America spends more on health than any other developed country with it seems little to show for it in terms of superior health outcomes. When one tries to find out the actual reason for this high spend as surgeon and author Atul Gawande attempted to do in his essay in the NewYorker titled The Cost Conundrum many a blind alley confront you. However a logical place to start would be the costs of inputs into the medical system.

While items like wages and salaries are potentially easily found, once we enter the realm of the ‘hospital complex’ things gather increasing amounts of secrecy. I talked recently with a hospital CEO in Oregon about this and he freely admitted he had no idea as to the actual cost of a hip replacement in his hospital but with a quick telphone call he could tell me the price. One therefore has a twinge of sympathy for the unsuspecting patient who actually wants to know how much their surgery will cost

In the US the ‘starting price’ for surgery is the billed or advertised rates which on rare occasions are found in hospital web sites but are also found by covertly contacting the hospital directly.

After this things get tricky because it seems that the value system for surgery in the US is not the price of the operation per se but discount off the price. That is the focus is on the extent of the discount one can negotiate rather than what the starting price actually is. While this may sound bizarre there is plenty of evidence that suggests the large insurers in the US (the BUCHA group) obtain on average 50% discount on the billed or advertised rate.  Hospitals knowing that insures want a 50% discount off the ‘billed rate’ are therefore incentivized to make sure the billed rate is a large number so the price they actually end up with, they can live with.

On the flip slide and potentially more worrying is that if hospitals are negotiating with insurers on percentage discounts and not on actual price linked to the procedure’s base cost (which they don’t know) then potentially they are underselling their procedures by a significant amount. This means a focus on increasing volumes to obtain the same return. The inevitability of increasing hospital debt and bankruptcy then seems a factor of time.

In such a system the underinsured or uninsured patient or even small self insuring businesses do not stand a chance; they are rabbits in the headlights with no bargaining power in a pricing system not based on logic or accountancy; where the starting price bares no relationship to cost (because no ones seems to know the cost) and is purely a point to negotiate down from; if you have the power to negotiate. If you don’t have this power then Surgery USA is off limits.

In many other developed countries that have private fee for service surgery, the surgeon themselves can provide you with an accurate price guide that relates to the cost of the provision of that service. The costs are known and hence the prices are known.

Why does America have to be so different?

As medical tourism grows in the US it is interesting which groups benefit the most and which groups are the most unsettled as a result. As the Harvard Business Review points medical tourism is a disruptive technology and will end up influencing elective healthcare in the USA. Whether the impact of this disruptive force is large or small will depend on the degree of adoption of medical tourism or medical travel by US consumers and businesses.

Consumers have now a choice about affordable elective surgery that insurance companies currently have little influence over. Any new system that gives customers an additional choice will be by its nature disruptive. Medical tourism is no different. The degree of adoption will however largely be dependent on how closely health consumers ‘buying decisions’ and medical tourism destinations ‘selling processes” align. Coupled with this is how closely the medical and cultural environment of health customer’s home country is mirrored in the destination to where the medical tourist is heading. American medical travelers who speak only English will be far more comfortable in a country whose environment is English speaking not just its doctors.

This notion of upsetting the current system is probably the reason health insurers in the USA have been slow to adopt medical tourism programs. To adopt them is unsettling for insurers. The cost savings seem very attractive but how does one actually implement and integrate such an option into a plan? This is even more difficult if the insurers themselves are not prepared to travel to the medical tourist destination and see for themselves how much of a foreign experience the trip would be for one of their customers.

However the insurers are somewhat missing the point by not at least considering medical tourism as an option: the early adopters will have an advantage over the late comers as first mover advantage in this market confers significant benefits into terms of capacity, cost realization, learnings and subsequent innovation gleaned from being involved in other medical systems that may be able to teach the US about healthcare provision.