The equipment and expertise deployed in an MRI scan, blood test or knee replacement may be the same across the globe, but the payment demanded by providers can vary enormously. A recent study conducted for the Organisation for Economic Co-operation and Development (Comparing Price Levels of Hospital Services Across Countries, 2010) suggested that a heart bypass costs nearly 50% more in the United States than in Canada. For a company with a multinational workforce, this variation triggers some pressing questions.
Paul Andrews, senior consultant at international consulting group Mercer, believes that there is a “continuous education piece” to carry out with clients.
“We are talking to finance managers as well as HR, explaining the difference in local systems and the fact that in some countries the balance of power is tipped towards providers,” he reports.
Linda Torr, senior consultant at Aon Hewitt, another international consulting group, agrees that clients need to be “fully aware” that they may see “peaks and troughs” in expenditure on healthcare.
“If they are expanding into the US from Europe or to certain parts of Asia, we might say ‘fine, we can get the cover, but be aware that it may be a lot higher than you are currently experiencing’,” she says.
The reasons for the variation in healthcare costs are multiple, reflecting differences in economic development, models of healthcare provision and expatriate populations. The proportion of GPD spent on healthcare ranges from 17.9% in the US to just 1.8% in Qatar. In Cuba, 91% of spending on health is by the Government, compared to 47% in Brazil.
“For almost every country there is a different version of the state versus private health solution and the standard of quality and cost differs widely,” Nic Brown, head of global distribution at international private medical insurance (iPMI) provider Aetna International, explains.
Dr Ulrike Sucher, medical director of Allianz Worldwide Care (AWC), the iPMI provider, cites the US, where the Government funds about 40% of healthcare through two programme (Medicaid and Medicare) as an example of a country where State funding has a huge impact on the cost of private healthcare.
“They have agreed the lowest possible price with the hospitals and providers and therefore providers need to seek revenue from the private sector,” she explains. “When you look at the published prices you can be certain that nobody pays these fees. The discount depends on the buyer power of the purchaser and can range from 10-70%.”
Across the pond in Europe, social insurance systems can keep costs down as economies of scale are leveraged, argues Carolyn Paul, general manager for iPMI provider Aria International Health Solutions.
“Government hospitals are more likely to use generic drugs as opposed to brand names and perhaps not the most highly advanced technologies or therapies,” she says.
Supply and demand
Some parts of the world are simply more expensive for medical providers to operate in. Stephen Ryan, director of medical services at AXA PPP International, the iPMI provider, points out that even a few miles can make a difference. It would be more expensive to purchase property on Jersey, for example, than in the mainland UK.
Another cause of variation that is difficult for insurers to challenge, is the level of competition between providers.
AWC’s Dr Sucher is among several providers citing Hong Kong as an example of this market. With a high population concentration, largely comprising wealthy Chinese people and 12 private hospitals operating at an occupancy rate of 100%, demand exceeds supply and thus the hospitals are “extremely profitable”, with no incentive to offer discounts.
While providers may wish to argue that higher costs are attributable to better quality, insurers are cautious about the relationship betewen the two variables.
Aetna’s Brown believes that it is “quite dangerous” to assume that “the more you pay the better it is or, conversely, the less you pay the worse it is.” He cites the example of suffering knee damage in Sierra Leone where the cost incurred might be attributable to evacuation to South Africa.
He also believes that there are some “delightful surprises” to be found in countries such as China and the Middle East that are investing “heavily” in healthcare knowledge, technology and people and delivering “amazing quality” to customers.
This is borne out by Mercer’s Andrews, who says: “We see places like India, Thailand and Malaysia where the facilities are excellent and more competitive than the surrounding locations.”
The extent of the variation in medical and hospital fees between the US and the rest of the world is starkly illustrated in the 2011 Comparative Prices Report published by the International Federation of Health Plans.
“The real problem is the unit cost of episodes of care rather than over-treatment,” argues Tom Sackville, the Federation’s chairman. “Take the case of a common item like an MRI scan. It’s about the bargaining power of providers over payers. It’s hard to imagine that, if you have the same MRI machines and level of staffing, there is any justifiation for the costs being twice or three times as high.”
His interpretation is borne out by the OECD study which found that “price level differences cannot be explained by differences in the average length of stay – rather, high-priced countries also exhibit high prices per day of hospitalisation.”
If the analysis so far sounds fatalistic, with price variation outside insurers’ control, insurers and intermediaries readily cite examples of success in challenging costs.
For example, insurers enjoy more power in areas where they are able to deliver a “steady stream” of customers to providers and where a greater choice of providers exists.
“We tend to avoid creating too many exclusion lists,” explains AXA PPP International’s Ryan. “But we can steer customers with a light touch towards facilities that offer a good balance of quality and value. If we have a significant concentration of business then we really can secure discounts.”
Deploying local expertise is crucial, he argues, hence the firm’s investment in partnerships with Third Party Administrators (TPAs). AXA PPP International has three TPAs in Africa — in South Africa, Kenya and one “trouble shooter” employed to “mop up claims in a whole range of complicated places.” These partners can visit providers, check that customers are actually present and verify whether their condition is as described in the claim. They can also secure discounts with providers.
AWC’s Dr Sucher believes there are a number of strategies that insurers can employ to tackle the high costs charged in certain parts of the world, including pre-authorisation and the investigation of claims to tackle over-utilisation and unnecessary interventions, in addition to the case management of ongoing claims and chronic conditions. She also argues that the introduction of co-payments and deductibles can have an “enormous impact” on utilisation and that tackling fraud, a problem of “increased prevalence” in some parts of the world, particularly in those areas that lack regulation, is vital.
Aetna International’s Brown believes that the use of data is key. His organisation employs a team of nurses to manage treatment, monitoring the pathway and educating clients about clinical best practice.
Certainly, intermediaries expect insurers to be challenging costs.
“We’ve seen bills come through where bandages are charged at £50 and a couple of paracetemol for £10,” reports Mercer’s Andrews. “We would expect an insurer to be negotiating on those costs, managing and checking and pushing back on some charges and not accepting three different types of scan when only one is sufficient.”
He predicts that insurers may step up their attempts to challenge providers in regions where costs have been rising. He cites the example of Dubai where a recent increase in being rejected by funders.
Aon Hewitt’s Torr believes that insurers are judged on their ability to challenge providers suspected of charging exorbitant amounts or exploiting insured patients. She gives the example of maternity cover: while there may be a £10,000 cap on costs, a “complicated pregnancy” is generally subject to no limit, increasing the temptation for providers to define it as such.
Mercer’s Andrews believes that intermediaries also have a vital role to play and suggests that the answer may be consolidating plans “globally” in order to leverage premiums from the insurer and then “fine-turning” the plan by devise a variety of benefits by country.
“You have almost got a hybrid of local plans and a global plan,” he explains.
What is clear, is that the picture of healthcare costs variation is likely to change significantly in the coming years. The Towers Watson Global Medical Trends Survey 2012 showed that, while austerity-bound Europe has seen inflation rates fall, Latin America continues to report double-digit increases in most countries, as providers realise the potential to hike up prices while remaining less expensive than the US. As the economic balance of power shifts and healthcare markets mature, insurers and intermediaries will need to adapt their strategies across the globe.