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:
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.
Impact to quality: significant improvement
Impact to cost: high
Kevin Schlotman discusses the misaligned incentives in status-quo healthcare plans, and what employers can do to gain independence.
In the fourth part of our recurring series on healthcare arbitrage, we explain how plans can use steerage to help members get the same care at a lower cost.