Hank Kearney PHM International, Inc. Orlando/Sebastian, USA [email protected] www.phmintl.com +1.772.388.6496 +1.772.388.6624 fax PHM International: PHM Training Management PHM Advisory Follow: www.phm-monitor.com Twitter: twitter.com/#!/HankKearney

About Hank Kearney Based in Florida, Hank Kearney is president and founder of PHM International, Inc. PHM International is the established brand holder of the PHM Emerging Markets Healthcare Monitor, GHAN – the Global Health Access® Network, and PHM Macedonia, LLC. Targeting emerging and frontier markets, Hank helps companies better understand how the combination of policy, politics, market risks, and geopolitics impact the markets at-large, and client companies in particular. In emerging and frontier markets he works where there are uncertainties in difficult places — building great businesses, developing economic diplomacy, and advancing the private sector. Prior to PHM International he served as executive director, Marketing, at Mosby Consumer Health, a division of then listed Times Mirror. He was also a product manager at one of “The Blues,” developing the USA’s first data driven wellness program. Hank Kearney earned a B.A. in Economics from Rutgers University and is one of only a handful of individuals with both the M.H.P. and R.H.U. designations. Medical Travel Today (MTT): Can you give our readers your perspective on medical tourism-the globalization of healthcare-and your interest in the industry? Hank Kearney (HK): We started working in the area in 1998 or so, and the definition of medical tourism, while still open for interpretation, I believe has developed an agreement where it is largely defined as individuals who specifically travel for medical care. Well, that’s a definition I use. Our involvement started in product design, working with payers and network developers. So, today I work at a strategic level, working with other companies that have direct involvement. While the numbers of medical travelers appear to be in the millions in particular countries and regions, often times those numbers include people who are traveling for leisure and happen to break an ankle, decide to get a sports massage, or some such ancillary clinical activity to their holiday travel. Data wise, the phrase medial tourism actually becomes a real challenge as to what is happening around the world because the actual statistics are very rarely culled from travel data. I would say the reality of people traveling specifically for medical treatment is widely un-collated today. A couple of years ago we did a study for a hospital here in the U.S. using the Medical Travel Institute at the College of the Incarnate in San Antonio. We asked them to run some simple numbers, which essentially became an exercise in extrapolation – a collection of data from this study and that study and a third study, in order to come up with usable data. MTT: Is that Dr. Vequist? HK: Yes, he is a great person who I consider one of the sober individuals in overall discussions of medical tourism. When we look at prospective patients traveling around the world-specifically for medical care-there are obvious challenges, one of which is distance. I gave a speech in Taiwan a few years ago and brought up the phrase “Death of Distance.” It’s an old IT phrase and I was claiming that distance doesn’t matter with software, IT, the internet, etc. But distance is a very real factor in clinical care, say, a cardiac arrest. Luckily many forms of medical equipment are now portable, like defibrillators and the replacement batteries for defibrillators, but that doesn’t stop the challenges facing the industry. Distance makes it evident that certain types of medical treatments, such as elective procedures, can benefit from medical tourism. But that is not the case with emergency or urgent procedures. The majority of healthcare used for medical tourism tends to be unreimbursed medical care, such as dental or plastic surgery. The trouble with dental care is that it is a low cost item, and the issue with plastic surgery is that it is generally a one-off product, and it is self-paid. Both cosmetic and dental surgery can be a viable niche business, but it is not the type of business that our clients work with. Institutional investors, banks, and private equity firms would rarely consider these types of business largely because they don’t scale up to a volume of revenue that they are going to be interested in. Is there professionally managed money in medical tourism? Yes. But it’s a niche, and small scale. MTT: What about orthopedic? HK: Orthopedic is gaining a lot of attention and fits the model really well. Most orthopedic is scheduled, that is, not emergent. So there is time to plan, to source out the best treatment strategy. One of the challenges that we have had, fundamentally from the very beginning with medical tourism, is that it is a “one-off” business, meaning it’s a one-time sale. There are very few follow-on sales from that one patient. The basics of medical tourism generally don’t fall into a contracted, repeat business model. Too many companies focus on the patient from a business modeling perspective. But for a business, it’s not about the patient, it’s about the scale. Our fundamental belief is that when medical tourism begins to contract with the payers and insurance companies, then you have a sustainable and scalable business. Insurance companies may send patients on a one or two hour flight for treatment, but I am not certain about a 16 hour flight. Yes, there are stories of insurance companies sending patients from the U.S. to India and elsewhere. But these tend to be few and far between, and the financial structure of the plans is such that it can be done with relative ease. MTT: Would your perspective on the U.S. medical domestic tourism business be different than the international movement of patients? HK: Not at all. What is now being called “U.S. domestic medical tourism” has actually been a long established practice. It is common to send patients to, say, the Mayo Clinic for heart treatment based on insurance contracts-it isn’t done often, or at large volume, but it is not new. MTT: Some of the larger employers are carving out this opportunity to specific Centers of Excellence, not necessarily the Mayo Clinic. HK: Exactly, the fact that they are increasingly doing this is what is new. But Centers of Excellence, in cardiac care, in orthopedic, neuro-surgery, and so on, have been part of the U.S. insurance market for well over a decade. MTT: Do you think there’s any depth to the opportunity for accessing treatments that are not available in the U.S.? HK: I think that speaks to a larger social issue. You’re talking some stem cell therapies, maybe? MTT: Yes. HK: Again, that becomes a niche market because the insurance companies are not going to pay for it. Let’s presume it is experimental, therefore the model doesn’t fit insurance reimbursement. But I could see an individual, let’s say a hospital or group of medical centers, banning together to specialize in this niche market. MTT: Does the individual market represent a big enough volume for accessing a medical travel program under the private exchanges? HK: Although we now have 24 million people newly insured, I still don’t think that is a viable pool of individuals that will enter into the medical travel arena. I highly doubt any tax subsidized insurance program would allocate any funds for medical treatment outside the U.S. After President Obama was initially elected, there were a group of hospital executives from India touring several hospitals in the U.S. Their goal was to approach the federal government, Medicare in particular, to develop a contract to have medical treatment in India in order to save Medicare millions of dollars. This was an unfortunate example of healthcare executives not understanding the market. They did not understand the political realities of Medicare, the active role politicians play in Medicare, and the fact that no politician would promote spending a dollar for treatment outside the U.S. And here’s the tough part: the politicians could be viewed as politically easy in comparison to the lobbying efforts of the American Hospital Association or the American Medical Association. Right now, I don’t see healthcare reform impacting medical travel at all. Any politician that would promote medical tourism by using tax payer dollars would have a rough time getting re-elected. MTT: And Medicaid would fall in the same area or perspective? HK: Medicaid has a little more leeway because the states get a bit more involved. Potentially we could see Texas or California agreeing to have medical treatment done across the border, but that again would also be a tough sell politically. While many may want to promote the free market in medical care, including cross border treatment, such dialogue forgets reality. Free choice of where one can get medical care? Yes, that’s simple enough. But how does that medical treatment get paid? Well, that’s the tough part. Fifty percent of Medicaid is paid by the federal government, and I would see that as a tough sell. And for those states where the government pays 100 percent of the extra costs for newly covered patients? No way will a politician agree to support out-of-country payment. MTT: What are your thoughts on the migration of healthcare workers? Is there a business model around that, particularly with doctor shortages in the U.S.? HK: About four or five years ago, we wrote a short briefing on the global health worker shortage and we titled it: “A Security Risk or an Investment Risk.” This is an extremely important conversation that is being ignored. The shortage of doctors in the U.S. is certainly a big issue, but the real issue is not the shortage of doctors, it’s the shortage of nurses. This is really significant because it has the potential to cause a security issue. It will certainly become an international trade issue in some regions of the world. We track many regions in the world and in the Middle East region we have seen some activities along those lines – interfering with cross border trade, restricting movement of health workers and so on. MTT: It is an interesting business model. There must be a lot of interest from doctors, as well as nurses, to come to the U.S. HK: The issue around training clinical workers or increasing the supply of health workers is an important topic with the World Health Organization (WHO) and the World Bank. And it is a great business opportunity. For instance, India has an exploding for-profit educational system in place in all educational lines. But I never think in terms of the U.S. as the one and only market. The EU market is a significant brain drain for health workers from Africa, and North America sops up the health worker supply from the Caribbean. The Middle East needs thousands and thousands of health workers from Asia, and so on. As an example, Saudi Arabia recently stated it needs 5,000 doctors. But Brazil needs more than 150,000 doctors. Turkey’s language requirements make it extremely difficult to hire doctors and nurses from out of country. And cultural and religious differences add to the challenges of health worker migration. So, the global shortage of health workers is now, and will increasingly be, a challenge to all the players in healthcare: investors, hospital administrators, governments, etc. Supply and demand will push up prices, but that’s only the start. We have one question we use to put the global shortage of health workers into perspective: “Where will the majority of health workers prefer to live? In Riyadh or Rio?” That’s just one example. But it is a real example of what hospitals, governments, investors, and so on will have to deal with on an ongoing basis. Medical tourism, or the short term movement of patients around the world, sounds simple in comparison to the growing global shortage of health workers.