April 20, 2020

Healthcare arbitrage #1: Bundled procedures

Cedric Kovacs-Johnson

In the first part of this recurring series, we explore how health plans can use bundled pricing to improve members' care and reduce costs.

Arbitrage [ahr-bi-trahzh]: a market inefficiency resulting in a pricing discrepancy

In this recurring series, we’ll explore various healthcare arbitrage opportunities in detail. Health plans can exploit these opportunities to seriously reduce spend and, in most cases, improve quality of care.

In order to help their clients design effective health plans, benefits advisors should know all the levers they have at their disposal and how to incorporate those levers effective, tailored benefits strategies.

We’ll cover arbitrage opportunities including:

  1. Bundled procedures
  2. Inter-network arbitrage
  3. Intra-network arbitrage
  4. White-bagging & brown bagging
  5. etc

Bundled Procedures

Low-frequency surgeries ranging from orthopedic procedures to transplants are increasingly being offered as "all-in" bundles. These bundled procedures are generally 10-40% less expensive than traditional fee-for-service contracts, and often go at risk for complications or readmissions. Single encounter savings range from $10,000 to over $150,000 when the procedure is bundled.

Furthermore, providers offering bundled rates are generally higher quality, and are sometimes considered "Centers of Excellence" (COE), usually as a result of their specialization around the exact type of procedure that is being bundled.

Here’s the basic principle: quantity is a great indicator of quality. A provider who performs 350 knee replacements a year will generally produce better outcomes than a provider who performs 10 (and does 50 other types of surgeries). Furthermore, that provider's focus means overhead costs are lower, so they can charge lower rates to health plans.

Disruption: moderate

Frequency: low

Impact to quality: significant improvement

Impact to cost: high

The bundled procedure operating playbook

  1. Build plans correctly for this pathway. This includes reimbursement thresholds and incentive structures.
  2. Identify and engage members who are beginning a surgical care journey—if possible, do this before a prior authorization process has started
  3. Assemble a list of providers who offer bundled surgeries. Filter this list by quality, cost, and convenience. Identify the incentive level for each provider.
  4. Walk the member through the bundled surgical program and the providers included. These providers should be scored by quality and out-of-pocket cost. This step is best if performed by a care manager or nurse.
  5. Facilitate the paperwork—prior authorization, contracting, and payments. Patients should be able to just walk in.

What can go wrong

  • Missed opportunities (<5% utilization): Most health plans wait for members to inquire about bundled surgery programs, instead of proactively reaching out to members about these opportunities. The problem is that most patients forget what they heard during Open Enrollment, so they don't know to look for bundled options.
  • Inconsistent messaging to members: Even the most discerning patients lose patience when benefits structures are unclear or if approvals get stalled. Remove roadblocks to accessing high-value programs.

The role your TPA should play

  • Route members to high-value opportunities: Identify procedures before they happen and engage members as early as possible. If possible, this can happen through the patient's referring physician.
  • Create clear plan designs around this clinical pathway: This includes clear incentives (reduced of-out-pocket obligations, travel coverage, etc), facilitated payments, contracting, and pre-certification.

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