Competition Drives Down Healthcare Cost - Real Life Examples

Competition Works in Healthcare – Real Life Success Stories

At OHM, we believe that competition is the solution to the crisis facing our health care system.  To prove our point, we look no further than the real-life experiences of two of our principals, Dr. Len Fromer and Peter Hayes. 

In 2007, Peter was the Director of Health and Benefits for a large company, which sponsored a 20,000 member self-funded health plan.  Peter made national headlines when he disrupted the status quo by looking beyond his company’s primary service area to find medical providers who were willing to compete for the opportunity to serve employees in need of elective orthopedic services.   Peter decided to look beyond his local service area when his principal local provider refused to negotiate price and cooperate with his requests that it become more transparent with its cost and quality information.    When Peter went to the marketplace, he found high quality providers from around the United States, and the world, who offered to serve his plan members at a fraction of the prior cost and transparently provide information on its outcomes and cost structure.   

In the end, Peter’s local provider – the one who had declined his requests to negotiate price and offer more transparency – did an  about-face when faced with the prospect of plan members leaving the local area for medical care.  The cost, for example, for a hip replacement surgery was driven down from an average of $75,000 a case to $18,000 per case.   This is microeconomics in action.

Dr. Fromer had a similar experience as part of the leadership of a Los Angeles based multi specialty physician practice group that had taken on a risk-bearing contract.  In other words, the medical group contracted to share in cost savings that it was able to achieve, by measuring and providing value, for the population of patients it had contracted to serve.   Dr. Fromer’s group went to the marketplace in search of the best value in hospitals offering open heart surgery to the group’s patients.  For the year prior,  Dr. Fromer and his group  studied claims data and realized that the group patients in need of open heart surgery had gone to 15 different hospitals in the greater LA metroplex and that the average cost – all in – for the services was about $100,000 per case.   

Dr. Fromer’s medical group contacted each of those 15 different hospitals and informed them that in the following year, the group would refer patients only to the hospital that offered the best value, in terms of  quality and cost, to the group’s patients.   Each of the hospitals was asked to submit a proposal detailing information on quality and outcomes and offering the best possible package price for the service.   On the prospect of serving all of the group’s open heart patients, all 15 hospitals submitted proposals.

In the end, the hospital with the best quality data also submitted the best price, $15,000 per case - all in - for open heart surgery cases.  The result was win-win-win.  The risk-bearing medical group benefited through dramatically lower costs.  The winning cardiac surgery hospital enjoyed the benefit of a new influx of patients in need of their services.  And, most importantly, the group's patients enjoyed care with the highest quality hospital. 

These two incredible stories were the inspiration behind OHM.  Both were achieved not through government regulation or mandate, but through the power of a quality and value-driven marketplace.