Independent Surgery Centers Save Patients Millions, Could Save More if Patients Are Aware of the Differences
By: Andrew Poole, FACHE
CEO, Monticello Community Surgery Center
Ambulatory surgery centers (ASCs) are specialized facilities that offer surgical services at dramatically lower prices, improved outcomes and higher satisfaction scores than traditional hospitals. We’ll illustrate how they do this and show where significant additional savings opportunities exist for the Commonwealth by discussing an innovative ASC in Charlottesville — the Monticello Community Surgery Center (MCSC).
MCSC, an AAAHC-accredited, physician-owned and independent center, began operations in 2003 as a joint venture between community physicians and a local community hospital. When our community hospital partner was acquired by a large, profit-driven health system in 2012, the physician owners made a determination to remain independent. This decision was based on the belief that physician-owned practices can deliver patient-centered care in a more personal and efficient manner. Indeed, independent ASCs Centers have consistently been shown to deliver higher satisfaction scores, lower complication rates and lower costs when compared to hospital or hospital-based centers. For example, a recent national survey showed patient satisfaction scores for ASCs was rated as 92% positive vs. 70% for hospital based/hospital settings. With health care consumers increasingly demanding a better level of care with lower costs, one would expect to see additional movement of surgical procedures to centers like MCSC.
Advantages of Ambulatory Surgery Centers
For largely historical reasons, health care payers have typically reimbursed ACSs at a much lower rates than hospitals and even hospital outpatient departments (HOPDs) for the same procedure. Thus, cases done at an ASC represent a significant and direct threat to current revenue streams of many hospital systems. Not surprisingly, hospital groups in Virginia have consistently fought against new ASC construction, typically though the Certificate of Public Need process (see other articles in this Handbook about our Certificate of Public Need statute) and by creating institutional barriers that seek to prevent surgeries from being done at ASCs, despite the improved outcomes and pricing. In our case, our former partner (a large hospital group) used COPN laws to fight against relocating our existing practice within the same town, resulting in a year-long process that cost our small center over a million dollars in legal fees.
Day surgeries performed in a hospital or HOPD still represents a huge personal health care expense and thus a large potential area for savings. Health Care Blue Book sponsored a review of commercial claims completed in 2016 and demonstrated a current annual savings of $38 billion dollars annually attributable to the use of ASC’s over Hospitals/HOPDs. Of the savings, $33 billion was saved by the insurance provider (which in most cases is eventually private employers) and $5 billion in out-of-pockets costs were saved by individuals. Amazingly, they also identified an additional $55 billion of savings based on additional procedures that could be performed in an ASC, but instead were done at more-costly HOPDs.
Why Hospitals and Insurance Companies Fight to Keep Costs High
With profits at stake, hospital systems in Virginia are fighting the movement of surgical cases to ASCs from many directions. From a provider perspective, they have aggressively sought to employ independent primary care providers as a means to drive referrals to their more expensive centers. Patients remain largely unaware of the financial impact on where the surgery will occur. Most patients do not think to ask about where the surgery will be performed and how that impacts out-of-pocket expenses. The common belief is that with insurance any procedure done “in-network” will be covered. In reality, a surgery done by the same physician at different facilities can have significantly different costs, both to the payor and the patient. In the review by Health Care Blue Book, it was found that facility prices can vary by over 600% within the same community for the same procedure.
As identified by the word COMMUNITY in our name, we feel a responsibility to our local, regional, and even national community to inform individuals about this impact and to offer high-quality care at a lower cost directly to the patient. The physicians at MCSC believe that if individuals are given the information about the available care, both outcomes and price, then they will be able to make the best decision about their care and this will ultimately help to lower the health care costs for everyone.
Even when patients are aware and seek the information about costs, it remains a confusing and complex situation. Hospitals are typically reluctant or even incapable of providing clear cost and outcome information. At a minimum, the patient at a hospital will receive three bills: one from the surgeon; one from the anesthesiologist; and one from the facility itself. Surgeons and Anesthesiologists typically receive similar reimbursement wherever the procedure is performed, making the facility choice the single largest factor in surgery cost variation.
While we don’t seek out other local surgical provider’s facilities fees, we frequently receive calls to inquire about price and are met with disbelief. It is not uncommon for the facility fees of our ASC to be thousands of dollars less than those at the local hospitals, typically 25-30% of hospital costs. A recent patient seeking care from an Otolaryngologist for a sinus procedure was quoted a facility fee that was a factor of 10 times higher than what we charged (~$3,000 vs. ~$30,000). She elected to have surgery at our center, with the same surgeon, and saved. If a patient had a 20% coinsurance for that procedure, it would be $600 vs. $6000 out of pocket, for the same procedure, done by the same physician.
Bundled Surgical Pricing is Rational and Saves Thousands
As seen above, lower rates at Ambulatory Surgery Centers can offer big savings even to those who are well-covered with traditional insurance. For those with no insurance or high out-of-pocket costs, such as with a high deductibles, the savings can be even more dramatic. For such individuals, a bundled price offered outside of traditional insurance can result in thousands of dollars of savings. With a bundled price all 3 traditional charges (facility, surgeon and anesthesiologist) are bundled into one simple rate. Without insurance involved, administrative, contracting and overhead costs are reduced. This means no arbitrary and elevated fees based on negotiated contracts where the insurance company sets the amount patients will pay. Instead, the price is based simply on actual costs incurred by the center. We’ve offered bundled pricing since 2013 and it has resulted in hundreds of patients traveling to MCSC from as far as Seattle, Washington and the Virgin Islands to receive care in Charlottesville.
We recently cared for a patient paying cash for an outpatient knee surgery (an ACL replacement and medial meniscal repair). Her home hospital quoted facility fees of “$15,000, maybe more” plus thousands more for the surgeon and anesthesiologist. By contrast, MCSC offered care at a clear bundled rate (facilities, anesthesiology and surgeon fee) for one price, $9,040. On this procedure alone, she saved at least $10,000! We have patients with similar examples coming through ours doors weekly. Last month, a local physician had a bilateral inguinal hernia repair at MCSC for $5,990. The local hospital told him to expect the facility fees alone to cost more than $20,000, for one side! Patients often call back several times to make sure they have not misunderstood when we quote expected charges.
As we can show, bundled pricing isn’t just for payers using cash. As out-of-pocket costs rise, savvy healthcare consumers in high deductible plans can utilize our bundled price rather than paying using their insurance. Assume the above mentioned patient has a $10,000 deductible plan and needs a hernia repair. Receiving surgery at a hospital would mean he’d pay at least his whole deductible (plus any co-insurance) totaling over $10,000. By choosing the bundled rate and skipping insurance, he would save over $4000 by NOT using insurance!
Our model of bundled pricing for surgical services was initially developed by Dr. Keith Smith from the Surgery Center of Oklahoma and the Free Market Medical Association. The Surgery Center of Oklahoma has been a trailblazer in the free market movement in health care, which has bucked national trends by consistently bringing health care costs down. They developed the model of offering a single bundled price, based on real costs, directly to the health care purchaser.
Forward Thinking Can Fix a Broken System
It’s making a big impact. In 2015, a group including the Surgery Center of Oklahoma and health plan administrator Jay Kempton, with state support, began offering a low cost bundled options to state employees and other self-funded entities, including municipalities. Through the program, public county employees are offered a choice of utilizing a participating facility that offers bundled pricing at “no-cost” to themselves. If they choose to utilize another provider or facility, they pay the traditional coinsurance and deductible. Dr. Smith reported plan members are utilizing the “no-cost” option over 70% of the time. In the first two years, Oklahoma County alone has saved $1.7 million in health care costs. County employees have saved $250,000 in out-of-pocket expenses; about $2000 per person per procedure. Being able to replicate this model in Virginia could provide even more savings, as we’re twice as big by population.
The work by Dr. Keith Smith, Jay Kempton and their colleagues served as the foundation for our bundled price model and it is one we have been working diligently to reproduce here in Virginia. We have met with local employers and municipalities that self-fund their health care coverage, and they are very excited about the concept. On one occasion, a mid-sized company was considering bundled pricing and shared their historic claims data to compare actual expenses against bundled rates. With this data, we could identify surgical claims where, when appropriate, receiving care in our facility the employer and employee would save over $7,500 per procedure! The employer was understandably excited about this opportunity. Sadly, their health plan was administered through a large insurance corporation which repeated blocked efforts to allow employees to choose bundled pricing by claiming not to have the “internal process to administer bundled claims.”
This has been the story again and again as we work with self-funded groups and small independent insurance companies that have the goal of saving their client’s money. It is easy to find willing providers and purchasers in the healthcare market trying to return value and rational pricing to health care, but we’re often blocked by large insurance companies. It seems counter-intuitive. Why would major insurance companies block cost saving measures? Don’t they want to save money? The answer, sadly, is an emphatic NO. By federal law, insurance companies must pay out a fixed percentage of every dollar collected (about $0.80) as benefits. If costs drop, insurance company profits drop. They don’t like that. If a procedure costs less they’ll have to collect less in premiums, which in turn, means less profits for them.
Insurance Companies Want Prices to Go UP!
Recognizing the strong incentive they have keep prices up, how do major insurance carriers stop self-funded companies and regional governments from taking advantage of bundled pricing and other cost-saving measures? The answer requires a brief dive into the muddled world of insurance contracting. Most states, municipalities and companies with 100 or more employees “self-insure” for their health insurance. This means they hire a company (called a Third-Party Administrator or TPA) to collect and pay all their health-care claims directly, rather than buy, say, an Anthem plan for each employee. However, it’s impractical for most companies to negotiate with the seller of healthcare products (hospitals, pharmacies, clinics) the price they will pay when their employees use their services. Without a contract, the employer would typically pay “chargemaster” rates, inflated charges considerably higher than what commercial insurance companies have negotiated. To avoid this problem, most large self-insured groups contract, through their TPAs, to use a major carriers network to access their negotiated prices. Because such arrangements often have exclusivity clauses, insurance groups have heavy leverage in the fight against cost-saving initiatives. And they are using it.
Removing the obstacles that block companies from innovative means to provide high quality care at a lower costs needs to be a focus for Virginia and her policy makers. There are numerous ways to accomplish this. For starters, companies that self-fund health insurance for their employees through negotiated contracts with major health-insurance carriers should be allowed to shop for and select health services outside the carriers networks and protocols. Existing market dynamics necessitate that companies contract with large carriers, but in doing so are tied to their bloated cost structures, inefficiencies and never-ending rate increases. They deserve unrestricted access to innovative market strategies, such as bundled pricing at MCSC. After all, it’s their money. Further, allowing all of privately insured public to utilize cash pay prices and apply those expense to deductibles would lower costs and allow more people to seek affordable cash pay options.
Today, individual Virginians can already experience a big reduction in their health care expenses simply by first asking to know the price. This extends beyond surgery to services such as lab work, imaging studies and consultations. But ultimately, the push for price transparency, both in cost and outcomes, should be driven by consumers and supported by legislation. In 2015 Virginia passed legislation supporting price transparency in Health Care. This was a good first step, but there is much more to do. As we have seen with the work done in Oklahoma, Virginia has the opportunity to use the data on price and quality to significantly lower the cost of care for its citizens, while improving quality. With healthcare benefits for commonwealth employees comprising a significant portion of state expenses, there is a huge amount of potential savings for the Commonwealth and its taxpayers. Following in the footsteps of Oklahoma, developing a network of providers across the state willing to provide care at a fair, bundled rate could put money back in the hands of our state employees and help state and local budgets.
We strongly believe policy makers and other stakeholders should examine and remove the current barriers in place to stopping the expansion of ASCs and bundled surgical price utilization. Specifically, this would include allowing better access to high quality, lower cost settings by eliminating the Certificate of Public Need process. Another barrier to utilizing lower cost bundles are individuals who utilize an out of pocket bundle may not be able to use this towards their deductible. If individuals who sought to save money for themselves, and their employer were able to apply the eligible amount towards their policy including their deductible, there would be additional savings opportunities.
ACL cost: https://amino.com/blog/acl-surgery-cost/
Free Surgery for Oklahoma Teachers, State Workers http://kfor.com/2016/09/20/free-surgery-for-oklahoma-teachers-state-workers/
ASC Savings- https://healthcarebluebook.com/files/ascsavings.pdf
Department of Health and Human Services, Office of Inspector General. (2014, April). Medicare and Beneficiaries Could Save Billions If CMS Reduces Hospital Outpatient Department Payment Rates For Ambulatory Surgical Center Approved Procedures to Ambulatory Surgical Center Payment Rates.
Munnich, E. L., & Parente, S. T. (2014). Procedures Take Less Time At Ambulatory Surgery Centers, Keeping Costs Down And Ability To Meet Demand Up. Health Affairs, 33(5), 764-769.
Surgery Center Network- https://www.surgerycenternetwork.com/hospitals-vs-ascs