Domestic Medical Tourism is Taking Off

by John Goodman NCPA

In my book, Priceless, I made a bold claim: Employers can cut their health costs in half if they will do three things:

1. Establish a generous Health Savings Account and let employees pay directly for all primary care.
2. Establish special HSAs for the chronically ill, giving them the opportunity to manage their own care.
3. Direct elective surgery patients to low-cost, high-quality hospitals (which may require travel to another city); if the employee chooses to go to some other hospital, he must pay the full marginal cost of the more expensive choice.

The last suggestion is the most radical. Not only that, is it really practical? The international medical tourism market is not a secret. Patients fly from around the world to India, Thailand and Singapore for high-quality surgical procedures. Most of these patients are not Americans, however. Every once in a while we hear about a U.S. employer encouraging employees to travel for care. But these activities seem to be few and far between.

Until now. The state of Alaska is gearing up for medical tourism is a big way. According to the Anchorage Daily News:

The high cost of many medical procedures in Alaska is driving a major insurance company, Premera Blue Cross Blue Shield, to offer coverage that pays airfare, hotel and other expenses for members to undergo the same treatment in Washington state at less cost…

The travel benefit will be available for a set list of procedures, including knee and hip replacements, breast lumpectomies, laparoscopic gall bladder removal and cardiac angioplasty.

This is no small change. Premera has about half the insurance market in the state. There’s more: 

The National Education Association Alaska health plan, with 17,000 members in 27 school districts, contracted with a company called BridgeHealth to find doctors and hospitals outside for such surgeries as knee and hip replacements and set up the trips for members who want the service, said Rhonda Kitter, the NEA health plan’s chief financial officer.

Because of anticipated savings from this program, NEA Alaska members did not have an increase in insurance premiums this year, Kitter said.

The state of Alaska, which already pays for some medical travel, is about to become more aggressive about it, perhaps paying the travel costs of a companion to travel with a patient undergoing surgery.

What’s spurring medical tourism in Alaska is the state’s above-average medical costs. Turns out that physicians in Alaska get paid significantly more than physicians in the lower 48. From a study by Milliman come these examples:

• Knee replacement in Alaska, $7,265 average allowable doctor’s fee.
• Knee replacement in North Dakota, $2,269. In Washington, $2,288.
• Insertion of a stent or tube in your coronary artery in Alaska, $4,487.
• Insertion of intra-coronary stent in Washington, $1,331. In Idaho, $1,391.

Domestic medical tourism is not new. It’s just been below the radar screen. Previously I wrote about Canadian patients coming to the United States for procedures they cannot conveniently get in Canada. They typically get package prices and for a knee replacement they pay about half of what Americans using private health insurance pay.

Another innovative service provided by MediBid lets providers bid to provide the care that patients need.

Patients must be able to pay cash. They fill out medical questionnaires; they can upload their medical records; and they can request the procedure they need. The patient’s identity is kept confidential until a transaction is consummated. MediBid-affiliated physicians and other medical providers respond by submitting competitive bids for the requested care.

Business at the site is growing. For example, last year the company facilitated:

• More than 50 knee replacements, with an average of five bids per request and some getting as many as 22. The average price was about $12,000, almost one-third of what the insurance companies typically pay and about half of what Medicare pays.
• Sixty-six colonoscopies with an average of three bids per request and some getting as many as six. The average price was between $500 and $800, half of what you would ordinarily expect to pay.
• Forty-five knee and shoulder arthroscopic surgeries, with average prices between $4,000 and $5,000.
• Thirty-three hernia repairs with an average price of $3,500.

MediBid facilitates the transaction, but the agreement is between doctor and patient, both of whom must come to an agreement on the price and service.

One key component of all this is the willingness to travel. If you ask a hospital in your neighborhood to give you a package price on a standard surgical procedure, you will probably be turned down. After the government suppression of normal market forces for the better part of a century, hospitals are rarely interested in competing on price for patients they are likely to get as customers anyway.

Just to be fair, here is the other side: In Anchorage, a spokeswoman for Providence Health and Services Alaska and Alaska Regional Hospital said the hospitals believe it is better for care to be received close to home.

“We caution those who might leave the state for surgery to consider issues like follow-up care, being far away from family and friends during the recovery period, and the fact that if there are complications from the procedure, their physician here at home may have concerns with treating the outcome of a procedure they were not involved in initially,” she said.

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