Medical Tourism - A Growing Niche Market

September 27, 2009

The term Medical Tourism refers to traveling to another a foreign country for medical care.

In times past traveling abroad for medical care was limited to wealthy people in regions where the type of medical care needed was not available locally. This usually involved wealthy people in poor or less developed countries traveling to places, such as Switzerland, Great Britain or the United States, to obtain care that was either unavailable at home or where the quality of local providers was very low.

Switzerland has an especially long history of medical tourism according to SWIXMED a Swiss firm that arranges care in Swiss clinics for international patients. On their homepage SWIXMED notes that as far back as the Roman Empire wealthy citizens of the Empire would travel to spas in the Swiss Alps to bathe in the hot mineral springs there in the belief that soaking in these waters would cure arthritis and other ills.

While Switzerland was not the only nation to have mineral springs, the number of such springs relative to the country's small size resulted in these springs making a noticeable contribution to the nation's economy.  In addition, like similar springs in other nations, these areas became tourist hubs catering to wealthy tourists (about the only kind of tourist in times past) seeking to improve their health.  Since the motivation for these tourists was improved health, it is only natural that a medical services industry would develop in these areas.

The growth of medical care has gone hand in hand with economic development. An abundance of wealthy visitors to its mineral springs obviously provided the Swiss with both the means and incentive to develop its medical care industry. A steady stream of wealthy clients willing and able to pay for medical services served to both induce doctors and other medical practitioners to relocate to Switzerland in order to improve their own economic prospects as well as to induce locals to enter the industry thus helping to make Switzerland a big provider of medical services.

In other nations, economic growth led to increasing demand for medical services by ever larger segments of the population. Throughout history, the poor, who until recently comprised almost the entire population of every land, had a difficult enough time obtaining enough food to survive. Starvation has historically been the major killer with sickness and disease being a random variable that could not be avoided by most of those who were struck by illness.

However, in areas where economic growth took hold and food became more plentiful, starvation became less of a threat while rising wealth meant that more resources could be devoted to fighting disease and more people could afford to pay for disease treatment and prevention. For people in these wealthier nations good medical care was now available at home.

For who live in wealthier nations, there should no longer be a need to travel abroad for medical care. However, ironically, wealthier nations are now the main sources of demand for medical tourism while poorer nations, especially Asian nations with rapidly growing economies, are the main destinations for medical tourists.

Three main forces are driving this demand by those in wealthier nations to seek medical services abroad. These are:

- Lower cost care in Asian nations.

- Need for services not available at home due to legal restrictions

- Denial of services in home nation due to managed care programs

One result of economic growth in the post World War II era and the associated Cold War motivated economic aid to the, then poor, nations in Asia, Africa and Latin America has been the beginnings of a middle class in these former Third World nations and the professional education that many middle class youth in these Third World nations received in the United States, Europe and, to some extent, the former Soviet Union.

The result was a large number of doctors and other professional medical personnel returning to their home countries after receiving an education and often working for a number of years in North America or Western Europe.

Poverty among the local population limited demand for the services of these returning professionals and this, coupled with their foreign training and experience, encouraged them to begin offering their services to foreigners. One of the biggest attractions was their ability to provide their services at the much lower local rates. In addition to the lower cost of living in these countries which results in lower relative wages, currency exchange rates also add to the differential in cost between the overseas providers and foreign patients.

Destinations in Asia and other places have become popular for Americans who either lack medical insurance or seek elective procedures not covered by insurance because of the cost savings. There are also some managed care providers (organizations that work with employers to help keep medical and insurance expenses down for employers) that have started, at the request of the employer or other third party payer, referring patients abroad for medical services because of the huge cost differences in these cases. Some concern has been raised about this from a few patients and consumer groups as, unlike most forms of medical tourism, the patients in these cases have little or no say in the decision to be sent abroad for the service.

In the case of the United States, a number of people living in Southwestern cities, like Tucson, Arizona where I live, which are within easy driving distance of the Mexican border, often go across the border for minor ailments and especially routine dental care due to the much lower cost of these services. Many of the doctors and dentists providing these services received their training from schools in the U.S.

Ironically, many upper middle class Mexicans living near the U.S. border come to places like Tucson for routine medical and dental care in the belief that the quality is better.

In recent years there has been an increase in Americans going to Canada and Mexico for prescription drugs. This used to be illegal but the rules were relaxed a number of years ago to allow people with legal prescriptions to have them filled abroad. There is now a big business with Canadian pharmacies filling mail order prescriptions for U.S. citizens.

The United States is both home to major prescription drug companies as well as being by far the largest market for U.S. and foreign pharmacutical companies. Before any prescription drug can be sold in the United States it must first undergo a review by the U.S. Food and Drug Administration (FDA), a process that usually takes years to complete and millions of dollars in expense before being approved.

This expensive FDA review is usually given as the major reason for charging more for prescription drugs in the U.S. than in other nations. I don't know what the price differential is now, but a little over a decade ago I accompanied a friend to Nogales, Mexico shortly after the U.S. dropped its prohibition on individuals having prescriptions filled abroad.
He wanted to compare the price of an arthritis drug for his wife which was produced by a leading British pharmaceutical company. He brought with him an empty bottle that had contained a 30 day supply of the medication and which had been purchased in Tucson for $32.00.

Walking into a pharmacy in Nogales, Mexico, he showed the bottle to the pharmacist who immediately produced a full bottle of the medication which was an exact duplicate except for the wording which was in Spanish but said the same thing and was printed in the same font. The price was also different - the cost in Mexico was $2.50.

In addition to the cost of FDA approval and the pharmacuitical industry's practice of differential pricing between nations, other regulations in the U.S. also served to drive up prices. Shortly before accompanying my friend to the pharmacy in Mexico I had called the Arizona state agency responsible for licensing pharmacists in Arizona. I was assisting a student who had been laid off by a factory closing on the U.S. side of the border in Nogales, Arizona and who was completing an English language program to prepare him for a position in the larger economy.

This student had dropped out of a Mexican medical school years before just prior to graduation and was now considering putting the pharmacology training he had received while studying to be a medical doctor to use in becoming a pharmacist.

The lady in the licensing division told me that, in order to take the exam to be a licensed pharmacist in Arizona, one had to have graduated from a recognized school of pharmacy. Only three schools in the world met Arizona's high standards and, not surprisingly, all three were located in Arizona (I believe that this rideculous rule has since been dropped).

One of the factors driving up medical costs in the U.S. is the practice of states creating and supporting cartels which unduly limit the number of people who can provide medical services within their borders - even a physician with a world-wide reputation and licensed in his or her home state, more than likely cannot legally perform medical services in another state without first going to the time and expense of meeting bureaucratic rules designed solely to protect local practictioners from outside competition.

The practice of medicine tends to be heavily regulated by governments in most nations. As a result there are some procedures and treatments which are legal and available in most nations but severely restricted or illegal in other nations.

The above mentioned FDA approval process in the United States often results in new drugs and treatments being illegal in the U.S. but legal elsewhere. The goal of such laws and regulations is usually the protection of the nation's citizens from what are perceived to be untried and / or unsafe treatments and procedures.

While supporters of such protective policies are quick to point out estimates of the number of lives saved from blocking unsafe procedures, critics point out that unkonown numbers of lives are lost to disease during the approval process and these figures should be factored into the considerations about the overall effectiveness of these laws and regulations.

One of the best known cases of going abroad for a banned treatment was actor Steve McQueen's decision to travel to Mexico for a controversial cancer treatment, which was banned in the U.S., involving a drug called Laetrile in the 1980s.

While the treatment McQueen received in a Mexican clinic failed to cure the cancer that ultimately took his life, he is still admired for continuing to fight for his life despite government regulations.

The great appeal of free markets is the fact that free markets give people the freedom to manage their own lives and make their own choices.

Unfortunately, the growth of the nanny state in recent years in both the public and private sectors has curtailed the freedom of many adults to exercise full control over their lives. In exchange for the security implied by the promise to provide services regardless of the ability to pay people give up the right to make their own decisions in such areas. In these cases the cynical version of the Golden Rule - he who has the gold, rules - applies.

The area where this is most common in the advanced economies of the Western World is in the area of medical care where service is more often than not provided by the government or, especially in the United States, insurance provided by private employers. In both cases there is a disconnect between the party paying, in this case the government or employer, and the party receiving the service (the patient).

The goal of managed care, whether provided by a government agency or a private company hired by an employer, is to protect the interests of both the one paying for the service (tax payers in the case of government, employers in the case of private sector) and the patient. In the case of government programs the patient, who is a tax paying citizen who has paid into the system with his or her taxes, naturally wants the best care available and in whatever quantity needed to cure them.

The same goes for patients covered by an employer provided program which is basically a service provided in lieu of additional cash income (and the income tax plays a critical role here in that, because of tax savings, a greater amount of the in kind service - medical coverage - can be provided at a lower cost than if paid in cash which is taxable).

To protect taxpayers or employers from skyrocketing medical costs as patients demand service without limits, those managing care are forced to ration and deny certain treatments and procedures that they consider to be unreasonable.

Denials by managed care providers is probably the major force behind the current growth in medical tourism. People who are denied care outright or who are forced to wait years for needed services, can exercise the option of going abroad and purchasing the care themselves.

It is not uncommon for Canadians, despite the 2005 ruling by the Supreme Court of Canada which ruled that "Access to a waiting list is not access to health care,..." (a ruling which technically only applied to the Province of Quebec but has been looked upon as a challenge to the entire Canadian system of socialized medicine) to bypass their government run system and travel to the United States for treatments either denied by the Canadian system or require life threatening waits for service. It is also becoming increasingly common for Americans to seek treatment abroad when insurance companies refuse to pay for desired treatments.

Rising incomes and increasing government involvement in health care ensure that Medical Tourism will continue to exist and grow.

Health is a big determinent in the quality and length of life. Economic growth and rising living standards result in both an increase in health care services and an increase in people's ability to take advantages of the increased and improved services.

While government medling in the economy in general and in the health care area in particular in various countries result in limiting peoples' freedom to choose the care they want and need in those nations, market forces in other nations create opportunities to get around the policies of one's own nation and seek the care needed from abroad.