Medical Tourism: Global Competition in Health Care

Health | International | Policy Reports

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

Obstacles to Health Care Globalization

Health care globalization, including medical tourism and medical outsourcing, has the potential to lower costs and increase competition in the American health care industry.  However, there are numerous obstacles to incorporating foreign health care providers into the U.S. health care system.  Some of these barriers are the result of entrenched interest groups that do not want to compete with low-cost providers. Federal and state laws also create a number of obstacles to Americans seeking treatment abroad, including outdated laws supposedly intended to protect consumers that now merely increase costs and reduce convenience.  Finally, state and federal regulations currently restrict public providers from outsourcing expensive medical procedures.

“Medical tourists provide resources to improve health care in developing countries.”

In addition, federal regulations make it difficult for private plans to offer financial rewards to enrollees willing to seek care abroad.  This is significant because insurance pays the bills for most U.S. patients and surveys find that patients are unwilling to travel long distances for health care of the same quality they could receive at home unless they have a financial incentive to do so.

State Licensing Laws.  Recent advances in information technology allow a radiologist to read X-rays from India just as easily as an American radiologist could read them from a home office.  However, the practice of medicine is regulated by state medical boards, which generally require a physician to be licensed in the state where the patient receives treatment. Thus, state licensing laws prevent medical tasks from being performed by providers living in other states or countries.  Foreign physicians also lack the authority to order certain tests, initiate therapies and prescribe drugs that American pharmacies can legally dispense.

“State regulations prevent out-of-state doctors from treating patients.”

States license and regulate physicians with the ostensible goal of maintaining the quality of medical care. However, state medical boards are dominated by physicians and, like the boards governing other regulated professions, they tend to benefit the practitioners. Besides stringent licensing requirements, these organizations suppress competition among physicians by declaring certain practices to be unethical. Medical societies have long opposed innovations that pose a threat to their autonomy or income. And threats to hospital revenue or the ability of hospital systems to cross-subsidize uncompensated care generate considerable opposition.

Some restrictions on the practice of medicine have been removed in recent years, but many still exist.  For example:

  • It is illegal for a physician to consult with a patient online without an initial face-to-face meeting.
  • It is illegal in most states for a physician outside the state who has examined a patient in person to continue treating the patient via the Internet after the patient returns home.
  • It is illegal in most states for a physician outside the state to consult by phone with patients residing in the state if the physician is not licensed to practice medicine there.

These laws make it difficult for American patients to seek care from doctors abroad via telephone and the Internet.

Restrictions on Collaboration among Health Care Providers. A physician practice in the United States could easily provide doctor visits in a traditional office, coupled with chronic disease management services from a foreign doctor and tests done at a convenient retail clinic when needed. Yet this scenario might run afoul of the so-called Stark laws.  The federal Stark laws make it illegal for a physician to refer a patient for treatment to a clinic in which the doctor has a financial interest.  It is also illegal for a physician to reward providers who refer patients to him, or to a hospital in which he has a financial interest.  Unfortunately, laws meant to prevent self-dealing and kickbacks also inhibit beneficial collaborationbetween doctors and hospitals.  For instance, the Stark laws could prevent a physician practice from referring a patient with a chronic condition to an affiliated disease management program (employing a foreign doctor) or prevent the practice from referring a patient needing minor treatment to an affiliated walk-in clinic.

By limiting compensation arrangements for referrals and collaboration, the Stark laws tend to result in rigid physician group practices that are not particularly convenient or economical for patients.

“Some physicians are reluctant to provide follow-up care for patients treated abroad.”

Lack of Follow-Up Care.   Some procedures require follow-up care to monitor the healing process or remove stitches.  In some cases, patients who have traveled abroad for medical procedures have problems finding a local physician willing to provide postoperative follow-up care. This is especially worrisome if the patient has complications.  Liability for another provider's work is a perceived risk to doctors providing aftercare — one reason some American physicians are loath to provide follow-up care to patients treated abroad.

Another reason for physicians' reluctance to provide follow-up care is that patients treated abroad often lack insurance.  Over the years, many doctors have assumed that health insurance is the only way for patients to finance medical care.  Physicians may prefer not to treat uninsured patients (unless payment is made in advance) for fear they will not get paid.

Although lack of follow-up care is definitely a concern, many patients who have had surgery abroad report their regular doctor continued to treat them throughout recovery. Patients with a regular physician will likely fare better than those who are only seeking physician care for a short-term (postoperative) need.

“Government health programs could save money from medical globalization.”

Legal Obstacles.   Employers and insurers could lower their health costs by sending employees abroad for treatment.  However, there are important legal considerations.  Plan sponsors must meet Employee Retirement Income Security Act (ERISA) fiduciary obligations in designing and managing employee benefit plans. According to some legal scholars, an employer that sponsors a health plan offering workers a financial incentive to travel abroad for treatment could have greater liability risks.  The concern is that financial incentives might induce enrollees to accept substandard care when they otherwise would select the local hospital of their choice although many health plans do just that by offering financial incentives for patients to choose hospitals in their networks. If health plans cannot offer enrollees financial incentives, patients are unlikely to consider medical travel.

Federal and State Government Plan Obstacles.   Nearly half of all health care expenditures in the United States are paid for by government.  [See Figure V.] U.S. Health Care SpendingThis includes Medicare, Medicaid and health coverage for state and federal workers. It is hard to imagine significant cost savings occurring without involving the public sector.

“Health should be able to offer finanical incentives for patients to shop for health care.”

Medicaid consists of 50 different state programs.  State Medicaid programs near the border with Mexico could easily outsource some procedures abroad.  Yet despite the potential savings for state taxpayers, none have considered taking this step.  Medicare benefits are limited to the United States. This is a hardship on foreign-born workers who accrue benefits in the United States but want to return to their homelands to retire. This also forces the estimated 40,000 to 80,000 American retirees living in Mexico to pay out of pocket or return to the United States to receive care.  Furthermore, Medicare requires significant patient cost-sharing, generally 20 percent above the deductible.  Medicare could reduce costs and allow seniors to share in the savings by waiving the cost-sharing requirements.

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