Does free market-based medicine save consumers money?

Down here in Oklahoma we have a relative new medical business called the Surgery Center of Oklahoma. This medical store is different from most other business of medicine in that it operates on the principles of the Free Market.

The Surgery Center of Oklahoma does not accept Medicaid or Medicare but will accept private insurance or cash. Because they do not accept Medicaid or Medicare, the government regulations that do not allow the posting of prices on-line do not apply them. This means that customers can check the cost that their Doctor/Hospital charges against the Surgery Center cost. The Surgery Center makes the offer to beat the price of any competitor and thus guarantee the lowest price possible to the consumer. Sounds sort of like the commercials for the furniture stores down on Reno Avenue in Oklahoma City. “Come on down and we will save you a bunch of money.”

Oklahoma County (the county where Oklahoma City is located) switched its medical service to the Surgery Center this year and is saving the county government a lot of money. According to Jon Wilkerson, director of county human resources, “At a conservative level…it looks like we will save about $1.3 million over 12 months”.

Here are a few facts.

Integris Baptist Medical Center, a nearby local hospital in OKC, charges more than $33,000 for a “complex bilateral sinus procedure.” When the same surgeon performs the same surgery at the Surgery Center the total cost is a bit less than $6,000. One of the ways that the prices are made lower is that the Surgery Center has no administrative employees. The head nurse is responsible for human resources and building maintenance. Over at Integris there are 18 administrative employees that receive an average of $413,000 in compensation (this number comes from their 990 not-for-profit tax form).

Over at the Oklahoma University Medical Center the cost for an ankle arthroscopy is just under $24,000 while the same procedure at the Surgery Center under $4,000.

And if you think this is some back room, fly by night operation the Surgery Center is a state-of-the-art multi-specialty facility owned and operated by about 40 of the top surgeons and anesthesiologist in central Oklahoma. It has been accredited by the AAAHC since 1998.

Dr. Steven Lantier, one of the founders of the Surgery Center, stated that “When we first started we thought we were about half the price of the hospitals...Then we found out we’re less than half price. Then we find out we’re a sixth to an eighth of what their prices are.”

This is just an example of what happens when the market-based, low overhead, consumer driven economy is allowed to work. When third-party payments are made and are not transparent to the consumer the costs will tend to escalate over time because the economic incentives [to make more money] are all on the side of the supplier and there are no economic incentives [to save money] for the customer.

Jerry

Make sure and download a copy of Lucky and Good: Risk, Decisions and Bets for

Investors, Traders and Entrepreneurs.