4th wave of reform: two new knees for $39,000

Larry Hillyer, a quality engineer at Serigraph Inc., walked into my office last week to give me a report on his double knee replacement. It was an incredible report.

He selected a small regional hospital for its value: excellent service, high quality and low bundled price. He was partaking of what I call “Value Healthcare.” That would be the opposite of “indiscriminate healthcare” that is practiced across most of the United Sates today.

Larry reported that the service was great, and the surgery went more than well. It only took an hour because two surgeons and their team did the job, one on each knee simultaneously. How’s that for efficiency?

He was up on his feet the same day and ditched his walker for a cane at one week. He’s rehabbing and all is going well.

Please note: Mr. Hillyer got his new knees at no cost to him.

Because he acted as a smart consumer, Serigraph waived his deductible charge and his co-insurance. Our plan’s maximum out-of-pocket charge is $6500, so he saved that amount. That’s real money.

The company came out well financially, too.

The average price in the Milwaukee market is about $47,500, with some hospitals charging as much as $90,000. At $47,500, he and we together would have paid $95,000 for the two replacements. Serigraph had cut a deal for a fixed, all-in, bundled price of $26,000 for a replacement. At times two, we would have paid $52,000. So our mutual savings were going to be $43,000.

But we did better than that. Our benefits specialist called our vendor partner, pointed out the two-for-one savings (same hospital room, same anesthesiologist, etc.), and the hospital settled on a bundled price of $39,000. In the end, Larry saved $6,500 and the company $49,500.

Not bad. With similar value steerages, Serigraph saved about $500,000 last year on bundled procedures. We expect to save another $300,000 in 2017. That’s a big chunk of the $7.2 million we spent on health care last year.

Ours is just one sterling example of a new wave of disruptive innovation sweeping across the U.S. health care industrial complex. Value-based purchasing is on the march.

The biggest buyer in the country, Medicare, is insisting on bundled prices for more and more complex treatments, including routine heart attacks. They are expressed in the form of “caps,” or Reference Based Prices (RBPs), such as no more than $30,000 for a joint replacement. Medicare is so big that it alone can change the U.S. pricing terrain.

On top of that, entrepreneurs are jumping into the bundled price space. Several are approaching self-insured companies like Serigraph to offer value networks of providers – often independents, not big hospital corporations – who want greater market share. They offer low infection rates, low fixed prices and warranties on surgeries to win the added volume.

What’s not to like?

This is the fourth wave of disruptive innovation over the last decade. First came the stampede to self-insurance by private companies. Game over.

Four of the five private companies over 200 employees have gone that route, in effect disintermediating health insurers out of the group business.

The second was the rush to consumer driven health plans with high deductibles and offsetting health savings accounts. Most employers have made that move, turning loose an army of new consumers.

The third wave was the march to proactive primary care on-site or near-site clinics by large employers. About one-third has taken primary care, the leading edge of the healthcare supply chain, back from the big providers.

Now comes the fourth wave – value sourcing of secondary and tertiary care, when it’s non-emergent, from clinics and hospitals.

The era of prices varying wildly, as much as 400%, is ending.

Public payers (Medicare) and private payers are mad as hell, and they aren’t going to take it anymore.

They are doing what Larry Hillyer did.

Note: None of the above has anything to do with Obamacare, which deals with access and does nothing for costs except drive them up.

This entry was posted in Centers of Value. Bookmark the permalink.