local not-for-profit hospital’s facility price Price stability: 22 years - Roberts notes Smith has not raised surgeon-center fees in about 22 years Oklahoma patient share: About 40% initially, later over 50%, now 60%+ from out of state - Smith describes how the patient mix shifted after prices were posted online Patients from outside the U.S.: 5% or less per month - Smith estimates international share of volume Canadian hysterectomy bundle: $8,000 - Example of a bundled price including surgeon, anesthesia, facility, pathology, and overnight stay Back surgery comparison: About $101,673.77 billed; $13,000 collected by hospital/insurer; under $10,000 at SCO - Roberts uses a friend’s case to contrast hospital billing with the center’s cash price Disproportionate share hospital payments: Linked to claimed unpaid amount of about $87,000 in the example - Smith argues hospitals report fictional losses to support government payments Employer contracts: 300 - Smith says the center has about 300 employer contracts that fly employees in for surgery Self-funded medical payment share: 80% - Smith claims self-funded plans pay 80% of non-government medical bills in the U.S. Infection example patient risk factors: Very overweight, bad diabetic, heavy smoker - Used to illustrate individualized pricing and risk-based decision-making Complication case charge: $1,500 - After a patient ruptured another disc, surgeon and anesthesiologist waived fees and the center charged only supplies Patient travel incentive example: $5,000 payment to travel for surgery - Russ Roberts cites a New York Times example of an employer paying a patient to go to Mexico for surgery

Pivotal Quotes: "We felt like, frankly, we were an accessory to a crime, that we were aiding and abetting really a financial homicide." — Keith Smith: Explaining why he left hospital anesthesia practice to found a transparent, direct-pay surgery center "Hospitals are paid to the extent that they claim that they were not paid." — Keith Smith: Describing his argument that hospital bills, write-offs, and disproportionate-share payments create fictitious losses "If we're honest about the price, then we're probably good at what we do." — Keith Smith: Explaining why patients treat transparent pricing as a signal of quality and competence

Implications: The episode argues that transparent, direct-pay medicine can lower costs and expose waste, especially when employers and patients shop with real prices. It suggests hospital/insurer opacity is not inevitable, and market-style care could expand if regulation and middlemen barriers weaken.