Last year, the California Public Employees' Retirement System limited what it would pay for knee and hip replacement surgeries to $30,000 because its hospital bills ranged from $15,000 to $110,000 with no discernible difference in quality. It found 45 hospital systems willing to stay within that amount, and its average price per surgery dropped 30% to $23,113.
"There is a lot of excess margin in healthcare and plenty of room in the pricing of these hospitals," Burgett said. "Hopefully this drives true competition in healthcare and it's not just based on how many helicopters a hospital has."
While employers are leading the way right now, experts say Medicare could have the biggest impact. Federal officials are looking to test these all-in-one prices with hospitals in California and other states.
Some consumer advocates have raised concerns about patients traveling long distances for surgery and taking them away from their regular doctors. Cindy Meyers, benefits manager for Stephens Media in Las Vegas, said it has been difficult in some cases to find local doctors to provide follow-up care for patients who traveled elsewhere.
But she said the overall experience has been positive for her company, which insures about 1,500 people across several states.
"It's a great benefit for us cost-wise, and our employees feel comfort in knowing this doctor specializes in just what they need," Meyers said.
James Caillouette, surgeon in chief at the 70-bed Hoag Orthopedic Institute and an advocate for bundled payments since 2008, said not every patient is a suitable candidate for this arrangement.
First, he requests their medical records and talks to the patient by phone. He rules out patients who may be at higher risk for complications from surgery.
Post-surgery complications matter not just for the patient but also to the doctors and hospital because they pose a risk for additional treatment costs. Some bundled deals include warranties spelling out what complications the medical providers are responsible for. Medical studies show that complications can cost $7,600 per patient.
Hoag Orthopedic Institute's bundled fees for knee and hip replacement range from about $20,000 at an outpatient surgery center to roughly $30,000 or more in the hospital. The surgery location depends largely on the patient's medical condition.
Caillouette said his patients usually spend one or two nights in the hospital and then return to their hotel. A physical therapist visits them there most days, and Caillouette makes house calls to the hotel as well. Most patients fly home after a week in Orange County.
"Now there's one bill, and employers can budget for it," Caillouette said. "This has the potential to be a game changer."