Time magazine’s recent Bitter Pill cover story was long on outlining the healthcare industry’s problems but short on solutions. Fortunately, as outlined in Healthcare’s Trillion Dollar Disruption, there is no need for new models or drugs to be invented. The government simply needs to remove the obstacles, where they exist, to scaling the models outlined in the The Volume-to-Value Revolution (PDF). One model that needed no government dispensation has the potential to save businesses and consumers billions of dollars if it’s scaled beyond its success at a surgery center in the heartland.
To the uninitiated the breakthrough is something that would seem obvious in any other industry — transparently post pricing for healthcare services. The model is similar to Walmart’s Center’s of Excellence program that Atul Gawande tweeted about stating “this will change medicine”. [Read Leah Binder and Larry Husten's commentary on Walmart's program.] In a nutshell, there is one fixed price for a given surgical procedure. This sits in stark contrast to the norm of having no idea what a surgical procedure will cost and then receiving a confusing array of bills from multiple different sources — e.g., surgeon, anesthesiologist, hospital, etc.
[Note: The savings outlined below compare vs. self-pay patients not covered by insurance. Paradoxically, those least able to pay are hit with the highest price tag. Even so, the surgery center's pricing are considerably less than most insurance-based pricing. The arc of history bends towards transparency. Those willing to have transparency will gain market share during the transition to a rational, transparent market as evidenced by Walmart's Center's of Excellence program.]
It is well documented that high deductible health plans (HDHP) are rapidly growing (see here, here, here, and here). It is indisputable that HDHPs have an effect on consumer behavior (not all positive…improperly designed HDHPs result in lower use of preventive screenings). Personally, I have gone from a Cadillac health plan where I paid nothing (literally) to a $10,000 deductible for my family. Let me give you an example. One of my kids needed to have their adenoids removed. Before, we would have blithely gotten the procedure done oblivious to the costs. Instead, I tried mightily to get a price ahead of time so I could negotiate a cash price. Only the surgeon was willing to give me a price for his services. I paid him out of my HSA prior to the surgery and we both came out ahead. Unfortunately, the hospital was unwilling to give me this information. The final bill was close to $10,000. In contrast, the Surgery Center of Oklahoma would have charged $2,695 for the entire procedure.
Had I been armed with that pricing information, I would have offered the hospital a thousand or two more than what the Surgery Center was charging to save the hassle of traveling. This is exactly what is beginning to happen and should send chills down the spine of every health system CEO/CFO. The CEO of the Surgery Center (Dr. Keith Smith) was delighted that he is helping people save money even if they are simply using his pricing as negotiating leverage. He shared the story of a gentleman who needed to get prostate surgery and learned about the Surgery Center’s pricing for that procedure ($3600). At his nearby hospital, it was expected to cost $40,000. He told his urologist that he needed to go elsewhere for the procedure. The urologist was upset about losing the business so he went to the hospital leadership armed with this information to see what they could do. They reduced their price to $4,000. While this was driven by pleasing the doctor, not the patient, it had the desired effect — a 90% savings.
When I spoke with Dr. Smith, he had just keynoted a benefits administrator association conference. He relayed how benefits administrators are changing health benefits plan designs to mimic what has happened at the Surgery Center and Walmart’s Centers of Excellence program. That is, co-pays and deductibles are waived if the employee goes to a facility such as the Surgery Center, Mayo, etc. The Surgery Center anticipates that 50% of their business will come from self-insured employers. With self-insurance viable for companies with 50 employees (or even fewer), this is an option becoming more common. Price transparency is also on the rise as reported by The Commonwealth Fund.
What About Outcomes?
Unlike most consumer goods, price and quality frequently aren’t correlated in healthcare. In fact, there is anecdotal evidence that they are inversely correlated. The reasoning is that higher-volume centers become very adept at procedures and this leads to better outcomes and lower prices as there are fewer complications.
Along with pricing, the Surgery Center is also transparent about infection rates. The following is taken from their website:
What is the rate of infection at this facility?
Wherever you decide to have your surgery, you should inquire about the rate of infection in their facility. Our rate of infection for 2006 was 0.3%, for 2007 was 0.2%, for 2008 was 0.04% and for 2009 and 2010 was .001%. These percentages are astoundingly low compared with an estimated national average of 2.6 % per year.
Wherever you decide to have your surgery, you should inquire about the rate of infection in their facility. Our rate of infection for 2006 was 0.3%, for 2007 was 0.2%, for 2008 was 0.04% and for 2009 and 2010 was .001%. These percentages are astoundingly low compared with an estimated national average of 2.6 % per year.
Dr. Smith reported they had zero infections during 2012. It’s not unheard of for some facilities to have infection rates above 5%. Given the fact that 100,000 people die per year of hospital-acquired infections, this is a serious consideration for anyone about to undergo a procedure.
How Can This Model Expand and Improve?
Dr. Smith is delighted to be having an effect on improving healthcare. Rather than folding his tent as some doctors are doing, Dr. Smith and many other doctors realize there are many ways to improve healthcare and their enjoyment of practicing medicine. Physician leaders such as Dr. Bob Margolis were willing to go against the grain and develop innovative new models. Dr. Margolis founded Healthcare Partners and was called a communist by colleagues for practicing a team-based care model that resulted in significant cost reductions and quality improvements. Funny how that “communist” sold his business for $4.4 billion. [See Health Insurance's $4.4 Billion Bunker Buster for more.] In Hotwire for Surgery, I explained how most surgical facilities have extra capacity they want to fill and are willing to do bundled payments. Medicare is following the private sector’s lead with their own bundled payment program.
Transparent and easy-to-understand models are growing in primary care as well. One of the new primary care models was described in an earlier Forbes piece - The Marcus Welby/Steve Jobs Solution to the Medicaid-driven State & County Budget Crisis. These physician innovators asked the simple question: Why use insurance for the equivalent of taking one’s car to Jiffy Lube?
The opportunity to improve upon the Surgery Center’s model are readily apparent as the healthcare industry becomes more consumerized (i.e., individuals becoming more responsible for their healthcare dollars). Some of these are outlined in The 7 Habits of Highly Patient Centric Providers. There is a strong business case for providers to become more patient focused. The improvements that can be realized make patient engagement the blockbuster “drug” of the century. In other words, outcomes dramatically improve when the patient is woven into the process.
One of the examples directly relevant to surgery and all specialties was highlighted in Doctors are a Broken Record We Don’t Comprehend >80% of the Time. This can be easily (and inexpensively) addressed with a modern Patient Relationship Management (PRM) system. People are coming to expect the items outlined in the 7 Habits article such as having a portable record of the various portions of one’s medical history that can be brought together in a Collaborative Health Record controlled by patients. Further, PRM systems can save health organizations significant administrative costs while removing the irritant patients have of filling out forms manually at the clinic rather than on their terms and timeframe as we’ve become accustomed to in virtually every part of our life…except healthcare.
Transformers vs. Preservatives
While the opportunities are massive, what’s the biggest obstacle to healthcare’s transformation? It’s the “preservatives” — ossified “leaders” unwilling to change their ways. That is, the preservatives are trying to protect the status quo, rather than focusing on how to sincerely address the Triple Aim (improve outcomes, reduce cost, improve patient experience). In every healthcare organization I’ve talked with, whether they are a provider, pharma, or health plan, there are transformers internally who know what to do but are stymied by preservatives. The same is true politically. There are those who call themselves “progressive” or “conservative.” Unfortunately, it seems that 80 percent of politicos are actually preservatives just doing the bidding of lobbyists trying to protect the status quo. The preservatives are costing thousands of lives and hundreds of billions of unnecessary wasted dollars. The real leaders in healthcare will see through them and get them out of the way of progress.
While the opportunities are massive, what’s the biggest obstacle to healthcare’s transformation? It’s the “preservatives” — ossified “leaders” unwilling to change their ways. That is, the preservatives are trying to protect the status quo, rather than focusing on how to sincerely address the Triple Aim (improve outcomes, reduce cost, improve patient experience). In every healthcare organization I’ve talked with, whether they are a provider, pharma, or health plan, there are transformers internally who know what to do but are stymied by preservatives. The same is true politically. There are those who call themselves “progressive” or “conservative.” Unfortunately, it seems that 80 percent of politicos are actually preservatives just doing the bidding of lobbyists trying to protect the status quo. The preservatives are costing thousands of lives and hundreds of billions of unnecessary wasted dollars. The real leaders in healthcare will see through them and get them out of the way of progress.
This isn’t lost on the CEOs attending the recent Oliver Wyman summit (see Mr. President: The Deficit Problem was Solved Last Week but for the Preservatives). When asked “what kind of bet are you making on the volume-to-value revolution?”, 74% responded either “Core strategy – bet the farm” or “Major strategic initiative” demonstrating just how serious they are. The common refrain is “there are billions to be made saving the country trillions of dollars.” The only question is who will win and who will lose. It’s clear that organizations such as the Surgery Center of Oklahoma will be among the winners.
Are you aware of similar DIY Health Reform programs that have demonstrated positive outcomes? Share the summary and links for more in the comments box below. As William Gibson, science fiction writer, once said, “the future is already here — it’s just not very evenly distributed.”
http://www.forbes.com/sites/davechase/2013/03/24/diy-health-reform-reduces-surgery-costs-50-90/?goback=%2Egde_3719047_member_225867439
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