At last, a silver bullet for health care costs

Bullet flyingHave we finally found a silver bullet for cutting through the fog of health care pricing?

One of the best tools to come down the pike in the last few years for driving the U.S. health care industry to better economic value is a bundled price.

My company, Serigraph Inc., has been an incubator for direct contracts with providers for elective procedures at bundled prices for seven years. What is a bundle? It a fixed price, such as $26,000 for a joint replacement. There are no add-on bills. It’s an all-in bill for the whole episode of care.

This completely solves the issue of transparency in health care. Despite many other previous efforts to expose the real costs and prices for medical treatments, consumers have had a hard time figuring out beforehand what a procedure actually cost. The quotes for a procedure are fuzzy, and the bills are incomprehensible. It’s a recipe for consumer fraud. In contrast, the $26,000 price tag for a new hip is right out in the sun light for all to see and understand.

There is no possibility for up-charging, up-coding or confusion after the treatment.

On just 12 bundled procedures, Serigraph’s employees and our company saved about a half million dollars last year, about 7% of our total for the last 12 months.
It’s going to get even better.

A startup company named Access HealthNet has jumped into this space and now offers 1153 bundled procedures, headed to 2000 by Q1 2017. (Disclosure: I like the company so much I have invested in Access.)

The first two elements of Value Healthcare are cost and access, with price as the third element. Fortunately, there is an inverse correlation between price and quality. That means the lower the price, the better the quality. That seems counter-intuitive, but it’s real. The clinics and doctors with their acts together are leaner, more efficient, less wasteful and have lower infection rates. That translates to lower costs and prices.

Why would anyone pay $47,500 for a hip replacement, the median price in Milwaukee, when you can buy one at a five-star hospital for $26,000 to $28,000 in the same metro area? The Orthopedic Hospital of Wisconsin was recently cited as one of the top ten bone shops in the country.

Those savings are typical, because the price ranges for medical procedures vary wildly. The current state of pricing can only be described as economic chaos. There is neither a functioning market nor a regulatory system to discipline prices. The economic side of the health care industry is no man’s land for consumers.

It’s time for a new business model, where consumers can ascertain value: quality, access and price.

The savings from bundled prices are so dramatic that Serigraph makes elective procedures free to our co-workers — if they make a smart buy at a value medical center. We simply waive the deductible and co-insurance charges. In the end, it’s still their choice, but most Serigraph people can do the math, and three-quarters of them have been making the value purchases in recent months. Steerage works.

Experts say about 43% of all medical procedures are non-emergency and can be steered.

Of Serigraph’s $6 million total bill, that comes to about $2.6 million. We should be able to save half of that once bundled prices kick in across the board.

Just as importantly, the $28,000 price tag for a joint replacement has held up for seven years. (One shop came in at $26,000, and prices in other states are well below $20,000.) Shazam! Our value-based vendors and we have taken out the inflation out of a hyper-inflationary industry.

The move to bundled prices, to a silver bullet, is coming on fast. The biggest buyer in the country, Medicare, is now pushing all-in prices. Indeed, Medicare is putting caps on its bundles. It will pay a maximum of $30,000 for a joint replacement. We have not yet put those teeth into our value-based purchasing program at Serigraph.

Some early mover clinics and doctors have seen the value train coming and are getting out in front. The Novo Group of clinics in the Fox Valley, for example, now offers 60 different bundles.

The value train is moving at bullet train speed. It’s a silver bullet train. It’s time for all payers and providers to get aboard.

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