VP HR & Benefits Should Get Big Bonuses for Saving 50-90% on Big Ticket Healthcare

Time magazine’s 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. One model that needed no government dispensation has the potential to save businesses and consumers billions of dollars as it scales nationally. The movement started when individual providers bucked the system. This is the story of how one surgery center may have sparked a revolution. The heads of HR and benefits at organizations employing this breakthrough approach will deserve big bonuses. In a few years, those who don't may be shown the door. The 50-90% savings are simply too compelling to ignore.

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 Binderand Larry Husten's commentary on Walmart's program.] In a nutshell, there is one fixed price for a given procedure. This sits in stark contrast to the norm of having no idea what a 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.]

The approach outlined below is now available to employers leading to transparent pricing that represents a significant discount over typical health plan PPO savings. This goes above and beyond so-called cost transparency tools in the market which can be described as “giving you the best bad deal” that are considerably more expensive than what The Zero Card is offering. Scroll to the bottom for more information on the Zero Card.

High Deductible Health Plans Drive Behavioral Change

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 experienced going 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 centers such as the one outlined below 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. In other markets, traditional providers have responded by price-matching like Best Buy does. We're definitely in a new era when that happens.

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.

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. Leapfrog is extending their quality and safety reporting to include surgery centers outside of the hospital setting. Increasingly, surgery centers are providing 90-day guarantees on their procedures demonstrating confidence in their outcomes.

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.]

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. [View my LinkedIn profile if you'd like a copy of the seminal study on the Direct Primary Care model outlined in that article.] 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.

Transparent Procedure Pricing Goes National

Jim Millaway is a well-respected benefits consultant who has developed a program they are calling the “Zero Card”. Jim’s company has developed a new concept called The Zero Card (watch explainer video for more) that built off of the success of in Oklahoma to make this approach available in other markets. He shares his perspective as a benefits consultant.

Castlight or any other “transparency tool” I have seen isn’t real transparency. The sellers of healthcare are not disclosing prices to the buyers in that model. Some third party is backing into it from claims data or buying it from the carriers. So you get to see price variation and the lowest cost provider by PPO rates but you really just get to see the best bad deal. You have to get the providers on board too and eliminate every process or party that does not add value to patient or provider.

When I tell a hospital we have health plans that pay 100%, with no patient deductibles, co-pays or co-insurance and that we pay in 5-7 days you see the $1M projections I emailed before. The best price in a “transparency tool” will get beat by 50% every time in this model. Showing variation in a broken system isn’t disruption, it’s just showing variation. We made sure to make this easy for the docs too and made sure we made it easy for them to get the best customers. Both buyer and seller agree in this model. And I can’t stress that enough. It’s real free-market, DIY reform and the patient gets absolute control.

Jim’s organization has shown they can open up a new market rapidly and impact that market within just a few months. Jim shared with me an example of how they went from one employer of 650 employees to 3 employers of 8,000 employees in under 90 days and a suburb of 150,000 went from 0 to 3 transparent providers (1 imaging center, one surgical hospital and 1 orthopedic hospital) in just 90 days. In some markets, it's initiated by an employer and Jim's organization reaches out to the providers to meet the employer's wish to have this option available. In other markets, the providers are initiating it and then Jim's organization gets employers on board. This is the kind of domino effect that we need.

This article also appeared in Forbes.


It blows my mind that some individuals on this board think that dialysis patients should not receive the same benefits as everyone else. In how many other fields of health care are patients being tossed out of treatment centers and blackballed from going to another treatment center??? Dialysis needs to be made to be patient focused.