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Will The Surgical World Become Flat?
We obtained price and quality information for nonurgent coronary artery bypass graft (CABG) surgery from a sample of internationally patronized hospitals in low-wage countries. We found rising quality standards, availability of U.S.-trained physicians, and prices far below insurer-negotiated U.S. prices. The price differentials easily accommodated the incentive specified as a condition for surgery abroad by about 30 percent of surveyed households with a sick member. These findings foreshadow growth in offshoring of expensive nonemergency surgeries among increasingly cost-sensitive U.S. consumers and purchasers.
THE YEAR 2006 IS A WATERSHED YEAR for U.S. employers and employees. Their combined average health care spending for a family of four exceeds the annual earnings of a minimum-wage worker.1 Rates of uninsurance are rising most rapidly among worker households in the three middle-income quintiles.2 Uninsured Americans have begun seeking more-affordable care in lower-wage countries. Like the original Toyota Coronas, surgery in offshore hospitals is ridiculed by upper-income observers. The New Republic commented, "What next—cruises to Cuba for surgery performed with the more affordable anesthetic of Havana rum?"3 Concerns include uncertain quality and continuity of care, inconvenience, language barriers, and cultural unfamiliarity. The uninsured, the thinly insured facing newly tightened federal bankruptcy rules, and the lower-income insured, for whom a lower payroll deduction for health insurance would make a difference in their quality of life, might see things differently. For them, perception of trustworthy quality in offshore hospitals could tip the balance. A self-employed artist with Blue Cross coverage who had accompanied her uninsured husband to India for a mitral valve replacement for less than 20 percent of the lowest available U.S. fee recently testified: "I would seriously consider flying to India for any elective procedure...even if my insurance covers 80 percent of the cost [at a U.S. hospital]."4 Scientific and popular media continue to raise the issue’s visibility.5
We asked a U.S. consumer and an employer representative to use telephone and e-mail inquiries of several hospitals that attract international patients for coronary artery bypass graft (CABG) surgery in low-wage countries regarding "expected average total fees." Callers also asked whether each hospital (1) had obtained Joint Commission International (JCI) accreditation or International Standards Organization (ISO) quality certification; (2) offered cardiac surgeons who had trained at a U.S., Canadian, U.K., or Australian hospital and were board certified there; and (3) would disclose their twelve-month CABG mortality rates. Since offshore hospitals reported board certification inconsistently, a U.S. physician called to reconfirm. To achieve some quality comparability with U.S. hospitals, we limited our analysis to hospitals that met either the first or second criterion. To compare responses with U.S. prices, we obtained a large insurer’s average combined allowable facility and professional preferred provider organization (PPO) fees for CABG procedures in California hospitals. We adjusted the insurer’s average payable fees to remove the estimated impact of higher average prices for CABG coded as emergency admissions in state-mandated hospital reports.
Our findings are summarized in Exhibits 1
To understand the implications of this magnitude of savings for incentivizing surgical travel by self-paying or payer-incentivized patients, we used a telephone survey conducted by International Communications Research (ICR) of a nationally representative sample of 1,003 Americans to learn from households with sicker members what reduction in their household spending for health insurance or health care, or both, might induce them to travel abroad for nonurgent major surgery.6
Fifteen percent of households had a sick family member and were therefore more likely to be near-term hospital users. In 23 percent of these households, the sicker family member was uninsured; in another 22 percent, the sicker member was insured, but respondents judged their household spending for health insurance and health care to be unaffordable. Exhibit 3
Lower offshore hospital fees and rising U.S. health insurance premiums are not "new news"; tighter bankruptcy rules, high-deductible plans, rising uninsurance, and offshore hospitals with English-speaking surgeons that meet familiar quality standards are. Prior to these developments, offshore hospitals were already beginning to penetrate the perceived "low end" of the U.S. elective surgery market: noncovered cosmetic surgery and surgery for foreign citizens working in the United States. These developments could speed offshore hospitals’ penetration of the U.S. market for major nonurgent surgeries. Co-branding programs such as Harvard Medical International’s recent endorsement of Wockhardt Hospital in India and Johns Hopkins’ endorsement of Singapore’s JCI-accredited International Medical Centre will accelerate momentum. Eighty-eight offshore hospitals have already obtained JCI accreditation. However, the offshore price advantage would narrow if we had been able to adjust for the impact of outlier cases that were likely excluded from the offshore hospitals’ fee estimates. In addition, the respondent group was small and faced an unfamiliar concept. Finally, since we assessed intent only, positive responses likely overstate initial market potential. Will offshore hospitals obtain a share of costly nonurgent surgical procedures performed on U.S. residents comparable to offshore car makers? Probably not. The emotional benefit of close access to familiar physicians, friends, and family is considerable. Recourse for poor surgical outcomes abroad is limited. Further, we estimate that nonurgent surgeries that are costly enough to offset travel costs and required incentives account for less than 2 percent of commercial insurance spending. The predominant impact of an increasingly "flat" health care world will be in the "back of the house": transcription of data entry and analysis, and other administrative functions that have already been offshored in more-price-competitive industries. Clinical tasks not requiring simultaneous physical presence of the clinician (such as radiology, dermatology, and pathology) are next in line because of wide fee differentials and maldistribution of U.S. specialists, especially nights and weekends.7 When it is 3:00 a.m. in Baltimore, it is 1:30 p.m. in Bangalore. But how many observers in the 1960s thought that Japan would come to dominate the U.S. car market, or China U.S. textiles? Even if the offshorable surgical market appears limited, it might become important in communities with more low-income recent immigrants. It also might influence national efforts to understand why care in the United States costs and grows so much. Finally, as telemedicine progresses, the adage that "all health care is local" will recede. The emigration of Americans for surgical care will provide only modest relief from our spreading affordability problems. Even if one accounts for sources of underestimation in recent savings forecasts, offshore surgery is unlikely to reduce near-term total U.S. health spending by more than 1–2 percent.8 Increasingly, financially stressed Americans require a domestic health care system that perpetually reengineers its processes to deliver an internationally distinguished level of quality at a much lower cost. However, until the major U.S. public and private payers better collaborate in creating a much more performance-sensitive environment around U.S. physicians and hospitals, this vision will remain conceptual, and more uninsured, underinsured, and insured nonwealthy Americans will go abroad to obtain lower-cost surgery at levels of quality that cannot be readily distinguished from domestic care.
Arnold Milstein (arnold.milstein{at}mercer.com) is chief physician at Mercer Health and Benefits in San Francisco. Mark Smith is president and chief executive officer of the California HealthCare Foundation in Oakland. The authors gratefully acknowledge Mary Modahl, David Dutwin, Lawrence Baker, Carl Hayes, Cheryl Damberg, and Thomson Medstat MarketScan for their assistance.
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Information gathering.
Issues raised.
