Free Market Mavericks • Dr. Keith Smith and Jay Kempton

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Maverick, noun, mav·er·ick, a person who refuses to follow the customs or rules; an independent individual who does not go along with a group or party.

Dr. Keith Smith. Jay Kempton.

These names are, in many ways, synonymous with the current free market movement, and for good reason. These men are the mavericks of healthcare. When Dr. Smith and Mr. Kempton were introduced in 2011 by a mutual friend and client, they had no way of knowing that their partnership would become what it is today and create an entire movement in the healthcare space.

The Surgery Center of Oklahoma (SCO) is a 32,535 square foot, state-of-the-art multi-specialty facility in Oklahoma City, which is owned and operated by approximately 40 of the top surgeons and anesthesiologists in central Oklahoma. Dr. Keith Smith always knew their prices and quality were vastly superior to their competitors, but the insurance companies didn’t care about low cost and high quality. In 2008, SCO decided to post their low, bundled, cash prices publicly on their website. Dr. Smith explains, “In the beginning, the only patients taking advantage of these amazing prices were cash pay patients and Canadians.

Then Dr. Smith met Jay Kempton.

Jay Kempton, President  & CEO of The Kempton Group, a family-owned, independent Third Party Administrator, was having a crisis of faith in the U.S. Healthcare system and his ability to help his clients maintain a high level of benefits, while protecting their Plan dollars. The passage of the ACA, the persistent and sharp increase in his clients’ claims costs year after year, and the gimmicks and cost saving schemes promoted by vendors seemed to only be making the situation worse.  During a yearly client meeting, a health plan member spoke up and told him he needed to call Dr. Keith Smith.

He called Dr. Smith and set up a meeting.

Dr. Smith was convinced Mr. Kempton was ‘just another insurance guy’ there to convince him to raise his prices and let them show a great discount. Mr. Kempton was convinced that Dr. Smith was just another administrator looking to get paid the big bucks. They instead discovered a mutual passion – changing the healthcare system. Dr. Smith’s posted, bundled prices were up to 80% less than the PPO allowable, and self-funded employers could function as cash pay customers. Thus, a new partnership formed.

The Kempton Premier Provider™ program was the first thing to come out of this meeting. Self-funded employers would incent their employees to use SCO for a 100% benefit. SCO got more cash-pay patients and were paid based off of a simple invoice in less than five business days.  This program was not just successful, it became a movement, to eventually include more than 20,000 covered patients, 72 free market facilities, and more than 3,600 medical services. The replication of this idea by other TPAs and health plans is saving hundreds of millions of dollars for self-funded employers, and state and local governments. 

Because of the growth, and the increasing demand for expansion into more states, Dr. Smith and Mr. Kempton decided to form the Free Market Medical Association.  Their goal was to teach other providers, other TPAs, and self-funded employers how to replicate what was happening in Oklahoma.  Now in its fifth year, the FMMA has members in almost every state in the U.S. and local chapters in 15 states. The FMMA team has created the #ShopHealth™ experience at, where member providers can post pricing that is searchable by anyone, and the annual conference now brings more than 300 attendees from across the U.S. for a multi-day educational and networking event.

When I sat down with them to discuss this crazy, multi-million-dollar-savings, grass roots crusade, it became apparent that this is their life’s calling. It was like being in the presence of the heroes of old; passionate warriors who rage against the wrongs of the world. I am still struck by their passion, commitment, and fury.

What motivated you to create the FMMA?

Dr. Keith Smith:  I think the FMMA was founded in our minds because deep down we knew we had stumbled onto something that was much larger than either the Surgery Center of Oklahoma or The Kempton Group.  These ideas were not meant to be kept under our hat and only benefit our clients, but were so powerful and applicable in so many places, we thought everyone should know about this. We felt an obligation to promote what we had learned. It was the product of our desire to acknowledge that this movement was so much bigger than what either Jay or I alone were doing.

Jay Kempton: Dr. Smith and I had been doing business together in this newly-minted free market fashion for several years, and we could really see the tremendous benefits that the patients were receiving, and the tremendous benefit to employer groups who were seeing tremendous savings and a greater level of transparency. Dr. Smith’s surgeons, and his surgical facility, also saw amazing benefits.  It was such a refreshing way to do healthcare.  Dr. Smith was being asked when he was going to franchise into their locations, and I was getting the same kinds of requests from folks in other states.  We decided what we really needed to do is somehow form an entity which would help to essentially bring the magic that was happening in OKC, and extend it beyond the borders of Oklahoma—to be a beacon of free market healthcare that others could see, evaluate, learn about, and then follow.  Creating the FMMA allowed SCO and Kempton to influence others way beyond the scope of our own individual businesses. 

You are described as being very passionate about this movement; often passion is fueled by the anger of injustice.  What makes you angry about the current system?

Dr. Keith Smith: The Surgery Center of Oklahoma was founded out of frustration.  Dr. Lantier and I had seen the quality of care that patients received dwindling, while the hospitals built on a wild spree.  Hospital administrators proliferated, as did their salaries.  The patients were receiving substandard care, and people were bankrupted by this system.  I didn’t sign up to be a part of that system, and I didn’t want to be a tool in the destruction of patients’ health status or their bank accounts.  The injustice and frustration is really what fueled the creation of the Surgery Center of Oklahoma. 

After we put our prices online and we began working with self-funded clients, we became aware of even more details of the abuses inflicted on patients and payors by the current system which vindicated our decision and our desire to take the free market path that we did.  I’ve joked with clients that I wonder if we have actually had clients entertain contracting directly with us, not because they thought that it would be a better monetary deal for them, but because they were so maltreated—strictly because of the injustice.  They wanted to send a message to those thieves and gangsters who had ripped them off. Injustice has fueled the buyers and the sellers in this movement.

Jay Kempton: The thing that makes me the most angry is the scenario that we heard over and over again from our customers; that so many of their employees had not seen an increase in their actual take home pay for years. Not because of the employer being a cheapskate and not giving them raises; but that a majority, if not all, of the raise given to employees gets absorbed into the continuous upward spiral of healthcare costs.

When you understand how this business really works, you can see the effect of the dysfunction which I just described; but when you learn more about the cause, you can see that the patients’ actual financial concern is not even on the radar of so many entities that are part of big healthcare.  Hospitals really do not understand that the gouging of pricing that they do trickles down into basically wage stagnation to employees. They say, “We’re raising our prices, but it only hurts the big insurance companies.”  No, that’s never the way it works.  It eventually makes it way as an increased cost to the employer. They can’t afford to just absorb the increase, so how do they offset that?  By lowering or decreasing the increase of wages or they reduce the benefits, or both.

The free market is an exchange between buyers and sellers that is mutually beneficial, where both parties emerge feeling like it was a good exchange.   ~Dr. Keith Smith

Who do you think the hospital systems see as their actual customer?

Dr. Keith Smith:  I think that Buyers would agree that the hospitals see the carriers as their primary customer; the giant corporate hospital is more interested in what one of the giant insurance companies thinks of them, and how they want to do business, than seeing the patient as their customer.  It’s so upside down because, in every other business, the customer rules.  The customer votes with their pocketbook and their dollars, and if somebody receives enough votes in dollars, they stay in business and do well. The patient, to the extent that is going on, is disenfranchised.  To the extent that the hospitals also hire the physicians who take care of these patients, is another step removed from staying in tune with what the customer and the patient really needs or desires.

Jay Kempton: I think that’s pretty clear.  They see the insurer as the actual customer. That is almost universal. If the patient ever complains about the cost of care, they are looked at as a troublemaker. “Why would you even bother yourself with that?”  In some situations, you’ll get employees at the hospital who actually make the patient feel really stupid and foolish for even asking the question. The reason is because, to the hospital, even though they won’t admit this, the patient is just a useful cog in the healthcare machine.  They’re not the primary cog, just a single cog. 

All price negotiations are done at the insurance company level or at the network level.  The really ironic thing is that the medical providers definitely view the insurance company as their customer. That is who they are really interested in keeping happy, as opposed to the patient.  Providers also make the patient simultaneously sign a financial guarantee letter, which always says we’re going to hold you personally financially responsible for the entire bill, regardless of whether the patient has insurance.  I have found that hospitals will never play that card unless they need leverage with an employer, TPA, or insurance company to pay more.  Having the patient financially responsible is really not all that useful because their prices are so obscene that no normal patient has the capability of paying it.  It’s just more of a scare tactic to leverage a patient into putting pressure on their insurance company or their employer.

How can an employer tell the difference between a true free market vendor/facilitator and one that is merely ‘translucent’using the movement as another gimmick?

Dr. Keith Smith: The question I always ask anyone who wants to be involved with this movement is “How do you bring value, how do you charge for what you do, and what is it that you do, exactly?”  Any answer to that question that is circuitous, strange, complex, or hard to understand is a red flag that whoever is answering that question is an unnecessary intermediary, not someone who is there to facilitate an exchange between a buyer and seller. 

Jay Kempton: One of the most foolproof ways of determining whether or not a vendor is really a free market vendor is to inquire and understand how they get paid.  When you find out how they get paid, you will also understand what they view as their product or their value.  If they are merely “translucent”, then you will see that they are making money off of reselling somebody else’s pricing.  If somebody is reselling a medical provider’s pricing for a profit, then you can see that they actually look at someone’s intellectual property as their product.  That’s a problem.  A vendor that is providing administrative services, negotiation services, patient advocacy, billing assistance, bundling, payment remittance, etc. —those more tangible, valuable services—is much more willing to structure their pricing in a transparent, easy to understand format for the employer.

The free market and healthcare is the only true healthcare reform that has a chance of being sustainable. Anything else is just rearranging the deck chairs on the Titanic. ~Jay Kempton

The free market and healthcare is the only true healthcare reform that has a chance of being sustainable. Anything else is just rearranging the deck chairs on the Titanic.

What is the greatest obstacle that this movement and the FMMA faces?

Dr. Keith Smith:    The answer may be counterintuitive.  I think the greatest obstacle the FMMA and this movement faces is ourselves. We are so programmed and conditioned to look to outside leaders or to the government for solutions and answers. They are ultimately responsible for all the problems that have led to our current system.  The answer is looking to ourselves and having the courage to face the possibility that, in innumerable ways, we have been duped. Admitting that is a very personal and difficult experience for many people—to look in the mirror and acknowledge that they’ve been lied to. Even worse, we have believed these lies and have acted accordingly.  People must acknowledge that it is a ground up movement, not one where solutions rain down on us from our rulers or our leaders. They must do their own thinking and not allow those who would like to be protected from innovation to stop us.

Jay Kempton: Two things; one of them is inertia. Objects at rest tend to stay at rest, objects in motion tend to stay in motion, and it really means the status quo.  We’ve always done it a certain way.  We’ve always looked at healthcare purchasing a certain way, so we’re going to be resistant to look at it differently or perform something differently.  That’s probably the most benign obstacle. 

The obstacle that’s not so benign is how people in the healthcare business get paid.  Brokers, consultants, and agents have tremendous influence over employers and patients, and the way that they see healthcare.  Many people in the employee benefits business get paid when they make money off the problem. In other words, they’re making a percentage of the healthcare spend.  The problem gets bigger, their income goes up. When you’ve got a vendor, or a professional, that is compensated on an inflationary type of model, and then you start talking about doing something that is different, they’re going to immediately be against it.  They will think, If this really takes off and costs go down, I’m going to make less money.  That’s a big problem. It’s so easy to think, I don’t want to make less money, so I have to kill this idea. 

I don’t necessarily think that all of these people are evil or malicious, but humans tend to do what they’re incented to do. If the incentives are out of alignment with the needs of the patient and the employer, it’s going to be very difficult to get people to change and do the right thing.

The other big issue is the disconnect which is more of a symptom.  People have a disconnect between the cost of healthcare—the actual provision of the care, the cost of the anesthesiologist, the cost of the surgeon, the cost of the facility charges, the cost of the imaging, the cost of the medicine—the cost of the actual care that is being provided.  People do not equate unreasonable cost of care to health insurance costs.

For some incredibly bizarre reason, people are starting to view that those two things do not have anything to do with one another.  We hear repeatedly, “My benefits cost too much; my health insurance costs too much; and my benefits are not what they were five years ago.”  Then, when we tell them you’re going to have to stop utilizing this particular hospital because they charge 1000% above Medicare, their response is, “You can’t tell me where I can go, or where I can’t go. How dare you question the costs of the hospital that I have chosen to use. The costs are whatever the costs should be!  Whatever they bill must be reasonable because I trust them!” 

They will yell and scream about the costs of their benefits, the cost of their insurance, but they will give the healthcare providers a pass.  In a self-funded environment, (which all of our clients are) there is a direct one-to-one relationship between the cost of the care and the cost of the benefits.

If you could tell someone just one thing about the free market in healthcare what would it be?

Dr. Keith Smith:  The one thing I would tell them is that the free market is not about sellers having their way with consumers.  The free market is not about brutalizing the poor, or people who are trying to pay for their own care. 
The free market is about an exchange between buyers and sellers that is mutually beneficial, where both parties emerge feeling like it was a good exchange. Any time that the media quotes some corporate healthcare exec or politician bemoaning the tough future that one of the sellers might face given some policy that might be enacted should be discounted or ignored. The focus has to be on the consumer, and on whether a consumer’s decision to buy A or B is a value to that person.  The one message that I would give is to know that this movement is about servicing consumers. Period. Any concerns or desires that sellers have to be protected from the preferences of consumers must be seen as the source of the problem that we all face in health care today.

Jay Kempton: The free market and healthcare is the only true healthcare reform that has a chance of being sustainable. Anything else is just rearranging the deck chairs on the Titanic.  

It’s truly the only solution that’s going to last, whether it’s more government, single payer, price fixing, whatever, they’ve all been tried, and they all failed. Until you empower patients to look at their healthcare buying decisions the way they look at everything else, where there is a mutually respectful marketplace in healthcare, there will not be a rewarding bi-directional transaction occurring between the buyer and the seller.  That’s probably a fancy way of saying that sellers will not be responsive to have high quality and low cost and the buyers will always be paying too much. 

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Megan Freedman

About Megan Freedman

Megan Freedman has worked with self-funded benefit plans for more than 15 years. For the past 12 years, she has worked with The Kempton Group serving as the Vice President of Corporate Communications. Ms. Freedman has extensive experience not only in employee benefits, but also marketing, sales, account management, executive support, and member services. Ms. Freedman is the Executive Director of the Free Market Medical Association. She was recently featured on Kevin Price’s Pricing in Business Radio show and writes and co-authors many articles, white papers, and educational materials. She is licensed in Life, Health, and AD&D in Oklahoma and Texas.

View all posts by Megan Freedman →

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