SEAN & PATRICK KELLEY BRING SURGICAL BUNDLING TO TEXAS
Photography by Jonathan Garza
Is there really anything Texas can learn from Oklahoma?
When it comes to health care, you betcha.
This journey of learning begins in Oklahoma City with anesthesiologist Dr. Keith Smith. In a bold and disruptive move nearly a decade ago, Smith began listing the price of every surgery they perform on the website of the Surgery Center of Oklahoma. Need a knee replacement? The cost is $15,499. Removing a cataract in one eye? That’s $4,000. The prices at SCO are bundled to include everything in the procedure.
The SCO website cuts right to the heart of health care costs and doesn’t mince words:
“If you have a high deductible or are part of a self-insured plan at a large company, you owe it to yourself or your business to take a look at our facility and pricing, which is listed on this site. If you are considering a trip to a foreign country to have your surgery, you should look here first. Finally, if you have no insurance at all, this facility will provide quality and pricing that we believe are unmatched.”
What Smith and SCO do is a form of health-care direct contracting where a self-insured employer makes a direct contract with a physician or facility for services. Walmart does the same thing for their employees by doing their spine surgeries in Temple with Baylor Scott & White Health.
Smith does not want to expand his business into Texas. In fact, he’s willing to give all the SCO patients who live in Texas to his colleagues at Texas Free Market Surgery (TFMS). Patrick and Sean Kelley launched TFMS in 2016, based on the same bundling concept — one single cost for a complete procedure. Here’s where Texans Sean and Patrick roll into this story.
Sean Kelley and Patrick Kelley are brothers and seventh generation Texans who grew up in Houston. They attended the University of Texas at Austin for their undergraduate degrees. Dr. Patrick Kelley went on to become a physician via Houston’s Baylor College of Medicine. Sean Kelley owned his own company in the oil and gas sector — he has an MBA from the University of St. Thomas and a second master’s in Technology Commercialization from UT. Both brothers moved to Austin once Dr. Kelley’s fellowship in Oregon was complete.
In what is now Dell Children’s Hospital, Patrick Kelley began his pediatric plastic surgery practice, and together, the brothers built out a large group of pediatric sub-specialties not available in Austin. Sean was the business side of starting the sub-specialties.
“We built a program focused around the patient,” said Sean. Patrick had done a fellowship at Seattle Children’s Hospital, where, because it’s the pediatric medical center for a six state region, the doctors go to the patients rather than the patients going from specialist to specialist in office visits for care.
With what Patrick learned in Seattle about patient-centered care and case conferences done “by the book,” the sub-specialties at Dell Children’s expanded into pediatric brain tumors, pediatric epilepsy and other movement disorders.
“That’s important,” said Sean. “The patient is the focus of all health-care activities. While it may look like that today, that’s not the case and not the way patient care is built.”
While the relationships at Dell Children’s started well, Sean’s voice was heard less and less as he suggested more and more change. At one point he was told, “We don’t want to cannibalize ourselves.” Sean left Dell Children’s in 2014.
Sean spent the next year working with an entrepreneur on a health plan startup. The plans are based on a model where physicians take risks with capitation and bundling. When the business moved to Florida, Sean told his brother, “Here is the billion dollar opportunity.”
The Disruption Comes To Texas
With Patrick working as a surgeon in Austin for over a decade and Sean working first in a large hospital system and then in the free market on the competitive side of health care, the brothers decided it was time to launch Texas Free Market Surgery.
First step: what’s the real cost of each surgical procedure?
From the business side, Sean began to determine prices for surgeries by doing an analysis of actual costs using time-driven, activity-based costing (or “activity-based costing” for short). Because health-care costs are nearly all based on people’s time, he worked with surgeons to calculate how much of the surgeon’s time goes into each procedure.
For a surgeon, there are three areas of expertise: technical skill in the operating room, judgment and efficiency. Sean developed a model where doctors are paid based on both time and the amount of money their specialties make, drilling down to a per-minute cost while taking care of the patient, plus office costs associated with the first diagnosis and follow-up.
In looking at the surgical market, the Kelley brothers decided to target episodic procedures. Episodic surgeries are one-time procedures like hip replacements or ACL repairs. “Payment for episodics can be bundled because it’s a service that has a start date and a defined end date,” Sean noted. The TFMS list of offerings has 350 available procedures.
Next came the surgeons. “In most of health care, the doctor’s pen controls 88 to 90 percent of the total spend. In surgery, that’s just about 100 percent because everything is ordered by the surgeon,” Sean said. Having worked with surgeon colleagues in Austin for a decade, Patrick knew which surgeons had the best patient outcomes, and he targeted those surgical groups to join the growing list of doctors who perform bundled procedures. A team of anesthesiologists was also recruited.
Next in the creation of bundles came facilities. Because TFMS is a low-cost disruptor, none of the large hospital systems were interested in working with the Kelleys. That left one hospital in the Austin area, started by a group of physicians, that wasn’t associated with a large hospital system. The Westlake Hospital CFO understood Sean’s time-driven, activity-based costs, and he was willing to negotiate a price. Eyeing the unused capacity of their operating rooms, Westlake Hospital was in.
Next came the cost of the hardware used in a surgery. Sean asked the surgeons what implant or replacement hardware they would use on their mother. Once the list of three options was collected for each procedure, costs were negotiated in determining the final supplier.
Using the example of a hip or knee replacement, to create a complete bundle for the patient, TFMS includes the following: medications, the walker, a raised toilet seat, crutches, a boot and rehabilitation, so the patient doesn’t need to buy anything following their surgery.
After the procedure, surgeons are paid in ten days.
Disruption Does Take Time
Sean found the HR directors at most self-funded companies don’t speak the language of surgical bundles. “The CFOs understand we can save them money, and the CEOs can see how we can help with recruitment and retention to have a better benefit with no out-of-pocket costs on surgeries,” observed Sean.
Since many self-funded businesses use brokers, TFMS decided to launch MedSimple.
“Most corporations have no idea they can write a check directly for these services, so MedSimple was created to address this issue,” said Sean.
TFMS created a new employee benefit: MedSimple is a Texas Free Market Surgery bundle with a concierge service wrapped around it. MedSimple also handles claims adjudication by creating the documents, handling the stop-loss reporting and delivering it all to the ASO or third-party administrator.
“Think of it this way — corporations have a health plan, a dental plan, a pharmacy plan — those are all different carve-outs of the benefits plan. We become the second opinion, a surgery carve out,” said Sean.
“This cannot be forced,” he said and he offered an example of how MedSimple works for employers and employees by using an active redirection strategy. When a preauthorization comes in for surgery to the ASO, the same file also goes to the concierge service, which calls the patient and tells them their company has a couple of options for their surgery. The patient is told they should continue to talk with their doctor, and the out-of-pocket cost of co-pay and deductible will be $4,000.
They are also told the company has another benefit option with zero out of pocket costs. In this option, the patient goes for a second opinion, with no obligation, and the company pays the $200 for the office visit.
Ultimately, the patient decides who will perform the surgery.
“Things need to be this way, because otherwise, it’s not an added benefit,” said Sean. “This is an expansion of choices that saves money and potentially improves outcomes.”
Who’s In Charge Of This Spend?
Sean’s frustration is evident when he talks about dealing with an HR professional versus the CEO or CFO. With millions spent in health-care benefits, Sean would like to see someone with CFO-level skills managing the health-care benefits spend. “It’s 19 percent of our GDP today,” Sean said. “That’s more money than it has ever been, and we still have the same people managing it.”
Here’s why the CEO and CFO are so quick to understand: “Our hip replacement costs $23,000 for everything, and a knee is $19,250. Their hip is $48,00 and a knee replacement is $35,000,” said Sean.
The Last Word
“We fix things for one set price, so the purchaser knows exactly what they are purchasing and the patient knows exactly what they are getting,” said Sean.
Simpler medicine has come to Texas.