This helpful reminder of the value of price signals comes to us from Reason Magazine and Reason TV, which underscores why ObamaCare won’t actually do anything to lower medical costs.  Two surgeons in Oklahoma City got tired of working within the third-party-payer construct and started posting cash-up-front retail costs for surgeries on their website.  The result?  Patients responded to the honest approach, and surgeries took place at a significantly lower cost than within the traditional insurance/Medicare model.  Why?  Because these patients didn’t have to subsidize surgeries for other people — or pay for expensive administrators to deal with the issues arising from the third-party-payer model:

The Surgery Center demonstrates that it’s possible to offer high quality care at low prices. “It’s always been interesting to me,” says Dr. Jason Sigmon, “that in any other industry, tons of attention is devoted to making systems more efficient, but in health care that’s just completely lost.” Sigmon, an ear, nose, and throat surgeon, regularly performs procedures at both the Surgery Center and at Oklahoma City’s Integris Baptist Medical Center, which is the epitome of a traditional hospital. It’s run by a not-for-profit called Integris Health, which is the largest health care provider in Oklahoma serving over 700,000 patients a year.

Sigmon says he can perform twice as many surgeries in a single day at the Surgery Center than at Integris. At the latter institution, he spends half his time waiting around while the staff struggles with the basic logistics of moving patients from preoperative care into the operating room. When the patient arrives, Sigmon will sometimes wait even longer for the equipment he needs.

Except for the clerical staff, every employee at the Surgery Center is directly involved in patient care. For example, both human resources and building maintenance are the responsibility of the head nurse. “One reason our prices are so low,” says Smith, “is that we don’t have administrators running around in their four or five thousand dollar suits.”

In 2010, the top 18 administrative employees at Integris Health received an average of $413,000 in compensation, according to the not-for-profits’ 990 tax form. There are no administrative employees at the Surgery Center.

This model has already been in place for decades in the health care market, but doesn’t get much attention in reform discussions.  This is the same economic model used in Lasik and cosmetic surgery markets, services which insurance companies typically won’t cover.  Instead, these providers have to market themselves directly to consumers, which means they compete on price and services — making their operations more efficient (less overhead, as with the Surgery Center) and more responsive.  Providers don’t have to deal with bureaucracies in the private (insurers) or public (government) sector to get paid, which generates enough interest that there is no lack of providers at all to meet the demand.

How about in the third-party-payer world?  Not so much:

The United States will require at least 52,000 more family doctors in the year 2025 to keep up with the growing and increasingly older U.S. population, a new study found. …

The problem does not appear to be one of too few doctors in general; in fact, in 2011 a total of 17,364 new doctors emerged from the country’s medical schools, according to the Association of American Medical Colleges (AAMC). Too few of these doctors, however, choose primary care as a career — an issue that may be worsening.

In a 2008 census by the AAMC and the American Medical Association, researchers found that the number of medical graduates choosing a career in family medicine dropped from 5,746 in 2002 to 4,210 in 2007 — a drop of nearly 27 percent.

“It’s pretty tough to convince medical students to go into primary care,” said Dr. Lee Green, chair of Family Medicine at the University of Alberta, who was not involved with the study.

Green added that he believes this is because currently primary care specialties are not well paid, well treated or respected as compared to subspecialists.

“They have to think about their debt,” he said. “There are also issues of how physicians are respected and how we portray primary care to medical students.”

The policy recommendations to solve this include providing “bonuses” to physicians who take Medicaid cases.  However, if we pushed a retail model in family practice (which has been burgeoning in the US), we could lower costs, provide better access, and have an economic model that would encourage family practice provider to emerge, especially since the costs are lower to get certified in that kind of medicine rather than surgery or other specialties.

What happens to the poor in this case?  Medicaid or something similar would have to exist, but in an environment where most people handled routine medical care directly with their physicians, the small percentage that would have to rely on third-party-payer assistance would present much less of a distortion to the market, and make it much easier to deal with the consequences.

Update: Here’s the inevitable endgame of the enforced third-party-payer system, this time in Quebec:

Surgery wait times for deadly ovarian, cervical and breast cancers in Quebec are three times longer than government benchmarks, leading some desperate patients to shop around for an operating room.

But that’s a waste of time, doctors say, since the problem is spread across Quebec hospitals. And doctors are refusing to accept new patients quickly because they can’t treat them, health advocates say.

A leading Montreal gynecologist said that these days, she cannot look her patients in the eye because the wait times are so shocking. Lack of resources, including nursing staff and budget compressions, are driving a backlog of surgeries while operating rooms stand empty. The latest figures from the provincial government show that over a span of nearly 11 months, 7,780 patients in the Montreal area waited six months or longer for day surgeries, while another 2,957 waited for six months or longer for operations that required hospitalization.

The worst cases are gynecological cancers, experts say, because usually such a cancer has already spread by the time it is detected. Instead of four weeks from diagnosis to surgery, patients are waiting as long as three months to have cancerous growths removed.

But at least it’s fair.