As a benefits leader, you know that surgical costs make a big impact on your healthcare spend. Each year, you dive into the data, trying to get a handle on these complex costs. Yet despite your best efforts—and even if you have surgical Centers of Excellence (COE) in place— it’s difficult to understand your actual surgery spend.

One challenge? There’s no consistent, industry-wide definition of what an episode of care includes.

“Definitions can include pre-operative and post-operative care, along with readmissions from complications. Other definitions are narrower and just focus on the procedure during the hospital stay,” says Ben Sanders, SVP, Strategy and Emerging Products at Lantern.

Making it even more confusing: hospitals and doctors bill differently; insurers and third-party administrators define episodes in their own way; and healthcare is billed by service, not per episode.

This lack of transparency isn’t just frustrating; it’s a significant roadblock when you’re trying to evaluate COE solutions designed to lower surgical spend. Assessing potential savings can’t happen if you don’t have a firm grasp on true baseline costs. Ambiguity leads to confusion, misaligned incentives and missed savings.

Why Claims Data Falls Short in Defining Episodes of Care

The lack of a standard definition of an episode of care isn’t the only issue benefits leaders can run into. Claims data is a primary source used to piece together episodes of care, but it’s often fragmented, delayed or lacks clinical context.

“Claims lag can be a major hurdle,” Sanders says. “It could be 60 days up to a year until you understand actual costs.”

And let’s not forget the often-missing cost components. Your initial claim from the hospital might not include everything. There could be separate bills for the anesthesiologist, a radiologist, or medical equipment needed for recovery.

“These can trickle in over time, adding to the final cost in a way that wasn’t immediately obvious,” Sanders says. “Implants are also likely missing in at least a third or more of claims for knee replacement surgeries, but it’s still something you pay.”

If you’re analyzing data too soon, an episode of care might make surgery costs look way off. For example, a $39,000 total knee replacement for one employee might seem like a better deal than the $47,000 one for another—but if the cheaper option leaves out things like rehab or follow-up care, it’s not a fair comparison.

Raymond Hwang, MD, Associate Chief Medical Officer at Lantern, also points out that every patient is unique, which makes it even more of a challenge to predict costs. “Remaining cost variation can be attributed to facility characteristics like geographic location and type, patient comorbidities, variations in care protocols and resource utilization” he says.

Strategies for Benefits Leaders to Understand True Cost

So how can you cut through the complexity and understand the true cost of surgeries like knee replacements? It starts by demanding transparency and leveraging data. “Be skeptical. If someone can’t articulate the methodology by which they’re calculating data, you shouldn’t believe it,” Sanders says.

This is critical when you evaluate potential benefits solutions aimed at managing surgical spend. Don’t accept promises of savings. Ask for details on how they calculate their impact and what they include in their episode definitions. You want to understand how a vendor defines their savings methodology to deliver a clear view on how they calculate the ROI of their solution.

“Reduction rate is important, but don’t give me a reduction on national average,” says Derek Butts, Manager of Global Benefits at Phillips 66. “There are variations in costs from state to state. I need a reduction on a geographically appropriate amount. I want to see data. I asked Lantern and they thankfully obliged. But I have seen some very weird math in my career on calculated savings.”

To get a complete financial picture, you have to be able to track all the components of an episode of care, across all providers and settings. “Lantern’s TrueRate savings methodology emphasizes the importance of rigorous claims analysis to identify true savings,” Ben says. “If a benefits leader sends us their list of CPT codes, we can define their true spend on surgery.”

Laura Wallace, Director of Total Health at ArcBest, says she struggled to pull together their “all-in” surgery spend, but says she’s thankful she has full transparency now. “We really like the fact that the billing and [bundled] payment model from Lantern allowed us to know our costs for surgeries as opposed to the process for carriers where you’ve got a million different charges.”

Sanders says if you don’t have a solution like Lantern, you really need to demand that carriers share real information; turn to third parties like Claritev for benchmarks; and share the TrueRate report with your benefits consultant, TPAs or analytic vendors to normalize and group claims into episodes using our consistent methodology.

You should also flag outliers or gaps in episodes of care, agree internally what’s included in a typical episode, build in a data lag buffer to hold off on reviewing surgery spend too early, and layer in outcome metrics (like readmission rates, complications and patient satisfaction).

Steer Employees to High-Quality Specialists to Reduce Costs

To move the needle on lowering surgery costs, partner with COEs that focus on high-quality providers. A surgical facility with lower negotiated rates might seem attractive at first, but if they have higher rates of complications or readmissions, the total episode cost could be much higher. Look for partners that help direct employees to high-value providers that improve health outcomes and the overall experience, which is a win for everyone.

This was important for Edward Jones when looking for a specialty care solution for its associates. They chose Lantern because we rigorously vet providers in our Network of Excellence and partner with the Global Appropriate Measures (GAM) Consortium to ensure that surgeons follow best practices and evidence-based guidelines.

“Quality—and I view that as safety and efficacy—was really the leading thing we were looking at,” says Ryan McCracken, Director, Benefits, at Edward Jones. “Having effective outcomes and safe outcomes was really important to us because that’s what allows us to bend the cost curve: reducing complications, reducing readmissions and reducing repaired surgeries.”

Episodes of care are full of complexities, fragmented data and hidden costs, and Sanders admits it will never be an easy task. Understanding data, however, will help you to better manage your health spending to invest in the future of quality benefits for your team.

“When we’re coming in saying we have savings, it’s a much easier conversation with our executive team when we want to add other program,” Butts says. “It’s a win-win for Phillips 66 and our employees.”