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How Lowe's Saves Money While Offering Employees Free Surgeries

Mike Mozart

Lowe’s home improvement company offers its employees an eye-catching benefit: certain major surgeries at prestigious hospitals are free of charge. Leaders of the Mooresville-based company are so happy with the program they’ve expanded it each of the past two years. They pull it off using a payment model that’s gaining steam across the health care industry - and that Lowe’s helped pioneer.

In 2010, Lowe’s started offering its employees heart surgeries at the Cleveland Clinic for free, including the cost of travel.

It was Senior Vice President Bob Ihrie’s idea. When he told management at other companies about it, "the first question was always, 'Oh, this is just for executives, right?' And I said no, absolutely not, this is for any Lowe's employee in the Lowe's health care plans."

What started with heart surgeries now goes for spine procedures and hip and knee replacements. More than 700 employees have taken advantage, including Martin Wagner in Vincennes, Indiana.

"It seemed almost like there was a catch or too good to be true really," he says.

Wagner looked into it as pain in his right knee intensified. The program is optional: employees can still use their local surgeon and pay whatever insurance doesn’t cover if they prefer.

Wagner chose to travel to a hospital that’s part of the program, Mercy Hospital in Springfield, Missouri. He says Lowe’s covered the flight, hotel, surgery and some physical therapy.

"We were allowed like $65 a day for meals, any other incidentals that would go on," he says. "And so for the entire time I was there, I was out nothing."

Once Wagner got back home, he eventually spent about $1,000 on follow-ups and physical therapy. He calls that a phenomenal deal to now be working full days pain free.

And Bob Ihrie says Lowe’s is saving money.

"We were able to get a bundled price, which actually enables us to save money on every single operation," Ihrie says.

To understand how that’s possible, you need a quick lesson on what a “bundled price” is.

Under this model, there’s one price tag for all the stuff related to a surgery – the operation, physical therapy and any complications within a certain timeframe.

The Pacific Business Group on Health negotiates bundled payments for Lowe’s, Walmart and other large employers.

"That provides the predictability because they know ahead of time what that cost is going to be because it's bundled," says PBGH Associate Director Olivia Ross, "as well as the knowledge that it's cost-competitive pricing."

The group pools the companies’ data to figure out what surgeries used to cost them. Then they negotiate rates 20 to 30 percent below that.  

"We're seeing even savings at the front end and then huge savings on the back end from things like reduced readmissions, reduced return to OR, lower rates of blood clots," Ross says. "Those are hugely expensive, preventable complications."

Now the hospital is on the hook for them, so there’s a bigger incentive to get it right the first time.

You may be wondering, why would a hospital sign that contract? It’s really quite simple, explains Trisha Frick of Johns Hopkins.

"It's new business for us," she says. "And for the most part, the reimbursement is acceptable and we believe that we can provide that within that amount of money."

Frick’s entire job is managing bundled rates for Johns Hopkins, which she says would’ve been unthinkable 10 years ago.

The payment model is growing in popularity among insurance companies, businesses and the federal government. Starting next month, federal officials are making bundled payments standard for Medicare hip and knee replacements.

"I think that’s frankly one of the largest takeaways about the program, is that it’s the very first time that Medicare has mandated use of a new payment model," says Rob Lazerow of The Advisory Board Company, a consulting firm.

He says this is a big step as the federal government tries to lower costs and change incentives in American health care.

Amy Bassano with the Centers for Medicare and Medicaid Services says hip and knee replacements are an obvious starting point.

"It is the number one surgical procedure that Medicare pays for," she says. "So there's a lot of volume there, not just from the amount Medicare pays for the inpatient hospitalization stay, but there's a lot of post-acute care utilization for these services."

The program will be mandatory for hospitals in more than 60 metro areas across the country, including Charlotte, Asheville and Durham.

There are some differences from how Lowe’s does it. While the few hospitals selected in Lowe’s program can bank on more surgeries and revenue, there’s no such benefit under Medicare – all hospitals are taking part.

From the patient’s perspective though, that should make follow-up care easier to find. Lowe’s employee Robert Thompson had trouble with that after his hip replacement. 

"I found it not only very difficult, but I found it impossible to find an orthopedic surgeon that would agree to do follow-up to someone else’s surgery," he says.

Thompson lives in a small town in the Outer Banks. Despite the post-op challenge, he calls his experience excellent.  

Lowe’s executives say they haven’t heard of that problem with other employees. Senior Vice President Bob Ihrie says at first, they did encounter trouble getting medical records from local doctors.

Ihrie says the biggest thing he learned is the importance of patients being able to contact the surgeon afterward. 

"You have some setbacks, things happen and you just have questions," he says. "So what we give every patient now is a little card with the doctor's name and direct phone line and the nurse's name and direct phone line, and all of a sudden, things were a lot better."

Another thing the company and the group negotiating prices have learned is pretty startling. The group’s Olivia Ross says a big chunk of savings comes from avoiding surgeries that shouldn’t happen in the first place.  

"We're seeing up to 30 percent, close to 30 percent of cases, who should not be moving forward with the joint replacement," she says.

Ross says those employees get a surgery recommendation from their local doctor, only to have doctors at the prestigious hospitals say that’s inappropriate.

It could be the employee hasn’t tried out less invasive treatments first, like physical therapy. Ihrie says it could also be about weight.

"They get turned down for knee and hip surgery simply because they're so far overweight that they won't do the surgery until they lose weight," he says. "We've had at least five examples that I know of of people that have gone home and lost the weight over six months and come back and now had the surgery."

In those instances, there aren’t necessarily savings, but there is a much safer outcome. In other cases where physical therapy ends up working, Lowe’s saves the entire cost of the operation, which can be more than $20,000.   

But it’s the conversations that have grown out of conflicting diagnoses that Ihrie is most excited about. He says employees are learning to better analyze their care.  

"What you find is in most medical things what treatment you receive is not always very black and white," he says. "A lot of it is preference sensitive, depending on how you feel about how aggressive you want the treatment. The mere fact that people now think about what they’re doing helps us control costs across the board."

In other words, a free surgery program can help employees think more about their own health care costs, rather than less.