The United States is spending nearly 20 percent of its GDP on healthcare, and employers, who are paying a big chunk of that spend, are looking for answers. Former Starbucks CEO Howard Schulz said the company spends more money on healthcare than coffee, and other businesses are seeing their healthcare spend continue to creep up. A new solution is gaining steam in North Texas and nationwide, where employers are incentivizing their employees to seek treatment outside of the traditional medical payment structure.
Imagine being flown to a surgery center for a knee operation, put up in a nice hotel, and given a per diem that allows you and your plus-one to enjoy luxurious dinners during your stay. After the surgery, you spend time in the hotel recovering until you are ready to fly home. Now imagine that entire experience—flight, food, hotel, and even the surgery—are free for you and your plus-one. Is your employer throwing unending funds at healthcare and spending mountains more than others in your industry? Are you going to receive a massive bill in the mail from the surgeon, American Airlines, Ruth’s Chris, and the Marriott in a month? No, you are not.
This experience is part of a growing movement in the free market healthcare world called medical tourism, where employers incentivize employees to get treatment—mainly pre-planned surgeries—at surgery centers that operate outside of the traditional hospital/insurance world. It provides a luxe experience for those getting treatment, but it isn’t just about perks for the employees; it is also about significant savings on companies’ healthcare spend.
The movement has taken many forms, with some employers directly contracting with surgery centers and others grouping together to form “captives,” insurance organizations that are wholly owned and controlled by its insureds. The captives directly pay surgery centers a cash price for select procedures.
Here is how it works: Traditional hospitals have standard charges for procedures, but those prices are almost never paid by patients, employers, or insurance companies. Insurance companies negotiate with the hospitals to reduce that price. Then, between the deductible and coinsurance, a patient only pays a portion of that negotiated amount for the surgery. If, for example, a hip replacement’s posted price is $25,000 and the insurance company negotiates it down to $15,000, then an employee might only pay his $5,000 deductible plus 20 percent of the remaining $10,000 (because of coinsurance), resulting in a total bill of $7,000 for the patient. If the employer is self-insured, then its funds cover the rest of the surgery, or $8,000 in this case.
But after the hospitals and insurance companies take their cuts, surgeons who perform operations don’t see anywhere near that $7,000. So, some have begun operating outside of the system and creating a market where everyone wins. The surgery centers don’t offer discounted rates, but clear pricing that benefits both the payor and the surgeon. In the hip replacement example, the surgeon might charge $5,000 for the surgery, meaning she ends up with more for the operation than she would have in the traditional setting. Employers that utilize this system want employees to use these centers for the cost savings.
In fact, it is cheaper for a company to pay for the entire surgery itself, plus some extra benefits like flights, hotels, and food, in order to get the employee to use the surgery centers.
In the aforementioned example, the company saves money as long as the total amount is less than $8,000. So, often times, the patient leaves with a free surgery, the surgeon has made more per operation, and the employer pays less than it would have through traditional self-insured health insurance.
Jason Dixon is partner at a local captive for beverage distributors, McKinney-based BevCap Management. The employers organized to provide healthcare for their workers and utilize surgery centers to save on the healthcare spend while still offering quality care. When using the surgery centers, the captive pays them directly without going through an insurance company.
It’s all about making healthcare dollars stretch longer. “It is cutting out the waste in the system,” Dixon says. “We can take patients in a limo to the airport, put them in a four-star hotel, waive the deductible, waive coinsurance, and it’s still cheaper with as good or better outcomes. The current medical system is not catching up.”
The group has been operating this way for six years, and currently covers 10,000 employees and 20,000 individuals across the country. “People are going bankrupt because of healthcare,” Dixon says. “We are changing people’s lives and getting excellent care.”
A Fraction of the Cost
Dr. Keith Smith is one of the foremost voices for free-market medicine with transparent pricing. He founded The Oklahoma Surgery Center 22 years ago in Oklahoma City; it’s a surgery center where payers send their employees for surgery with straight forward pricing.
After practicing in a hospital system as an anesthesiologist for seven years, he noticed that physicians’ salaries were dropping while the hospital continued to reap record profits. At the same time, he says, patients were being bankrupted by high prices and aggressively billing health systems. This September, a ProPublica report highlighted nonprofit hospitals that were charging full list prices to uninsured patients and suing those patients when they couldn’t pay. Research by Johns Hopkins University surgeon and author Dr. Marty Makary showed 20,000 lawsuits filed by Virginia hospitals in 2017, with nonprofits more likely to garnish wages than public and for-profit hospitals.
“Everybody knows how much a new car costs, but none of us have the ability to do that with the doctor.”David Bristol CEO, Employee Solutions
“I felt like an accomplice to a crime,” Smith says. He knew that if he wanted to have reasonably and clearly-priced care, he needed control of the facility. Once that happened and he cut insurance out of the picture, he found his center could charge a fraction of what hospital systems charged. Removing a benign lesion at his center costs around $1,900; when Smith received a quote from a hospital for the same procedure, it was around 10 times that.
He says one-third of his center’s patients have traditional insurance, but opt for treatment there because high deductibles and coinsurance make the center cheaper than staying in-network. Often, Smith says, prices are lower for patients even after network price discounts, copays, coinsurance, and deductibles are factored in.
Smith says his center was attacked by both sides of the aisle politically when it opened, and despite Republicans’ talk about being the party of the free market, the clinic was supported by Democrats first. These days, Smith says, the clinic doesn’t receive many complaints from either party: “Nobody can make an argument against cheaper and better.”
David Bristol, CEO of Richardson-based Employee Solutions, was tired of seeing 25 percent to 30 percent rate increases each year with traditional insurers, without improved results. So, he moved his company to a captive. Deductibles and premiums came down, with costs per employee falling from $770 per worker per month to $475 from 2017 to 2018. For Bristol, the price transparency has been a game-changer. “Everybody knows how much a new car costs, but none of us have the ability to do that with the doctor,” he says. The captive also offers traditional routes for surgery if an employee wishes.
Bristol says adoption has been slow because people aren’t used to doing things this new way. But word is spreading as more people go through the process.
Joe LaMantia III is general partner of L&F Distributors, a beverage distributor in Texas with 1,100 employees. He is experiencing similar results. Since joining the BevCap captive, healthcare costs have fallen to around $5,000 per year per employee, even while providing no-cost surgeries for employees, complete with transportation, limousine service, and meals. “I can’t tell you how many times someone has stopped me and thanked me for having this type of healthcare program,” LaMantia says.