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When Scarborough, Maine-based supermarket chain Hannaford Bros. Co. announced last year that it would begin sending its employees to Singapore for knee and hip replacements to save the company money, it attracted the attention of several hospitals in Boston that offered to match the price.
What the company probably did not realize at the time was that it was at the forefront of an emerging market: domestic medical tourism.
Unlike foreign medical tourism, patients don't leave the country. Instead, they travel to another city within the United States to have procedures for up to 75% less than they would pay if they were treated closer to home.
One of the primary reasons some U.S. medical facilities are willing to be paid less is that they are generally compensated upfront, before the procedures are conducted, which enables them to avoid the arduous task of seeking reimbursement afterward from insurers and third-party administrators. The facilities also receive a single package price that is negotiated beforehand.
“In many cases, if you're self-funded or a cash patient, a hospital is more willing to deal directly with you rather than work through (preferred provider organizations) or insurance companies,” explained Alex Sanchez, managing director of Healthcare Concierge Services, a subsidiary of Miami-based Olympus Managed Health Care Inc., which has been bringing foreign individuals here for medical care since 1994.
Moreover, the pricing usually is negotiated on an individual basis, circumventing the hospital's managed care contracts with PPOs and health maintenance organizations, he added.
Most of the intermediaries facilitating this service began by operating in the international medical tourism market, either sending Americans out of the country for medical treatment or, like Olympus, bringing patients from other countries to medical facilities in the United States.
Greenwood Village, Colo.-based BridgeHealth International Inc., for example, launched its domestic network of 15 hospitals across the United States about six months ago in response to demand from its insurer and TPA clients, according to Victor Lazzaro, chief executive officer.
“They indicated they'd like the complement of domestic to international medical tourism,” he explained. In addition to its domestic provider network, BridgeHealth has 25 hospitals in 10 countries in its international network.
Olympus saw the opportunity to use its existing infrastructure of nearly 30 domestic medical facilities to market to insurers, TPAs and self-insured employers that, like Hannaford, are looking to achieve the cost savings of medical tourism without leaving the country, according to Steve Jacobson, Olympus' chief executive officer.
Healthplace America, which specializes in domestic medical tourism, set up shop last year to market directly to self-insured employers. The Lisle, Ill.-based company provides access to a specialty network of 22 U.S. hospitals.
Like BridgeHealth and Olympus, Healthplace's services are limited to certain elective medical procedures, such as joint replacements, cardiac care and spinal surgeries. All three vendors screen the hospitals in their networks using such criteria as accreditation by the Joint Commission on Accreditation of Healthcare Organizations. They must be among the top hospitals ranked by the Leapfrog Group, HealthGrades Inc. and U.S. News & World Report. The facilities also must have performed a sizable number of the procedures sought.
“We're not a broad-based PPO,” explained Todd Roscoe, chief managed care officer of Healthplace. “We are a specialty organization that pinpoints high-cost surgical procedures that we can move to a more cost-effective environment where there's a much greater supply of providers that enables price negotiation.”
“It's a matter of supply and demand,” said Olympus' Mr. Jacobson. “And if (a facility has) invested in the technology, they can do it much more cost effectively” than hospitals that don't have the resources, he noted.
Because of the potential savings of domestic medical tourism, employers usually offer employees financial incentives—such as waived or lower deductibles and copayments, as well as travel allowances for the employee and a companion—to encourage employees to use take advantage of the benefit.
“Surgery is our greatest expense,” said Anita Boska, human resources manager at Dakota, Ill.-based Berner Food & Beverage Co., which contracted with Healthplace in January. In addition to waiving the $1,500 individual deductible in its consumer-driven health plan, employees who use the benefit can earn up to $1,000 in wellness credits, she said.
So far, three of Berner's 425 employees have used the benefit, Ms. Boska said, reducing the company's overall annual health benefit costs by $1,000 per employee per month.
In many cases, stop-loss insurers are willing to pick up the fees for domestic medical tourism services, which typically average about $2 per employee per month, because “it accrues to their benefit,” according to Andrew Butler, president and CEO of Butler Benefit Services Inc., a TPA based in Davenport, Iowa, that has been working with Healthplace.
For example, an employer won't reach its $50,000 specific stop-loss attachment point if it pays $30,000 for a knee replacement through Healthplace instead of $90,000 through its regular PPO contract, Mr. Butler said.
“It's a win for both the patient and the employer, because both of their shares of the expenses will be less,” observed Michael Thompson, a principal at Pricewaterhouse-Coopers L.L.P. in New York.
Regina Herzlinger, a professor at Harvard Business School who specializes in health care economics, said patients will agree to travel for surgery if they are given data that shows they will fare better, financially and in terms of care.
But some benefits experts say employers may have trouble persuading employees to leave their hometown, regardless of the savings.
“Most of my clients would feel very uncomfortable sending people away,” said Carl Mowrey, managing director of Smart Business Advisory & Consulting L.L.C. in Chicago. “The individuals themselves would not want to do that, either. They would rather use their physician and specialist in the area.”
“One factor might be where you live. If the medical facilities in your area have a very strong reputation, you're probably less inclined to believe that somewhere else is better,” said Mr. Thompson. “On the other hand, if you're in a rural location, or an area that's not well known for its health facilities, you might be more inclined to take advantage” of medical tourism, he said.