The Human Action Podcast: Dr. Keith Smith on the Health Insurance Cartel
Host: Dr. Bob Murphy, Mises Institute
Guest: Dr. Keith Smith, co-founder of the Surgery Center of Oklahoma
Date: February 11, 2026
Episode Overview
In this episode, Dr. Bob Murphy welcomes back Dr. Keith Smith to discuss the entrenched problems of the U.S. healthcare system, specifically focusing on the cartel-like practices of health insurance companies, the opaque and inflated pricing in mainstream healthcare, and how mutually beneficial exchange and free-market principles can radically uplift patient outcomes. Dr. Smith shares the origin story and operational philosophy behind the Surgery Center of Oklahoma—a facility famous for transparent, all-inclusive, upfront pricing—and details how market-based solutions are spreading nationwide, challenging the traditional system’s perverse incentives.
Key Discussion Points & Insights
Dr. Keith Smith’s Libertarian & Austrian Economics Journey
[01:02–06:36]
- Smith traces his ethical and intellectual roots, crediting Milton Friedman, Lew Rockwell, and the Mises Institute for awakening his economic sensibilities.
- He emphasizes the moral discomfort he experienced providing care under a system of non-mutually beneficial exchange.
- Smith and partner Steve Lantier left lucrative mainstream practices to found the Surgery Center of Oklahoma in 1997, refusing all government money and committing to transparent, all-cash, upfront pricing.
“Our mission was to provide the highest quality care possible, always for patients to know prior to arrival what they were going to pay us. Never any surprises.” — [04:21, Dr. Keith Smith]
Radical Transparency in Medical Pricing
[06:36–08:38]
- Posting surgery prices online was considered radical, provoking industry backlash.
- Smith likens hidden hospital pricing to a car dealership only revealing prices after purchase.
“Let the market judge us. I think that was a radical enough step. I can actually accurately make that claim now to be a true adherent to free market discipline.” — [05:54, Dr. Keith Smith]
Shocking Price Disparities & Real-Life Case Studies
[08:38–12:36]
- Smith recounts stories of surgeries costing up to ten times less at the Surgery Center of Oklahoma compared to local hospitals.
- Example: Breast mass surgery was quoted at $1,900 by Smith’s facility vs. $19,000 at a nearby hospital.
- Tonsillectomy priced at $3,450 at his center vs. $72,000 in Dallas.
- The Center’s pricing led to significant market pressure, forcing local hospitals to lower their prices somewhat over time.
“We found this to be a pretty reliable rule of 10 to 1.” — [09:41, Dr. Keith Smith]
“It’s absolutely insane.” — [12:22, Dr. Keith Smith]
The Insurance Cartel’s Perverse Incentives
[12:36–18:14]
- Contrary to intuition, insurance companies resist cheaper services since their profit model depends on the size of the fictitious ‘discount’ from inflated hospital bills.
- Carriers profit by negotiating down hospital prices, then charging employer health plans a percentage of the “savings.”
“The insurance company wants a gigantic bill to which they can apply a discount. And so with my prices online that was an opportunity foregone.” — [14:55, Dr. Keith Smith]
- Employer contracts often explicitly allow insurers to pay providers less than they debit from the health plan, keeping the undisclosed difference.
“It’s a horrible industry.” — [17:52, Dr. Keith Smith]
Ethical Breakdown in Mainstream Medicine
[18:14–21:42]
- Hospitals tolerate or even reward surgeons who generate complications—more complications mean more revenue.
- Unnecessary surgeries are incentivized; quality metrics can be gamed because patients who didn’t need surgery "do well."
“Hospitals don’t mind having those people on their staff because the more stuff that goes wrong, the more money they make.” — [19:02, Dr. Keith Smith]
Scope, Complexity & Market Role of Surgery Centers
[21:42–26:08]
- The Surgery Center of Oklahoma handles a wide variety of complex, not just “simple,” procedures (e.g., knee/shoulder replacements, hysterectomies, pediatric care).
- Smith defends specialized centers as complementing, not replacing, hospitals—like grocery stores vs. steakhouses.
“We need hospitals. We just need them to be in the hospital business and not bankrupt people for very simple procedures.” — [21:54, Dr. Keith Smith]
- Many patients’ procedures are cheaper out-of-pocket at the Surgery Center than their insurance deductibles.
Effects of Obamacare & Rise of Cash-Pay Healthcare
[27:07–29:44]
- High deductibles post-ACA increased demand for transparent, cash-based care.
- The Center attracts both uninsured/underinsured patients and insured patients denied or delayed care, including Canadians facing years-long wait times for surgery.
“We got busier after the Unaffordable Care Act was passed just strictly because of the deductible provision.” — [27:07, Dr. Keith Smith]
“A woman that needs a hysterectomy... now it’s three to five year wait times [in Canada].” — [28:47, Dr. Keith Smith]
How Can Transparent Facilities Charge So Much Less?
[29:44–32:39]
- Unlike large systems, the Center avoids administrative bloat and unnecessary spending (sports sponsorships, billboards, expensive CEOs).
- Non-profit hospitals avoid taxes; Smith’s center pays taxes and could drop prices by 50% if they didn’t.
“Not for profit. Everyone really needs to understand, doesn’t mean they don’t make a profit. It means they don’t pay tax.” — [31:36, Dr. Keith Smith]
"If I didn’t have to pay tax, I would drop all of our prices by 50%." — [31:58, Dr. Keith Smith]
Barriers to Replication & Market Entry
[32:39–36:27]
- Certificate of Need laws (CONs) give hospital CEOs veto power over new competitors in many states.
- Successful replication requires:
- States without restrictive CON laws (Oklahoma is relatively free of these)
- High-quality, non-hospital-employed surgical talent
- Willing, independent employer customers
- Mission-driven founders
“Stars had to be aligned in a certain way for you to be able to do what you did there.” — [36:27, Bob Murphy]
The Spread of Market Discipline: Copycats and Competitors
[36:27–39:25]
- Growing spectrum of centers quoting prices over the phone, listed online, or partnering with innovators like Smith.
- Notable copycat locations: Wellbridge (Indianapolis), Texas Free Market (Austin), Veritas (Idaho), Smith Direct Surgical Care (Colorado).
- Even notorious price-gougers now selectively offer competitive pricing due to market pressure.
“I didn’t do this to get rich. I did this to inflict market discipline on the industry.” — [39:13, Dr. Keith Smith]
The Free Market Medical Association (FMMA)
[39:25–44:34]
- Smith co-founded the FMMA with administrator Jay Kempton to connect free market-oriented providers, employers, and intermediaries.
- FMMA now boasts 37 state chapters, bringing together medical professionals, HR representatives, economists, and more—focused on building an alternative to the existing “system.”
- Strictly apolitical and Austrian in approach—no politicians except Ron Paul.
“The current cesspool cannot be cleansed. There is no way to reform or fix the current system.” — [42:30, Dr. Keith Smith]
“Our idea is to create an alternative...with the faith that the buyer will make a different choice. And I think that’s happening.” — [43:01, Dr. Keith Smith]
Notable Quotes & Memorable Moments
-
On the insurance cartel:
“The insurance company wants a gigantic bill to which they can apply a discount. And so with my prices online that was an opportunity foregone.” — [14:55, Dr. Keith Smith] -
On patient empowerment:
“By you bringing prices down so much, people realize, oh, why do I even need health insurance?” — [16:55, Bob Murphy] -
Ethics in medicine:
“There are some surgeons that are just plain awful...the more stuff that goes wrong, the more money they make.” — [19:02, Dr. Keith Smith] -
Market pressure:
“Even price gouging facilities...are emulating what we have done here on a case by case basis in order not to lose patients.” — [38:45, Dr. Keith Smith] -
Mission-driven approach:
“I didn’t do this to get rich. I did this to inflict market discipline on the industry.” — [39:13, Dr. Keith Smith] -
On system reform:
“The current cesspool cannot be cleansed. There is no way to reform or fix the current system.” — [42:30, Dr. Keith Smith]
Timestamps for Key Segments
- 01:02 Dr. Keith Smith’s origin story and adopting Austrian economics
- 06:36 Radical move: posting all-inclusive surgery prices online
- 08:38 Case studies on surgery price disparities
- 12:36 Why insurance companies resist lower prices
- 18:14 Unethical practices in mainstream medicine
- 21:42 Addressing the myth that specialized surgery centers “cherry-pick” simple cases
- 26:08 Effects of the Affordable Care Act/Obamacare on patient demand
- 29:44 Explaining the financial model and efficiency of the Surgery Center
- 32:39 Obstacles to replicating the Surgery Center model nationwide
- 36:27 The rise of copycats and real-world impact
- 39:25 The founding and growth of the Free Market Medical Association
Resources Mentioned
- Surgery Center of Oklahoma: SurgeryCenterOK.com
- Free Market Medical Association: FMMA.org
- Upcoming Event: Mises Circle in Oklahoma City (Feb 21)
Tone & Language
Informal yet deeply principled, with Dr. Smith’s combination of storytelling, blunt honesty, and libertarian conviction. The conversation emphasizes real-world impacts and philosophical consistency.
For listeners: If you’re an employer, patient, or simply interested in how market forces can transform healthcare, this episode offers piercing insights and real-world alternatives to the current system.