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Economics & Investments

Financial Savings in Medical Tourism?

Economics & Investments

American patients pursue health care in medical destinations primarily to save money. Employers and insurance companies are exploring offshore healthcare options for the same reason. Although there has been much discussion about low costs in medical tourism, the magnitude of financial savings actually realized by patients and third-party Payors is not always clear.

Insurance Company Savings

For insurance companies, determination of potential savings is fairly straightforward. Third party Payors already know exactly how much they pay for their beneficiaries to have care in the domestic marketplace.

First, they must establish what the charges would be for their beneficiaries to have equivalent care in medical tourism destinations. In order to make offshore arrangement acceptable to employers and beneficiaries, third party Payors will also have to assume some costs that they would not generally cover when care is obtained within the United States, including travel and certain accommodations in destination countries.

Calculating potential savings for any given patient is a simple undertaking for insurance companies with core competency in collecting and analyzing data. However, projecting which segments of their beneficiaries can have – and will agree to – offshore care is a much more challenging issue.

Patient Savings

For patients who pay for their own care, determining the potential savings available in the medical tourism marketplace is a more complicated undertaking. Interestingly, the difficulty is not determining charges for offshore care but, rather, establishing what a patient’s expenses would be in their own hometown. To say what the financial savings are we must have this latter figure.

Although it is easy and attractive to use stated charges, I believe that this practice leads to erroneous overestimation of potential savings. This practice also disregards the fact that a substantial proportion of the posted charge for procedures done here in the US is never paid due to either discounts or defaults.

Getting to Best Price and Terms

The number we should use for the cost of care in the domestic marketplace is the best price that patients can reasonably get if they are willing to ask for a discount and commit to clear payment terms.

In healthcare there is a chaotic relationship between the prices that providers charge and the payment they will actually accept. Most providers are willing to accept payment of less than posted charges from self-pay patients – they already do just this for Medicare, Medicaid and commercial insurance plans. In order to get such a discount, a patient must commit to reasonable terms and a clear payment arrangement before having treatment. (In the context of medical tourism, a patient who can arrange care in a foreign country has the wherewithal to try to do this.)

Providers are much more agreeable to any arrangement if a patient makes a meaningful deposit at the time terms are discussed. The increasing number of firms that provide financing for medical and surgical care may allow patients to negotiate even better prices because this frees providers from collection costs and eliminates the risk of default. The price that a patient can likely get will probably fall below the quoted charge but above the payment provided by commercial insurance plans.

My analysis compares the total out-of-pocket payments for unilateral hip replacement surgery in the US, India and Costa Rica. The data was obtained from the public web sites of several medical tourism agencies, supplemented by information provided by an experienced agent during a telephone interview. The quoted price for this operation in the United States ranges from about US$ 44,000 to US$ 62,000.

For the reasons explained above, I am using the figure US$ 40,000 for this analysis. In order to make useful conclusions, it is necessary to control for uncertainties by making certain assumptions in this analysis. First, I assume that there are no additional charges for postoperative complications in any of the groups. Second, American patients having care within the United States incur no charges for travel and accommodations. Third, patients travel offshore in economy class with one other party – a spouse or other companion.

This analysis shows that the medical savings for unilateral hip replacement are 86.5% and 83.5% in India and Costa Rica, respectively. The calculated savings are actually quite close to the commonly cited number of 90%. But American patients are not particularly interested in medical savings. They really want to know what their total savings will be since this is what truly affects them.

For this analysis of hip replacement, the total cost savings are 75% for both India and Costa Rica, as compared to what a patient would really pay in the United States, presuming reasonable efforts to get a discounted price. Although medical costs are US$ 1200 less in India than in Costa Rica, much of the savings are consumed by the greater cost of travel to Asia than to Central America.

Opportunity Cost: the Overlooked Factor

Opportunity cost is a very important issue that has not been addressed in any analysis of savings in medical tourism that I have seen. If a patient has surgery in their own hometown, their spouse might miss a day or two of work. But a trip to a foreign country may well result in prolonged unpaid absence from fruitful employment. Furthermore, if a patient and partner are away for several weeks there may be expenses for childcare and/or elder care.

On the other hand, in certain situations, offshore health care allows some patients to enhance their savings by combining their medical travel with previously considered or planned tourism activities. Opportunity costs, the expenses created by absence from home and the enhanced savings are extremely variable and not well suited to quantitative analysis. Nevertheless, they clearly have a great impact on the financial decision for patients considering offshore health care.

In summary, this analysis indicates that patients who have hip replacement surgery in India or Costa Rica realize total savings of approximately 75%, compared to estimated best prices that patients could reasonably get in the United States.

Additional perspectives on this topic can be found in another articles by the author on

Dr. Horowitz has been researching medical tourism and international medical travel since 2005. A graduate of the University of Miami School of Medicine, Dr. Horowitz practiced Cardiothoracic Surgery for more than 15 years and obtained his MBA from Goizueta Business School of Emory University. He can be contacted at

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