Hannaford, a 9,000-employee supermarket chain in the Northeast, wanted its work force to get low-cost knee and hip replacements in Singapore. In January 2008, the company offered to waive deductibles and copayments and pay for transportation costs for joint-surgery patients and spouses. One year later, not one employee had used the benefit.

A 2008 report by the Deloitte Center for Health Solutions estimated that 750,000 Americans sought healthcare overseas in 2007 and predicted 6 million would do so in 2010. The actual number never came close to the projection.

Cost savings on medical procedures outside the U.S. are appealing, but the barriers can be daunting: passports, language barriers, malpractice fears, international currency exchange issues, securing follow-up care, and traveling long distances after a major medical event.

Say hello to domestic medical tourism.

How do you
break up an oligopoly? 
You introduce 
competitive forces into the market.

Some companies are offering employees in need of expensive and complex procedures travel expenses to domestic healthcare facilities with proven quality and high volumes. Working with so-called “centers of excellence” gives companies greater assurance that there will be fewer complications, better outcomes, and fewer hospital readmissions—all of which can run up the bill needlessly.

Direct contracting with centers-of-excellence steers patients to hospitals that provide high-quality care and are willing to discount their prices in exchange for the higher volume of patients. Typically, hospitals are screened based on quality, using data to show that their clinical outcomes and patient satisfaction exceed a threshold defined by the purchaser. Then purchasers negotiate a single price for services associated with a procedure. 

Johns Hopkins Medicine signed an agreement in December 2011 with PepsiCo—a subsidiary of Plano-based Frito-Lay—to provide its 250,000 employees the option to travel to its Baltimore facilities for cardiac and complex joint replacement surgeries. PepsiCo already was using Johns Hopkins to manage some of its worksite health clinics.

PepsiCo, which sponsors its own self-funded medical plan, waives deductibles and coinsurance for those employees who have their surgeries at Johns Hopkins. The company will also cover the travel and lodging expenses to Baltimore for the patient and a companion. 

Cleveland Clinic and Lowe’s signed a similar deal in 2010, in which full-time employees and their covered dependents enrolled in the company’s self-funded medical plan could elect to schedule qualifying heart surgery procedures at the Ohio clinic. The Lowe’s plan also covers medical deductibles and coinsurance amounts as well as travel and lodging expenses for the patient and a companion, plus concierge assistance to make the arrangements.

Most major insurers have various centers-of-excellence programs. The key difference with the primary Lowe’s and PepsiCo model is that it is a very narrow center of excellence—generally one hospital—and a benefit package that includes travel benefits and services and one payment of all related medical services. 

Mercer Health & Benefits brokered the Lowe’s and PepsiCo deals. A Mercer spokesman said 25 to 30 percent of eligible employees took advantage of the Lowe’s program in the first two years, which was twice as many as expected. Dallas-based Mercer consultant Eric Bassett said that, while there is some interest in the PepsiCo model, it has not gained further traction in North Texas.

Employers here have relied more on traditional programs that compare prices for medical procedures and provide second opinions to avoid unnecessary treatment, according to Bruce Sammis, CEO of Lockton Dunning Benefits in Dallas.

Domestic medical tourism, he says, is more popular with companies “with large rural footprints. Whether the patient is traveling hundreds of miles or thousands of miles to a nationally acclaimed medical center, the employee is traveling either way.”

While “the economics are compelling” for international medical tourism, employers have not embraced it because it is geared more toward people seeking procedures not covered by insurance, such as cosmetic surgery, he said.

Robyn Bayne, local practice leader of health and benefits for Aon Hewitt, says insurance companies traditionally have used centers of excellence for transplant operations.

“[DFW] employers believe it is a good concept,” she says. “But they struggle with the idea of getting people on an airplane to get a knee replacement, especially when they can get it done 30 minutes away and get follow-up care locally.”

Bayne said newer procedures such as bariatric surgery would lend well to establishing centers of excellence in most large U.S. cities. 

In 2013, Walmart expanded its long-standing program covering transplants at the Mayo Clinic also to include treatment for certain heart and spine surgeries at five leading hospital and health systems in the U.S.

Walmart, Lowe’s, and other large employers joined the Pacific Business Group on Health Negotiating Alliance to launch a national Employers Centers of Excellence Network that will offer no-cost knee and hip-replacement surgeries for employees at four U.S. hospital systems. 

“These companies are working to help make sure that their employees get higher quality care and incur lower costs,” David Lansky, president and chief executive officer of PBGH, said in a statement. “The Employers Centers of Excellence Network is designed to serve as a model for delivering high quality health care with transparent and predictable costs.”

Bundled pricing is common for consumer products such as phone service and cable. Physicians, hospitals, imaging labs, and other providers, however, typically bill patients and payers separately. 

Employers are paying for more joint and cardiac surgeries as baby boomer workers are entering the twilight of their careers. Surgery-related costs can consume as much as one-third of an employer’s total healthcare budget.

Domestic medical tourism addresses two issues that dog U.S. employers: differences in quality outcomes and the wide disparity in medical pricing nationally. By negotiating with health systems on specific treatments or procedures, companies address both.

According to a 2013 Mercer survey, 16 percent of Dallas employers with at least 500 employees use a high-performance health network, compared with 24 percent of Texas companies and 15 percent of U.S. companies of similar size. 

Surgical-benefit firms use closer-to-home options, typically offering negotiated prices for a broader array of medical procedures.

Denver-based BridgeHealth Medical began as a medical tourism business, but evolved into a surgical benefits firm. About one-third of a company’s healthcare costs are spent on surgeries, and only about 10 percent are unplanned. BridgeHealth uses Medicare quality data to zero in on the top quartile of healthcare facilities with the best surgical outcomes. It then negotiates an all-inclusive price for all care associated with a procedure at a significant savings. 

“If you are at a top 10-percent hospital for cardiac bypass, you almost never die,” says BridgeHealth president Terry White. “If you are at one in the bottom 10 percent, you have a 1 in 8 chance of dying. Results also depend on the procedure. A hospital may be great at heart surgery and terrible at spine surgery.”

BridgeHealth uses Pine Creek Medical Center near Love Field for its DFW surgeries and is in discussions with other local providers and employers. The city of Coppell is one of the company’s clients.

“[Surgical] costs are out of control in DFW,” White says. “There are significant opportunities for savings. Almost every major city has monopolistic pricing behavior. How do you break up an oligopoly? You introduce competitive forces into the market.”

Austin-based EmployerDirect Healthcare takes a different approach, identifying “surgeons of excellence” and negotiating rates specifically with them. The company operates in about 40 U.S. metropolitan areas, including North Texas, where it uses two orthopedic surgeons and two general surgeons for the metropolitan area. 

CEO Thomas Johnston says it can save clients 30 percent to 50 percent on specific procedures with a complication rate of less than 1 percent, compared with as much as 7 to 10 percent complication rates that are typical for spine surgery.