A hysterectomy costs $8,000; a tonsillectomy/adenoidectomy, $3,100. A bone marrow biopsy is $5,800. Total knee replacement: $15,499. Those prices—which include pre- and post-operative services, surgeon(s), anesthesia, pathology, facility fees and, in the case of joint replacement, physical therapy and home health—are all offered by Surgery Center of Oklahoma, which has operated outside the traditional health insurance system for nearly 25 years.
During that time, the number of surgeons and the range of procedures provided at the Oklahoma City facility has increased dramatically. More broadly, Surgery Center of Oklahoma has inspired the development of a true market for cash-price health care services.
“This movement is much further along and much bigger than most people will acknowledge,” says Dr. Keith Smith, an anesthesiologist and the center’s co-founder with Dr. Steve Lantier, also an anesthesiologist.
A few physician-owned businesses and at least one huge health system—UCLA Health—have followed Surgery Center of Oklahoma’s model: publicly posted cash prices for bundled services, with payment due at time of service. Beyond that, Smith says, many other hospitals and physicians, when asked, will offer cash-price services to keep from losing patients.
“A lot of people are doing this in the shadows because they know it’s inevitable,” he says. “The self-funded buyers are increasingly aware of what is possible, and they are going to make all providers do it, or they will send their employees elsewhere.”
FROM IDEA TO IDEAL
Surgery Center of Oklahoma has six operating rooms and one minor procedure room. Its infection rates, which are much lower than industry averages, are posted online at SurgeryCenterOK.com. The total cost of procedures is generally at least 50 percent less than standard insurance-covered operations at other hospitals.
When Smith and Lantier opened the center in 1997, 10 surgeons were on staff. That number has grown to 115.
“We are just one of the places they work, although every one of them wishes all of their surgeries could be performed at our place,” Smith says.
At the 2021 Medical Freedom Conference, Smith recounted the surgery center’s first week of operation in 1997, when an uninsured patient who had a breast mass called to ask how much it would cost to have it removed. Smith put her call on hold while he quickly called his friend who is a general surgeon to ask what his fee would be; called a pathologist friend to get a quote for his services; and estimated the anesthesia costs, based on his own time and supplies required. He returned to the patient’s call to say the total cost would be $1,900.
“She said, ‘That’s funny. The hospital down the street from you wanted $19,000 for the facility fee alone,’” Smith says. “I knew we were on the right track when, after this case and the supply cost was tallied, we’d made a profit.”
Originally, Surgery Center of Oklahoma served uninsured people who could afford to pay for procedures out-of-pocket, people with high-deductible health plans and health savings accounts, individuals in cost-sharing ministries, and patients from other countries, such as Canada, who preferred to pay their own way rather than wait for their government-subsidized care.
In the past decade, however, Surgery Center of Oklahoma has increasingly treated patients covered by self-funded insurance plans that incentivize employees to use the surgery center’s low-cost, high-quality services. Today, at least 40 percent of the center’s revenues come from self-funded plans.
The surgery center predates the centers of excellence concept, in which major employers such as Walmart and Boeing direct their employees to a specific facility for a specific procedure because of its quality performance for that service.
“The self-funded employers treat us very much like a center of excellence, except that, unlike the centers of excellence, they know with me what a treatment is going to cost beforehand,” Smith says. “People from all over the country started buying from us when they realized the price differences were so stark that they could cover all of the travel expenses for their employees, waive all deductibles and copays, and pay for all of the care at 100 percent.”
THE PREMIER LEAGUE
The turn to self-funded plans came when Smith met Jay Kempton, president and CEO of The Kempton Group, a third-party administrator in Oklahoma City. Seeing the Surgery Center’s prices made Kempton realize that his clients could benefit from directing their employees there.
Kempton approached a couple of his clients to explain the opportunity. “We were able to look at 40-plus years of claims data, and I could show my employers that the pricing here was a sixth or an eighth of what they were normally buying these medical procedures for,” he says.
His company created a new enhanced benefit tier, in which employees incur no copay, deductible or co-insurance if they choose Surgery Center of Oklahoma as the provider. All of Kempton’s self-funded plans jumped on board to offer the new premier benefit tier to their employees.
Kempton is the third-party administrator for about 200 employers who cover about 30,000 lives, mostly in Oklahoma and Texas. As patients covered by those plans started choosing Surgery Center of Oklahoma for their procedures, other physicians and facilities in the market took note. One of them called Kempton to find out why he was losing business.
“And I was able to explain that there is a competitor of his with a very compelling value proposition—upfront pricing, guaranteeing their outcome, and ‘I can tell you what the price is and it’s a lot less than yours,’” Kempton says. “This particular medical provider said, ‘Well, we’re going to try to compete for those patients as well ... and we also do a few things that they don’t do.’”
Thus, a market for health care services in Oklahoma City was born. Soon, an inpatient cardiac hospital started offering bundled cash prices, followed by imaging centers and oncology practices. All are premier-tier providers with prices posted on Kempton’s website. The price sheet for Surgery Center of Oklahoma includes more than 500 procedures, detailed by their CPT codes.
“We are doing business with probably over 150 providers that have adopted Surgery Center of Oklahoma’s business model,” Kempton says. “Surgery Center of Oklahoma is consistently in the top three in terms of volume for our clients, but we now have thousands of procedures that are available on a cash basis.”
DESTINATION HEALTH CARE
At this point, at least 40 percent of Surgery Center of Oklahoma’s patients travel from out of state to receive care. “Most come from states that border Oklahoma, but more and more come from Wisconsin, Minnesota, Oregon, Washington state, Florida, very, very far away,” Smith says. “The price differences are so stark that, for a total knee replacement or a total hip replacement, the employers are more than willing to pay for the employee to stay in town for a week or longer because they still are coming way under the bar of what they would have paid elsewhere.”
Smith also serves employers whose workers do not travel to Oklahoma City for procedures. He owns Atlas Billing Co., operating in Oklahoma, Washington, Georgia and Arizona, which “curates” bundled-pricing deals with other providers.
If a self-funded plan in Georgia needs to buy a procedure for a patient, for example, Atlas Billing contacts a surgeon in that market. “I say, ‘This patient really doesn’t want to come to Oklahoma, but they are thinking about it. Why don’t we work together—you, your anesthesia team and a hospital or facility and let’s see if we can help this patient,’” Smith says.
With the bundled price determined, the employer and patient can compare it with the price offered at Surgery Center of Oklahoma and choose the best option. Regardless of the location chosen, Atlas invoices the employer, collects the full payment and pays all providers and facilities involved in the episode of care.
“One of the reasons they [hospitals] are fearful to do business in this way is they are afraid that they will offer pricing that conflicts with the contracts they have with carriers,” Smith says. “But Atlas’s involvement cloaks them and insulates them from that threat, so it actually works beautifully.”
Smith expects to see other “clearinghouse” competitors to Atlas emerge.
“When you start to see that, and you start to see big-name hospitals using a clearinghouse to create and collect for bundled-care episodes, then you will know the dominoes are starting to fall,” Smith says. “I’m seeing it right now, and I’m very optimistic that the big purchasing gorilla—the self-funded world—has already started this movement in such a way that it won’t stop.”