Two New Knees for Just $39,000

Value healthcare approach saves thousands of dollars for both employee and company.

By - Sep 22nd, 2016 04:14 pm
American Cash by Psychonaught. Photo of money

American Cash by Psychonaught. Photo of money

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.

John Torinus is the chairman of Serigraph Inc. and a former Milwaukee Sentinel business editor who blogs regularly at johntorinus.com.

Categories: Health, Op-Ed

8 thoughts on “Op-Ed: Two New Knees for Just $39,000”

  1. Sue says:

    “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.”
    How did he act as a smart consumer? Later in the article it sounds like a benefit specialist negotiated a deal; was the employee offered the option of this negotiated deal with an incentive by Serigraph if he took it? It’s not clear how he was, himself, a smart consumer. It’s notoriously difficult for an individual to do the work of medical care comparison shopping. That’s why companies have health insurance analysts on their payroll or pay for the services of third-party companies.
    Is the waiving of deductibles and co-insurance at Serigraph a common incentive? If not, what in particular did this employee do to earn the waiving of $6500? More detail would be appreciated.

  2. Kent Hadley says:

    Healthcare costs are out of control in this country. We no longer have doctors we now have “providers” and they are allowed to charge anything they wish. You are not informed of costs when you visit your “provider” for a “service.” I have a rare neurological disease and have been receiving Botox injections for the past eight years. The Botox slows my tremors which allows me to function and relieves some pain by reducing the cramping caused by the disease. Below are my charges for the exact same Botox injection treatments over the past sixteen months. No one informed me of the 900% increase and I have no idea what the next charge would be. I have to discontinue treatment since I simply cannot afford to pay these charges.
    • July 5, 2016- Billed- $12, 146.40 -My co-pay- $609.72
    • March 31, 2016- Billed $26,034.30 -My co-pay- $941.00
    • December 29, 2016- Billed $9,132.10 – My co-pay- $568.00
    • August 12, 2015- Billed $4,800 -My co-pay- $229.00
    • April 15, 2015- Billed $3,397 -My co-pay- $110.40

  3. daniel golden says:

    Torinus has left the Republican reservation in one area-praising the Medicare price control system. His GOP buddies will not like this, as Paul Ryan’s plan always includes leaving the greed driven American health care industry unregulated, with each family getting a “tax credit ” of 5000 dollars. Ryan and his Republican posse know full well that most working class and poor taxpayers will never have enough taxable income for this credit to be of any value in the long run. Torinus does throw in a dose of right wing propaganda when he says in conclusion that the Affordable Care Act does nothing for costs but”drive them up”. He apparently is unaware of the provision in the law that limits administrative costs to 20% of the premium dollar. This was a real thumb in the eye to the Act’s Republican opponents,to that point that Governor’s Walker of Wisconsin and Scott of Florida applied for a waiver, claiming it was impossible to limit administrative costs to 20%. (Medicare has administrative costs of 4%) What this limitation on costs does it make it difficult to give healthcare executives like Bill McGuire the 1.2 billion (that’s right-1.2 billion with a b) kiss goodbye he got from United Healthcare when he retired.

  4. Barb- West Bend says:

    Obamacare requires everyone to have health insurance. I support that. Low income individuals/families will have premiums subsidized based on their income. No one can be refused health insurance due to a pre-existing condition, nor have the cost of their premiums based on their health condition. Adult children may remain on their parent’s health insurance until age 26. Will Serigraph Inc hire individuals with known health concerns? Or with family members with serious chronic health issues? Beside the yearly $6500 deductible, do employees also pay monthly premiums? I agree that medical charges are out of control…and some seem to be based on what the market will bear and not on the actual expenses incurred by treatment. Medicare is doing well in preventing pricing based on fiction. I do wonder though, if the large deductible prevents some employees from seeking treatments…which may lead to more serious health problems down the road.

  5. Rich says:

    After this article, all job interviews with Serigraph will now include the deciding question: “Do you need new knees?”

  6. Tom D says:

    Mr. Torinus’ article says that because “Serigraph waived his deductible charge and his co-insurance,”
    the patient saved $6,500 (his medical plan’s annual out-of-pocket limit).

    The patient would only save the full $6,500 if he (and his family) had no other medical claims all year, an unlikely occurrence.

    Referring to this supposed $6,500 savings, the article says “That’s real money.” Much of it probably isn’t.

  7. Nancy says:

    More twisted logic from our favorite Republican blowhard. You know what else would help cut medical costs? Mylan no longer gouging the public by raising its Epipen prices from $100 to $600 so that its greedy CEO can get her bloated $18 million salary and bonus. Or CEO Martin Shkreli, a paragon of greed, raising the price of Daraprim from $13.50 per pill to $750. The examples are many, but instead of advocating saner medical costs and a clamp down on the greed and unscrupulous business practices that permeate the medical field, Mr. Torinus thinks working stiffs should just jump through hoops, shop around for services as if they were recliners or refrigerators and have his employees use their precious free time to find out if they can get their treatment at smaller, and often inferior, hospitals in order to save their employer money. There is an elephant in the room, Mr. Torinus, and instead of addressing the real problem, you are pretending that the elephant is invisible. When it comes to medical care, Plan A isn’t working and there is no Plan B. The answer, of course, is universal health care. But you, your Republican cronies and your CEO BFFs refuse to acknowledge that. Shame on you.

  8. Richard says:

    Somewhat simplistic assumptions. 1. Most patients do not have the time or expertise to identify cost versus quality (value) when they need health care services. 2. Small hospitals are not necessarily safer and likely don’t have the volume of specialty services to have optimal quality. 3. An average patient has no opportunity to negotiate the kind of discount discussed. 4. The rise in health care costs has in large part been driven by self-insured employer plans who have spent their time and energy competitively negotiating prices with no real knowledge of quality (value). 5. Medicare has unilaterally strong-armed the health care system by under-valuing preventive care and primary care services and over-valuing specialty services. 6. Claims that “Obamacare” is increasing costs is erroneous – the cost of the uninsured and underinsured health care causes more price inflation by hospitals and physicians. 7. Equating the cost of health insurance and the cost of actual health care services is erroneous – insurance costs are related to risk assumptions by the insurer – the cost of health services is related to efficiency, quality, and the ability to collect reimbursement for services provided.

    Value purchasing is a great idea – Medicare, insurers, doctors, and hospitals have been working on this for years. There is now some success in controlling costs while improving quality by reducing a wide variety of complications. In the meantime, market distortions caused by a competitive employer-based health insurance system, including self-insured plans, continue to confound the real issues of providing reasonable care to all of us with reasonable cost and quality. Those who use health-care services should not be shielded from the costs of those services and need to participate in making decisions about when services are necessary and how often they are necessary.

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