I have been closely tracking various developments in free-standing clinics and surgicenters that may stumulate a more competitive environment for hospitals (see, for example: Tug of War between Hospitals and Surgicenters for Knee Replacements). I recently blogged about how opaque hospital bills have discouraged many patients (see: Coding for Hospital Services; One Reason for the High Cost of Healthcare). I also posted a note about how some hospitals were providing more price transparency (see: Greater Transparency for Hospital Charges Slowly Becoming the Norm).
In order to be more competitive with hospital-based surgeons and to avoid the cost and hassle factor of health insurance paperwork, some surgicenters have begun to operate on a cash-only basis and provide patients with price lists. This idea was raised in a recent article. An excerpt is provided below (see: There's a growing movement of surgery centers and specialists that list their prices and don't take insurance):
When Cheryl Millican found out she needed surgery, her Dallas-based doctor told her it would cost roughly $38,000 out of pocket. Millican, who doesn't have insurance, needed a hysterectomy, a procedure that removes all or part of the uterus. It wasn't an emergency situation, so when a friend told her about a place in Oklahoma [called the Surgery Center of Oklahoma] that could perform the surgery for $8,000 [on a cash basis], she decided to look into it. That included the cost of the procedure itself, an overnight stay, a follow-up appointment, and any other meetings ahead of time....It's happening at a time when high-deductible health plans are on the rise....A number of specialists — oncologists, physical therapists, and even some hospitals — are jumping on board as well....Keith Smith founded the Surgery Center of Oklahoma in 1997....The center would file claims, but insurance companies weren't keen on working with the center because the center was being open about the prices it was charging, he said. After a while, the center and the insurance companies parted ways....Surgery Center lists the prices for more than 200 outpatient procedures on its website, covering everything from plastic surgery to a hip replacement. The site also discloses information about its infection rates, and relies heavily on reviews....But cash-pay providers are gaining traction with self-insured employers, who see it as more cost-effective than paying through traditional insurance....The center now performs 7-8,000 surgeries in a year.
These surgicenters and clinics are taking a page out of the instruction manual of medical tourism hospitals like Bumrungrad in Bangkok which I discussed ten years ago (see: Medical Tourism Business Model in Thailand Extends to Airport Facilities; Interview with Bumrungrad Group CEO, Curt Schroeder). The business model adopted by these facilities includes offering surgical procedures like total hip replacement for a fixed and low fee and requiring cash payment. I had lost track of Bumrungrad in the intervening years. Here's a link to the hospital web site where it is stated on the home page that it treats 1.1M patients per year.
As noted in the excerpt above, surgicenters that operate on a cash basis are well positioned to offer lower prices because of their lower administrative costs and lack of bad debt. I suspect that there is also some degree of cherry-picking involved in their patient selection which allows them to avoid some post-operative complications. Here are some interesting facts about healthcare administrative costs in the U.S. (see: A Comparison of Hospital Administrative Costs in Eight Nations: U.S. Costs Exceed All Others by Far):
- Administrative costs accounted for 25 percent of hospital spending in the United States, more than twice the proportion seen in Canada and Scotland, which spent the least on administration. Administrative costs were notably higher in the Netherlands (20%) than in other European nation.
- In the U.S., the share of costs devoted to administration were higher in for-profit hospitals (27%) than in nonprofit (25%) or public (23%) hospitals. Teaching hospitals had lower-than-average administrative costs (24%), as did rural facilities.
- U.S. hospital administrative costs rose from 23.5 percent of total hospital costs ($97.8 billion) in 2000 to 25.3 percent ($215.4 billion) in 2011. During that period, the hospital administration share of national gross domestic product (GDP) rose from 0.98 percent to 1.43 percent.
- There was no apparent link between higher administrative costs and better-quality care.