Domestic medical tourism

Over the past couple of years, I have posted a number of items on medical tourism. This is the practice of traveling to usually foreign locations for less expensive medical treatment. Travel to India for routine surgery (such as hip replacements) is a common example. The reason I have highlighted this trend is to illustrate the intangibles trade flows in the I-Cubed Economy. Goods and services need not travel -- people can go to where the good is made or the service is performed.

It also highlights the international competition in what many assume is a locally based industry: health care. How many times have we heard the advice to laid-off workers: retraining into health care? The medical tourism phenomenon is a reminder that health care need not be locally based.

But this should be nothing new to the careful observer. As I've noted in earlier postings, a number of locations in the US have created a competitive advantage in specialized health care for decades – which draw patents from not only all over the US but from around the world. The Mayo Clinic is but one of many examples. Even more mundane, we have all heard of people traveling regionally for specialized care.

What is different about the medical tourism trend is the nature of the competition. Traveling for health care used to be about specialization. Medical tourism is about price. The former is based on providing a premium service usually at a premium price; the latter is based on commodity pricing. One goes to Mayo Clinic to consult the best in the field. One flies to India for the best price on a routine procedure.

Sounds like a neat division of labor. The problem is that in a knowledge and skill intensive activity, routine and specialized are often intermingled. Something becomes routine to a particular practitioner because they undertake that activity numerous times.

That is not to say that certain health care procedures should only be done by the top 10% of practitioners. But the ability to undertake the activity a great number of times is what turns it into routine. This argues for a certain scale of activity to sustain the process (and the premium). If all so called routine procedures are done elsewhere, will there be enough activity to keep the premium specialists at a high level of skill, to refine that skill even more and to develop the process for passing that refinement on to others?

Second it the question of economics. Can a highly specialized activity cover the fixed costs of the equipment and facilities needed? Operating rooms and specialized equipment are expensive. I'm not an expert in hospital economics, but I suspect that some of the "routine" activities are helpful in paying the bills.

All this is to say that a division of "complex here; routine there" may not be sustainable. In addition, as we have seen in other industries, a location (such as India or China) may start out with the lower end ("routine") activities. But they quickly move up the value chain.

Now comes a story in the Washington Post of locations in the US seeking to compete for the medial tourism market (Need Surgery? Try the Heartland):

In 2007, Thomas Van Buskirk, 64, a chiropractor in Oakland, Calif., had a blocked carotid artery and no insurance. He'd have paid $70,000 to have surgery at a Bay Area hospital, and $12,000 plus travel expenses to do it in India. Then he found Oklahoma Heart Hospital, which did the surgery for just $15,000.

. . .

Brokers such as Vancouver-based North American Surgery, which helped Van Buskirk, and traditional medical-tourism outfits, such as Healthbase, in Boston, are connecting patients with U.S. hospitals willing to compete on price with providers overseas and across town.

And, according to the story, US hospitals are given big discounts to patients who pay up front in order to fill unused capacity.

So, it sounds like the realities of global competition are taking root in the health care industry. If the industry is now facing up to those realities, then there is hope of crafting a competitive strategy.

That strategy, however, is likely to undercut the economic policymakers’ mantra to the unemployed of “get into health care.” Confronting that issue – “retraining for what” – will put us on the road to crafting a better over all strategy for dealing with globalization.