A Margarita With Your Medicine?

Research by Professor Steven P. Wallace of UCLA, and colleagues, concludes that almost a million Californian residents crossed the border into Mexico for treatment in 2004, of which half were Mexican immigrants – both legal and illegal.

The rest were Americans shopping for cheap prescription drugs or who needed treatment when they were in Mexico for business or vacation. Many Mexicans go home for treatment because of cost or cultural and linguistic issues.  However, the striking trend is the growth in “binational plans”, which cover U.S. businesses near the Mexican border. These plans started in 2000, and now cover 150,000 workers. Certainly, most of these are Mexican immigrants, but I anticipate that more employers will seek such benefits for their American employees in California, and investors will capitalize Mexican clinics and hospitals to serve their needs.

The primary reason will be to escape California’s expensive regulatory burden on health facilities.  California hospitals shift the costs of treating Medicare and Medicaid patients (for whom government reimbursement does not cover costs) to private insurers.  Professor Daniel Kessler of Stanford University figures that premiums for private health insurance would be about 11 percent lower without this cost shift – a “hidden tax: that private insurers can avoid by leaving the state.  California hospitals also suffer under laws that drive up their costs: for example, seismic retrofitting and nurse-patient ratios, which Mexican ones do not.

Plus they have to deal with a militant union, the California Nurses Association, whose members are free to parade in front of the Capitol by the hundreds in support of more government interference in health care.  The political momentum in California, and the nation, will make our hospitals more accountable to government and less accountable to patients.

Read more in my latest Capital Ideas.

Economic Bust Means Business Booms for Medical Tourism

A U.S. economy in freefall is increasingly prompting Americans to take to the skies and make for destinations elsewhere if they're in need of major surgeries, reports the CEO of one North American medical tourism facilitator.

While people are not surprisingly putting off cosmetic operations and elective surgeries until healthier financial times, they're at the same time looking overseas and south of the border for critical medical procedures. The net result is that medical tourism – and not in spite of the economic turmoil but because of it – is thriving.

"We're finding there's a definite dip in requests for surgery overseas where there's no medical urgency, such as tummy tucks, chiseled noses and dental veneers," says WorldMed Assist president Wouter Hoeberechts. "But we're also seeing an uptick in patients who need serious surgery — such as knee replacements, bypass surgery, spine fusion, hip resurfacing — but can't afford insurance, were disqualified by pre-existing conditions, or have had to rejigger their health plan to cover only catastrophic situations."

"With employer-provided insurance slipping away or costing individuals more, combined with most procedures costing 85 percent less overseas than near home, we're seeing a spike in patients who find medical tourism their most attractive option," he added.

Crisis of the Overinsured: They Pay Up to Twice as Much for Hospital Services

In Michael E. Porter & Elizabeth Olmstead Teisberg's Redefining Health Care, they note that major health plans succeed by exploiting a competely artificial economy of scale.  Because of the tax-code, American workers are compelled to accept health "benefits" from their employers instead of taking their health-care dollars to buy health insurance that serves their families' needs.  (I'm using more libertarian language than Porter & Teisberg do.)

This artificial, perverse, government-created, economy of scale leads health plans to structure their products for groups whose members are unrelated except for the fact that they work for the same employer.  Successful health plans exploit the lower distribution costs of selling to groups.  Unfortunately, this has absolutely no relationship with providing good health care.

For example, if I have an inguinal hernia that requires surgery to repair it, the fact that I work for a small-group employer in California is irrelevent to the surgery I need.  If I worked for a jumbo, ERISA-regulated employer like, e.g., Cisco Systems, my medical need would not differ, but I might have access to a completely different network of providers from which to choose a surgeon and hospital.

Furthermore, because a third-party payer has inserted itself in the provider-payment relationship, costs go up.  Worse, patients do not know how much their procedures cost because they are merely line-items in monstrous contracts negotiated by providers and health plans.  When doctors or hospitals claim that they cannot tell how much a procedure costs, they are telling the truth.  This is because neither the plan nor the provider really care about your specific procedure.  They care about payment for the entire portfolio of procedures done over a month, quarter, or year.  The provider tries to be as creative with the "coding" of his claims as possible, in order to meet or beat a revenue target from each payer.  The payer, in turn, looks for variance in the claims submitted that can justify a query and re-pricing the claims downward.

This is changing with the rise of medical tourism within the U.S. Brokers are arranging fixed-price surgeries for self-insured and uninsured parties.  At least one health insurer, Wellpoint, has gotten on board.  Why would it take such a step, which appears to challenge a key element of its competitive advantage?

With bundled prices agreed (and paid) before the surgery, costs are 30% to 50% less than under contracted-network pricing.

One of the major, unfounded, criticisms of consumer-driven health care is that it cannot drive down costs because only 10% of the population accounts for 70% of health costs.  Once patients have met their deductible, they no longer care what procedures cost. (See, e.g. Timothy Stoltzfus Jost, pp. xi, 136.)

Innovations like "domestic medical tourism" debunk that charge utterly.

IndUS Health CEO on Medical Tourism

Rajesh Rao, co-founder and CEO of IndUS Health, talked at the John Locke Foundation about the low cost and high quality available when private hospitals try to make a profit. Just as the car industry has been remade over the last 40 years by imports, so importing competition from Indian (and other) hospitals can remake the health care industry over the next 40 years.

Medical Tourism in Canada: A Growing Enterprise?

Medical Travel Today is a very interesting (free) newsletter published by Laura Carabello, whom I've met a couple of times. Imagine my surprise when I saw a feature in last week's issue about medical tourism into Canada, provided by an outfit named Canadian Healthcare International, in Toronto, Ontario.  (Most readers know that Canadian patients are keen to escape Canadian (lack of) health care and this has provided opportunities for brokers to help them get the care that the state denies them.)

MTT interviewed one Dr. Butt, who explained the business model, although the MTT interviewer admitted that she was "a little confused on how you will be able to provide care for foreign patients when the current system can't address the needs of domestic patients in a timely manner".

Good question: And one which (as a Canadian) I think that I can answer fairly.  Although Dr. Butt is a little opaque about how CHI operates within the Canadian system, a perceptive reader can see that CHI is a snow-bound version of Cuba's Havana Hospital, which treats non-Cubans for cash, and for which Michael Moore has shilled.

The provincial government forbids a domestic resident from paying his own money to acquire health care that the state denies him.  The doctors send their (low) claims to OHIP (the Ontario Health Insurance Plan), which is the provincial government's monopolist health plan.  The hospitals have a "global budget" from the province based on a centrally dictated plan: They can neither profit nor lose money because of their own activities.  Rather, the provincial government allocates money as it serves the state's needs.

However, if the doctors and hospitals can provide care to foreigners, instead of domestic patients, any revenue pretty much goes straight to the bottom line.  Meanwhile, Canadian patients still wait intolerably long for treatment.

As in Cuba, so it is in Canada.  The former is a brutal communist dictatorship, and the latter an otherwise free and prosperous country – but they both suffer similar health-care systems.  Is this the future of health care worldwide? Patients jumping borders, instead of queues, in order to get health care that their governments deny to citizens, but sell to foreigners?

Consumer-Directed Health Care in Cuba (for Americans)

It's hard to believe it's been a year and a quarter since PRI hosted an event to discuss Michael Moore's SiCKO, his "mockumentary" about the American health-care "system".  I'd kind of forgotten about the whole episode, but now that Mr. Moore's team is going to be running the country, I thought I should see how things are going at the Havana hospital where he famously brought the 9/11 Ground Zero rescue workers to be treated, when they could not be treated in America.

(Or could they? I should qualify my flip remark about Mr. Moore's "team" running the country by noting that, in selecting Dr. Sanjay Gupta as his nominee for Surgeon-General, Mr. Obama has chosen a critic of Mr. Moore's "facts".)

Well, I am glad to report that Cuba's most capitalist enterprise appears to be doing fine: Check out its website.  The Havana Hospital appears to be a more competitive, patient-centered enterprise than any American general hospital I've seen.

It posts prices for its services, reports testimonials, and can schedule surgeries on short notice (three days for open-heart surgery!  (How much more navel-gazing are we going to do here in the U.S. about price transparency before we realize that another piece of legislation mandating it is not the solution? Just give the health-care dollars back to the patients and let the hospitals compete for them!)

I'd have to be a fool to think that this hospital provides its (self-reported) world-class services to ordinary Cubans.  (When I visited a few years ago, Cubans didn't even have soap, much less health care.)  The target market must be wealthy Americans and residents of other developed countries who are fed up with how the government has messed up their health care.

I doubt I'd ever go to the Havana Hospital, because the profits surely go straight to the Castros.  Nevertheless, if the Cuban government can allow a hospital to serve American patients without regulations that keep the patient out of the equation, can the U.S. government please do the same.  Start by getting rid of Medicare's fixed prices, Stark laws, and other such nonsense.

Maybe we'll get lucky in 2009, and Mr. Obama's health-care team will learn the only real lesson from Michael Moore's otherwise silly movie.

This’ll Be Huge: WellPoint to Cover ‘Medical Tourism’ Outside U.S.

A growing number of Americans are interested in going abroad for surgery.  Hospitals in India, Thailand, and other countries are able to offer high-quality treatment for a fraction of the cost of American hospitals.  This enterprise is called "medical tourism".

Indianapolis-based WellPoint, which covers 35 million Americans, has decided to offer the option.  It's starting out very small: one 700-employee firm in Wisconsin will use the opportunity.

But it's got to spread like wildfire as WellPoint gets more comfortable with it.  Surely, premiums will drop significantly, and the carrier will market it to other groups as a way to increase market share.  Other carriers will be sure to follow.

This poses a challenge for American hospitals.  Hopefully, losing business to medical tourism will lead them to conclude that they will simply "hollow out" if they do not change their approach to public policy.

Currently, general hospitals lobby against specialty hospitals, and otherwise support an unsustainably high cost-structure.  Many states have Certificate-of-Need (CON) laws, which inhibit competition (and is a measurement in the U.S. Index of Health Ownership).  This is necessary, they argue, to pay for the uncompensated care of uninsured patients who present at the ER, as well as underpayment by Medicare and Medicaid plans.  The result is a cost-shift to private payers – such as WellPoint and other carriers (which I discussed at some length in my analysis of Governor Schwarzenegger's health reform).

Imagine if the state thought that the solution to the homeless problem was that hotels must offer rooms for free to anyone who walks in the lobby!  We'd have a hotel crisis pretty fast.  America will be fortunate if its hospitals realize the folly of current "safety-net" policy and embrace change.

Paying Workers to go Abroad for Health Care

Insured Americans are starting to see some unusual options in their health provider networks: doctors and hospitals in Singapore, Costa Rica and other foreign destinations, writes The Wall Street Journal.

Until recently, most Americans who traveled abroad for medical care were uninsured or were seeking procedures not covered by insurance, such as cosmetic dentistry or aesthetic surgery.

Now, a handful of plans are beginning to cover treatment overseas for heart surgery, hip and knee replacements and other major surgical procedures. While medical tourism isn't expected to be a solution to the country's soaring health care costs, the practice is intended to produce savings for insurers, employers and workers.

Open-heart surgery, which can cost roughly $100,000 in the U.S., can be done at an internationally accredited hospital in India for just $8,500, for instance. To make travel abroad more attractive, plans that offer medical-tourism programs often throw in a bonus for employees if they agree to undergo elective surgeries abroad, or they offer to split the cost savings between the employer and worker. Travel and accommodation costs also are sometimes reimbursed.

Think Outside the Country

Medical tourism–going outside the U.S. for medical treatment–is gaining increasing attention from patients, the press, and others, as we've noted on this site.

In the September issue of American Health and Drug Benefits, J. Warren Salmon asks several questions (PDF) that the practice raises, including the extent to which such treatment is and will be covered by insurance.

The opportunity to get treatment for a lower cost is one attraction, but Salmon points out others, including the ability to obtain "complementary medicines, some uncovered procedures that have not yet been approved in one's home country, and indigenous treatments."

Affordable Destinations-II

More than 750,000 Americans left the country last year for less expensive medical treatments, a number projected to grow to six million by 2010, according to a study from the Deloitte Center for Health Solutions. Other key findings:

• Outbound medical tourism currently represents $2.1 billion spent by Americans overseas for care and $15.9 billion in lost revenue for U.S. health care providers. Americans primarily seek this sort of care for elective surgical procedures.
• The number of outbound medical tourists is projected to rise to 15.75 million in 2017, representing a potential $30.3 billion to $79.5 billion spent abroad by Americans. As a result, the potential lost revenue for U.S. health care providers could top $228.5 billion to $599.5 billion.
• Medical care in countries like India, Thailand and Singapore can cost as little as 10 percent of the cost of comparable U.S. care, often including airfare and a stay at a resort.
• In 2008, more than 400,000 non-U.S. residents will seek care in the United States, known as inbound medical tourism, and spend almost $5 billion for health services.

A separate study from Deloitte finds that the number of retail clinics in operation has soared by 220 percent from just 250 clinics in 2006 to more than 800 serving patients by the end of 2007.

Consumers are flocking to retail clinics not only for convenience, but also for the relatively low prices compared with visiting their primary care physicians for the same treatments. The cost of services provided by retail clinics ranges from $50 to $75, with the majority priced at $59, compared to a physician’s office visit, which can cost from $55 to $250. Additionally, the cost for a retail clinic physical, at $25 to $49, can also result in savings compared to a physical at a physician’s office that can cost anywhere from $50 to $200.