Lowe's paid one flat price for employees' surgery at chosen hospitals, saving money

According to NPR's 2016 report, Lowe's offers employees in its health plans certain major surgeries at selected, prestigious hospitals for free. The idea came in 2010 from Bob Ihrie, the company's senior vice president for compensation and benefits. Lowe's and other employers pay one flat rate for a procedure from hospitals chosen for quality. Under the agreement the hospital handles all treatment within a time frame, the surgery, the physical therapy and any complications, for that one price.

The Pacific Business Group on Health negotiates the price for Lowe's, Walmart and other large employers. Its associate director, Olivia Ross, says the rates are 20 to 30 percent below what companies paid before, and that hospitals responsible for all follow-up care have strong reasons to avoid costly, preventable problems such as readmissions, repeat operations and blood clots. Ihrie confirms Lowe's comes out ahead even after paying for patient travel. The program is optional, and more than 700 Lowe's employees had used it.

Ross says close to 30 percent of employees referred to the selected hospitals for joint replacement turned out not to need it yet: specialists there deemed surgery inappropriate, for example if less invasive treatment such as physical therapy had not been tried, or weight loss was needed first.

Pay one flat rate for the whole episode (surgery, therapy and complications) at a few hospitals chosen for quality, so the hospital bears the cost of mistakes.

A flat price covering complications gives the hospital a reason to be careful and thorough.

Hospitals win new patients from the employers, so they accept the price (Johns Hopkins called it new business).

Specialist second looks stopped some surgeries that should not have gone ahead, a further saving.

Lowe's fixed early problems by giving each patient a card with direct phone lines for the surgeon and nurse.

Changing what you pay for (a whole outcome, not each service) moves the incentive to the party that can prevent the waste.

NPR reports Medicare began a similar bundled-payment approach for hip and knee replacements in 67 metropolitan areas in April 2016, with a consultant citing early savings of around $4,000 per orthopedic case. Lowe's had early trouble gathering medical records from local doctors, and out-of-town patients struggled to reach their surgeon afterwards. The 20 to 30 percent savings figure comes from the purchasing group.