Medical Tourism A Ticket to Lower Health Care Costs

By Jeremy Smerd

Dec. 1, 2006

Carl Garrett signed up to have his employer, Blue Ridge Paper Products, send him to India in September for a gallbladder operation that would have saved the company money while putting some in Garrett’s pocket as well. But the trip was canceled after Garrett’s union threatened to file an injunction. And rather than become a pioneer in a burgeoning industry, Garrett and Blue Ridge Paper became its first victims—a symbol of the challenges facing employers who are looking to save money on health care.

    In a scathing letter to Congress, United Steelworkers president Leo Gerard listed a number of reasons why traveling overseas for health care is a benefit with an image problem.

    “No U.S. citizen should be exposed to the risks involved in international travel, possible exposure to less than sanitary conditions, lack of oversight, forfeiture of legal rights and little, if any, recourse in the event of problems. These are all unwarranted risks to which Americans should not be subjected,” Gerard wrote. “The willingness of employers to offer incentives for assuming these risks is frightening. The right to safe, secure and dependable health care in one’s own country should not be surrendered for any reason.”

    While thousands of Americans annually travel abroad to India, Thailand and Mexico for elective surgeries that meet or exceed U.S. standards but are performed for a fraction of the cost, large self-funded employers, facing increasing health care costs, have been hesitant to use this option to save money. One reason is that large companies fear being vilified like Blue Ridge Paper.

    But concerns regarding image are just one part of the puzzle. Employers wanting to offer this new benefit to employees must also consider health and legal risks. Employers need to decide whether doing so violates ERISA; whether the employer will be held liable if something goes wrong in the operating room; how an out-of-country network is to be administered; and whether the employee or employer will pay taxes on items not traditionally exempt, such as airline travel and hotels.

    While savings are hard to quantify, they could be substantial. Mercer Human Resource Consulting has estimated that the surgeries most likely to be “offshored”—a term of art for the industry also known as medical tourism—in the fields of orthopedics, cardiology, neurology and urology represent at most 2 percent of total U.S. health care spending, or about $40 billion. (According to the Centers for Medicare and Medicaid Services, national health care expenditures totaled $1.9 trillion in 2004 and are projected to reach $2.16 trillion for 2006.)

    Reducing its share of those costs is what prompted Blue Ridge to consider sending Garrett to India.

    Garrett, a machinist at the Canton, North Carolina, company, is the kind of employee who takes every opportunity to save on medical care. In 1999, with the company’s health care costs increasing 18 percent a year, Blue Ridge was bought and spun off by a venture capital firm. As part of the company’s transition to a 45 percent employee stock ownership program, the union agreed to a 15 percent wage cut and seven-year wage freeze.

    Blue Ridge then launched a diabetes management program that waived co-pays on medicine in hopes of reducing overall health care costs. Garrett, his job intact but with less money, saved hundreds of dollars on diabetes prescriptions he got for free.

    The company’s annual health care cost increases had slowed to 3.5 percent by 2005. That’s when Garrett heard his employer was considering sending employees to India for elective surgeries. Part of the company’s savings would go back to employees. Garrett volunteered to have his gallstones removed and, while he was at it, have his rotator cuff fixed. The company would save about $80,000 on the two surgeries, and Garrett, for his trouble, would receive $10,000 of the savings.

    Then the union got word of the deal.

    “We said fine,” says Bob Williams, a spokesman for Blue Ridge Paper, of the company’s decision to acquiesce to the union’s concerns. “We were trying to work from a collaborative approach.”

Assuaging fears
    Not consulting with the union was a mistake, but the pitfalls probably wouldn’t have ended there. David Frazzini, a principal at Mercer Health and Benefits, which represents about 10 large self-insured companies exploring medical tour­ism, says the newness of the industry and the misconceptions about it require employers to consult with those in the company who have an emotional and fiduciary stake in employee health benefits. That includes union and nonunion employees, company boards and others.

    “There are still issues of perception, and those are real considerations,” he says. “It’s a new topic and new things scare people. Stakeholders would have to be in agreement to make this play.”

Medical tourism may fource American hospitals to lower prices to become more globally competitive.
“Outsource me. I just want to be busy and do what I love to do.”
–Cary Passik, private practice cardiothoracic surgeon on Planet Hospital’s list of American doctors

    Companies catering to this potential market are aware of employers’ concerns and are doing what they can to offer products to allay worries.

    Making sure medical care is of the highest quality is the first step toward sending employees abroad for surgeries. Such due diligence is part of the service provided by medical tourism companies and health insurers, some of which are beginning to offer out-of-country networks of hospitals and doctors. Because every major health insurer has doctor and hospital networks around the globe for companies with expatriate employees, finding quality care is not as difficult as it might seem.

    Doctors or hospitals outside the U.S. must meet standards similar to those for medical providers stateside, executives from medical tourism companies say. In 1999, the same organization that created the Joint Commission on Accreditation of Healthcare Organizations, the universal standard for hospital accreditation in the U.S., launched an international accreditation and quality improvement program called the Joint Commission International. The International Organization for Standardization, a nongovernmental organization, has also established guidelines that employers can use to determine whether hospitals meet internationally recognized safety standards.

    The benchmark for doctors is board certification within their specialty, either in the United States or the United Kingdom.

    “So the quality modifiers are the same in the U.S. as they are overseas,” says Rudy Rupak, the founder of Planet Hospital, a medical tourism company. Rupak says knee replacement surgery in India costs $3,500, compared with an average 2003 cost of $31,000 in the U.S., according to the American Academy of Orthopedic Surgeons.

    Beyond quality, there is a cultural gap. Accreditation and board certification do not replace the emotional connection between doctor and patient, Rupak says. For that reason, he has developed what he calls his “Best of Both Worlds” program. In it, an American doctor delivers pre- and post-operative care and travels abroad to perform the surgery.

    Cary Passik, a cardiothoracic surgeon in private practice in New Haven, Connecticut, where he is also the associate section chief at Yale New Haven Hospital, believes medical tourism may force American hospitals to lower prices to become more globally competitive. Being on Planet Hospital’s list of American doctors may also help him make up for the decline in the volume of surgery his three-man practice has experienced in recent years.

    “Outsource me,” Passik says. “I just want to be busy and do what I love to do.”

Removing the middleman
    The circumstances fueling interest in overseas medical care have made employers and doctors like Passik strange bedfellows. Both view hospitals as expensive middlemen between doctors and patients.

    For every coronary bypass surgery Pas­sik performs, he is paid $2,800. That compensation stays the same, regardless of how much the hospital charges the patient or his insurer, a number he says ranges from $25,000 to $50,000. And if the person is not insured, Passik says, he does not get paid.

    The cost of bringing an American specialist would be passed on to the patient. But in the end, a knee surgery performed by an American doctor abroad would total about $7,000.

    “Hospitals don’t do anything for me except give me a place to practice,” Passik says.

    Passik hopes medical tourism will help create a health care market that offers individuals and employers more competitive rates. But to achieve this market change, enough employers must buy into the concept of medical travel to create the kind of critical mass that moves markets.

    Employers will need indemnity against lawsuits from employees with a medical malpractice claim, and they will need to integrate the overseas option into their existing benefits plan. Rupak says his company may offer a liability policy that protects employers from lawsuits.

    The solutions may depend on whether health insurance carriers enter the market. These companies would be best equipped to handle the legal and administrative hurdles of medical tourism.

    Smaller health insurance companies, like HealthNet in Woodland Hills, California, offer special plans for employers along the Mexico border. United Group Programs, a Boca Raton, Florida, company, is another regional health insurance company among the first to offer an out-of-country network to both fully insured companies and employers that offer “mini-medical” plans, which pay for a portion of the cost of surgery. The company, which has partnered with Planet Hospital, has about 300 clients from large companies with 10,000 or more employees, but only a handful, such as staffing company Manpower and DaimlerChrysler’s Mercedes-Benz dealerships, have expressed an interest in exploring the option.

    Major health insurance carriers, including Aetna, Blue Cross, Cigna, UnitedHealth Group and WellPoint, offer hospital networks for overseas members. None, however, have offered an-out-of-country hospital and doctor network for members stateside. Several say they are exploring the idea.

    Ultimately, the biggest impediment may be employer reticence, not a lack of willingness from employees to go abroad. If the incentives are right—waived co-insurance fees, a free trip for a companion or a share in the savings—employees will likely be enthusiastic, those in the industry say. Employers require more coaxing.

    United Group Programs vice president Jonathan Edelheit is enthused about his company’s out-of-country network. His customers, however, are not so openly enthusiastic. All declined to be identified for this article.

Workforce Management, November 20, 2006, pp. 1, 29-33Subscribe Now!

Jeremy Smerd writes for Crain’s New York Business, a sister publication of Workforce Management.

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