Will the US healthcare crisis lead to thousands of Americans become medical tourists?


This article is written by Steven Gerst vice-president of MedicaView International. Dr Gerst is also interim chair of the advisory board for HealthCareTrip.

Viewing healthcare as a huge potential export, the US should be trying to capitalise on the quality healthcare offered by its hospitals and physicians. But instead, the domestic system is getting so expensive that the US has effectively started to price itself out of world markets. This not only affects healthcare as an exportable product of the US, but US manufacturers and service providers in industries offering health insurance to their employees must then add this cost to the price of their exports and labour costs, making the US less globally price competitive.

By 2010, the cost of healthcare per US citizen is projected to rise from its current average of US$7,110 to US$9,216 per person. At that point, Americans will spend approximately US$1 trillion more per year on healthcare than in 2000 – a 58 percent increase in 10 years. By 2015, healthcare is expected to rise from 16 to 20 percent of the Gross Domestic Product.

Medicare is the largest healthcare payer in the US, comprising more than 50 percent of most hospital and provider revenues. According to Tommy Thompson, former US secretary of health and human services, its budget is bigger than the national expenditures of all but five of the world’s 245 countries, independent states, territories and sovereignties.

Whereas, in the past, patients from around the world used to seek high-quality care from US providers, Modern Healthcare reported in May that the number of patients leaving the US for medical treatment is growing at a faster rate than the number of patients coming in for treatment. It follows that by outsourcing healthcare to other countries, the US is furthering its trade imbalance.

There are large retail price differences between the US and other countries for certain surgical procedures, so it is no wonder US residents in control of their healthcare dollars are seeking care abroad. These include those who are uninsured, underinsured or have health plans that reward cost savings for international travel.

But while Medicare pays rates comparable to some of the Asia and Latin American countries for similar procedures, the US uninsured and underinsured do not have access to this same-rate structure and suffer from retail pricing and cost shifting. Both 60 Minutes and BusinessWeek have reported on this economic phenomenon in recent years, creating increased awareness for patients in need of care who can’t afford US prices.

Medicare and Medicaid have a combined function as the “payer of last resort” for most Americans, and many of the 47 million uninsured use hospital emergency rooms as their primary-care offices. The cost of this ultimately gets passed on to the Federal and State governments, as well as to commercial insurers and employers. 

Why so expensive?

A number of key factors are driving up the expenses of US retail healthcare, for example, the costs of technology, pharmaceuticals, litigation and supporting an aging population.

Technology and pharmaceuticals have improved and become more expensive. The huge influx of Medicare and Medicaid funds into the US healthcare system over the past 50 years has meant that hospitals are able to afford ever-increasingly expensive medical and imaging technology. This has rapidly advanced the development of medical science and the efficacy of care, but these technologies are often supported by the highly inflated prices that can be charged in the US for research, development and manufacturing. But once total initial marginal costs are met, these products may be sold to hospitals in other countries, often at a fraction of the US cost.

Similarly, the US pharmaceutical industry tends to charge two to three times more for branded drugs in the US than it does elsewhere. This is the reason for protectionist legislation passed in the US, which attempts to stop the distribution of pharmaceuticals from Canada, Mexico and other countries across US borders.

In a paper I recently published as part of a new textbook in International Finance, I noted that the top 10 pharmaceutical companies on the US stock market grossed more combined profits in 2005 than the entire remaining Fortune 500. The gap has been widening for more than 20 years.

Another main reason for higher costs in the US is the extremely litigious nature of the healthcare market compared to other countries. High malpractice insurance costs have dramatically driven up the cost to practise medicine in the US. In certain specialties such as obstetrics, neurosurgery, orthopaedics and some general surgical subspecialties, malpractice insurance premiums are so high, and reimbursement rates are dropping, that many physicians can no longer afford to practice. In obstetrics, for example, the physician is not only responsible for the mother, but also for the newborn until age 18, creating an 18-year “tail” for insurance liability.

This doesn’t appear to be as significant a problem in other countries offering quality healthcare. However, with no form of recourse or jurisdiction in foreign countries for potentially unexpected outcomes of surgery, US-based carriers and employers have been somewhat hesitant to sponsor international insured health plans. But the cost savings are so significant, that this may change as international insurers may start to develop medical-travel policies to support the growth in this market.

In the next 22 years, 80 million Americans born from 1946 to 1964 could qualify for Social Security and Medicare. The first wave of 3.2 million baby boomers are turning 62 this year at a rate of 365 an hour. By 2030, Social Security’s caseload will be 84 million people, up from 50 million today. Medicare will go from 44 million beneficiaries to 79 million. That will leave barely more than two workers paying payroll taxes for every retiree. Costs of Medicare and Social Security alone will exceed the US Tax base

The Centers for Medicare and Medicaid currently fund the majority of the healthcare costs for nearly 44 million Medicare recipients (15 percent of the population) through Federal taxes paid through the Social Security Trust Fund. According to the US Census Bureau, the population is expected to grow 16 percent by year 2025 to 335 million. This will significantly increase the financing problem of Medicare.

Clarity is everything

Price transparency is another vital factor when looking at health costs. American hospitals base their retail charges on an intricate budgeting process, which results in each hospital’s revenue and costs being different, as are their prices for services. That is why the price of a simple blood test can easily vary dramatically among hospitals for the same test, using the same machines. This differs from the cost structures in Asia, India and the Latin American hospitals which often post prices on the wall and collect the cash at the door.

As more US residents begin to check websites for prices by procedure and look for quality measurement tools to make their purchasing decisions, US hospitals may eventually have to compete with foreign hospitals on a price transparent basis. Some more innovative hospital systems, such as Alegent Health (Omaha, Nebraska), are starting to post prices on their websites.

As the market for foreign healthcare solutions to the US’s domestic pricing problems begins to grow, one can probably expect to see more pricing transparency before price and service competition begins in earnest.

Ultimately, market forces will drive US hospitals to compete for patients by diagnosis, offering price-competitive packages of services including travel for both the patient and a companion.

This will not only occur internationally, but domestically, as patients gain control of their ever greater healthcare dollars.

Consumer control

In the US, Congress passed laws at the end of 2003 creating Health Savings Accounts (HSA). In the past three years, at least 6.1 million Americans have purchased health policies allowing them to establish these HSA bank accounts.

Employers, individuals and other benefactors can establish and fund these accounts for an employee or individual on a tax advantaged basis, but there are certain limits to the contributions each year.

When using HSA funds for healthcare-related expenses as defined by the US Treasury, there is no tax penalty.  While an individual is free to use the money for any purpose, use for non-healthcare expenses incurs a tax penalty.

According to research done by BearingPoint Consulting, HSA bank deposits are expected to rise to US$350 billion by 2012. As the average balances rise, HSA account holders will take greater control of their healthcare spending looking for price, quality and access.

Another way of funding healthcare is the Medicare Medical Savings Account (MSA), which is just starting to be offered by health plans. Depending on the plan, patients with an MSA will most likely be able to negotiate and purchase healthcare services from any provider in the world.

Consumer-driven health plan designs such as this will put more control of the healthcare dollar in the hands of the consumer – ultimately, the patient and his family. Using either funds from their Health Savings Accounts and Medicare Medical Savings Accounts or cash/credit card, patients will shop online across state and national boundaries for the best price, quality and access they can afford. For the past 40 years, consumers have been excluded from the complete healthcare buying equation, so with more control of the healthcare dollar, consumers will demand more information and more choices among providers.

This will undoubtedly involve consumer friendly off-shore and cross-border providers. It will become easier for US residents to purchase complete surgical packages from hospitals overseas and across borders. In some cases, innovative health plans, such as Companion Global Healthcare (a division of BlueCross BlueShield of South Carolina), will help sponsor and assist members in accessing various choices of healthcare packages, both domestically and internationally.

The truth is out there

While little information has been made available to providers, Josef Woodman’s book, Patients Beyond Borders, is one of the first comprehensive sources of information on choices, quality and price available for the international healthcare marketplace. Other companies, such as MedicaView International, are developing “private-label software solutions” for health systems, insurance companies, medical travel companies and third-party administrators in order to allow for selective or comprehensive listings of providers, prices, quality indicators, medical content, community resources and travel packages for patients and their companions under one single website.

In addition, worldwide associations of providers, insurers and travel professionals are forming, such as the International Medical Travel Association, to provide a consumer friendly forum to share information and further the future of healthcare consumerism.  This will ultimately lead to true economic healthcare centres of excellence around the globe based on price, quality and access

As these centres develop, they will not only cross international borders, but with domestic price transparency, patients will cross state lines to seek care as well.

All of these solutions will likely involve medical travel and companion travel, which is how MedicaView International, Inc  will assist patients, providers, insurers and employers to reduce costs and improve access and quality of care.

What happened with the deregulation of the travel industry a number of years ago, to create more user-friendly websites and booking systems, is now poised to occur in the US healthcare industry. This is not new. Hospitals and providers in India, Asia and around the world have been on a cash basis for many years. Prices are posted in each lobby as they are in hotel rooms and healthcare is treated as a consumer good.

Secretary Leavitt, secretary of health and human services who oversees Medicare, summed up the issue succinctly: “Why can’t we buy healthcare in the US like we buy a car? Medicare paid for 251,000 coronary artery bypass surgeries last year and 91,000 hip replacements. Medicare knows what they cost, why shouldn’t the consumer? Our system of financing healthcare is broken.” I agree.

While no one solution will solve the unchecked healthcare inflation, the institution of rapidly developing globally competitive healthcare markets will have a small but meaningful impact on US healthcare. If US hospitals start losing market share to foreign hospitals, they may have to implement competitive travel packages and transparent pricing to compete.



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