Medical Tourism: Global Competition in Health Care

Health | International | Policy Reports

No. 304
Thursday, November 01, 2007
by Devon M. Herrick

How Globalization Is Changing the U.S. Health Care System

For the United States, globalization of health care encompasses both exporting patients (medical tourism) and importing medical services (outsourcing).  This medical trade has the potential to increase competition and efficiency in the United States.  Princeton University health economist Uwe Reinhardt says the effect of global competition on American health care could rival the impact of Japanese automakers on the U.S. auto industry — forcing domestic producers to improve quality and to offer consumers more choices.

Apart from patient travel, many medical tasks can be outsourced to skilled professionals abroad when the physical presence of a physician is unnecessary.  This can include long-distance collaboration — incorporating the services of foreign medical staff into the practices of American medical providers.  Finally, global competitors can build facilities closer to the United States and selectively contract with U.S. health insurers.

Outsourcing Medical Services.   Information technology makes it possible to provide many medical services remotely, including outsourcing them to other countries.  Telemedicine — the use of information technology to treat or monitor patients remotely by telephone, Web cam or video feed — is becoming common in areas where physicians are scarce. It gives rural residents access to specialists and will probably become the preferred way to monitor patients with chronic conditions.

Outsourcing often results in lower costs, higher quality and greater convenience.  Some clerical tasks, such as medical transcription — entering physician notes and dictation into a patient's electronic medical record — are already outsourced.  American hospitals increasingly use radiologists in India and other countries to read X-rays. For instance, NightHawk Radiology Services contracts with American board-certified physicians living in Australia for overnight interpretations of X-rays and scans. Other medical tasks that don't require the physical presence of a physician could also be outsourced to lower-cost doctors abroad. The British National Health Service (NHS) is considering using doctors in India to read some lab tests and MRI scans.

PlanetHospital has offered to work with U.S. hospitals to set up local imaging centers that would use physicians in India to read imaging scans.  An MRI scan could be performed profitably for as little as $400 to $500 — far less than typical U.S. prices. 

“Outsourcing some medical tasks can reduce costs and improve quality.”

Opportunities for American and Foreign Health Care Providers to Collaborate.  Helping patients properly manage a chronic condition is often complex and time consuming. Outcomes could be improved if teams of medical providers worked together to improve all aspects of medical treatment through aggressive management.

When multiple physicians are treating a patient, a case manager could ensure that all physicians are coordinating their efforts.  However, such close monitoring and interaction is labor-intensive and costly.  Often these tasks are not reimbursed or are reimbursed at rates lower than the cost of providing them.  A potential solution is for American health care providers to collaborate with low-cost providers in developing countries by having them perform these labor-intensive tasks that don't require the physical presence of a physician.

Telemedicine, which involves remote consultation, monitoring and treatment of patients, is increasingly being used in disease management programs. Past research has already shown that telemedicine can improve adherence to protocols and increase convenience for patients with chronic ailments. Thus, it is a logical to outsource some of disease management or remote health coaching to places where labor costs are lower.

Creating New Heath Insurance Plans that Cover Medical Travel.  Currently, most insurers do not include foreign providers in their networks, but they may in the future. Mercer Health, an employee benefits consulting firm, is working with several Fortune 500 employers to take advantage of medical travel. Several health insurers are also experimenting with international coverage.  Milica Bookman, a professor at St. Joseph University, predicts that by 2009, it will become increasingly common for mainstream health insurers to include foreign providers in their networks. The following are some examples of insurance products that already use foreign providers.

Access Baja .BlueShield of California has a health network designed for people who choose to get their medical care in Mexico.  Access Baja was implemented a year after California passed legislation in 1999 allowing the state's insurers to reimburse providers in Mexico. Although many of the enrollees are Mexican nationals who cross the U.S. border each day to work, employers on both sides of the border can offer this plan to their workers.  However, the plan requires enrollees to live within 50 miles of the border to easily access the Mexican primary care physicians in the BlueShield network.  By 2005, nearly 40,000 people had signed up for coverage offered by Mexican health care providers.

Because Mexican medical care costs less, Access Baja premiums are less than two-thirds the cost of the alternative BlueShield of California plans. Hispanic enrollees can have a doctor who is fluent in Spanish and understands their culture.  An added convenience is that Mexican physicians are often available for same-day appointments, as well as evenings and on weekends.

“Some health plans cover treatment in foreign countries.”

Networks with Foreign Hospitals.  Some health plans take advantage of the potential in allowing enrollees to travel abroad for lower-cost treatments.  In February 2007, BlueCross BlueShield of South Carolina added Bumrungrad International Hospital in Thailand to its network. South Carolina BlueCross BlueShield does not plan to require patients to go abroad for lower-cost care, nor is it actively considering using financial incentives to encourage patients to travel abroad.  Rather it is a value-added service available to members who request it. While no patients have thus far taken advantage of this service, it may benefit underinsured patients facing steep out-of-pocket payments.

Other Options . As the medical tourism trend grows, other U.S.-based companies in the health industry are looking at ways to offer medical travel that is at least partially covered by health insurance.

  • Over the next few years,at least 40 company-sponsored health plans will offer overseas options through United Group Programs, a health insurer in Boca Raton, Florida.
  • In 2006, West Virginia's legislature held hearings on the possibility of including foreign hospitals in its state employees' health plan network.
  • And the medical tourism firms IndUSHealth and PlanetHospital are in the process of creating health insurance products that combine American-based primary care with foreign travel for expensive procedures.

PlanetHospital .  PlanetHospital is working with a major insurer to design a low-cost health plan.  Initially, PlanetHospital plans to roll out a limited benefit plan, sometimes referred to as a “mini-med” plan, based on the casualty insurance model where the benefit is a specific sum of money. These types of plans generally provide coverage for a limited number of physician visits each year, a limited amount of inpatient care and sometimes coverage for prescription drugs.  Mini-med policies typically cap benefits at a maximum of about $25,000 annually. Since the amounts these policies will pay are relatively low, patients can expect significant cost-sharing for medical care.  But this provides an incentive for patients to carefully shop to avoid high out-of-pocket costs.

“New health plans offer a fixed payment per procedure to encourage patients to shop for health care.”

The unique part of PlanetHospital's plan is that it will reimburse patients the same amount for each particular service, regardless of where it is performed.  Thus a patient could significantly lower out-of-pocket costs by going abroad for treatment.  For instance, an enrollee who needs a heart procedure could easily spend more than $50,000 at a hospital in the United States. A mini-med policy may pay only $10,000 toward the cost.  But abroad, the same surgery could cost less than $10,000, including travel, thus making the mini-med a sensible and affordable alternative.  Because coverage is limited, this policy will cost about $50 to $100 a month, only a fraction of a traditional health plan .

PlanetHosptial's first step will be a health plan aimed at El Salvadorans living in the United States.  Enrollees would receive a limited number of primary care visits locally under the plan and could travel to El Salvador for covered major medical needs.  If the plan proves successful, additional ones will follow for countries such as Mexico and India.  Coverage under one of these “mini-med” plans might cost a family as little as $200 per month.

Effects of Increased Competition on U.S. Health Care Markets. Global competition could lower the cost of some medical procedures.  At the same time, increased international competition for qualified medical personnel could raise labor costs in the United States.  If foreign medical students, physicians and nurses currently in America choose to work overseas, there may be shortages of workers in some medical specialties in the United States, and wages for these workers will rise.  This is especially likely in areas of medicine not easily outsourced. For example, radiology is relatively easy to outsource since it does not require the radiologist to be physically present.  Although radiology has been one of the highest-paid specialties in medicine, that is likely to change in the future since reading X-rays and other scans can easily be outsourced.  On the other hand, outsourcing would have little effect on the inherently local practice of emergency room medicine.

Global medical competition could also exacerbate the shortage of primary care physicians in the United States. Today nearly one-quarter of practicing physicians in the United States attended a foreign medical school.  Indeed, each year nearly one-quarter of slots in U.S. medical residency programs are filled by foreigners. Greater opportunities in their native countries and in other countries could reduce the number of foreign physicians (and nurses) practicing in the United States.  It could also encourage more of them to return home after they receive training. Many foreign medical graduates work in underserved rural areas, so these communities would be especially hard hit.

Also, due to an ongoing nursing shortage, American hospitals recruit foreign nurses to fill vacancies. A smaller supply of foreign physicians and nurses willing to work in the United States could strain the U.S. health care system by raising labor costs.

Effects of Globalization on Health Care in Other Countries.  Today many African countries are experiencing shortages of physicians and nurses.  Because of the opportunity to earn more in Europe and the United States, many physicians trained in Africa emigrate.  More opportunities to work, higher pay and entrepreneurial opportunities in developing countries could reduce this brain drain.  This would benefit the local populations by increasing their access to care.

Critics in developing countries claim that health care facilities and providers that serve medical tourists will treat only foreign patients to the exclusion of native-born poor residents. This is unlikely, since most hospitals in developing countries cannot survive on cash-paying medical tourists alone. But even if specific hospitals in developing countries are open only to foreigners and local elites, the health care systems of these countries will be enriched by the influx of revenue, enabling them to offer local populations increased access to medical care.

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