The Rise of Medical Tourism

Author: Martha Lagace

What used to be rare is now commonplace: traveling abroad to receive medical treatment, and to a developing country at that.

So-called medical tourism is on the rise for everything from cardiac care to plastic surgery to hip and knee replacements. As a recent Harvard Business School case study describes, the globalization of health care also provides a fascinating angle on globalization generally and is of great interest to corporate strategists.

“Apollo Hospitals—First-World Health Care at Emerging-Market Prices” explores how Dr. Prathap C. Reddy, a cardiologist, opened India’s first for-profit hospital in the southern city of Chennai in 1983. Today the Apollo Hospitals Group manages more than 30 hospitals and treats patients from many different countries, according to the case. Tarun Khanna, a Harvard Business School professor specializing in global strategy, coauthored the case with professor Felix Oberholzer-Gee and Carin-Isabel Knoop, executive director of the HBS Global Research Group.

The medical services industry hasn’t been global historically but is becoming so now, says Khanna. There are several reasons that globalization can manifest itself in this industry:

* Patients with resources can easily go where care is provided. “Historically doctors moved from Africa and India to London and New York to provide care. Now we are basically flipping it around and saying, ‘Why don’t the patients move? It’s not as difficult as it used to be.’ ”
* High quality care, state-of-the-art facilities, and skilled doctors are available in many parts of the world, including in developing countries.
* Auxiliary health-care providers such as nurses go where care is needed. Filipino nurses provide an example, perhaps.

“From a strategic point of view you can move the output or the input,” explains Khanna. “Applying this idea to human health care sounds a bit crude, but the output is the patient, the input is the doctor. We used to move the input around, and make doctors go to new locations outside their country of origin. But in many instances it might be more efficient to move the patients to where the doctors are as long as we are not compromising the health care of the patients.”

Khanna recently sat down with HBS Working Knowledge to discuss the globalization of health care in the context of India and Apollo Hospitals.

Q: What led you to research and write this case?

A: I came across the company during some of my travels in South India. It was so unusual to find “first-world health care at emerging-market prices” as the case says. Often better care—by which I mean technologically first-rate care with far greater “customer service” and accessibility—is available in parts of India than in my neighborhood in Boston.

Felix Oberholzer-Gee, Carin-Isabel Knoop, and I decided to write the case just because health care is such a primal thing—it arouses a lot of emotions and insecurities. After all, it’s one’s life and health that one is dealing with. And the prospect of entrusting health care to a developing country had a pedagogical “shock value,” too.

“A lot of entrusting medical care to different locations is about a psychological fear of the unknown.”

For a long time I’ve been interested in studying world-class companies in developing countries. For me and my colleague Krishna Palepu, India has served as an intellectual laboratory. So I’ve always been anecdotally aware of the possibility that people could benefit from India’s soft assets, so to speak. In this case that means skilled health-care professionals—doctors, nurses, technicians, etc. The fact that the cost of living is so much lower in India means that the same service is possible at a fraction of the price elsewhere. For most routine issues, as well as invasive procedures that are routine, I see no reason why more people would not go to India.

Q: The term “medical tourism” is fairly new, but how new is the phenomenon of going overseas for medical treatment?

A: When I was a college student in the United States I discovered that dental care was very expensive. Even back then, many of my international classmates essentially engaged in medical tourism—they would simply bundle up the care they needed, make a trip to their country of origin, and take care of it. India was certainly one of those countries I was aware of due to my own personal background.

We didn’t have a term for medical tourism, but in a sense it was all around us. It took a set of entrepreneurs to begin to make it happen. By the late 1990s, when I was teaching courses in global strategy, some of my Thai, Malaysian, and Singaporean students were perfectly aware of the term, because these countries of Southeast Asia already had very good tertiary-care hospitals.

Medical tourism usually refers to the idea of middle-class or wealthy individuals going abroad in search of effective, low-cost treatment. But there is another dimension of medical tourism that is not called medical tourism. Narayana Hrudayalaya, a heart hospital in India [see article], treats indigent people from neighboring countries—Pakistan, Bangladesh, Burma—who suffer from heart disease and can’t afford surgery. Treatment for them is free. The hospital is able to provide it because surgical methods are efficient enough that pro bono care doesn’t hurt the bottom line.

Q: Why is India gaining prominence for medical tourism?

A: India is encouragingly less “scary” now. I think a lot of entrusting medical care to different locations is about a psychological fear of the unknown. An important strategic challenge for developing-country hospitals is to reduce the psychological fear.

In addition, India is rising because there’s just a ton of very well-trained doctors just like there is a ton of well-trained engineers. Over the decades, many engineers have relocated to Silicon Valley, but for doctors it remains the case that barriers to entering the U.S. medical profession are still large.

In India, the same depth of pool of engineering and mathematical talent for software, offshoring, and outsourcing is there for medicine, too. In the 1950s and ’60s, the Indian government invested a lot in tertiary education. By now there is at least a small handful of medical institutes that are really first-rate, and the doctors they produce are extremely well trained.

When my colleagues and I began to research this case, some other countries had already stolen a march on India—Singapore, and Malaysia in particular, and areas of the Middle East—yet there was still a lot of room for growth. India has had a unique competitive advantage as a result of this deeper pool of technical knowledge and the fact that it is simply a large country and has more people.

I would expect to see dynamics in China similar to what is happening in other parts of Southeast Asia. China frequently makes the news for stem cell therapies that are not allowed in the West. So while I think India has some unique features it is not strictly unique.

Q: What are the recruiting challenges for staffing these hospitals with doctors?

A: In the case, Dr. Prathap C. Reddy, the founder and chairman of Apollo Hospitals, says he spent a lot of time studying specialists almost like an executive search firm would, to identify their pleasure points and pain points in terms of building a successful practice in the West and potentially in India. He wanted to understand not just medical training and specialties but also family circumstances, since it is always a family decision to relocate.

In the past, Indian doctors left India so they could multiply their incomes. But now we’re seeing the reversal of that. India is booming so why leave, and by the way, patients can go there.

As the case describes, accreditation is a pretty huge barrier for doctors going abroad. Just as Dr. Reddy had to spend time convincing the Indian government that the idea of medical tourism was a good use of national resources, when we wrote the case he was in the process of convincing various countries that similar development made sense. So it’s a tricky public policy issue.

Q: How does growth in private hospitals affect public health care in India?

A: There is an assumption in the view often expressed in the media in India and Europe, for instance, that when private hospitals in India provide care to heart patients from England, the hospitals are somehow taking care away from poor people in India. The assumption seems to be that if medical tourism was banned, the doctors in question who were catering to wealthy patients would suddenly, as a practical matter, move to a village. It takes a different set of individuals, a different set of infrastructure circumstances to create that scenario. We need good scholarship to verify the idea that there is a potential substitution between caring for sick people from England and providing medication for malaria in an Indian village. I’m not aware of such analysis yet.

My guess is that the bulk of India’s problem is primary health, and has nothing to do with tertiary care. And the primary health problem is not going to be addressed by a private hospital for the most part anyway. These are almost different industries. If someone analyzes the landscape and discovers that there is substitution between care, then there is a real public policy issue that needs to be debated.

Q: How are marketing strategies evolving?

A: My observations are that medical tourism is promoted much more heavily in the United Kingdom than in the United States. Public interest in Britain is in the context of the National Health Service and its constraints. Initially the rules required that patients be treated only in the United Kingdom. I believe there has been a gradual relaxation in these rules, so that some care can be provided within some EU countries. I know that various Indian hospitals are continually attempting to get accredited to perform certain procedures.

What is striking is that in London medical tourism makes the front page of newspapers. People ranging from generals in the British Army to politicians to blue-collar workers are quoted, all saying, in effect, “I had a great time, and now I’m well.” The most common treatments seem to be for cardiovascular issues, bone-related issues such as hip replacements, and general age-related issues. Most of these articles depict people going to India, but they almost never profile an Indian going to India. They profile a wide spectrum of citizens, not just British citizens of Indian or Asian origin.

Q: For-profit hospitals around the world have been associating with well-regarded U.S. medical schools and clinics. How can Apollo Hospitals differentiate itself from growing competition?

A: What is happening now is the normal evolution of an industry, and these hospital companies are all trying to figure out what their angle will be.

I certainly don’t think affiliating with a medical school or clinic in the West is a panacea. We will see solutions emerge that have nothing to do with the West and that specialize in particular kinds of care where the West may not even have much competence: tropical diseases in Southeast Asia and Africa, for instance. On the other hand, you might see very interesting links between particular companies, research institutes, and hospitals in different parts of the world—in the Middle East, Europe, the United States. My guess is that 3 or 4 prominent hospital companies will survive because the demand is so huge.

At the end of the day we all ought to celebrate the development of these hospitals, because a lot of people who would have to wait in pain for 8 months for a hip replacement can get it tomorrow, at much lower expense. People with excruciating dental pain can get it fixed, cost effectively, much quicker. And patients who need a kidney transplant and have to be on dialysis can get attention sooner. As always there are challenges, but from humanity’s standpoint we ought to celebrate.
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