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Editor’s note: This guest post was written by Dave Chase, the CEO of Avado.com, a health technology company that was a TechCrunch Disrupt finalist. Previously he was a management consultant for Accenture’s healthcare practice and was the founder of Microsoft’s Health business. You can follow him on Twitter @chasedave.

The hotel bed that is empty tonight can never be sold again. That insight led Hotwire to create a disruptive model that has given travelers great deals on hotel rooms. It turns out there are “beds” and “suites” of a different variety - Surgical Suites/Beds - that have a similar phenomena. Just as top hotels rarely are 100% booked and can earn incremental revenue from otherwise empty beds, top surgical facilities have a similar dynamic. That insight is what led National Surgery Network to develop a national marketplace for surgical procedures. (Disclosure: National Surgery Network may become a customer of my company, Avado.com, which is why I am so familiar with it.)

Over 1.5 million Americans travel abroad each year for medical procedures in what is called Medical Tourism. Services typically sought by medical tourists include elective procedures as well as complex specialized surgeries such as heart surgery, dental surgery, joint replacement, and cosmetic surgeries. However, virtually every type of health care, including complementary & alternative treatments, psychiatry, and convalescent care are attracting Americans by saving as much as 90% off of medical procedures.

U.S. based healthcare providers have taken notice as have self-funded employers and health plans. The reality is most people, if given the choice, would rather travel for medical purposes to Tucson than Thailand to save time and uncertainty. Top surgical facilities realized they can be price competitive and have extra capacity so they have embarked on a program of domestic medical tourism. The byproduct, if you follow it to the logical extreme, is the creation of a national market for non-emergent surgery that has historically been strictly a local market. As the USA Today recently reported, costs commonly vary in healthcare by 600% or more (Source: change:healthcare) for the same procedure and same outcome even in the same city let alone from one to another.

The economics driving these savings are simple:

  • Target efficient, focused facilities – Many studies have demonstrated that doctors who perform procedures in high volume also have the best outcomes. Conversely, hospitals doing procedures less frequently often are more expensive and have outcomes inferior to higher volume facilities. Facilities and their staffs that are organized around particular specialties (e.g., cardiac procedures) can deliver care efficiently and effectively.
  • Simplified Payment – By developing comprehensive case rates for most procedures, they can reduce the administrative overhead of billing and reimbursement. Patients no longer receive the myriad bills and so-called Explanation of Benefits after a procedure. As NSN CEO Ken Erickson says, “Our patients no longer worry about uncovered costs and get one letter from the hospitals and doctors after a procedure…and that is a letter of thanks!”
  • Drive incremental volume to these providers – By filling beds and surgery slots, NSN patients are financially attractive at rates that are significantly lower than traditional reimbursements.

National Surgery Network is one of the first to identify this opportunity and has created a national network of surgical facilities that have been aggregated to offer to self-funded employer health plans (i.e., the employer directly pays for medical costs rather than buying traditional insurance) who have been frustrated with the hyperinflation they’ve felt covering their employees health costs. Currently, 110 million Americans are on health plans that are self-funded.

This is another example of the growing movement I call the Do-it-Yourself Health Reformmovement such as MedLion that was profiled earlier in The Most Important Organization In Silicon Valley That No One Has Heard About. That is, organizations such as National Surgery Network aren’t waiting around for politicians to fix what is widely understood to be the broken and most expensive facets of healthcare. Rather, through their own trial and error, they are refining care and payment models that are demonstrating impressive results. 

While the value proposition is clear for the employer who can save 10′s of thousands of dollars off of their employees’ medical bills, what’s in it for the employee? First, NSN only contracts with facilities that have shown the best track record for surgical procedures. The hospital closest to you may not have great outcomes and it’s tough for a typical consumer to assess that whereas that is NSN’s business to understand that. Second, a GetWell Benefit also rewards the patient financially for adhering to discharge protocols and for participating in longitudinal follow-up.

One woman who had a long history of heart problems required an aortic valve replacement.  The hospitals in her local market were poorly rated for heart care.  NSN arranged for the procedure to be performed by one of the leading surgeons at Heart Hospital of Austin.  Although the surgery required was more complex than anticipated, the outcome was a complete success.  The patient reported that although she had been in and out of hospitals for years, this was the first time she was being cared for and not just treated. NSN has what they call Care Navigators to help with a process that can be intimidating for patients.

NSN uses technology in support of personal interaction. They provide an on-line Health Information Portal to assist the patient in choosing a provider.  They also have care coordinators that establishes a personal relationship with each patient.

They use a secure on-line medical records system for easy access by the NSN physician specialist and the patient’s local/primary care.  Each patient using NSN receives their own electronic personal health record as an additional benefit. NSN is also deploying social media to help patients share their experiences and connect with one another in an environment that protects privacy and anonymity where appropriate.

TechCrunch contributor and venture capitalist Mark Suster has repeatedly stated that entrepreneurs should be solving the truly big challenges in our society — health, education and energy — instead of creating yet another social tool, location-based service or trivial application. NSN is doing exactly that.