The 50/50 Business Strategy
Actually, from a business standpoint, I am not frightened by what's happened. As a strategist and tactician, I always had a plan B. What kind of strategic consultant would I be if I did not first follow my own advice and ensure I had a backup and had assessed the risks and devised mitigation strategies for the risks we could face?
When I begin working with a client on startup strategy, whether it is a single physician contemplating a concierge medicine strategy, a private hospital construction project in Nigeria, a medical tourism startup in Texas, a managed care contracting strategy for a hospital in Idaho, a market entry strategy for a telehealth provider in California, or an employer examining the feasibility of a medical tourism benefit addition for their self-funded health plan, the assignment begins the same - and all my clients who have been through it can attest: I force them to think up 50 risks their business could face and 50 practicable mitigation strategies.
But medical, dental, rehab, dialysis, and wellness tourism destinations and providers outside the USA that focused their laser beams on the U.S. medical travel consumer may have to refocus or quickly develop (and test) their backup strategies if they intend to survive.
Mr. Trump ran on the promise of change, centered on a protectionist platform. This may prove challenging for health and wellness tourism suppliers outside of the USA because Trump alleges to be a fan of everything for and in the USA. Citing what he believes are unfair deals, he has promised to impose high tariffs on goods coming into the United States.
Mr Trump also came out strongly against free trade, something Republican voters in America support. Look at where the red states are on the map.
They are to a great extent:
- states where the majority of U.S. small, local, critical access hospitals exist
- states that are largely rural with airports dispersed in cities that operate regional "hops" to hub airports. Many source markets of potential medical travel patients have limited access to non-stop flights to international destinations. Often people must drive for several hours to reach an airport that has direct flights to a regional U.S. hub in small regional jets or Jeppeson 19 aircraft. More often than not, these aircraft are uncomfortable for tall Americans with long femurs, obese patients, and those recovering from knee, hip, back, abdominal or shoulder surgery because of the acrobatics that it takes to sit in or get out of the seats and aisles.
- populated by many companies that have already established "buy American" policies and have no interest in foreign health suppliers, not even if they are cheaper
- places where small critical access hospitals could characterize "flyovers" to cheaper foreign health facilities and treatment destinations as "unfair deals" and that would welcome new market share inbound from other neighbor states or buyers from source markets on the other side of the nation with which they would otherwise have no access to do business.
Granted, these locations inside the USA would have be so inclined as to establish a medical tourism business strategy, but I know many critical access hospitals and ambulatory surgery centers throughout many of the red states that would benefit from the revenue diversification that new market share paid by self-funded employers can offer. On the Mercury Advisory Group side of the company, that's one of our core services, strategy and implementation of new business development campaigns. So thanks, Mr Trump. We're ready for that. It's what we do.
Likewise, for employers, unions, associations and co-operatives looking for domestic healthcare deals and opportunities to buy higher value healthcare and better outcomes from a small town underdog providers facilities and hospitality partners, our Mercury Health Travel vertical is ready for that. It's what we've been doing for decades.
New Tariffs
Suppliers outside the USA could face new tariffs that might dissuade Americans, American insurers, and American self-insured employers from seeking healthcare offshore. Medical tourism suppliers in the 12 Pacific Rim countries including Australia, Canada, Japan and Mexico that are part of the proposed Trans-Pacific Partnership trade agreement might be the first ones his administration targets.
Unclear direction of Trump policy poses uncertainty, possible danger to Asia-Pacific region, says expert [South China Morning Post]
Elimination from buyer consideration
If health tourism import disincentives were to be imposed on consumers or employers, costs associated with medical travel might not change for the sellers. Instead, it would possibly create obstacles in getting American buyers to consider foreign suppliers.
Layoffs and Downsizing
Where health tourism suppliers outside the USA may experience a downturn would be in adjusting staffing levels, or hiring people who speak English to market or care for English-speaking patients. Mr. Trump’s proposed economic policies are expected to reduce the U.S.’ real GDP by about 4.7 percent compared to the projected forecast from 2017 to 2021, according to Euromonitor.
JCI Accreditation
Another impact would be on strategies that include international accreditation by the Joint Commission International. If the foreign supplier was only choosing JCI accreditation because it believed that doing so would attract American consumers and employers, such a dissuasive tactic could render JCI attractiveness irrelevant in the long run.
Private consumer health travel expenditures.
A new tariff or dissuasion tactic could come to life as a new tax law amendment or restriction that disallows private consumer healthcare expenditures outside the USA and its territories. Currently, includable medical expenses listed in IRC213D make no differentiation and exert no influence over where the medically necessary medical care is supplied or how much it costs to travel there to access it. If eliminated, Americans who wish to travel for care would still travel, but perhaps not as frequently beyond American borders.
IRC213D does not allow as "includible" certain weight loss programs or cosmetic procedures. For example, Generally, one cannot include in medical expenses the amount one elects to pay for unnecessary cosmetic surgery. This includes any procedure that is directed at improving the patient's appearance and doesn't meaningfully promote the proper function of the body or prevent or treat illness or disease. One cannot generally include in medical expenses the amount one pays for procedures such as face lifts, hair transplants, hair removal (electrolysis), and liposuction.
One can, however, include in medical expenses the amount one pays for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. Example. An individual undergoes surgery that removes a breast as part of treatment for cancer. She pays a surgeon to reconstruct the breast. The surgery to reconstruct the breast corrects a deformity directly related to the disease. The cost of the surgery is includible in her tax-exempt medical expenses. If the ability to seek this service outside the USA and the cost for travel to the destination are eliminated from includible services, perhaps she'll only be able to include these expenses if services are rendered in the USA and its territories.
Employers, labor unions and associations
Employers, labor unions and associations might also face an excise tax or form of tariff or disincentive to send (allow) plan beneficiaries working inside the USA to travel to places outside the USA for care paid for by company-controlled trust funds, even if the patient wants to travel abroad (fiduciary loyalty conflict) to visit a particular specialist or health facility, and even if doing so saves the company money (fiduciary duty to conserve plan assets). If the deductibility of those expenses were to be threatened in any way, medical travel would continue, but only interbound. Mercury Health Travel has coordinated inter-US medical travel as an occasional business activity since as far back as 1977. Its other business activities (helping employers source medical care directly from supplier without going through intermediaries such as TPAs, ASOs, HMOs and PPOs) and helping healthcare suppliers to perfect business development campaigns to attract direct contracting arrangements with employers, unions and associations or co-ops, would be unaffected, if not actually enhanced.
If that happens, Mercury Health Travel is one of the few medical travel companies that would not be threatened by such a change. Mercury Health Travel's Approved Provider network is largely (>85%) domestic, and spreads the other 15% of its Approved Provider Networks across destinations in 120 countries. We let the market decide what it wants to buy, from whom, and help buyers execute on their preferences.
A few of our competitors' CEOs have laughed in my face and publicly called me a fool for focusing more on opportunities in medical travel within the USA - right here on LinkedIn, in fact. They stated publicly that they believed there is no market for domestic medical travel in the USA or inbound, and that's why they focus on only foreign destinations and have no US network providers.
That's their prerogative. I tend not to agree, and I have over 20 years more experience in the business. Their foreign medical tourism destination strategy is tied to one and only one business activity. So they will sink or swim on that strategy. Mercury has choices because Mercury doesn't live or die by its medical tourism patient transfers. That's also something I impart to our strategy clients every day. Have a way out and a backup strategy. For instance, I always tell our managed care strategy clients to never have more than 10-12% of their business coming from one single plan or source of patients. The reasons are quite clear to me and should be to most business owners.
I may be onto something. My 30+ year established foothold in domestic medical tourism will give me first mover advantage as they take their time to realize what risks they may face going forward, and plan and execute and test a response. Should they wish to imitate me, the market is large enough for additional competitors. I don't worry about it... I monitor it, measure it, and quietly watch from the wings. I am already 10 steps ahead of them in any case...maybe more.
Tax reforms for the American affluent
Even with Mr Trump's proposed tax cuts for the wealthiest, the predicted economic downturn may negatively impact the affluent the most. That's one place where I might be impacted at a personal level. As a CEO of a long-established firm that has weathered managed care turmoil and presidential administrations under Gerald Ford, Ronald Reagan and George Bush, the tragic impact of 9/11, as well as Clinton Administration healthcare reform, and now the ACA under Obama, I am accustomed to business change and have stabilized and sustained under each event. I've chosen to manage my personal situation without lots of debt. The absence of debt makes me quite unAmerican, but gives me freedom and affords me flexibility, and preserves my creativity. I started that practice when I started my business on bootstrap funds. I've never regretted it. I make every effort to guide my startup clients in the same direction. Are we affluent Americans? Probably.
The stock market, access to capital and re-engineering health delivery
Stock market drops and other declines in economic activities mean that the population of those with disposable incomes of at least $50,000 and total assets of at least $200,000 will grow more slowly than it would have otherwise. They will be more price sensitive to conserve assets - as is only natural. Especially if they purchased catastrophic policies only and have huge deductibles for routine and elective care, surgeries and other allied and ancillary health services.
U.S. hospital spending on consulting and bright shiny objects
It also means that hospital CFOs will be guarded in their expenditures and budgeting, assuming that all the Obamacare re-engineering since 2010 will be tossed out the window. That may be a blessing because the ACA ("ObamaCare") has not proven itself as sustainable or hospital friendly. It is overly bureaucratic and too expensive to operate and doesn't return adequate improvement to care delivery, and impedes innovation other than whatever is deemed "innovative" by the Centers for Medicare and Medicaid Services ("CMS"). The CMS is neither the alpha or omega of all that is innovative in healthcare. As viewed by the Republican stronghold that was elected yesterday, Obamacare exacerbated the problem by levying a new tax on medical devices, driving out jobs, and slowing the development of new and innovative products that could help cure patients in need.
Insurance company plan design
Insurance companies have been constrained in how they compete against each other to offer the most affordable, highest quality options for consumers. While the ACA requires a standard basic benefit package, patient choice, the ability to travel freely across the country and access reciprocal networks of providers, innovation, and transparency are essential elements of successful reform.
Instead, under the ACA, insurers have pared down access to include local service areas only and eliminated out of network / out of area care for other than emergencies that arise when one is traveling away from home. So if I have one living sister across the country and I want to have surgery near her, (don't worry Sis!) my non-CMS insurance plan may not pay - even if that's where I want to go for care, where the doctor is that I trust, and where the support is available to me, and even if it is cheaper than the local option.
A medical tourism benefit in the near future?
A lot of lip service is paid by some medical tourism trade associations to the "possibility" that in the future, American insurance companies will pay for foreign medical tourism claims. They encourage conference attendees to come and meet the insurers at their events. I choose not to give this any credence whatsoever. I know what is involved to add a benefit such as medical tourism, contract with foreign providers and sell the policy to consumers or employers. I don't view this as a possibility in the near term (the next 5-7 years).
How the U.S. insurance reimbursement market currently works
Part of the hurdle is that when a hospital contracts with a health insurance plan, it contracts for payments set at "prices" that reflect local market basket conditions and then "discounted reimbursement" tied to the insurer's market steerage influence and book of business. The hospital must also work around federal requirements that mandate a "most-favored nations" status to CMS. While held to be anti-competitive in other settings, because the federal budget pays bills of CMS-covered individuals, the most favored status causes all hospitals to cost shift to self pay patients and private /commercial insurers. That's not fair to insurers, their shareholders or consumers who pay out of pocket.
Fair dealings
I would categorize that special treatment under the unfair deals Mr Trump has mentioned. Private hospitals should be able to charge price that reflects the cost to produce the service plus margin, quote the price in advance without equivocation, and discount to any level that it pleases. Let the market decide if it wants to buy at the price charged by a brand that the market trusts.
In my opinion, the only thing that should be constraints are collusion, monopoly, restraint of trade, or predatory pricing (selling for less than it costs to produce). Currently, many hospitals, clinics, doctors, dentists and ambulatory surgery centers across America are guilty of "predatory pricing by ignorance". They don't know their costs to produce a service, so they accept rates from insurers and even CMS that may be less than the cost to produce the healthcare services for the public - regardless of who pays the bill.
Does that mean Medicare should also go away? No! But it is safe to say it is broken. Today, more than 50 million seniors and individuals with disabilities rely on Medicare for access to health care. And millions more are counting on Medicare to provide health security when they reach retirement. For me, that is in less than 10 years. Unfortunately, the Medicare program is unsustainable and will fail current and future Americans without significant reforms. The problem is driven by demographics, cost growth, and outdated payment systems that encourage overuse of health services and cost shafting as I described above. Despite this, the ACA raided more than $800 billion from the program and beneficiaries it serves and used the funds to finance the law’s open-ended expansion of entitlements. Now if it gets tossed out the window, providers, insurers and the American public will feel cheated - and they should. For that whole expenditure and the time, consulting, training, seminars, and software products to manage the change is for naught.
The Republican platforms, and the House of Representatives' 21st Century Cures Act declares that there have been four major success stories enacted by Congress:
- Health Savings Accounts (HSAs) and consumer-directed health care
- Medicare Advantage
- Medicare Part D prescription drug coverage, and
- Quality reporting and paying for value.
Health savings accounts and consumer directed spending
Nearly 20 million Americans have an HSA which provides greater flexibility, portability, and autonomy to patients. As stated earlier in this post, currently their use of HSA funds (their own money) allows them the choice to seek medically necessary care anywhere -- Bangkok, Berlin or Baltimore or Boise, Idaho. They can use the money to pay for the travel, the cost of care, and up to $50 per night per person involved in the care at the hotel. Mr Trump to limit that to domestic care with insertion of only a few words to Publication 502 and the pseudo-tariff approach on imported healthcare becomes real.
Medicare Advantage
17 million seniors are enrolled in Medicare Advantage. Prior to Medicare Advantage programs, Seniors joined HMOs with "Lock in" features that required them to obtain their medical care and surgery "in network". With Medicare Advantage and ACOs came the freedom to shop anywhere and the ACO was prohibited from "lock in" tactics to control utilization and costs. At Mercury Health Travel, we see that as an advantage, because it gives Grandma and Uncle Charlie to come to my house and be attended by a surgeon I know and trust in Denver, and be close to someone with nursing training that can provide occasional support and look after them during their recovery phase.
Medicare Drug Coverage
More than more than 39 million Medicare beneficiaries are enrolled in Medicare Part D which supposedly helps them pay for prescription medications, although I just concluded a call with my father in law who wonders how he can pay $430 a month ($7.16 pr dose, twice daily) for Apixaban (Eliquis) for his atrial fibrillation and avoid a stroke, while he could order it for $3.40 a dose from Canada, but is not allowed to do so. Perhaps that will also change under a Trump administration. In 1977, people had no Medicare Part D and they traveled to Mexico to buy their medicines. That was how I originally started working in medical tourism.
Reporting and paying for value
Value to whom? I wrote an article recently on all the noise about value-based purchasing in healthcare.
Value-based pricing arrangements have become a euphemism for risk transfer agreements that transfer the costs associated with healthcare delivery to providers while the payers that contract with providers apply measures that limit their financial risk. That's not surprising; they aren't in the business of healthcare. They are in the business of insurance - a practice or arrangement by which a company or government agency provides a guarantee of financial protection against specified losses, in return for payment of a premium.
By transferring that risk to the providers, drug manufacturers, and other ancillary providers, the value basis is not measured against what outcomes are experienced by the providers or the patients; instead it is measured by how well the financial outcomes fare at the insurance company or health plan. That's not managed care either. That's value-based purchasing of healthcare services from providers and manufacturers.
Employer paid health insurance
Americans with job-based health care coverage—approximately 155 million people—are now facing higher premiums and higher deductibles than ever before. Domestic medical travel could help mitigate some of these effects. Negative effects on employees, their employers, and the U.S. economy occur when people are discouraged from entering the labor market in part because the premium subsidies decrease as wages increase, effectively raising the marginal tax rate on Americans trying to earn a living. In other words, earning more can make health coverage more expensive. According to research for the 21st Century Cures Act, more than 6.4 million Americans now only work part-time because they cannot find full-time work; that is over two million more than the amount seen before the recession. New data shows a decline in the average hours worked per week by lower-wage employees and many more employees working just below 30 hours per week. These people cannot travel to faraway countries to obtain healthcare because they cannot afford to pay for the travel or the cost of the care. Therefore, they were never part of the addressable market seeking medical travel abroad. They are limited to drive-able destinations, if they have a reliable car and money for gas, food and lodging, in addition to care. That's domestic medical travel, once again.
Part of the reason this may be happening is that employers are also facing new costs in order to comply with the law. The ACA requires employers with more than 50 full-time workers to offer health insurance that meets certain Washington standards. And if they don’t, the employer is penalized for each employee they fail to cover—up to $3,000 per worker. $3000 per worker is cheap compared to paying for coverage at the premium rates currently charged in the market. If premium rates were calculated on the basis of better procurement tactics and lower negotiated rates between employers and providers without middleman layers (such as PPO fees, network access fees and lease fees) might the premium dollars allocated buy more or better care?
Contrary to the President Obama's promise that Americans could keep the plans they had and liked, according to the Associated Press, millions have lost coverage as insurers were forced to cancel policies that did not satisfy the law’s requirements. That too, happened to me and our family. I didn't like it one bit. I pay more and get less now. Consumers across the country found themselves with little choice but to enroll in plans with narrower "local only" networks, as insurers struggled to deal with the costs of ACA mandates and regulations.
Narrow network provider panels
A report by Modern Healthcare found that 70 percent of plans sold on the ACA state exchanges in 2014 had narrow networks. In addition, a recent Avalere study found that exchange networks have 34 percent fewer providers compared to commercial plans available outside the exchange. This is even more pronounced in rural areas. On average, ACA marketplace exchange plans have 42 percent fewer oncologists and 32 percent fewer primary-care physicians. Many doctors in training are not entering primary care as a specialty, and on the exit side, many are retiring and others are transitioning to concierge medicine where there are no contracts for managed care. A patient who wants immediate access to care, different care, privacy and anonymity, or price arbitrage cannot achieve any of those freedom under current marketplace exchange plans with narrow, local network coverage only, except in the case of an emergency.
Medical tourism patent irrelevance
A revision of IRC213D that would discourage Americans from buying healthcare outside the USA, and using their HSA accounts to pay for the cost of treatment and travel abroad for care, would also potentially impact Satori Health's "patent" that was filed and granted a few years ago.
The Satori patent, trademarked as the “Health & Shared Wealth Program”, is actually two patents; the first, U.S. Patent 8160897, titled the “Satori Integrated Health & Financial Benefits System and Method” and U.S. Patent 8224668, a Continuation-in-Part to Patent No. 8162897.
They are part of a portfolio of other patents of intellectual property that regard the calculating and sharing of the dollar savings from a medical travel health benefit. The patents provided Satori with exclusive rights to the only permissible medical shared savings model in the medical travel industry. The company already went bankrupt. The bet their farm on this strategy.
Under the Satori patent, the system precludes certain entities such as medical travel/medical tourism facilitators, health plans, self-funded and fully insured employers, Taft-Hartley trusts (labor unions), unions, workers’ compensation carriers, municipalities, pension plans, etc., from offering any shared savings model for international medical travel cases to their clients and/or plan members without written permission from Satori and payment of a licensing fee. One can have a patent on an idea, I guess. One must still remain viable in business in order to execute on it or transfer the right to pursue the value in the patent to someone else (an agency, attorney, or other party). If there's value in it, the bankruptcy trustee will be interested because the market value most likely belongs to the creditors going forward, not the agency or attorney who might buy the privilege to execute patent enforcement and keep the proceeds.
The real estate market
Zillow's senior economist, Aaron Terrazast said in an interview earlier this year that a Trump presidency could play a large role in shaping the housing market’s future. "Although Mr. Trump is well known as a real estate developer and, presumably, understands housing issues very well from his decades of experience in the real estate sector, he has not taken a clear stance on housing finance reform or the appropriate role that the federal government should or should not play in housing markets."
In the context of medical travel, many people finance their medical travel by taking out a line of credit against their home equity. Among the middle class working people, if they lose value in their primary residence, that option to pull out cash and travel for healthcare disappears. To apply for a bank or other loan may be more challenging if their debt-to-income and debt-to-equity ratios changes because of a change in their home equity asset. That's not to predict this as a foregone conclusion attributed to the Trump administration, but markets tend to contract when there is no illuminated path to "how" Mr Trump plans to make America great again.
Inbound medical tourism from abroad
Euromonitor also predicted that Mr. Trump’s win will mean a less bright outlook for U.S. travel and tourism, medical tourism included. Foreign policy plays a large role in how attractive a destination is to potential international travelers. Consider the Obama Executive Order 13534 - National Export Initiative of March 11, 2010. In the NEI, President Obama ordered that we double our medical tourism export to other countries and seek to open more opportunities to care for foreigners in US hospitals. I was at the US Department of Commerce when that was discussed, as were the Tricia J. Johnson and Andrew N. Garman from Rush University. I asked how we planned to manage the visa and immigration policies while upholding patients' and visitors' rights to privacy and the medical nature of their visit.
Mr. Trump campaigned on a nationalistic platform, which included proposals to ban non-citizen Muslims from the country. This, coupled with racially insensitive language, may make the U.S. seem like a less appealing locale. And, if you've visited Johns Hopkins or Cleveland Clinic's International reception center, that particular population is a significant share of their inbound medical tourism business from abroad. And they bring cash and full retail prices. In some cases more than retail. There are American healthcare providers charging 200% of their usual and customary list prices (to say nothing of the discounted rates they accept from managed care plans) to foreign patients. Most are associated with academic medical centers.
Many U.S. medical facilities have recently targeted the Chinese market and affluent Chinese citizens who want to try Western Medicine in the USA for what ails them. If the U.S. were to fight with China over trade, the relationship may sour, making Chinese travelers rethink visiting the U. S. for health services and go to Singapore, Rome, Argentina, and Greece, instead. Many Chinese combine shopping tourism with health checkups, cancer diagnosis staging, and surgeries. That could also be impacted negatively if trade is constrained.
So, in conclusion, I see the following:
- Domestic (inter-U.S.) medical tourism with a potential to rise higher in the USA
- Reduced revenues coming from medical services exports to visitors from certain nations or certain religions
- The possibility of a contraction in U.S. citizens traveling abroad for health services that are currently eligible for payment through their employer or their Health Savings Accounts. Cosmetic and low dollar procedures may not see any change at all because they were never really eligible for payment through HSAs
- Potential impact to the relevance and brand appeal of JCI Accreditation for hospitals outside the USA. (The JCI does not accredit hospitals inside the USA.)
- The risk that fewer dollars will be available to pay for treatment and travel abroad sourced from home equity lines of credit if the equity in people's primary residences drop.
- The risk that Satori's patent will lose value and relevance if the HSA option restricts expenses to only domestic travel and access to U.S. health services.
- The possibility that cross-state insurance purchases and direct contracts between employers, labor unions, associations and co-operatives will increase
- The likelihood that the ACA will be eliminated - and that many dollars and hours will be spent on the next attempt at reform - by providers, employers, insurers, regulators, actuaries and underwriters.
So how many cups of sugar and how many lemons did that recipe call for? Do we have them on hand? You like lemonade, right? We may have many gallons of it for the next 50 months.
About the Author
Maria Todd is a trusted adviser and expert specialist to hospitals, clinics, governments, healthcare business owners, investors, and independent professionals. Clients call on her to help them do a better job of marketing, branding, customer service improvement or contracting with insurers and employers, and to grow their business.
Maria is the CEO of Mercury Healthcare International, in Denver, Colorado and the founder of Mercury Health Travel, the leader of the Health Tourism Practice Group of Mercury Advisory Group, the Executive Director of the Center for Health Tourism Strategy, its research and education resource center, and a Board Member and Advisor at Higowell, the world's first health tourism operations platform. She has been recognized as an Academician with the Ukrainian Academy of Rehabilitation and Human Health and is a member of the Scientific Committee of Termatalia in Spain. She is also a Board Member at Global Health Connections, a nonprofit organization associated with the University of Colorado MBA-HA program. She is the author of 15 internationally-published business improvement books in healthcare administration and health tourism.
Invite Dr Todd to speak at your next event. She presents a compelling workshop of interest to tourism and economic development officials, foreign investors, healthcare strategists, and suppliers on Opportunities for Economic Development through Tourism Sector Development. She also presents Master Classes for managed care contracting, physician integration, and concierge medicine startups.
Contact Maria Todd: +1.303.823.4662 (intl) / (800) 727.4160 (USA)
