Transparent pricing: Q&A with Dr. Matthew Davis

Jed Stuber  ·  Mar 24, 2015

Dr. Matthew Davis, an orthopedic surgeon in Birmingham, Alabama, and a Samaritan Ministries member, is trying to make his practice, Davis Orthopedics, more patient-friendly. He opted out of the Medicare system in 2009 and last year adopted transparent pricing for the procedures he performs. That means the prices he charges are public, consistent and right on his website. We talked to him about his approach to charging patients.

Q: Why did you decide to stop participating in Medicare in 2009?

I don’t see it as a sustainable model for health care services.  The natural result is going to be restricted access to medical care for people that are in that system. I didn’t want to be a part of that. I realized if I was outside the system that I could provide whatever care I felt was appropriate and whatever care my patients wanted to pursue without having to worry about violating any rules or regulations. My patient and I could together decide what kind of treatment we felt was appropriate. I was very drawn to that. I didn’t feel that anyone else should dictate what kind of treatment I could provide or what kind of treatment my patients could get.

Q: When did you adopt transparency for your pricing and why?

Federal law allows me to privately contract with my patients so that I can continue to service them and they pay me directly. So (when I opted out of Medicare) I had to determine what I wanted to charge for my services since I was going to be directly dealing with my patients. Over time I have continued to use that price structure for other patients that I have taken care of. In our community we have a population that doesn’t have insurance for various reasons. As an orthopedist I take care of a lot of injuries. Many of these patients would go to the emergency room or urgent care clinic with an injury and they would be diagnosed and told that they had to have follow-up orthopedic care. But without insurance they were having a very difficult time finding someone that would take care of them. Since I was a little bit more prepared to charge a reasonable price for the services I provided, I took it upon myself to go around to some of these different facilities and make sure they were aware of my pricing structure and that it was typically more affordable than other practices in the community.

Probably the biggest change was about a year ago. I went to the first annual Free Market Medical Association meeting in Oklahoma City. At that conference, there were a lot of discussions about price transparency and what impact it had. It resonated with me that I was already doing some of those things but I did not fully appreciate some of the other advantages of promoting it to the public in a more proactive way. That’s when decided to put my prices on my website.

Q: What regulated how much you were charging before that point?

There is a very peculiar legal requirement that Medicare imposes. It says that if you participate in Medicare, you have to charge everyone the same amount. There are some nuances to that, but that’s basically the bottom line. The problem with that is that not every insurance company pays us the same amount. I may contract with 10 different insurance companies and I may get paid 10 different amounts for the exact same service, whether that’s an X-ray or an office visit or a surgery that I do. The only way I can manage that is to set my fee at the highest contracted amount. In reality what ends up happening is you set your fee a little bit higher than that just in case they modify that price. Then you submit the bill with this artificial number and the insurance company then adjusts to a contracted rate and you write off the difference. That’s pretty much universal in medicine. You get what you agree to from each insurance company, including the federal government, so then the number that you charge is artificial. You don’t really expect to get that except from maybe one insurance company. Everybody else pays you at a discounted rate.

Q: How does your transparent pricing work with hospital usage—surgery, for example?

Hospitals are a little more difficult to deal with just because of the complexity of the administration so I’ve had a lot more success working with the outpatient surgery centers. I have gone to the administrators of my surgery centers and negotiated a price with them for various things I do on a frequent basis. That includes the facility fee, the cost for any materials that we use during surgery, all of the care the day of surgery, and that sort of thing. I’ve also negotiated with my anesthesia group, and I have gotten pricing from them for what they will accept from me as payment on the day of service. So then I put together some packages that include my fee, the facility’s fee and the anesthesia fee. I present that as a single number and my patients can then pay me directly and I will take care of making sure everybody else gets paid their appropriate amount. The hospitals are a lot less interested in those sort of dynamics and I don’t really know why. But they have not been very receptive to me trying to say, “What would you be willing to accept with this type of procedure?” Fortunately with the state of medicine being what it is, most things that I treat I can manage in the outpatient setting. Most of my patients do not require hospitalization.

Q: How does price transparency benefit the patient?

The first thing that helps is the patient now has a number that they can look at and grapple with. If it costs $5,000 to have a certain surgery done, they know that. In today’s day and age most people have no idea what medical care costs because we’re not used to paying for it ourselves. We’re used to our insurance company handling the transaction, so most people don’t have any idea. They don’t know if getting your tonsils taken out costs $1,000 or $10,000. They’re completely unaware. So that’s one aspect that is immensely valuable is that it reduces some of that anxiety about how expensive something’s going to be.

The second is that by acting as a contractor and going to these facilities and negotiating with them what I consider to be a competitive price, I can save my patients money. Most every other facility sets its base price at the highest rate that it contracts for. So if you come in there without insurance, then you pay the highest rate around. As individuals, those patients really don’t have any leverage. They might get a 10 or 20 percent discount if they are proactive, but the facility really doesn’t have much incentive to work with them aggressively. As a surgeon who does cases there on a regular basis, I have more leverage, so I can say “I think you can do better than that, give me a better price.” I have multiple facilities to choose from where I can do my surgery so I can shop around and I can say, “Well, I can do this surgery at this facility for this price and over here it’s going to cost this.”

Q: Has it helped you be a better doctor?

I can focus on the patient now and I don’t have to worry about getting things approved. That has helped me mentally to realize how much distraction there is in a typical medical practice because of this third- party interference in the payment mechanism. I think a lot of doctors don’t realize how much of their mental energy is expended dealing with those sort of things.

Q: How would wider use of transparent pricing affect health care?

I think there would likely be patients that would get care when they are now forgoing care because they don’t know how much it’s going to cost. Simply knowing that I can get something for this amount might motivate them to fix it. Putting your price out there so that someone else can see it whether it’s a patient or your competition down the street, that competition motivates improvement in quality or price. If someone else down the street starts to do the same thing and they’re offering the same care that I can provide for a lower price, then I have to decide if I’m going to lower my price or if I’m going to improve the quality of my care and convey that to my patients so that they continue to use me instead of someone else. The winner in all that is the patient.