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Rationalizing Cost and Quality in Healthcare...Bundle by Bundle

We’re applying a radical yet common sense approach of Bundling Payments to rationalize healthcare purchasing for self-insured employers.

Photo of Josh Trent
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Written by

Name of applicant

Josh Trent

Job title of applicant

Chief Commercial Officer

Organization name

Carrum Health

Financial structure of organization (choose one)

  • For profit

City, State, Country of organizational headquarters

San Mateo, California - USA

Your social media links


Names, titles and affiliations of teammates

Sach Jain, Founder & Chief Executive Officer - https://www.linkedin.com/in/sachjain
Russell Ivanhoe MD - Co-Founder & Chief Medical Officer - https://www.linkedin.com/in/russell-ivanhoe-md-40662b3
Josh Trent, Chief Commercial Officer - https://www.linkedin.com/in/josh-trent-39125a32
Brent Nicholson, Vice President / Business Operations
Jennifer Siegel, Sr. Director / Customer Success
Georgi Matev, Vice President / Product Management
Sumant Kaul, Vice President / Technology

Who is the primary purchaser of your innovation? (choose one)

  • Employers

In which care setting will your innovation primarily be used? (choose one)

  • Acute care/hospital

How would you characterize your innovation? (choose one)

  • Business model innovation (i.e., the revenue source is different from current approaches)

Unlike any other sector in the US, demand and supply are decoupled in healthcare:

Demand-side Challenge: Self-insured employers provide health coverage to a third of the US population and spend $75-90B on planned surgeries, such as joint replacements, in a highly inefficient market. Such surgeries are fairly standard but price and outcomes vary tremendously across providers. In addition, for every dollar spent by self-insured employers on health benefits, forty cents are spent on the payment administration under the antiquated fee-for-service model.

Supply-side Challenge: Providers carry tremendous unutilized capacity. The average capacity utilization of US urban hospitals is 64% and rural is 43% (OECD average: 78%). Traditional fee-for-service payor contracts cannot dynamically adjust prices to match capacity.

A few large employers (e.g., Walmart) identified the issue and began directly contracting with high-value providers (e.g., Cleveland Clinic) disintermediating all middlemen, leading to 30-50% savings and significant volume gain to providers.

However, this direct contracting model is not scalable to most employers and providers as there is no standardization leading to high set-up and ongoing costs. In addition, most employers don’t have the purchasing power to negotiate directly with providers.

Carrum Health solves this problem by leveraging the concept of Bundled Payments to make the direct contracting model accessible to all employers and providers. By doing so, we cut-down the healthcare cost of inpatient and outpatient surgeries by up to 50% while dramatically improving quality outcomes and the member experience.

Impact: Describe the value proposition of your innovation. How will this approach improve health care delivery? (200 words)

Healthcare in the U.S. is unreasonably complex and costly. At Carrum Health, we’re applying a common sense approach of Bundled Payments to simplify the payment model and truly rationalize cost and quality.

Carrum’s cloud-based platform for planned surgeries connects self-insured employers to regional high-value providers using Bundled Payments as transaction units. By aggregating supply and demand, building an analytics-driven SaaS platform and standardizing Bundle definitions, we have created the industry’s first comprehensive Bundled Payment solution. Our solution is fully turn-key for both employers and providers and delivers a real comparison shopping experience to employees.

Here’s the summary of benefits:

Employers: Up to 50% cost savings on expensive surgeries, full predictability on cost without any risk or hassle

Employees: Connecting members with top quality care for zero out of pocket costs, while offering a high-touch concierge experience which puts the focus on recovery instead of medical bills

Providers: Volume gain through a new channel, zero-hassle immediate payment allowing them to do what they do best – deliver expert care.

Evidence: What data do you have to illustrate that your solution works? The more specific, the better. Please share any non-proprietary results including cost savings, improved outcomes, patient satisfaction, etc. (300 words)

While our mission may appear ambitious, we have already achieved proof-points for our model in our three pioneer West Coast markets. In each market, we have acquired self-insured employers and top-quality health systems that are taking advantage of our platform. Our health system clients include, Stanford Healthcare, Scripps Health and Providence. The results demonstrate the viability of our model and a dramatic improvement in healthcare value through the “triple aim” of lower costs, improved quality and a better member experience.

Lower Costs: Following is a comparison of Carrum’s bundled payment rates to the average total costs paid by self-insured employers for knee replacement in the same region.
• Southern California: 43% reduction
• Northern California: 63% reduction
• Pacific Northwest: 54% reduction

Improved Quality: Following is a comparison of readmission rates from Carrum’s Centers of Excellence to average hospital readmission rates for knee replacement in the same region.
• Southern California: 63% reduction
• Northern California: 53% reduction
• Pacific Northwest: 42% reduction

Although the data depicted above is for knee replacement, Carrum has achieved similar results for four other inpatient surgeries currently offered through our program: hip replacement, cervical spinal fusion, lumbar spinal fusion and coronary bypass.

Based on the results achieved to-date, Carrum is delivering $170 in savings per employee per year (PEPY). Going forward, we will expand our model to other “bundle-able” procedures and are targeting to impact nearly 20% of an employer’s total health expense by the end of 2018. This allows us to deliver $572 in savings PEPY which equates to overall $33B in potential annual savings for all US-based self-insured employers.

Dissemination: Describe your scale up plan including your target market and 2-4 milestones for the coming year. What are the biggest hurdles to dissemination and how do you plan to overcome these obstacles? (400 words)

Carrum has an ambitious plan to scale our model along three avenues;

a. Procedures: Carrum will continue adding inpatient procedures and will expand to outpatient procedures, maternity care and eventually chronic care which have the highest incidence rates and cost. Over the next 12 months, we we will expand the number of bundles on our platform from 5 to 12. By the end of 2020, our target is to impact nearly 40% of an employer’s health expense.

b. Markets: Carrum is actively pursuing expansion to additional geographies beyond our West Coast footprint. We target markets that have a significant variation in cost and quality and a large number of self-insured members. We are currently operating in three markets and will double the number of markets over the next year. Beyond that, our goal is to be available across the nation within the next three years.

c. Clients: Carrum is initially targeting the self-insured employer segment, but will expand our target market to Medicare Advantage plans, worker’s compensation, commercial health plans and eventually the uninsured.

Our biggest challenge is to overcome the conservative approach of most health benefit leaders overseeing health benefits functions of self-insured employers. Early adopters such as Walmart, Boeing and Lowe’s have created tremendous awareness for our model through their home-grown initiatives. By building a fully turn-key solution and delivering results for our initial client base, we have already made significant strides in driving adoption. To further drive rapid acceptance of our model, we are focusing on acquiring large national employers with the presence to further establish Carrum’s credibility with other purchasers and enhance our ability to negotiate with providers in new markets.