Smith knew that putting his prices online had been a great idea when Canadians began flying down to the SCO for treatment...
In addition to targeting the uninsured and Canadians, Smith has also had success in appealing to people with high deductibles...
Smith’s transparent pricing has already had a significant impact on the healthcare market in Oklahoma City. Smith says, “What we’ve done by putting these prices online is created a price war, and it’s really going on in Oklahoma City.” With the SCO as an option for residents, the big nonprofit hospitals in the city are having difficulty continuing to charge their inflated rates. “The big hospitals,” Smith says, “have been thrust into a market economy whether they like it or not.” Consumers finally have the option to shop around for the best medical care.
The effects have been felt throughout the region. The Oklahoma Heart Hospital and the nearby McBride Orthopedic Hospital have both followed the SCO’s lead in publishing their prices in an effort to attract consumers. Worried that they were losing heart patients to the Oklahoma Heart Hospital, Galichia Heart Hospital in nearby Wichita has also published its rates, creating the first semblance of the price war Smith has been trying to start.
He believes that his model can cut into the profits of big healthcare: “The big hospital’s nightmare has arrived.”This is an interesting observation. The established hospitals, working with the established insurers were not competing with each other. It took an upstart with a new business model to provoke competition. It is ever thus, but this is not the model our regulators use when they think of competition.
Another interesting observation. The existing insurers were not at all anxious to save money through him. He had to go around them to cash customers, Canadians, and directly to companies.
Smith has also had success in appealing to people with high deductibles and to mid-sized companies in Oklahoma and North Texas.
He has directly courted companies that feel that they are overpaying for their HMOs...
Smith admits that his strategy hasn’t won him any friends in the healthcare establishment or, as he refers to it, the healthcare cartel: “I don’t get invited to any big hospital garden parties.” In fact, he claims that “giant hospital chains and insurance companies were lined up arm-in-arm” to prevent the SCO from succeeding. Following its opening, business suffered for several years because it was locked out of insurance plans that would rather pay the higher in-network amounts at the bigger hospitals across town. The SCO only became profitable when it went over insurers’ heads and pursued corporate clients directly. “The big hospitals and insurance companies hurt us for a while,” Smith says, “but we stayed with it; now they’re sucking wind.Sometimes people say I am foaming at the mouth too much when I refer to our current system as crony-capitalist, captured-regulator and so on, and getting worse. Perhaps I'm not exaggerating after all.
There is a ray of hope. The large deductibles on many exchange policies leave people some incentive to shop. Not as much as you'd think -- there still is the in network and out of network business, and once you hit the deductible the sky is the limit. But some. Can a mass of patients who care about money stimulate a competitive supply market?
The big question on my mind, is, will our government allow this ray of hope to emerge? As Smith found out, there are powerful forces in the local hospitals and large insurers that want to stop him. Now they have a powerful friend in the ACA.
Will the employer mandate allow companies to go around big insurers in this way? Or will they be forced to participate in cross-subsidies through the established insurers? Will these side deals be deemed "ACA-Compliant" employer-provided insurance? Will ACA-approved high-deductible plans be allowed to use him? Will he be allowed to give cash customers a discount? He so undermines the whole structure I can't see how they can let it happen.
Smith hopes, however, that he and a handful of other transparent fee-for-service providers will be the vanguard of a free-market movement that runs parallel to the ACA.That would be wonderful. A free-market system could emerge alongside the ACA, and then people like me will not have to prove that there is indeed a promised land on the other side of the waters, the promised land will appear on its own.
If the ACA will allow it. Competition undermines cross-subsidies, and competition undercuts powerful lobbies to a very powerful regulator.