I recently read an article in The Wall Street Journal titled, “What Does Knee Surgery Cost? Few Know, and That’s a Problem.”

The article focused its attention on a Gundersen Health System hospital in La Crosse, Wisconsin, and described in very good detail what is wrong with healthcare today as it relates to cost.

To begin, the average cost – including physician expenses – for a knee replacement surgery at this facility was a little more than $50,000, a price that had increased approximately every year. There are many facets of the article that intrigued me and, over the course of my next several articles, I plan to discuss each to help you as a business owner or employee understand the issues we face in the healthcare industry.

Pressed by insurance carriers and Medicare program administrators, Gundersen was asked to provide greater detail as to what was driving up costs. The amazing thing was that they didn’t really know how they came up with the $50,000 number or really how to find out. The three-percent increase each year was based more on instinct and competitive market conditions than a real understanding of actual costs to perform this very common – and costly – procedure.

I am sure that, at one time, probably fairly long ago, there was a real understanding of the costs associated with performing a specific procedure or surgery. And the original charge to the patient was based specifically on those costs, with an obvious markup to cover services for the underprivileged in our communities and enhance capabilities to provide better healthcare to the area.

Unfortunately, healthcare got out of the habit of tracking those core costs and began to find ways to maximize their reimbursements from insurance companies rather than provide core cost-based pricing.

In the end, it is the patient who loses in this situation. Through both higher-than-necessary out-of-pocket payments or increases in their insurance premiums to cover reimbursements, the patient is the one who ends up footing the bill for a lack of control and understanding of real costs by those providing the care they receive.

Getting back to the article, Gundersen undertook an 18-month review of everything associated with the cost of a knee replacement surgery. This included the hiring of an efficiency expert to follow both doctors and nurses as they prepped for the surgery, performed the surgery, and provided the post-operative care.

They looked at the time physical therapists spent in the hospital with the patients and the timeliness of those visits with a knee replacement patient. They also tallied up all the costs for the items needed to perform the surgery, such as operating room time, equipment and instrumentation, etc. They even added in the cost of the cement used to affix the new knee joint to the patient’s bones.

When they completed their analysis and tallied all the costs associated with one procedure together, the final cost was nowhere near what they were charging. The actual cost was $10,550, only one-fifth of what they had been sending out invoices for to patients and insurance carriers. This illustrates very clearly one of the most challenging and important aspects toward changing the cost of healthcare in a positive direction: identifying and tracking the actual costs to provide care to the patients we serve.

Recent estimates show that, annually, there are over 700,000 knee replacement procedures performed across the 5,500+ hospitals in the United States. While the article discusses only one hospital and one procedure, you can quickly see that by being more vigilant in the identification and monitoring of these costs, we could save our healthcare system a substantial amount very quickly. And I am hopeful that there isn’t as large a discrepancy in the actual cost to patient charge in each and every case performed.

But how can patients know, when the first time they see the charge for a procedure performed is when the bill shows up in their mailbox?

We at Wilmington Health are looking at every detail of our delivery model to identify what it costs to provide our community with high-quality care and a positive patient experience. As a result of those efforts, we have reduced healthcare costs to our patients whenever it has been possible to do so.

Compared to our peers across the country, we rank as one of the lowest cost healthcare providers, typically in the low 30th percentile. We will continue to be a leader in both cost and quality, and in future articles, I will discuss more of what we are doing to make positive change happen in our industry.

Jeff James is the chief executive officer at Wilmington Health and part of the team of providers and staff driving change in the health care system to reduce cost, improve quality and enhance the patient experience.