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  US Medical Tourism - Scope And Protectionist Fallacies  


By Sandip Madan (Last updated, May 15, 2006)

The economic and medical rationale for U.S. outbound medical tourism is compelling.  The increased publicity also helps.  TV programs and newspaper articles have made ordinary Americans aware of five star hospitals abroad offering superior care at a fraction of the U.S. price.  Western patients are shown attended by skilled surgeons and a bevy of attentive nurses, while being pampered in plush surroundings.  Though many of these hospitals are in third world countries, they have state of the art facilities.  They are obtaining European and American accreditation, and deliver better quality than in the U.S. overall. 


Of course, protectionists associate outsourcing with a loss of American jobs.  While economists and financial pundits challenge that view anyway, it applies even less to medical tourism.  The American healthcare industry faces a huge shortage of qualified health workers, and the gap is expected to widen.  For example, U.S. federal health authorities project the current shortfall of seven percent in nurses to increase by 2020 to 29 percent, or 810,000 positions.  In 2002, Health Affairs projected a U.S. physician shortage of 200,000 by 2020.  While medical tourism may align demand better with supply of health services and control medical cost inflation, it will not negatively affect employment.


On the other hand, U.S. healthcare costs have doubled over the decade to $1.9 trillion in 2004.  At $6,280 per capita, they are much higher than in any other country, and twice as much as in the peer economies of Europe.  Interestingly, all this is because of the higher prices of U.S. healthcare, and not because Americans receive more healthcare overall.  Hence the foreign option for major medical procedures should attract all categories of U.S. payers.  These include the uninsured Americans or those opting for elective surgery; the private employers who have seen their health costs double in the past six years; and even the public agencies plagued with budget deficits because of their rising healthcare commitments.


The biggest beneficiaries are U.S. patients who are paying their own way.  They may lack insurance coverage, or seek elective procedures not covered by insurance.  The U.S. census for 2004 reports 46 million uninsured Americans.  Of these, 31 million have annual household incomes exceeding $25,000 and 16 million exceeding $50,000.  They, unlike indigents, are targets of vigorous collection methods for medical charges incurred.  A major surgical procedure or costly hospital stay in the U.S. subjects them to crippling medical bills.  Such uninsured patients, or those seeking costly elective surgery or cosmetic dentistry, can opt for premier foreign care at prices a third to a tenth of those in the U.S. 


Next, U.S. employers and businesses with crushing employee healthcare costs can find huge savings by leveraging medical tourism through well-conceived tiered plans.  Private health insurers can likewise benefit customers and themselves by following the same approach as a natural extension of consumer directed choice.  


On an even larger scale, public-funded programs can use the same medical offshoring approaches to save tens of billions of dollars annually.  There is of course strong political sentiment against offshoring, but cost-cutting pressures may make Medicare more amenable over time.  Medicaidís move may be even faster in view of its increasing burden on cash-strapped states.  Moreover, Medicaidís often meager fee schedule may decrease opposition of care providers to this business going overseas.


Given all this, outbound U.S. medical tourism is bound to grow.  The question is, by how much?  It is presently a rounding error as compared to the U.S. healthcare industry, and just a fraction of even the annual $2 billion inbound market.  Will it become big enough to make a major impact on U.S. health costs and force some much-needed reforms?    A lot depends on how the actions (or inaction) of some key players affect the different customer categories.  These players are the U.S. lawmakers and public health agencies, accrediting agencies and the overseas providers.    


U.S. lawmakers can directly and indirectly open up healthcare to the benefits of medical tourism.  Directly, they can lift the current restrictions on Medicare and Medicaid payments being made to foreign providers.  To ensure high voluntary participation they should also allow the agencies to pass on to the patients a fraction of the savings from the much cheaper treatment.  These two changes directly aimed at realizing the efficiencies of medical tourism involve minor amendments to the Social Security Act of 1965 that governs public healthcare funding.  Medical tourism can also indirectly benefit from broader actions already being debated in Congress.  Of particular note is pending tort reform legislation that includes capping of some malpractice awards.  A by-product of this will be to reduce the legal exposure of U.S. health insurers and doctors acting in good faith to help patients go abroad. 


The federal public health agency Centers for Medicare and Medicaid Services (CMS) can take the lead in laying down quality standards and their method of verification, for the foreign hospitals that it approves.  Such standards can be based on treatment outcomes like risk adjusted mortality and complications rates.  They should replace (or at least supplement) the less meaningful facilities based standards currently used by the primary U.S. accreditation agency, the Joint Commission for the Accreditation of Healthcare Organizations (JCAHO). 


The current standards evaluate the practices, equipment and facilities that a hospital has, and not the treatment outcomes that are of more direct concern to patients.  This is analogous to measuring the quality of a car model based on the condition of the factory floor and equipment used for its manufacture, instead of looking at car defect statistics or reliability performance.  A hospital with adequate buildings, facilities and procedures can similarly get JCAHO accreditation even if it is staffed by incompetent doctors and has a mortality rate several times higher than peer hospitals.  CMS can press for meaningful changes and also require the foreign hospitals to publicly report these audited quality statistics.  This information can better enable U.S. patients to choose their hospitals.


JCAHO itself should not wait for an external push to better align their accreditation criteria with patientsí needs, and like CMS push for open disclosure.  Prospective patients can then choose better among the currently seventy one (and counting) JCAHO accredited foreign hospitals, as well as their U.S. counterparts.  Hospitals and doctors may legitimately worry that pursuit of better statistics may compel them to turn away sicker or higher risk patients.  However, this issue can be considerably mitigated by using risk-adjustment to better calibrate quality, as is now being increasingly done in the U.S.


Finally, the foreign providers and private medical tourism promoters themselves can do a lot to fill some obvious gaps in serving medical tourists.  These include patientsí need for (a) easily locating the most suitable hospitals in terms of competencies and prices (preferably online); (b) ready access to U.S. based physicians for care and coordination before and after their overseas procedure; (c) adequate consultations (and preferably videoconferences) with their foreign physicians before their journey; and (d) seamless travel, stay, treatment and even sightseeing arrangements.  Fortunately, private enterprise in its quest for business will likely provide these linkages on its own, and such efforts are already under way.


Medical tourism can potentially provide enormous cost savings and ease the projected U.S. healthcare woes.  Foreign competition can force some much-needed reforms to make domestic healthcare delivery more efficient.  At the same time there is little impact on the overall employment of U.S. health workers, as continuing manpower shortages plague their industry.  So though it may not please some interest groups, medical tourism will benefit most Americans and should be actively promoted as part of U.S. trade policy.


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