Employers Seek to Gain From Weight-Loss Surgery

By Jeremy Smerd

Aug. 5, 2008

No sooner had Jeff Shovlin become vice president of benefits at Harrah’s Entertainment in Las Vegas four years ago than he began receiving a regular stream of questions from employees about one topic: Why was the company refusing to pay for weight-loss surgery?

Shovlin made some inquiries. Gastric bypass costs on average $25,000 and gastric banding totals around $17,000, according to the American Society for Metabolic and Bariatric Surgery, an industry group based in Gainesville, Florida. He found the price tag for bariatric surgery prohibitive, especially since the surgery’s cost was often compounded by medical complications.

“The more research we did, the more we felt the jury was still out in terms of the value proposition of the surgery,” Shovlin says.

In 2006, though, the company acquired Caesars Entertainment, and Shovlin changed his mind. Caesars already had a successful program to cover bariatric surgery, which required patients to follow strict guidelines. Shovlin says employees avoided complications and returned to work transformed. That’s when he decided to expand coverage of weight-loss surgery to all of the company’s 40,000 employees and 40,000 dependents.

“We looked at our claims cost and we looked at the overall health of our workforce,” Shovlin says. “Most of the health risk factors we saw were either directly or indirectly caused by obesity or people [who] were flat-out overweight.”

With six in 10 American adults overweight or obese, benefit managers are desperately looking for ways to save money on the long-term costs associated with obesity-related diseases such as heart failure, high blood pressure and diabetes.

Once considered too experimental to cover, weight-loss surgery is cautiously being embraced by employers who believe that paying for the surgery may be worth its high initial cost. New data showing dramatic health benefits for people who successfully undergo weight-loss surgery, as well as protocols designed to reduce complications, may make it a worthwhile investment, experts say.

In one dramatic example, a study of weight-loss surgery published this year in The Journal of the American Medical Association showed that 73 percent of people with Type 2 diabetes had complete remission of the disease after weight-loss surgery, compared with the 13 percent of patients who only tried conventional medicines, changing their diet and exercising.

Shovlin says he has noticed an appreciable difference in the health of the 100 or so employees who have undergone the surgery since the policy to cover it was put into place in 2007.

“Almost immediately, after the surgery, if someone was diabetic or pre-diabetic, that risk factor was reduced or went away completely,” he says.

Whether the surgery will be cost-effective, though, depends largely on whether the patient experiences complications, says Steve Nyce, a senior research associate at Watson Wyatt Worldwide.

Nyce, who will soon publish a study on the cost-effectiveness of the surgery, says problems that can accompany such procedures may be avoided by requiring patients to undergo the surgery at a center of excellence, a requirement established by the Centers for Medicaid and Medicare when it began covering the surgery for qualifying patients in 2006.

Centers of excellence are surgery centers in hospitals that perform the most common weight-loss surgeries at least 125 times a year. Surgeons must have performed at least 125 surgeries overall and at least 50 surgeries a year.

In the U.S., 339 hospitals with 589 surgeons have been designated as centers of excellence. More than 400 hospitals and 700 surgeons are in the application process, according to the American Society for Metabolic and Bariatric Surgery.

The Centers for Medicare and Medicaid Services covers the surgery for people with a body mass index of greater than 35 and at least one other health condition. (A person with a body mass index of greater than 25 is considered overweight; someone with greater than 30 is considered obese.)

Before they agree to cover such surgeries, health plans are increasingly requiring patients to go to centers of excellence as well as first enrolling in a weight-loss program, says Debra Draper, associate director at the Center for Studying Health System Change.

“There is concern that there is overutilization,” Draper says. “The surgery is seen as a last resort.”

At Harrah’s, for example, an employee must follow a weight-loss program, lose weight and change his diet before getting the surgery. Afterward, the patient must attend post-surgical counseling to keep the weight off and remain healthy. Shovlin says none of his employees has experienced any major complications.

Based on preliminary data from his analysis of 40 employers that cover bariatric surgeries, Nyce says he has discovered two conflicting scenarios.

The first is the good news: Median health care costs of patients who underwent bariatric surgery dropped 30 percent per member per month after surgery, to $350 a month from $500.

The bad news: Those savings, on average, were negated because of a small handful of complications from surgery.

“There are going to be a number [of people who get the surgery] that benefit greatly. There’s a certain percentage that will cost quite a bundle,” Nyce says. “All said, it ends up not being cost-effective on the average, because you have a few cases that are quite high-cost.”

Most weight-loss surgeries reduce the size of the stomach to generate a sense of fullness after eating a small amount of food. The most common complications are feelings of nausea, vomiting and cold sweats that result from digesting too much food or eating too quickly. More serious complications can include ulcers that form when the intestine is reattached to the stomach, a complication that can sometimes be attributable to the skill level of a surgeon.

Nyce says 18 percent of the patients whose surgeries he studied experienced complications during the initial hospital stay, according to his preliminary data. In the 12 months after discharge, complications rose to 48 percent. He says those who had complications were more likely to have had other health problems before the surgery.

“When you have more health issues, more things can go wrong,” Nyce says.

He has not yet been able to study the cost-effectiveness of the surgery on health care five or even 10 years down the road. Such data could help employers decide whether covering the surgery leads to dramatic long-term cost savings.

Still, Nyce believes that as complication rates decrease, more employers will cover bariatric surgery at centers of excellence for qualified patients who meet weight guidelines and make an effort to change their diet and to exercise.

“My recommendation,” he says, “is to certainly realize, if you are going to cover it, that these restrictions are important.”

Jeremy Smerd writes for Crain’s New York Business, a sister publication of Workforce Management.

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