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medical tourism

As medical tourism for elective procedures gains momentum, could going global provide a cure for ailing American health institutions? A corporate strategy article by Thunderbird students.

Like many vibrant, athletic men, retired U.S. Air Force General Steve Dotson has a bum knee. Seventy years old, and an avid skier, Steve is simply not ready to sit in the lodge. Nor does he like the sound of a knee replacement’s long and painful recovery period, even though his insurance policy would cover the cost. Lucky for him there is a third option: travel to the Cayman Islands for a quasi-experimental (and non-FDA approved) stem cell procedure. A sophisticated marketing effort from a Colorado-based group of doctors operating an offshore clinic has convinced Steve that a simple procedure might negate the need for a surgical knee replacement, while accomplishing the same objective of keeping him active. All said, the procedure will cost Steve around $20,000 cash—a cost he believes is worth it if the results are positive. Steve is far from unique.

medical tourism

As medical tourism for elective procedures gains momentum, could going global provide a cure for ailing American health institutions? A corporate strategy article by Thunderbird students.

Like many vibrant, athletic men, retired U.S. Air Force General Steve Dotson has a bum knee. Seventy years old, and an avid skier, Steve is simply not ready to sit in the lodge. Nor does he like the sound of a knee replacement’s long and painful recovery period, even though his insurance policy would cover the cost. Lucky for him there is a third option: travel to the Cayman Islands for a quasi-experimental (and non-FDA approved) stem cell procedure. A sophisticated marketing effort from a Colorado-based group of doctors operating an offshore clinic has convinced Steve that a simple procedure might negate the need for a surgical knee replacement, while accomplishing the same objective of keeping him active. All said, the procedure will cost Steve around $20,000 cash—a cost he believes is worth it if the results are positive. Steve is far from unique.

A Hurting Health Care System

In spite of believing strongly in the high quality care available in the U.S., both clinicians and clients are increasingly fed up with the American healthcare system. Clinicians find themselves in a regulatory environment that distorts market forces and leaves them unable to use regular business strategies to remain profitable. For example, the Emergency Medical Treatment and Active Labor Act (EMTALA) requires hospitals to provide emergency health care to literally anyone needing treatment regardless of legal status, citizenship, or ability to pay—without any reimbursement from the government. The details of the act effectively disallow all mechanisms that a business would normally use to collect unpaid bills. The result is that 55% of U.S. emergency care now goes uncompensated.[i] Hospitals attempt to recover losses where they can—by inflating the costs for other procedures for clients who can pay—or whose insurance companies can pay. In addition, a high risk of litigation forces hospitals and clinics to carry exorbitant malpractice insurance, invest in state-of-the art equipment, and over-prescribe expensive diagnostic tests—all of which drive up costs. Moreover, in an attempt to attract more clients by offering a larger menu of services, providers have difficulty specializing to the degree that creates true expertise.

From the patient’s perspective, the situation doesn’t look much better as procedures carry unknown, unpredictable, and overblown charges. For those who are insured, high deductibles, confusing coverage details, and co-pays make every medical interaction fraught with the danger of hidden costs. For the 17.1% of Americans who are not insured,[ii] elective procedures on U.S. soil are completely out of reach. For both customers and hospitals, there is a deep disconnect between service and value.[iii]

As the system in the States has driven hospitals and clinics further away from providing rational and consistent value propositions, globalization of the health care industry is giving both patients and providers a chance to hit “reset.”

Need Health—Will Travel

medical-tourism_stylizedThe coupling of holidays and health treatments is nothing new. If ancient artefacts are any indication, humanity has always travelled to cure all manner of ills. Visiting seashores, hot springs, sanatoriums, and regions known for famous healers and spas has been going on since the dawn of time.  Few of us could deny the restorative powers of a far-flung shore. For jetsetters, a little nip and tuck is the ultimate way to ensure one comes back from vacation looking better than one’s passport photo—at a fraction of the cost that the same non-insured procedures would command in the U.S.

But in the last few years, the medical tourism industry has expanded well beyond clichéd beauty seekers. A new category of medical traveller is emerging for a variety of reasons: Americans expect to live longer active lives; the stigma around all sorts of foreign-produced goods and services is melting out of memory; and Americans have become acclimated to receiving care from foreign-born doctors. [iv]

Demand is rising for procedures that are not urgent but far from recreational such as joint replacement, cardiovascular surgery, fertility treatment, and addiction rehabilitation.  There are also accepted, but experimental, treatments hung up in the US’s regulatory system that are only available abroad. This new category of medical adventurer is growing exponentially, and the world market is eagerly—and rather expertly—stepping up to satisfy the increased demand.  There are clear incentives driving the trend.  Procedures such as aortic valve replacement, which would cost an average of $100,000 in the U.S., are priced at a mere $12,000 in India.  A recent study by Deloitte predicts that by 2017, fifteen million consumers will transfer $400 billion (base case scenario) of health care spending from U.S. providers to hospitals overseas.[v] If American Hospitals aren’t worried yet, they should be.

Why is Medical Tourism so Cheap? And How Can it Be Good?

AECOMAmericanHospitalDubai

Well aware of the challenges in the U.S. and seeing low cost medical services as a potential economic driver, countries are structuring policy choices that cultivate a national competitive advantage in healthcare. For example, the Cayman Islands--long appreciated by financiers — is encouraging more clinics (like the one Steve will be visiting in July) to open by offering incentives such as: import tax waivers on medical equipment, recognition of foreign medical credentials, discounts on work permits for foreign health personnel and legislated caps on medical negligence claims.[vi] Other countries offer similar incentives and build state-of-the-art facilities (such as Dubai’s Healthcare City) to attract foreign medical groups. Bangkok and Singapore boast good facilities, political stability, close proximity to cheap labor and supplies, and a robust hospitality industry that makes arranging travel easy.

India is another “emerging giant” leveraging its ability to offer quality care at low cost to serve the growing international health care market. With its huge population and numerous physicians, the domestic Indian market is characterized by ferocious competition among doctors and institutions alike. Additionally, because of the low-income profile of much of the population, these institutions are forced to maximize value for money. Thus, they work relentlessly to drive down costs. They reconfigure procedures to minimize time between patients — often adopting an assembly line approach to increase patient volume.  The repetition ensures that clinicians become true experts at what they do which leads to positive outcomes for patients. Access to cheap supplies and equipment through economies of scale and co-location with the medical commodity, equipment, and drug manufacturers drives costs even lower.

Indian health care groups are already looking to take their model global and tap the American market.  Case in point:  India’s world-renowned heart surgeon, Devi Shetty, is currently constructing a 2,000-bed hospital in Grand Cayman, a mere four-hour flight from gateway East Coast cities like New York and Boston, hoping to capture a share of the U.S. market.[vii]

Insurance companies are adding fuel to the fire. Recognizing the cost-savings and quality that overseas models provide, companies are beginning to reimburse the cost of medical tours for certain procedures.  For example, Hannaford, a New-England-based chain of grocery stores, is offering the option of having certain procedures performed in Singapore rather than in America. The incentive?  A $2,500-$3,000 co-pay discount for employees. Sensing the rising corporate interest, the American Medical Association has issued surprisingly supportive guidelines for international medical travel. In turn, insurance firms (such as Aetna and Blue Cross and Blue Shield) are climbing aboard, offering voluntary medical travel options on their corporate plans for procedures costing $20,000 or more — and diverting the business away from American institutions.[viii]

The Achilles Heel of the Global Model: Stigma

As marketers might say, while the economics and incentives might tell one story, human behaviour is extraordinarily complex—particularly so when it comes to making healthcare decisions.[ix] Ironically, it is the same factors driving down costs that make both American patients and physicians nervous about global health care—a lack of regulation, quality of care offered by foreign doctors, the continuity of care and the potential legal quagmires that could result from all of the above.  Charles, a cardiologist from a prominent Northern California medical group (who agreed to an interview on the condition of anonymity), has misgivings: “I don't like the idea of just "handing off" patients who've undergone major surgery or procedures. When something goes wrong, who cleans up the mess? When we do "handoffs" in the U.S. responsibility assignments are pretty clear.  How do I absolve myself of liability if some guy in India screws up? The bottom line is that most of the stuff we do in the U.S. works.  It may be expensive, but it works, and it's relatively safe.”

As a patient, Steve has similar concerns, “It is unclear what recourse I would have in the case of malpractice [at the Cayman facility]. Probably none. But my doctors are American and U.S. trained. The procedure is simple, which makes the risk of malpractice very low...If the procedure were more invasive I would feel differently. I would not do something more invasive outside of the U.S.”

In order to combat the widespread stigma about third world care, India has held a Medical Tourism Expo in order to show off its capacity. Individual facilities actively manage their image by seeking prestigious accreditation, hiring interpreters and publicizing positive outcomes. Some argue that India’s overcompensating for stigma makes care superior to that available in developed countries.

Growing Global: Do it Now, Do it Right

American hospitals need not stand back and haplessly watch as foreign competition drains away their lifeblood. It is these very weaknesses in the global market model that create the greatest opportunities for astute American hospitals and clinics wishing to both protect and expand their businesses. The way forward is clear: leverage an existing brand and go global by establishing foreign operations that are an extension of the U.S. group. Use the same margin-maximizing measures that foreign competitors use to make money through satellite facilities, joint ventures, or franchises. The key is to think like marketers, learn from developing market competitors, move fast, and strike while the iron is hot—while American Health Care is still a unique world-class quality brand. Here’s how:

Operations

Marketing

  • Choose a location with national strategic advantage. Look for: low cost but high quality labor, access to suppliers, friendly tax policies for overseas investors, a robust hospitality industry, and easy access—comparable to a domestic flight time.  Both Thailand’s Bumrungrad hospital in Bangkok and India’s Wockhardt hospital already treat tens of thousands of American and Europeans patients.
  • Whether you build your own practice, buy an existing practice, use a franchise model, or enter into a joint venture arrangement with a respected local health institution or network, set up rigorous contractual relationships based on clear performance metrics. These agreements need to define roles and responsibilities in every step of the continuum of care as well as clarify referral relationships, handover mechanisms, and legal provisions in case a patient brings suit.
  • Transfer capacity and conduct independent quality assurance exercises like the American Hospital Dubai, which meets rigorous international accreditation standards and publicizes the results (http://www.ahdubai.com/intpatient/Ipd.aspx)
  • Streamline processes—As Johns Hopkins learned the hard way when their Dubai operation failed to attract enough top-notch scholars and researchers, operating facilities abroad is not a “cut and paste” situation where the American hospital model is simply transplanted.[x] In order to be profitable, institutions need to take a “blue ocean” approach focusing on a few profit-maximizing procedures that combine well with travel and compete favourably with American alternatives.
  • Seek savings at ALL levels of the value chain. Start from scratch and use the best options for every part of the business. Resist the temptation to use familiar but less efficient suppliers and systems.
  • Focus on patients’ need for a clear and predictable value for money proposition (offer packages, fixed fees, transparent payment plans, etc.). American Hospital Dubai provides a range of pre-priced packages (http://www.ahdubai.com/)
  • Form strategic alliances with hotels, travel agents, insurers and airlines like Bangkok Phuket Hospital to give patients the best possible value on all-inclusive packages (http://www.phuket-health-travel.com/)
  • Market the heck out of it. Take inspiration from groups like the Centeno-Schultz Clinic (http://www.centenoschultz.com/) that make patients feel like the Cayman facility is just an extension of their Colorado clinic. Emphasize affordability, American-standard quality, state-of-the-art facilities, and safety.
SteveDotson_skiing_w

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For Steve, a trip to the Caymans is a means to an end—a few more years on the slopes. But for American healthcare institutions that find themselves slipping down the slope of falling profits, it is patients like Steve who will keep them from being pushed off the cliff by foreign competitors. These patients are ripe for the picking—if savvy American hospitals can figure out how to meet them on a far-flung shore.


[i] The Uninsured: Access to Medical Care, American College of Emergency Physicians, accessed 2007-10-05

[ii] http://www.gallup.com/poll/152162/americans-uninsured-2011.aspx

[iii] Porter, Michael E. and Elizabeth Olmsted Teisberg. Redefining Competition in Healthcare. Harvard Business Review. Harvard Business School Publishing Corporation. 2004. http://hbr.org/web/extras/insight-center/health-care/redefining-competition-in-health-care.

[iii] Robbins, Shurna. Devy Shetty Targets Medical Tourims in Cayman Isles. Thomson Reuters: Business News. 23 Mar 2011.

[iv] Diversity in the Physician Workforce: Facts and Figures 2010. Association of American Medical Colleges.

[v] Medical Tourism: Consumers in Search of Value. Deloitte center for Health Solutions. 2008.http://www.deloitte.com/dtt/article/0%2C1002%2Ccid%25253D192707%2C00.html

[vi] Robbins, Shurna. Devy Shetty Targets Medical Tourims in Cayman Isles. Thomson Reuters: Business News. 23 Mar 2011.

[vii] Robbins, Shurna. Devy Shetty Targets Medical Tourims in Cayman Isles. Thomson Reuters: Business News. 23 Mar 2011.

[viii] Operating profit; Globalization and Health Care. The Economist 388.8593. 16 Aug 2008. http://search.proquest.com.ezproxy.t-bird.edu/docprintview/224004903/Rec....

[ix] Nishant Bagadia. Investigating Medical Tourism Beneath the Surface. Medical Tourism Magazine. 1 Apr 2009. http://www.medicaltourismmag.com/article/investigating-medical.html

[x] Hamill, Sean D.  How UPMC's overseas operations blossomed in 14 years.  Pittsburgh Post-Gazette.  30 May 2010.