What are the real savings in medical tourism?
The MedTripInfo site has a commentary posted on August 9, 2007 by David Williams: “What questions should health plans and employers be asking about medical tourism?†In this commentary, item 8 poses the question: “How much am I likely to save ...?†Mr. Williams indicates that most of the estimates tossed around claim “90% savingsâ€, however, a methodical analysis of the true savings potential for an insured population has not been reported.
My research on medical tourism allows me to provide some perspective on this question. In explaining the methodology of my analysis, readers will understand why this is such a difficult number to come by. In addition, this preliminary work may serve as a useful framework for others who wish to address this question.
To derive an answer that will state savings of a certain % we must first pose the question: “% of what?â€. This is a fundamental and very important question; indeed the calculated savings is entirely dependent on this one point. As Mr. Williams states in item 8, “only the uninsured get stuck paying chargesâ€. As everyone familiar with health care accounting and finance knows, the relationship between the price charged and the payment that a provider will accept is quite variable. Providers routinely accept discounted payments from Medicare, Medicaid and commercial insurance plans. And many providers are actually willing to accept payments of less than posted charges from self-pay patients. To get this kind of a deal a patient (or family member) must ask for such before having treatment and must be willing to commit to reasonable terms and a clear payment arrangement. Furthermore, a physician or hospital will be much more agreeable to this arrangement if a patient makes a meaningful deposit at the time terms are discussed. I speak with authority in this matter because I did just this in my own practice for many years – offering some very substantial discounts. It is my opinion that the most appropriate answer to the question “% of what†requires that we use a price that a patient can reasonably negotiate from most providers most of the time. This will be somewhat below the stated price but above what commercial insurance plans will generally pay. I recognize that these are assumptions. But because our calculation of savings will be unrealistically optimistic if we use the published price, I am going to base my calculations on my best estimate of what a patient would really have to pay if they made reasonable efforts to get a better deal.
My analysis involves the total out-of-pocket payments for hip replacement surgery (one side) in the US vs. India vs. Costa Rica. My data is derived from the public web sites of several medical tourism agencies as well as information provided by an experienced agent during a telephone interview. The widely quoted price for this operation in the United States ranges from about $ 44,000 to $ 62,000. For the reasons explained above, I am using the figure $ 40,000 for this analysis. I assume that there are no additional charges for postoperative complications in any of the groups. I also assume that an American patient having care in the United States incurred no charges for travel and accommodations. The calculation of travel costs assumes that patients travel with a spouse or other companion.
Table 1: Cost for Hip Replacement at US and Offshore Medical Centers
For clarity of presentation, some data are aggregated and rounded up or down to the nearest $50 increment. Travel costs are based on quotes by a medical tourism agent and confirmed using an online travel web site. Travel costs are for the patient and one companion in economy class from Atlanta to New Delhi, India / San Jose, Costa Rica.
This analysis shows that the medical savings for unilateral hip replacement are 86.5% and 83.5% in India and Costa Rica, respectively. The calculated savings are actually quite close to the commonly cited number of 90%. Indeed, if we were to reanalyze the data assuming that $48,750 was the very best price that a self-pay American patient could get in a US hospital, then the price of $5400 for India would provide savings of 90%.
But the figure that American consumers (patients) are really interested in is total savings. For this analysis of hip replacement, the total cost savings are 75% for both countries evaluated. Although the medical costs are 18% less expensive in India than in Costa Rica, substantially greater travel expenses adversely impact the overall savings.
One important consideration omitted from every analysis of savings in medical tourism, including this one, is opportunity costs. If a patient were to have surgery in their own hometown, their spouse might miss a day or two of work. But a trip to a foreign country may well necessitate prolonged unpaid absence from gainful employment. Furthermore, the requirement for a patient and partner to be away for several weeks may be associated with expenses for childcare and/or elder care. On the other hand, in certain situations, offshore health care may enable some patients to enhance their savings by combining their travel with previously considered or planned tourism activities. Opportunity costs, expenses created by absence from home and enhanced savings are highly variable and not well suited to quantitative analysis. Nevertheless, they must be recognized because they clearly have substantial impact on the financial decision for patients considering offshore health care.
So let’s return to the original question posed by David Williams: “How much am I likely to save ...?†If someone needs hip replacement surgery and decides to go to India or Costa Rica, my analysis suggests that overall savings are about 75%.
Dr. Horowitz has been researching medical tourism and international medical travel since 2005. He is the author of several articles on medical tourism and has given professional presentations on this topic. Dr. Horowitz is currently forming a consultation firm focused on the medical tourism industry. A graduate of the University of Miami School of Medicine, Dr Horowitz practiced Surgery for more than 15 years. He has an MBA from Goizueta Business School, Emory University. He can be contacted at michael_horowitz@mac.com.
Are cost differences the same for less expensive cases?
This is a very interesting and useful cost clarification. I am wondering if the differences of 90% (or 75% considering full costs of travel) exist across different types of procedures. In particular, is the cost difference that large only for relatively expensive procedures, such as hip replacement, or would also be achieved in less expensive cases, such as dental implants?
Cost differences for other types of cases
I do not have the specific charge information about procedures other than hip replacement, however, I can offer some insight on the factors that would influence a patient’s overall cost.
Within a given country, the cost of the medical care for a given procedure will be impacted by several factors:
1) The requirement for sophisticated high-tech equipment and materials, particularly implants and pharmaceuticals that are consumed by a particular patient, is an important determinant of prices. This is particularly significant when these materials must be imported from industrialized nations. A developing country with a devalued currency is in a very disadvantaged position when local currency must be converted in order to purchase expensive supplies and drugs from a wealthy nation.
2) Because wages are relatively low in developing countries, the amount of professional time and effort required for a procedure may have a limited influence on costs.
3) The nature of a particular procedure influences the length of hospitalization and the amount of time that a patient must spend in a destination country. Â
It is important to recognize that variations in the nature and cost of medical care will drive changes in the cost of arranging the care (commission) as well as non-medical costs at the destination (more or less time in a hotel, meals, etc…).
Although I do not have the benefit of complete cost data, I would anticipate that within any given country, the relative savings are greater for procedures that do not require use of expensive implants or supplies, even if the procedure is somewhat more labor intense and requires longer postoperative hospital care.Â
I cannot speak to the relative savings with dental implants. It would be possible to do this analysis for any given procedures and countries if credible component cost data were available.Â
Fascinating analysis
It's a fascinating analysis. It's impressive that the cost difference is so great, even when starting from a more realistic US price rather than charges.
A couple of additional questions come to mind:
Reply to questions by David Williams
1) The cost of a hip prosthesis (or any other implant) will depend on the manufacturer, the country in which the device is actually made, and the intended distribution.  Â
Undoubtedly, American medical tourists want prostheses made by American manufacturers. I would be surprised if joint prostheses are not manufactured in India considering the population of 1.1 billion people. On the other hand, I doubt that many implanted devices are produced in Costa Rica, with a population of slightly more than 4 million (the same size as Metro Atlanta). Â
A substantial proportion of the cost of a surgical implant goes to cover US regulatory compliance, liability insurance and reserves for possible future recalls. Joint prostheses, heart valves, pacemakers or implantable cardioverter defibrillators have much more liability risk when sold in the United States than in less litigious countries. I was once told that US device manufacturers are able to sell products at a lower cost in other countries by appropriately allocating regulatory costs and liability risk to their domestic and offshore market segments. Thus, an implant company can identify certain product for distribution in specific countries by unique model, batch or serial numbers. Even though the device may be identical by engineering and manufacturing criteria, the company can use differential pricing by including or excluding certain costs associated with the product but not actually contained in the box. I would be interested in input from anyone who is currently involved with marketing or sale of implantable devices in the international arena.
2) Based on my conversations with American physicians and other health care participants, I believe that most providers do not currently see medical tourism as a realistic international option. I suspect that this will change over the next few years because of increasing coverage in the lay press and medical literature. Also, US physicians will begin to encounter an increasing number of patients who have had offshore care.
Self-pay patients may become more attractive to US physicians in the near future because there is a rapidly increasing number of firms providing financing for medical and surgical care. This will allow patients to negotiate better prices because providers assume no collection costs or risk. At the same time, as insurance payments to providers plummet, self-pay patients could become a valued source of cash flow. I am not certain how much the offshore option will be a factor in the immediate future.
Managerial accounting in healthcare is a great impediment to better business practices for most providers. Practitioners who are able to implement sophisticated accounting practices to understand their true fixed costs and variable costs will be in an advantageous position to offer certain self-pay patients prices that are extremely attractive. The challenge here will be for providers to optimally utilize existing capacity in ways that minimize marginal costs while optimizing marginal revenue.
More on Hip Prosthesis Economics
I think the cost of a total hip prosthesis is on the order of $4K-$7K in the US, the higher being newer ceramic on ceramic and the lower being metal on metal.
You raise a great point that the economics of going abroad will vary greatly by procedure.  For example, with the implantation of an ICD (implantable cardioverter defibrulator), the implant cost is on the order of $30K and the procedure is done on an outpatient basis. The implant is a huge % of total cost, so it comes down to the relative cost of the implant in the different markets.
On the other hand, a CABG is a costly procedure, but there is no implant. While the perfusion and other equipment are costly, the medical devices/implants account for much less of the total hospital/physician costs.
I believe all of the major hip companies still have plants only in the US and western Europe. And I believe there still are government-set pricing limitations on medical devices in many countries. Thus, there is a similar situation to Pharma where there is great pricing disparity across international markets.
And I think medical tourism may open a pandora's box for device/implant manufacturers. One would think that someone going abroad for a major medical procedure would highly invested in the decision and might ask "exactly what kind of implant am I going to get, and is the same as I would get If I had the procedure done in my home country?"  And the industry has encouraged patients to ask the first part of the question as they have started DTC advertising in the last several years. Coordinating product lines and pricing strategies on a global basis, versus on a country by country basis will become critical for these companies.
The prices we pay for US medical products abroad
When any FDA product is used abroad (even an injectable like Botox) the pricing is the same or can be higher than what you would pay in the US.
The hip and knee implants used for overseas arthroplasty are made by companies such as Zimmer, or any other company who manufactures and sells FDA appoved implants and the prices for the implants cost the overseas provider the same as US hospitals and surgeons. Some overseas hospitals will mark that price up by 20-30%.
Prices for implants that are much lower than the FDA approved implants do show up, but one must be sure they are not "knock-offs". The other options, which are lower priced, but not knock-offs, are those approved by the European Commission. This has already evidenced itself with the lower priced, fillable bands used for Bariatric weight loss surgery. A J&J, FDA approved band costs about US$1800 and the European band is about US$1100.
Regarding flexibility with pricing with US physicians - we have already seen some of this with several plastic surgeons and pain management physicians who have lowered their prices to compete with overseas pricing. Three states do imaging for our orthopedic and neuro clients for prices lower than they would have paid overseas. This doesn't include Washington State where those with an income under US$9,800/yr. receive a 90% discount on imaging - something we have had students take advantage of.
Stephanie Sulger, RN, MS
www.medicaltoursinternational.com