It’s common knowledge that the US healthcare system is the priciest in the world. Some healthcare systems are testing new financial models to see if they can squeeze more efficiencies beyond the status quo. Warranties.

Geisiniger Health System in Danville, PA ,made news with warranties for cardiac surgeries. They now include warranties for hip fractures, as well as total knee and hip replacements.

Virginia Mason Hospital in Seattle recently announced they would provide warranties to privately insured patients undergoing joint replacement surgeries.

And Hoag Orthopedic Institute provides a warranty for knee replacement.

What does a warranty mean?

If a patient experiences one of a list of complications post-surgery, the patient (or their carrier) will not have to pay to fix the problem. The time period varies from 30 to 90 days. Examples include wound infection, blood clot, or hip dislocation. If there’s a defect in the implant itself, that cost would generally be the responsibility of the manufacturer. The patient experiencing the complication must receive the “repair” at the same hospital the procedure was done. Warranties would not cover repair done in a different system.

Warranties may be found with bundled payments; another model being tested.

Warranties are more likely to be seen in institutions performing high volumes of a particular procedure. There, the institution will have a good idea as to the real cost they incur by guaranteeing to repair specific complications. The upside is that warranties are a signal of quality. If an entity is constantly spending cash to service a warranty, they’d soon go out of business. So, a warranty is a marker that an institution stands behind its work. And warranties serve as a powerful marketing tool.

Many doctors in cash pay fields have long embraced various types of warranties. Plastic surgeons, for example, frequently perform revision surgery for patients unhappy with their aesthetic outcome. There, they waive their professional fee. Some will also waive surgicenter and anesthetic fees. Such programs make financial sense only if the surgeon – or healthcare system – understand the frequency of complications and the cost of addressing those complications. In all industries, signals of higher quality enable premium pricing. It will be interesting to see how broadly warranties can be implemented in healthcare.