Employers sending patients to top-performing providers with bargain prices for routine surgeries

In the face of high hospital bills, lack of local competition, and wild variations in surgical costs among different providers, some employers are responding by steering patients toward high-quality, bargain-priced providers. While this is happening primarily among some large private employers, a “handful” of public employers are also taking these steps, according to a recent article in Kaiser Health News.

Employers are striking deals for bundled payments for routine surgeries, with one fixed price covering tests, physician fees, and hospital charges; in some cases, the best-quality, lowest-cost provider is out of town. In addition, the providers are on the hook financially if any complications arise, the article notes.

Cost is not the only factor; the company also makes its choices based on quality, including data on complications and readmissions. “Not all surgeons are equal,” Carrum CEO Sachin Jain says in the article.

As an example, the article notes that Santa Barbara County is among about 400 employers on the west coast working with Carrum Health, a company that negotiates the bundled prices.

While the Santa Barbara County bundled payment program is voluntary for covered employees, the county has saved “nearly 50 percent on four surgery cases” since starting its program last year, the article says.

The article profiles one patient who received an all-expenses-paid trip to a luxury resort, over a thousand dollars in spending money, and a personal concierge during her stay in San Diego. The county provides further incentives to covered employees to participate in the program by waiving copays and deductibles.

However, “it was money well spent,” the article notes. Sending the patient 250 miles away for knee replacement surgery saved Santa Barbara County $30,000.  

“If that doesn’t speak to the inefficiencies in our health care system, I don’t know what does,” Andreas Pyper, assistant director of human resources for Santa Barbara County, says in the piece. “It’s almost like buying a Toyota Corolla for $50,000 and then going to San Diego to buy the same Corolla for $16,000. How long would the more expensive Toyota dealership last?”

Some companies have gone so far as to send patients overseas for cheaper care, but most employers favor a more regional approach, according to the article. Local physicians are still relied upon for follow-up care.

For some hospitals, the advantages of offering deep discounts include that “they get patients they otherwise would never see and are paid in full right after the patient is discharged, avoiding the onerous billing and collections process,” the article says.

Some hospitals also have the financial capacity to offer such sharply reduced prices; “most hospitals significantly mark up their commercial rates for orthopedic procedures and cardiac surgeries to compensate for lower government reimbursements,” Michael Bark, assistant vice president of payer relations at Scripps Health, an integrated health system, says.

This is another great example of how it is possible to drive lower-cost, higher-quality care. We need more leaders, whether payers or employers, to take these kinds of steps to reimburse for increased value in health care services. As I’ve said in previous blogs such as , we get what we pay for; the more we direct our reimbursement dollars toward high-value care, the more we’ll get. The interesting thing in this case is that it’s employers who are demanding high value; with 50% of Americans receiving their insurance through their employers, if employers start demanding this type of approach, we might see change.