HCI3 Update from the Field: PepsiCo to Waive Employee Surgery Costs

Submitted by francois.debrantes@hci3.org on Friday, December 16, 2011 - 12:24

Newtown, CT – December 16, 2011

PepsiCo recently announced that it would waive employee costs for having certain surgeries done at Johns Hopkins. Perhaps it should consider Stockholm as well – Employers are increasingly designating Centers of Excellence for more routine elective procedures such as total knee replacements (TKR) and minimally invasive cardiac procedures. And some are establishing reference prices for preventive procedures such as colonoscopies, because they see the unjustifiable variation on total episode price and are refusing to pay $2.5 for something they can get for $1. 

Click to View a Comparison of TKR Episode Prices

These employers are finally deciding to act with the health care delivery system in the same way they do with all their supply chains: demanding value. We suggest they expand the term to "global supply chain". And here's why: PepsiCo, Lowe's, Hannaford Bros. and any other US employer can buy a TKR for $8,500 in Stockholm instead of $25,872 on average, in the US. In other words, they can get three Swedish TKRs for the price of one in the US. Adding a round-trip ticket and local accommodations, they'd still come in at about half the US cost. Our chart also shows another interesting "disparity" – the same hospitals that are getting close to $26K from commercial insurers are getting $22.6K from Medicare. And we know from the current participants in the CMS Acute Care Episode demonstration that they're making good margins on those Medicare TKR episodes. So why are employers paying $3 for something that Medicare gets for $2.66 and the Swedes get for $1? Especially when you consider that the Swedish hospitals and physicians are including a …. 5 year warranty !!!
What this means to you – The Stockholm pilot's results (partially available now on our website) will be published in a few months (joining the rest of yesterday's news that the peer-reviewed press publishes), but are hugely important today as the US embarks on a significant effort to move away from fee-for-service. The bottom line is simple: the true production costs of many procedures in the US are far lower than their ticket price, and could be lowered still if we focused on a true global supply chain for health care services. Employers are already paying, on average, 15 cents more for every dollar spent on the exact same procedure than Medicare (and in case you're wondering, Medicare patients are sicker than commercial patients, so it's not the severity of the patient that's driving the premium price – it's simply because there's no true consumer-based market competition and the providers can get away with it). And Medicare is paying $1.65 more on a no-warranty TKR than the Swedish government is for every $1 spent on a 5-year warrantied TKR. Oh, and one more important point from Stockholm: Bundled Payments to Curb Health Care Costs Not So Difficult To Realize.


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org