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Innovating in Healthcare Costs: What Top Companies Do

Business strategy needs to address the ever-changing, complex issue of health care delivery, innovative health-related technology, and payment methods. When it comes to innovating in health care, what top companies do can be a precursor of solutions that may one day become the norm.

Bundled payments have become a viable option that companies such as Boeing, General Electric, Lowe’s, and Walmart are exploring, according to a recent article in the Harvard Business Review. Advocates of the model indicate it reduces costs and improves patient outcomes.

Differences in Payment Methods

Typically, health care is delivered via a fee-for-service model, with each unit of care being priced, billed, and collected. Newer models are asking care providers to assume a share of the risk for the collective costs of treatment.

Under bundled payment structures, a single payment is made to providers, healthcare facilities or both to cover all treatments related to a condition or disease. Payment rates are based on pre-determined expected costs. Bundled payment models can be accompanied by provider metrics that compare actual to desired outcomes.

Several early assessments indicate that the bundled payment model saves money. For example:

  • Blue Cross and Blue Shield of North Carolina piloted a bundled payment model with knee replacements, covering pre-surgical prep, surgery, and follow-up care for six months. The pilot saved the insurer eight to ten percent.
  • Geisinger Health System has seen a 10 percent reduction in readmissions for coronary artery bypass surgeries, shorter stays, and reduced costs using a bundled payment plan.

Data analysis of patient outcomes is a key element of site selection in a new payment model that has promising early results.

Attractive to Employers

Bundled payments potentially can improve care coordination and quality of care while reducing costs. But it takes some time to implement and does not work for all types of care.

Companies see advantages in the model both for themselves and their employees, largely due to predictability. Under employer-purchased bundled payments, the highly variable costs that patients (and their insurance plans) face are reduced dramatically.

Lowe’s, Walmart, and JetBlue, along with other Fortune 100 companies have launched the Employers Centers of Excellence Network (ECEN), which, via a nonprofit entity, identifies providers and negotiates bundled payments for care, that in many cases, requires patient travel. Under ECEN, employees are covered at 100 percent for medical and travel expenses, with no patient out-of-pocket costs.

A rigorous site selection process helps ensure the quality of care. Hospitals and participating physicians need to complete a comprehensive assessment of quality, outcomes, and patient satisfaction data in order to be selected to participate in ECEN programs. In-person assessments trace patient experiences from arrival to post-discharge and also evaluate protocols, collaboration methods, and performance metrics.

Why would providers and hospitals want to participate in such a system? While some systems choose not to participate in a system with lower profits relative to fee-for-service models, others see a huge boon to an increased patient population with nationwide potential. Others, such as Geisinger, point to improved processes and efficiencies gained after needing to re-engineer certain care aspects to accommodate the new model.

Initial results for ECEN are promising:

  • Lowe’s employees undergoing joint replacement realized an average savings of $3,300 in copayments and fees. 100% of participants in the program said they would recommend it to family and friends.
  • Under ECEN, 0 percent of Lowe’s employee patients having lumbar spinal surgery needed follow-up skilled nursing care, compared to 5.9 percent of those having surgery locally.
  • Overall ECEN cost savings for spinal surgery are estimated at $1 million to $2 million annually.

New models, new care delivery, and a continuing competition for patients are the new normal for healthcare in the United States. Bundled payments are likely to be a part of those discussions, too.