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Domestic Medical Tourism: How Fixed Rate Surgery Pricing Can Save Employers Thousands 9/23/2016

Marsh & McLennan Agency (MMA)

Kirk Johnson, CEGS, Principal

In an effort to mitigate escalating healthcare costs and address the needs of the aging Baby Boomer population, many self-insured employers are offering domestic medical tourism programs for their workers. Under this model, employers incentivize their employees needing a surgical procedure, such as a knee replacement or heart bypass, to travel across state—or across the country—for treatment at a facility offering proven care at a discounted fixed rate.

The trend toward in-country medical travel is being driven by the exponential growth of the international medical tourism industry over the past decade. Millions of Americans who saw their premiums skyrocket following the passage of the Affordable Care Act were forced into high-deductible medical plans. As a result, more and more patients are traveling overseas for quality medical care at a reduced price to shrink out-of-pocket expenses. Experts estimate some 1.4 million Americans will venture outside the U.S. for medical treatment in 2016, compared to 150,000 globetrotting patients in 2006. In response, doctors and hospitals here in the States have begun offering fixed-rate pricing for surgical care to attract patients who might otherwise look for cost-effective medical services abroad.

Smart Shopping

Experts predict as much as a 600 percent increase in knee, hip and joint replacements over the next 15 years, due to the aging Baby Boomer and Generation X populations. The costs associated with these and other common age-related surgeries, such as angioplasties and heart stents, will become financially untenable for self-insured employers if they don’t take action to curtail medical expenditures. By taking advantage of the domestic medical tourism model, employers with self-funded plans can reduce costs by 20 to 50 percent, according to industry reports.

For example, the Texas Hospital Association notes that the average charge for major joint replacement surgery at Bayshore Medical Center in Houston, Texas, is $95,692. The same surgery at Baylor University Medical Center in Dallas, Texas, averages $45,955. So, a company based in Houston might cover the employee’s full deductible, as well as all transportation and lodging costs for the employee and a family member, as an incentive for the individual to have hip replacement surgery in Dallas rather than Houston. Although the employer could end up spending $8,000 to cover the employee’s out-of-pocket expenses, the company would save more than $40,000 on the cost of the surgery itself. And since Baylor University Medical Center has been designated an Aetna Institute of Quality® Orthopedic Care Facility, the employee also would have a lower risk of complications and shorter recovery time, which means they can return to work more quickly.

The increased demand to keep health care costs in check has given rise to a new breed of surgical benefits providers that work on behalf of employers to negotiate lower, bundled case rates at facilities that offer proven outcomes for particular procedures. For example, companies like BridgeHealth Medical and EmployerDirect Healthcare connect employers to surgeons and hospitals that meet high standards of quality control with which they have worked out discounted rates, compared to those charged through traditional insurance plans. Earlier this year, EmployerDirect announced that companies using its SurgeryPlus® supplemental healthcare benefit saved an average of 44 percent over historical commercial rates during fiscal year 2015. Similarly, self-insured plan providers, like The Kempton Group, are offering transparent pricing for select plans through their network of premier providers, and negotiating favorable rates with vendors for out-of-network claims.

Pricing Transparency

Another variant of local medical tourism is value-based pricing for care. Only a few years ago, less than a quarter of insurance providers or plan administrators published their fee schedules or the estimated cost of care. Today, closer to 70 percent make the cost of procedures publicly available. For example, the Surgery Center of Oklahoma provides pricing for all common procedures online at http://surgerycenterok.com/pricing/. Although few employers are using that information to their advantage, forward-thinking organizations, like Safeway Inc., are leveraging the data to create progressive employee benefits programs. Safeway has essentially determined what price it is willing to pay for certain procedures, and negotiates with healthcare providers within its network for favorable rates. The corporation saves on healthcare costs, and employees have access to well-credentialed providers with the best pricing, the best outcomes, and the lowest complication rates.

Other employers are incentivizing employees to do the price shopping themselves by using services like Healthcare Bluebook to find local top-rated healthcare providers that offer treatment at a fair price. Healthcare Bluebook calculates the fair price for a given medical service based on a nationwide database of payment information and customizes the results to the employer’s geographic area. The service also provides detailed and accurate quality ratings for specific clinical categories, ensuring that employees receive exceptional care. Workers benefit from lower medical costs for surgical procedures, and employers have access to claims data and real-time analytics that illustrate how informed healthcare decisions are saving the company money.

A Positive Outlook

Still in its infancy, the trend toward domestic medical travel likely will continue to grow in the near term, mirroring the rise of international medical tourism. People generally do not want to travel outside of the U.S. for medical care and recover in a foreign hotel room or risk having complications far from home. As a result, some of the largest and most progressive companies in the U.S. have adopted the model of in-country medical tourism, including Walmart, Lowe’s Companies, and Boeing. Mid-market employers are expected to follow suit; however, companies generally still need at least 100 employees enrolled in a self-funded plan to benefit from the claims reductions. More importantly, employers must come to recognize the need to strategically craft a fixed-price and value-based health plan. By understanding the factors currently driving healthcare costs and demanding price transparency from hospitals and surgical centers, they can better incentivize employees to seek treatment at proven facilities offering a lower cost of care. Our hope is that the industry soon will reach a tipping point, and providers will realize the need to be more price sensitive to compete for patients in a free market system.

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.

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