Oxford Analytica on Medical Tourism

Oxford Analytica - NORTH AMERICA:'Medical tourism' industry grows rapidly

The outlook for 'medical tourism'.


SIGNIFICANCE: In a global economy characterised by better access to information and lower transportation costs, North American consumers are discovering that they can get high quality health care more cheaply and more quickly in some developing countries. However, medical tourism may only have a marginal effect on costs in North America.


ANALYSIS: Rising health care costs in the United States and longer waiting times in Canada are inducing patients to seek treatment overseas. Countries such as India, Thailand, South Africa and Costa Rica have seen the most dramatic rise in 'medical tourism'. The appeal of this phenomenon is driven by cost savings as high as 90%, depending on the procedure and the country in which it is performed -- India typically has the biggest discounts -- and there are virtually no wait-times. Moreover, the medical treatment is frequently combined with high-end tourism, as providers offer package deals that include hotel, airfare, spouse's expenses and more (see SOUTH-EAST ASIA: 'Medical' tourism to boost economy - June 23, 2006).



Rising demand. There are over 45 million US citizens without health insurance and more with health coverage that they consider inadequate. While US consumers are concerned mainly with the exorbitant cost of care, Canadians are more troubled by wait-times for certain treatments. Indeed, approximately 1 million Canadians claim to be experiencing difficulties in access to care (see US/CANADA: Pressure for health reform heats up - May 4, 2006).

Official statistics on medical tourism have not been collected, but an estimated 150,000 foreigners sought care in 2004 in India alone -- and this number is growing at a rate of about 15% annually. Most of these patients are from the Middle East or Asia but the proportion of US citizens and Canadians is rising. Although providers offer a diverse range of services, the most common procedures are elective:



Specialty care. Services such as in-vitro fertilisation and cosmetic surgery -- which are very expensive in North America and unlikely to be covered by public or private insurance -- are in high demand.

Dental care. Dentistry is one of the fastest growing sectors in the overseas health care industry.



Cost-benefit analysis. Medical tourism offers cost savings but carries some additional risks:



1. Benefits. There are many benefits, which go beyond cost:

* Consumers gain from cost savings, but may also receive excellent care from highly qualified doctors.

* Many providers offer more personalised care -- ie a higher physician to patient ratio -- than is commonly available in the United States or Canada.

* Some services that are not yet approved by the US Food and Drug Administration, such as certain hip replacement surgery techniques, are available overseas.


2.

Potential risks. Consumers also face risks when undergoing treatment in a foreign country:

* Follow-up is difficult when the patient returns home and expensive care may be required if complications occur.

* Quality assessment is problematic -- most patients find a provider on the internet and do not check the provider's licensing status and certifications -- and the language barrier can complicate matters. Nonetheless, by posting clear information online, some foreign providers are already doing better in terms of price and quality transparency than many of their Western counterparts.

* Malpractice laws in other countries are different. In the case of negligence, a patient would find it hard to navigate a foreign legal system and payouts may not be up to US standards.

Competition. Foreign providers stand to gain from the looming demand and are eager to increase supply. Nevertheless, competition is fierce, leading to consumer-directed advertising campaigns. This burgeoning international market for medical care may also drive US providers to respond to the increase in competition:


* Overseas impacts. Local hospitals, physicians and medical staff are benefiting from higher revenues. For example, medical tourism in India is forecast to generate over 2 billion dollars in revenue by 2012, according to a study by McKinsey and the Confederation of Indian Industry. Higher returns for medical professionals may also help to mitigate the 'brain drain' to the West.

* Domestic changes. US hospitals make most of their money on high-margin elective surgeries not typically covered by insurance plans. They may need to become more efficient and affordable to avoid losing business overseas.

US employer responses. Some US employers, concerned about rising health care costs are using financial incentives -- like shared cost saving -- to encourage employees to experiment with medical tourism. This is especially common at large firms that self-insure and pay directly for their employees' medical expenses. Opponents, including unions, argue that it exposes employees to greater uncertainty and risk. Nevertheless, some anecdotal evidence suggests that workers prefer the overseas option when the cost savings are high enough.



Equity issues. Many developing countries see medical tourism as positive and want to push its growth. For example, the Indian government has offered financial incentives by defining medical care for tourists as an 'export', giving it special tax status. Other medical tourism-related projects, such as building airports and promoting health infrastructure, are also receiving public support. However, health care for most citizens in developing countries remains poor. Such intense focus on the private sector is diverting resources away from the local poor and the public health system towards wealthy tourists.



Outlook. Medical tourism will continue to expand rapidly. However, its long-term growth rate depends on several factors:


* Insurance market. While companies specialising in arranging trips for medical tourists are flourishing, insurers have been slow to adapt to this new market. Insurers may consider partnering with certified foreign providers to create new plans that cover overseas medical expenses.

* Legislation. North American governments may consider facilitating this assimilation of foreign care into domestic insurance plans -- both private and public -- through legislative action. Such legislation will face stiff opposition from unions and domestic medical groups. Yet a bill was recently introduced in West Virginia that would allow private health insurance companies to offer consumers financial incentives to seek cheaper care at accredited institutions abroad. Canada's courts have also begun to recognise that patients who seek "medically necessary" treatment abroad have a right to reimbursement (see CANADA: Private health care becomes election issue - December 21, 2005).

* Image problem. Rich world consumers will have to overcome stereotypes of developing world poverty, lack of education and hygienic problems in order for the industry to thrive. Positive outcomes for those patients who do venture overseas may help to quell these fears and build solid reputations for foreign providers.

* Inelastic demand. Uninsured US citizens represent the largest group of prospective medical tourists. However, research shows patient demand tends to be relatively price inelastic for procedures that cost under 1,000 dollars. As median annual health care expenditures per capita for the uninsured are well under this level, more than half may have no interest in medical tourism. Yet as costs keep rising, more and more of these individuals may consider it.



CONCLUSION: The knowledge that the same care is available elsewhere at a much lower cost may encourage consumers to be more price-sensitive about certain medical procedures, increasing transparency, lowering costs and improving quality. However, this is unlikely to benefit most consumers -- particularly the poor and uninsured.

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