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Most patients want to receive care close to where they live. Patients also want the option to travel to centers of excellence, if necessary.

Walmart has flipped that model on its head for its employees. Effective January 2019, Walmart will mandate its employees travel to high-profile healthcare systems for spinal procedures. Such systems include the Geisinger Clinic and Mayo Clinic. It is unclear whether all patients who may need spinal surgery will have to catch a plane. Or only those with complex spinal surgery planned.

Walmart’s rationale: To save money, of course. Walmart intended to implement such a program in 2013, but its hands were tied because of existing contracts with hospitals. In 2013, Walmart implemented a voluntary model, allowing employees to travel to centers of excellence, in the hopes of curbing costs. The Wall Street Journal reported:

Walmart decided to mandate the travel, starting in January, after finding that half of the workers who volunteered to travel ended up avoiding the high-cost surgery even though their local doctors said it was needed, said Lisa Woods, who oversees the design of the company’s health plan.

The program Walmart initiated in 2013 was not mandatory. Patients were allowed the option of traveling to designated hospitals for several procedures including spine, heart, hip, knee, and transplant surgeries. Walmart would pay the full cost of the procedure plus travel expenses.

To deter unnecessary procedures further, Walmart last year cut what it would pay for surgeries performed by local doctors to half the cost, Ms. Woods said. More workers traveled for surgery, but some still got operations close to home.

Other entities are trying different models to contain costs. California Public Employees’ Retirement System (Calpers), serving 450,000 members, instituted reference pricing for assorted procedures. In 2011, Calpers started paying hospitals differently for hip and knee replacement surgery, colonoscopies, cataract removal, and other procedures. Calpers set a maximum contribution they would pay for a procedure. They describe this maximum price as the “reference price.”

For example, in 2011 the Calpers maximum contribution for a knee or hip replacement surgery was set at $30,000. A Calpers patient receiving knee or hip replacement surgery at or below this reference price paid the usual cost-sharing: 20 percent of the cost, up to a maximum of $3,000. But a patient electing to use a hospital that charged, say, $40,000 paid the usual cost-sharing in addition to the $10,000 above the reference price.

As Calpers initiated the new approach, 41 of the several hundred hospitals in California could provide knee and hip replacement procedures at or below $30,000 and with acceptable quality, as measured by things like low readmission rates and high rates of use of guideline infection controls. Some hospitals charged more than $100,000 for the procedures.

Patients picked up on the incentives.

For knee and hip replacements, lower-priced hospitals saw their market share increase by 28 percent. As higher-priced ones lost market share, many chose to reduce their prices. Prices for the procedures fell by an average of more than 20 percent, saving Calpers and its patients $6 million over two years…

In a series of studies, James Robinson and Timothy Brown, University of California, Berkeley, health economists, found that under reference pricing, Calpers patients flocked to lower-priced hospitals and outpatient surgical centers. Prices and total spending for the procedures plummeted…

[One] concern is that reference pricing could encourage lower quality, as health care organizations cut costs to reduce prices. Analysis by Mr. Robinson and colleagues did not find adverse effects of reference pricing, however. “Significant reductions in cost with no change in quality: That’s called improved value,” he said.

Welcome to the brave new world of employer-sponsored health insurance. The times are a changin’.

If you like your doctor, you can keep your doctor, as long as you don’t work at Walmart. Unless price and value transparency become the norm, expect insurers (and employers) to be increasingly involved in deciding which doctors a patient can see.

What do you think?


Jeffrey Segal, MD, JD

Dr. Jeffrey Segal, Chief Executive Officer and Founder of Medical Justice, is a board-certified neurosurgeon. In the process of conceiving, funding, developing, and growing Medical Justice, Dr. Segal has established himself as one of the country’s leading authorities on medical malpractice issues, counterclaims, and internet-based assaults on reputation.

Dr. Segal holds a M.D. from Baylor College of Medicine, where he also completed a neurosurgical residency. Dr. Segal served as a Spinal Surgery Fellow at The University of South Florida Medical School. He is a member of Phi Beta Kappa as well as the AOA Medical Honor Society. Dr. Segal received his B.A. from the University of Texas and graduated with a J.D. from Concord Law School with highest honors.

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