Medical Tourism: Strategy for Containing Health Care Cost Increases and Immigration Pull
BY ERIN A. COX AND ARUN K. SOOD
Who will foot the premium bill for your unexpected knee surgery? Who will pay the astronomical emergency room bill from the car accident that occurred while you were without health care? These are very realistic problems in American society today. Health care costs are at an all time high, as are the number of uninsured and underinsured Americans. A second challenge, increasing migration rates, has resulted in massive job loss and strain on the social welfare system. What if a solution could be developed not only to rising health care costs but also to increases in illegal migration? By encouraging a market driven and government-endorsed strategy to outsource health care, US citizens can simultaneously reduce their health insurance expenditures and lower overall costs to the health care system. A percentage of the amount saved by traveling abroad for medical treatment can be reinvested into the very facilities US citizens are traveling to. By promoting overseas investment in hospitals and medical education, investors can spur sustainable economic development in impoverished nations, leading to a reduction of immigrants to the US.
WHY ARE HEALTH CARE COSTS SO HIGH?
Now that we have established who might benefit from the system in its current state, we can look into why US health care costs are so high compared to their OECD counterparts. Rising health care costs have historically been driven by growing incomes, an aging population and increases in third party payers. These factors all contribute to the demand in medical services, yet taken together cannot explain even half of the growth in long term health care spending. The driving culprit behind increases in health care expenditure is surprising; technology.
Every year the US spends billions of dollars in research and development of state of the art diagnostic tests and surgical procedures. While technological innovation has the potential to lower costs and raise efficiency for most goods and services, increasing technology in the health care sector has seen opposite effects. Increases in technology have historically raised overall costs and continue to be the most significant factor in inflating health care expenditure.
Changes in health care costs that can be attributed to technology accounted for between 38 and 62 percent as of 2000. This number far surpasses the contributions in cost changes from any other source. Advances in technology include everything from new drugs, services and new clinical applications that use existing technology. Medical breakthroughs present patients with new treatment and service options that were not previously available. Let us take for example the development of diagnostic imaging. Prior to its advent, patients suffering from unknown ailments were given the option of exploratory surgery. These procedures posed many risks and heavy costs (Congressional Budget Office, 2008).
While diagnostic imaging lowers the cost per procedure, it encourages a greater number of patients to seek out treatment. When presented with the new and less expensive option of diagnostic imaging, patients became more inclined to agree to procedures. Doctors are equally inclined to offer diagnostic tests to their patients.
Diagnostic and outpatient centers are growing at an unprecedented rate throughout the US. The “fee-for-service” nature of the US health care system actually encourages independent physicians to see a greater number of patients and refer them to more treatment and diagnostic options. The more patients seen and treatments/screenings provided the higher profit margins for the physicians. These independent practitioners must incur heavy upfront capital costs when opening up a new medical center. They must also acquire the newest and most expensive equipment to ensure their patients have the very best treatment possible and of course to ensure their own competitiveness in the market (Angrisano et al, 2007). The US has 40 percent more MRI machines and 54 percent more CT scanners per one million people than their OECD counterparts. Self-referring physicians order two to eight more scans than the average physician. 30 to 40 percent of diagnostic tests being done are unnecessary or inappropriate. The excess capacity of durable medical equipment of this nature accounts for about $40 billion additional expenditure in the US health care system.
This brings us to a significant question that is often overshadowed by the glow of innovation; do these cutting edge treatments offer patients better results than their less expensive predecessors? Not necessary. New technology is often put into mainstream practice prior to comparative effectiveness tests being done. There is little evidence to prove these more costly treatments provide a higher quality of service or more accurate results than those used previously. The adoption of these new treatments and diagnostic tests in mass is the most significant and potentially avoidable factor pushing health care costs to astronomical levels.
HOW TO ACHIEVE HEALTH CARE COST REDUCTIONS
Medical procedures that are performed in developing countries are 30 to 80 percent less expensive than analogous procedures performed in the US. The Joint Commission on Accreditation of Health care Organizations provides accreditation for hospitals worldwide, ensuring that proper standards and codes are being followed. Physicians are often trained and certified in the US only to return home to provide services in their own country.
To help illustrate the cost savings we consider heart valve replacement that was performed on 32,000 individuals in the US in 2005. This procedure costs the average insured American $41,300 and the average uninsured American $136,700. This same heart valve procedure, if performed in India, would cost approximately $12,000 including transportation costs. Even if we assume that all the patients have insurance, this outsourcing leads to annual savings of approximately $916 million. The real cost savings taking into account the millions of uninsured Americans would be much higher. This represents just one of the thousands of procedures that can be performed overseas at substantial savings.
There are options for those who are hesitant to travel halfway across the world for treatment. Mexico offers surgical and diagnostic procedures for about 40 percent less than what hospitals in the US charge and is only a short flight or car ride away. The typical health insurance carrier is likely to pay about $21,100 for a full hip replacement. The same surgery costs $14,500, including transportation and accommodation, in Mexico. Many retirement homes in Arizona offer bus tours to residents seeking low cost dental care and prescription drugs. International Hospital Corporation, located in Dallas Texas operates medical facilities in Mexico, Brazil and Costa Rica. Over 40 medical facilities are being constructed under a new Mexican/ American partnership known as Christus Muguerza. These facilities are all designed to meet American standards (Herrick, 2007).
With all of these low cost, high quality options available so close to home, why wouldn’t you make the trip?
THE IMPACT OF OUTSOURCING ON MIGRATION
A number of state of the art medical facilities are located in developing countries suffering from high emigration rates. The facilities are an oasis of excellence in countries plagued with poor infrastructure and employment opportunities. By investing in overseas medical facilities, foreign entrepreneurs will help provide local citizens dependable employment opportunities. Hospitals represent an excellent alternative investment opportunity and are likely to spur steady employment growth and help to improve domestic economies and services. Local citizens will become disinclined to migrate from their homes because of the improved economy and employment opportunities.
The only statistic that the US health care sector surpasses their OECD companions on is their excessive expenditure as a percentage of GDP. US citizens do not experience higher service, better overall health or greater life expectancies. Doctors, hospitals and insurance providers blame high operational costs on their increasing premiums, yet the numbers do not add up. US citizens can experience comparable surgical and diagnostic procedures overseas at a fraction of the price, reducing not only their out of pocket costs but also the demand on the health care system. By investing in overseas medical facilities and promoting their utilization, investors and providers can slow migration patterns providing foreigners with greater opportunities for employment and improved domestic economies.
HOW to ENCOURAGE OUTSOURCING HEALTH CARE
Will Americans opt for treatment and screening overseas? At what savings rate will wary travelers put aside their hesitance and board a plane? The $60 billion grossed from the medical tourism industry worldwide in 2006 demonstrates that a vast number of individuals have already shed their inhibitions and jumped at the chance to receive treatment abroad. Intermediaries for medical travel have found a niche in the market place, acting as specialized travel agents. These agencies link patients with quality health care providers throughout the globe and often have doctors and nurses on staff to assess patient/ hospital compatibility. Even the most leery traveler might be enticed by the huge cost differentials, especially if that traveler happens to be uninsured. Cardiac surgery in the US costs approximately $30,000. In Apollo Hospital in New Delhi, India, the same procedure costs approximately $4,000. The same procedure costs nearly 8 times as much in the US as it does abroad! Looking for more aesthetic surgery? A rhinoplasty will cost the average US citizen about $4,500. If you were to have the surgery in India you would be out a mere $800. Still not convinced? Take the average list price of cardiac surgery in the US if you are one of the 14 million uninsured Americans, a whopping $121,000. The $4,000 you pay in India for the same surgery is applicable for both insured and uninsured patients (Herrick, 2007).
Of course there are additional incentives that can provide potential travelers with the piece of mind necessary for them undergo treatment abroad. Endorsements from their insurance carriers and employers, government sponsorship, facility accreditation would all encourage patients to seek treatment abroad. While the majority of US insurance providers to not include foreign treatments in their network, a small and growing percentage do. Blue Shield of California allows patients to seek medical treatment in Mexico by reimbursing costs to Mexican medical centers. Premiums of treatment provided in Mexico are less than two thirds that of treatment provided in California because of the comparatively low cost. Government sponsorship of overseas treatment is being brought to the table. In 2006, West Virginia held hearings to address the prospect of including foreign providers in the health network for their state employees. More than 150 hospitals worldwide are accredited by the Joint Commission International and the International Standards Organization. Specific countries are starting to develop their own accreditation standards to help reassure prospective patients. If medical tourism is to be embraced by citizens and government alike, greater incentives and partnerships must be pursued between private industry and local, national and foreign governments. Only then might one expect a truly revolutionary global health network and a reduction in health care costs.
Erin A. Cox (ecox1@gmu.edu) is a Research Assistant and graduate student in International Commerce and Policy. Arun K. Sood (asood@gmu.edu) is Professor of Computer Science and the Director of the Laboratory for Interdisciplinary Computer Science at the Volgenau School of Information Technology & Engineering at George Mason University (http://ite.gmu.edu).
REFERENCES
Angrisano, Carlos, Diana Farrell, Bob Kocher, Martha Laboissiere, Sara Parker, 2007, Accounting for the cost of health care in the United States, McKinsey Global Institute, http://www.mckinsey.com/mgi/reports/pdfs/healthcare/MGI_US_HC_fullreport.pdf. Accessed July 30, 2008.
Congressional Budget Office, 2008, Technological change and the growth of health care spending, CBO Paper, January. Available at http://www.cbo.gov/ftpdocs/89xx/doc8947/01-31-TechHealth.pdf. Accessed July 30, 2008.
Herrick, Devon M., 2007, Medical Tourism: Global competition in health care, National Center for Policy Analysis, NCPA Policy Report, 304: 19-35, http://www.ncpa.org/pub/st/st304/st304.pdf. Accessed July 30, 2008.
