Category: Medical travel/medical tourism

Disruptive innovation in Health Affairs

published date
October 29th, 2008 by

The first time I heard Clayton Christensen describe his disruptive innovation concept more than 10 years ago I was impressed. By the fiftieth or so time I heard it a year ago –complete with the same old anecdote about the Kaypro computer not being able to keep up with his typing– I was mainly impressed that he was able to be so successful using the same material for so long. He’s been talking about disruptive innovation in health care for a while, too. I first heard him apply disruptive innovation to in-store diagnostics at a conference in 2001. But now he’s really turning his focus to health care with an upcoming book and a section in the current edition of Health Affairs.

Christensen’s introductory article is more of the same: using the example of how the lousy but cheap PC disrupted the mini and mainframe and explaining that innovative business models are needed in health care in order to allow disruptive innovation to occur. Despite my comments above this article is interesting and worth a read.

Christensen’s article is followed by a nearly unreadable paper authored by his Harvard Business School colleague Richard Bohmer and ex-Kaiser CEO David Lawrence: Care Platforms: A Basic Building Block for Care Delivery. It seems like a lot of gobbledygook to me, but maybe you can figure out what they’re talking about and what it has to do with real life.

My favorite article in the whole section is by Mark Pauly from the Wharton School. In ‘We Aren’t Quite as Good, But We Sure Are Cheap’: Prospects for Disruptive Innovation in Medical Care and Insurance Markets, Pauly provides a solid critique of the Christensen and Bohmer approach.

[H]ow well does medical care fit the template of introduction of a disruptive innovation? The answer is that such occurrences are very rare –much more so than in other industries– but that there are reasons for this beyond failures of the imaginations of medical managers who are accustomed to moving in the same rut…

…[W]hatever might be true in the photocopying and computer industries, it is very hard to offer an innovation that explicitly or detectably lowers medical care quality, no matter how much it cuts costs. The trial bar seems ever vigilant for the idea that whatever is done elsewhere in life, no rational person could agree to accept somewhat lower expected health status in exchange for lower costs.

I think it’s consumers, purchasers and physicians who drive this behavior, not just the trial bar, but other than that I think Pauly is right on the money. Pauly describes HMOs as an example of a disruptive innovation, which inaccurately tried to proclaim themselves as equal or higher quality. He faults Christensen and Bohmer for a “wishful thinking” mentality because their health care examples promise lower cost and higher quality, which “confuses the application and devalues the construct” of disruptive innovation. In general Pauly is a lot more complimentary to Christensen than I am in this post, but read his article carefully and you’ll find a few zingers mixed in with the praise.

Pauly’s right that disruptive innovation is unlikely in the US. However, I think it is quite likely that disruptive innovations can occur outside the US and then be imported. An example is medical devices in emerging markets. For example, US medical device companies face a real dilemma in their approach to markets like India. That’s where the growth is, but they also face up-and-coming challengers offering affordable –if not leading edge– products. J&J has introduced an India knee, supposedly for the unique needs of the Indian lifestyle, but really as a source of price discrimination and to fight against low-end competitors. I don’t know the technical specs on these devices, but they are probably just variations on discontinued first-world products –similar to Pauly’s “heritage” Jeep Cherokee example.

The existence of medical tourism provides a pathway for disruptive innovation to reach the US. US patients who go abroad already receive a mixture of first-world and emerging market devices. One reason medical tourism savings can be so high is the lower cost of the device (sometimes lower cost for the same device, sometimes just a simpler “disruptive” device). Over time as these patients return to the US market and the adequacy of the lower cost devices is established –especially as those devices improve over time– there will be acceptance of these disruptive products for the US market.

By the time cost pressures reach the breaking point –in another 3-5 years or so– some disruptive products will be ready for prime time in the US.

Another intriguing article in the same issue, Lessons from India In Organizational Innovation: A Tale of Two Heart Hospitals provides another path to dramatic cost savings that seems to me to have little to do with the disruptive framework. Put the two concepts together and maybe we’ll really get somewhere.

Medical tourism in Israel

published date
September 30th, 2008 by

Here’s one more reason to visit Israel. From the Jerusalem Post (The Medical Tourist)

When one-and-a-half-year-old Anna Sherevenko was diagnosed with a rare form of cancer, her physicians in St. Petersburg, Russia, recommended a bone marrow transplant in the U.S., Germany or Israel. Her parents chose Israel because it was the least expensive of the three. Anna is one of many who come to Israel to receive medical treatment. The money that these “medical tourists” spend is a valuable contribution to the economy. In 2006, 15,000 foreigners came to Israel’s hospitals for treatment, generating some $40 million in revenue; in 2007 the number of patients grew to 20,000 and hospitals more than tripled their intake to $150 million because more complex, and therefore, costlier, procedures were performed. The sum includes money spent by family members who stay at hotels and might do some sightseeing and shopping on the side.

Amitai Rotem, marketing director at the Hadassah Medical Organization, says Hadassah started the medical tourism program in earnest just five years ago and it generated some $500,000 in its first year. Today revenue has topped $10 million, with 200 to 300 admissions each month. Herve Deknuydt, administrative director of medical tourism at Sheba Hospital, near Tel Aviv, says his institution treated several hundred patients in 2008. Most came from Mediterranean countries, such as Cyprus, Greece and Turkey, or from the former Soviet Union, particularly the eastern states, such as Azerbaijan, Georgia and Kazakhstan.

I’ve written on this topic before in case you’re interested. See Dubai Healthcare City or Hadassah Medical Center?

Domestic medical tourism. The big new thing?

published date
September 11th, 2008 by

Thanks to yesterday’s Wall Street Journal (Traveling for Care — In the US) the concept of domestic medical tourism has been bouncing around the media. (If you’re not a WSJ subscriber you can read the story here.)

In a new twist on medical tourism, U.S. employers are encouraging workers to travel domestically for medical care…

In January, U.S. supermarket chain Hannaford Bros Co. began offering employees the option of getting hip and knee replacements at a hospital in Singapore. A hip replacement costs about $43,000 in the U.S. compared with $9,000 in Singapore, according to data from Planet Hospital, a medical tourism company.

“After the announcement, I got calls from several [U.S.] hospitals offering to match Singapore on pricing,” says Peter Hayes, Hannaford’s director of associate health and wellness.

The article also describes Healthplace America and its CEO, Ken Erickson, who are targeting US employers who want to access anetwork of lower cost US health care facilities.

Not to toot my own horn too much, but I was a year ahead of the WSJ in spotting this trend. Last September Ken Erickson was running Global Choice Healthcare, (which changed its name to Healthplace America this year) and he was just starting to shift his focus from an international to a domestic network. You can read or listen to my interview with him at MedTripInfo.

Also about a year ago, my white paper (Medical Tourism — Implications for participants in the US health care system) predicted that medical tourism would lead employers and health plans to drive better deals from US providers, and not just on price:

[I]t may be possible to use the expansion of overseas networks to spur improvements closer to home. One possibility is to use overseas providers as a way to increase the flow of outcomes information… This could be a good way to get local providers to increase transparency and to improve their performance as they compete to demonstrate preeminence. And payers shouldn’t rule out the possibility of using comparisons with overseas pricing to help hold the line on local reimbursement rates.

There’s no way everyone is going to go overseas for care, nor should they. But once overseas hospitals pose a credible threat to their US counterparts, it will spur improvements in pricing and service that will benefit everyone who pays for health care.

Companion Global signs BasicPlus Health Insurance, a limited benefits plan

published date
June 6th, 2008 by

In last year’s whitepaper (Medical Tourism: Implications for Participants in the US Health Care System) we predicted that health insurance companies would begin to cover medical tourism in 2008 and that contrary to the conventional wisdom, limited-benefits plans and smaller employers –rather than big insurers or blue chip employers– would be the early adopters. Here’s what we wrote in October:

Smaller employers look at insurance differently. Many are shifting to so-called mini-med or limited benefit plans that cover day-to-day expenses such as doctors appointments, but not surgery… Such employers will view medical tourism as a way to enhance benefits rather than simply as a cost control measure.

Sure enough, that prediction is coming to true. From CNBC:

BasicPlus Health Insurance of Roswell, Ga., announced today that it has entered into an agreement with Companion Global Healthcare Inc. of Columbia, S.C., to include a network of accredited, overseas hospitals in its most popular limited benefit health insurance plans.

Chuck Green, CEO of BasicPlus, said, “Since our members have fixed benefit maximums, the inclusion of Companion Global Healthcare’s option into our products allows members to limit their out-of-pocket payments while availing themselves to JCI-accredited hospitals in foreign locations.” “To our knowledge, this is the first fully insured, limited benefit product with a global health care benefit included,” said Robert Rhodes, chief operating officer of TCC of South Carolina, the third-party insurance administrator that supports the BasicPlus product line. “This arrangement will help FlexMed and BasicPlus members dramatically stretch their limited benefit plan dollars.” Companion Global Healthcare President David Boucher said his company’s network of overseas hospitals is a helpful addition for limited benefit plans.

“While many limited benefit plans provide coverage for basic health care, most would cover only a small portion of the bill for a lengthy inpatient hospital stay in the United States,” Boucher said. “Treatment at a JCI-accredited hospital overseas will be an attractive, more affordable option for many policyholders.” About Companion Global Healthcare Based in Columbia, S.C., Companion Global Healthcare Inc.

I expect this trend to accelerate.

Are primary care physicians the lettuce pickers of the 21st century?

published date
May 28th, 2008 by

I was happy to see that Global HealthNet CEO Sandip Madan, a contributor to my MedTripInfo website, is now publishing in the Wall Street Journal as well. (See We Need Free Trade in Health Care). Along with Columbia University professor Jagdish Bhagwati, he presents the case for increased trade in health care services as an antidote to what ails the US system. I agree with about half of what’s printed there.

The authors use the World Trade Organization’s framework to segment health care trade into four modes:

  • Mode 1: Arm’s length services that can be performed at a distance, e.g., claims processing and telemedicine
  • Mode 2: US patients traveling abroad, i.e., medical tourism
  • Mode 3: Creating and staffing medical facilities in other countries
  • Mode 4: Medical personnel moving to where patients are

The authors argue that about half of Mode 1 savings are already being realized as claims processing and customer service have shifted abroad. They’d also like to see much more international telemedicine, and I agree with them there. The concept, which I call “virtual medical tourism” is a good one. In particular it’s worthwhile to support primary care physicians in chronic care management and for second opinions. Eventually payers will realize that consultations by foreign physicians will reduce costs, since physicians from abroad are likely to recommend the less aggressive and less costly interventions they provide at home.

Mode 2 has been discussed at length on the Health Business Blog and on MedTripInfo. It has merit, but the direct impact isn’t likely to be huge anytime soon.

Mode 3 is an interesting concept. The authors think we may see foreign-owned medical facilities open in the US, to compete with US-owned facilities on price. I don’t think that’s likely because there are too many barriers to entry and costs won’t end up being any lower. I do foresee the development of US or foreign-owned clinics that ally with overseas facilities for telemedicine and medical tourism.

Madan and Bhagwati are most enthusiastic about Mode 4:

Mode 4 concerns doctors and other medical providers going where the patients are. It offers substantial cost savings, since the earnings of foreign doctors are typically lower than those of comparable suppliers in the U.S.

But the importation of doctors is even more critical in meeting supply needs than in providing lower costs. According to the 2005 Census, the U.S. had an estimated availability of 2.4 doctors per 1,000 population (the number was 3.3 in leading developed countries tracked by the OECD).

Comprehensive coverage of the over 45 million uninsured today will require that they can access doctors and related medical personnel. An IOU that cannot be cashed in is worthless.

Massachusetts ran into this problem: Few doctors wanted (or were able, given widespread shortages in many specialties) to treat many of the patients qualifying under the program. The solution lies in allowing imports of medical personnel tied into tending to the newly insured.

There is a certain logic and attraction to this argument but I don’t completely buy it. I’m definitely in favor of free immigration of physicians (see Biting the hand that feeds you, sutures you, fills your prescription.. ) but it won’t lower costs overall. A larger supply of physicians is likely to drive more demand, making costs higher. We may have fewer doctors than some OECD countries, but we have a lot more than Singapore, where the figure is only 1.4 physicians per thousand people and there is universal access to care. Our problem here is two-fold: too much demand for health care services and reimbursement for specialty care (especially procedures) that is too high relative to primary care. If we work on those issues, through education, consumer directed health care and adjustments to reimbursement then we won’t need to boost the number of physicians.
In the meantime, primary care physicians are becoming the new lettuce pickers. (See The primary care bottleneck to health care reform.) Where’s the 21st century Cesar Chavez when we need him?