A new way to operate: A surgery practice bets on a price transparency model

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Dr. William Grant is a Charlottesville orthopedic surgeon and chair of the Monticello Community Surgery Center’s board. He and nearly two dozen other physicians are opening a new independent outpatient surgery center on Route 29 that’s built around a radically different procedure pricing philosophy. Photo: Elli Williams Dr. William Grant is a Charlottesville orthopedic surgeon and chair of the Monticello Community Surgery Center’s board. He and nearly two dozen other physicians are opening a new independent outpatient surgery center on Route 29 that’s built around a radically different procedure pricing philosophy. Photo: Elli Williams

Ever had a hip replaced? Tonsils removed? Broken bone set?

How much did it cost? And not your out-of-pocket costs—what was the total pricetag for the procedure? If you managed to find out, the number could vary wildly.

“Chargemaster” prices—essentially, a hospital’s sticker price for a given procedure—are often hard for patients to unearth, and there are often massive disparities within a single market, as the federal Centers for Medicare and Medicaid Services found in a 2013 study. In New York City, for instance, a joint replacement ran anywhere from $15,000 to $155,000.

Hospital industry groups have pointed out that those list prices are essentially meaningless, and usually don’t reflect the actual cost of procedures; they’re often calculated to include hospital overhead costs and make up for the sometimes sizeable gap between patient costs and Medicare and Medicaid reimbursements. Besides, their argument goes, most patients never pay “retail” price. Their insurers, who usually negotiate a lower price, pick up most of the tab.

But as the ramp-up to Obamacare has thrust the health care and insurance industries—and their inefficiencies and shortcomings—under the microscope, the issue of price transparency in medicine has come front and center, and an outpatient surgery center set to open this week in Charlottesville is making a radical move to change things locally.

The Monticello Community Surgery Center (MCSC), an independent outpatient center owned by 22 shareholding physicians, is embarking on a new model centered around price transparency. Need a rotator cuff repair? Check online for the cost. That’s what you’ll be billed.

“What the American public is looking for is an opportunity to know what they’re getting and at what cost,” said MCSC board president Dr. William Grant, an orthopedic surgeon with his own Charlottesville practice. “We’ve gotten into a terrible upward spiral of double-digit inflation of insurance prices. People are wondering what is it we’re getting for those increasing premiums today that we weren’t getting last year and the year before?”

“There’s no question that these guys are in the vanguard of where medicine has to go,” said Tom Massaro, UVA’s Harrison Foundation Professor of Medicine and Law. A pediatrician, Massaro now lectures on health policy at the University’s law school and the Darden School of Business.

But it remains to be seen, he said, whether such a radical move away from traditional funding structures will stick in a city like this one, where people have a lot of provider options and tend to be well-insured. “Historically, not many practice innovations have come from small markets like Charlottesville.”

 

COST CONUNDRUM: What does a biopsy cost in Virginia? Depends on where you go. The cost of outpatient medical procedures can vary wildly, thanks to the different charge methods used by hospitals. The above data, from 2011, is from the federal Centers for Medicare & Medicaid, which collected the "sticker price" for various categories of procedures at hospitals across the U.S. The dollar amounts are the average cost of all procedures billed as "biopsies or excisions" for that year.
COST CONUNDRUM: What does a biopsy cost in Virginia? Depends on where you go. The cost of outpatient medical procedures can vary wildly, thanks to the different charge methods used by hospitals. The above data, from 2011, is from the federal Centers for Medicare & Medicaid, which collected the “sticker price” for various categories of procedures at hospitals across the U.S. The dollar amounts are the average cost of all procedures billed as “biopsies or excisions” for that year.

 

The MCSC isn’t exactly a newcomer. It launched in August 2003 as the Martha Jefferson Outpatient Surgery Center, owned equally by Martha Jefferson and a group of shareholding surgeons with their own practices in Charlottesville and Albemarle. It was the doctors who managed the day-to-day business of the center.

That autonomy has been a big part of what has made the center successful over the last decade, said Dianne Simmons, the group’s chief administrator. The layers of committees and rigid hierarchies of a big hospital aren’t there, and the result has been a tight-knit workforce where everybody’s responsible for everybody else, said Simmons.

That’s made for a cohesive, democratic, and highly efficient outfit. “We can turn on a dime if we have to,” she said. The staff sees the center’s physician board members every day. “If you’ve got a problem, you talk to them.”

But when the corporate nonprofit hospital system Sentara took over Martha Jefferson in 2011, it became clear that there wasn’t a place in the new structure for their independently run operation, said Grant. After an unsuccessful year of negotiations, the physician shareholders bought out the hospital’s stake, and the cord was cut.

On March 15, the center will see its first patients at a new location on Route 29 south of Polo Grounds Road. On a recent weekday afternoon, staff and doctors in hard hats gathered in what will be the 18,000 square-foot facility’s lobby as dozens of constructions workers made a last minute push to paint walls and lay flooring. As they explained it, their surgery center isn’t just getting a new name and a new home. It’s getting a philosophical makeover as well.

Like a growing number of health care experts, the center’s surgeons believe that a big part of their industry’s problem is that standard economic rules of competition have been warped and skewed by a payment system that isolates patients from the costs of care.

“You could arguably say the health care market is really different than any other market in this country,” said Dr. Dave Nielsen, another Charlottesville orthopedic surgeon who sits on the MCSC board. Payer insurance companies “really aren’t bound by the normal rules of economics.”

And that’s a problem, said Grant. When the list price for medical care is arbitrary and obscured, nobody can make an informed decision, and cost and quality become uncoupled.

“What’s wrong with our current system is that nobody understands what the cost of services are that they’re able to obtain through insurance, unfortunately in part by design,” he said.

As government agencies, nonprofit groups, and companies looking for the best deal for their employee plans dug into the data, “they started finding that it’s not always the highest cost providers that provide the best care,” said Grant. “A lot of the time, it’s actually an inverse relationship.”

Grant, Nielsen, and their colleagues maintain there’s a very simple fix: advertise prices. MCSC plans to post the cost for its core procedures on its website. Barring major complications—which are rare for outpatient surgical procedures like the ones they offer, Grant pointed out—what you see there is what you’ll pay.

It’s a big shift. Doctors aren’t used to talking frankly in dollars and cents. But Grant said the model appeals to an increasingly price-sensitive population—and it complements a trend toward higher-deductible insurance plans and health savings accounts, which give patients more responsibility for their up-front costs. Those “value shoppers” are going up in number, he said, and they look at care in a whole new way.

Somebody with great insurance might demand an MRI for a bum knee even if he’s told by his doctor a few weeks of rest and observation would be a better and cheaper course of action, simply because he knows his insurance will cover it, said Grant. Somebody shouldering more of the cost or spending an allotted amount on procedures will consider options more carefully.

“In a way they’re becoming their own insurance entity, and they have to use responsible planning as to how they want to spend those dollars,” he said.

Can a big shift in a small market make a difference on a broad scale?

“Today, in the big medicine world, the innovation has come from the San Franciscos, the New Yorks, the Seattles,” said Massaro, and a price transparency model would likely do better in a place where there are more people with fewer resources seeking care, he said.

But Massaro said small disruptions in the status quo can and ultimately will have an impact. “It’s going to take little pilot programs or seed elements like these guys to break established norms,” he said.

The MCSC docs are confident they can win people over to their model of care. Nielsen said their hope is that it will appeal to the self-insured in Charlottesville or far beyond. It will help that their prices will be highly competitive. Grant said they expect to offer procedures for as low as a third of what other local care providers ultimately charge.

“It is a cultural shift in how we approach medicine,” he said. “But it’s one I think we have to have.”

 

Dr. William Grant is a Charlottesville orthopedic surgeon and chair of the Monticello Community Surgery Center’s board. He and nearly two dozen other physicians are opening a new independent outpatient surgery center on Route 29 that’s built around a radically different procedure pricing philosophy.

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