Profiting from health-care cuts

JONATHAN HARRIS August 19 1996

Profiting from health-care cuts

JONATHAN HARRIS August 19 1996

Profiting from health-care cuts


Tipping the scales at 420 lb., Dan Adamson was not happy being obese. After trying other methods to reduce his weight, the 44-yearold lawyer from Pocatello in southern Idaho decided to undergo a stomach-stapling operation. At first, he considered having the procedure done in Utah or California. But before Adamson could act, an advertisement placed in a local newspaper by Alberta’s Cardston General Hospital caught his eye. After one call to the hospital’s tollfree hotline last spring, Adamson was sold. In August, 1995, surgeons at the Canadian facility 12 km north of the American border reduced the size of Adamson’s stomach for a fee of $14,000—at least $9,000 less than the same procedure would have cost in the United States. Now 115 pounds lighter, Adamson is quick to praise Cardston’s marketing savvy and medical skills. Thanks to his stapled stomach, he boasts, “I am now a stud.”

For years, wealthy Canadians have been heading south to skirt waiting lists for such medical procedures as cardiac surgery, knee replacement and advanced diagnostic imaging. Now, facilities like Cardston are attracting a small but growing number of

border-crossings in the other direction. Targeting American patients with promotions that tout Canada’s internationally recognized doctors, high-quality medical centres and—most importantly—its far lower prices for most procedures than in the United States, hospital administrators and private entrepreneurs alike hope to tap a market for health services that could be worth hundreds of million dollars per year. ‘The private sector in various forms has identified enormous gaps in the market,” says Pamela Divinsky, a senior consultant for accounting and advisory firm KPMG who is studying the changing structure of the Canadian health-care system. “We all know from Economics 101 that if there’s a gap in the market someone is going to try and fill it,” she adds.

For Cardston hospital, the girth-challenged marketplace seemed to offer one source of new revenue to ease the sting of shrinking provincial health budgets. In the fall of 1994, the 45-bed facility spent more than $20,000 on a seven-week promotional campaign aimed at overweight residents of Montana and Idaho, offering slimming stomach surgery at a substantial savings. Although the initiative was put on hold

in April, 1995, by then it had already attracted more than 700 inquiries. And the 15 people who, like Adamson, actually signed up for surgery, amply recovered the hospital’s costs for advertising. With the advantages offered by a low Canadian dollar, cheaper administrative costs and much lower doctors’ salaries, Cardston cashed in on a medical procedure in short supply in the United States.

Meanwhile in Toronto, an all-private clinic is energetically courting American customers for a range of medical services. Handsomely furnished with navy-blue carpeting and framed prints of America’s Cup yacht races, the sevenmonth-old King’s Health Centre is located within sight of three large teaching hospitals. The centre boasts an affiliation with the world-renowned Mayo Clinic in Rochester, Minn., and the ability to attract a roster of more than 100 doctors from some of Canada’s most prestigious health facilities. It is not aimed exclusively at U.S. traffic: Canadians may buy reproductive therapy, physiotherapy sessions and other services not covered by provincial medicare benefits, but they are prohibited from paying the private clinic for services—such as cardiac surgery—which are covered by medicare. No such limits restrict what American patients can receive however, and for them, the Canadian facility represents a bargain-basement of lowcost medical services. “There is such a disparity in prices and fees between the United States and Canada,” says Scott Addison, King’s senior vice-president of marketing, “that we have a tremendous opportunity to provide quality-driven services which I don’t think the Americans can compete against.” Addison expects that, when fully operational early next year, the clinic will attract 3,000 patients a day from Canada and the United States, with Americans providing about 25 per cent of revenues.

It is a formula that could lead to unprecedented integration of Canadian and American health care. To attract patients on the scale that it seeks, King’s is negotiating with U.S. insurance companies and health maintenance organizations—which provide health care to subscribers for a fee—to offer medical services to their customers at a fraction of U.S. costs. Arthroscopic knee surgery, for instance, can cost up to $20,000 in the United States. King’s, according to its marketing senior vice-president, “will probably be able to do this

surgery—all costs included, with transportation and a room at the Hilton—for about a third of that.” Meanwhile, King’s plans to refer queuing Canadian patients who can afford immediate private American care to prominent U.S. centres like the Mayo Clinic.

The push to attract U.S. patients comes at a time of growing alarm over the state of Canada’s health care system. As provincial governments try to rein in healthcare budgets, the number of hospital beds across Canada has fallen by more than 6,000, to 155,676 since 1993. Meanwhile, administrators in some provinces have slashed operating-room capacity and several provincial governments have imposed caps on doctors’ salaries.

Amid the prevailing climate of retrenchment, offering medical services for a price to foreign patients holds the strong appeal of providing a potential new source of sorely needed revenue. But the idea has its detractors, who worry that serving Americans for a fee will dilute the free care given to Canadians.

Controversy over the beneficiaries of cross-border health shopping has already stalled one initiative. In April, Edmontonbased Hotel de Health Inc. made a $4.9-million proposal to local health authorities to lease unused space at Leduc Hospital, 12 km south of the Alberta capital, for a decade. The company proposed to fill the

public hospital’s spare beds with foreign patients. In the wake of negative public comment, Crossroads Regional Health Authority, which is responsible for the area’s health care, rejected the company’s first offer in June. But the company has not given up its plans. In fact, according to spokesman Robert Talbot, Hotel de Health has already opened negotiations with American health maintenance organiza-

tions for a supply of patients. But others see the Hotel de Health’s ambitions in a different light. “We think that the proposal is a step towards two-tiered health care,” says Dr. Hubert Kämmerer, chairman of the Edmonton-based nonprofit organization, Friends of Medicare. “I think that their ultimate plan is to take wealthy Canadian patients that want to jump the queue.”

Other plans to market health care to foreign patients have also failed to get off the ground, at least so far. Horizon Pacific International, a Vancouver consulting firm, has conducted numerous analyses for The Vancouver Hospital—the city’s largest general hospital—on the potential rewards of

A growing number of Americans are paying for treatment in Canada

marketing the facility’s state-of-the-art bone-marrow transplant expertise overseas. But so far, the hospital has not moved to profit from that potential. And in 1993, two major Toronto teaching hospitals— The Hospital for Sick Children and The Toronto Hospital—proposed generating extra revenue by selling brain surgery and cancer treatment to Americans. ThenOntario Minister of Health Ruth Grier turned the proposals down flat.

One concern is that Americans able to pay for care will receive more attention than Canadians— who are prevented under the Canada Health Act from paying for medical services. “Canadian doctors will end up spending their time looking after American patients,” predicts Dr. Michael Rachlis, a Toronto-based health policy analyst and vocal defender of medicare. In the longer term, Rachlis argues, the availability of services for a fee will fuel public pressure to change Canada’s existing health system. “It will erode the Canadian system,” Rachlis asserts. “When Canadians see Americans paying money to get fast arthroscopic surgery, they will say: ‘Why can’t I have it?’ ” Doctors do stand to benefit from any influx of paying patients from points South. One reason for the difference in healthcare costs between Canada and the United States, notes Dr. Brian Day, a Vancouver surgeon and associate professor of medi-


cine at the University of British Columbia, is that Canadian surgeons receive about one-sixth to one-tenth the pay of their American counterparts. Providing services to paying U.S. patients is one way for Canadian physicians to narrow that income gap.

Other physicians are simply looking for more opportunity to practise their profession amid cutbacks in the public health system. Feeling frustrated after Vancouver Hospital cut his operating hours in half three years ago, Day joined 21 other investors and opened the $4.5-million Cambie Surgery Centre in downtown Vancouver. Now, he and his staff of 14 doctors perform surgery on patients from all over the world. But Day, who still performs six hours of surgery a week on Canadians that is paid for under medicare, is upset that he is prevented by law from operating on others who are willing to pay for quicker access to service. “I have 60 patients on crutches right now who have been denied by their government the right to pay $500 and get fixed,” says Day. “They’ve been told that if you want to get fixed you have to go down to Bellingham, Wash., and pay $5,000.”

Other critics, though, say that Canada’s competitive advantage in cross-border health-care cost comparisons is only temporary. Many U.S. hospitals now operate at less than 70 per cent of capacity, even while health-care experts in that country are predicting that by the year 2000 the United States will face a surplus of more than 120,000 doctors. Together, says Scott Rowand, president of the Association of Canadian Teaching Hospitals, the two factors spell an oversupply of health care that should act to lower prices. “That,” says Rowand, “suggests you will find the marginal cost being cut significantly in the American market.”

Such skepticism has not deterred Medresource Canada Inc. The Toronto company is assembling a network of doctors and clinics across Canada that will agree to provide services to 4,000 American residents a year.

Jonathon Shore, Medresource’s director of marketing, is confident that there is a growing American appetite for Canadian medicine. “Health care is really an international enterprise,” says Shore. “I see people looking for quality and price, considering Canada as an alternative for care.”

The description clearly applies to Dan Adamson. After his five-day stay in Cardston, Adamson declared that “the calibre of medical care in Canada is as good as anywhere in the States.” The statement may be a welcome revelation to Americans in search of health-care bargains. But to many Canadians, it clearly represents something else entirely: the sorry fate that awaits if cross-border health shopping produces a more American-style system north of the frontier.