In early September, Seattle's Virginia Mason Medical Center introduced a 90-day warranty for knee and hip replacement surgeries. The warranty covers the full-treatment cycle (diagnosis, surgery and rehabilitation) if the patient receives all services within its system.
Offering surgical warranties reflects Virginia Mason's commitment to quality, safety and controlling healthcare costs as well as the organization's confidence in the reliability of their surgical protocols.
Geisinger Health System in Danville, Pa., introduced surgical warranties through its ProvenCare program in 2006. The first warranties covered elective cardiac bypass surgeries, but Geisinger now provides warranties for elective coronary angioplasty, bariatric surgery, perinatal care and lung cancer surgery. Few hospitals have followed their example.
Like Geisinger before it, Virginia Mason is a beacon of transparency relative to industry norms. In February 2013, JAMA released a white paper chronicling the results of a fictitious price search for a total hip replacement surgery. A research assistant called over a hundred hospitals from all 50 states to solicit prices for an uninsured, but wealthy, prospective patient.
The results were staggering and embarrassing. Despite repeated calls, only half of the hospitals could offer price quotes of any sort. This group included leading orthopedic centers. The other half's price quotes ranged from $11,100 to $125,798.
Buyers of surgical services are fighting back. The California Public Employees' Retirement System experienced a five-fold variation in the cost of joint replacement surgeries with no discernable quality or outcome differences. In response, CalPERS piloted “referenced-based” pricing for these surgeries at $30,000.
Members could choose from a geographically dispersed group of 46 in-network hospitals or pay the amount greater than $30,000 at out-of-network hospitals. During the two-year program, CalPERS saved $5.5 million. Demonstrating the power of pricing transparency, 85% of the savings came from hospitals that cut their prices dramatically to avoid losing surgical volume.
Virginia Mason's path to offering warranties began in 2000 with an organizationwide commitment to high-quality delivery and healthcare transformation. Notably this includes their Virginia Mason Production System. Replicating Toyota's proven “kaizen” management model, VMPS employs constant process improvement to design and implement “zero-defect” protocols.
VMPS improves quality and reduces cost. Quality comes first. Fewer complications mean patients return to work quickly. Having fewer complications also reduces financial risk. Virginia Mason's relentless focus on quality and customer satisfaction led to their decision to offer warranties.
Good for Virginia Mason but even better for consumers and market-driven health reform. The International Federation of Health Plans produces an annual Comparative Price Report listing procedure prices by country. According to its 2014 and 2013 reports, median prices for total hip replacements in U.S. hospitals declined by 34%, from $40,364 to $26,489, between 2012 and 2013. Hip hip, hooray!
David Johnson spent 28 years as an investment banker at Merrill Lynch, Citigroup and BMO Capital Markets before launching 4sight Health, a healthcare consulting firm.
