U.S. Healthcare Reform: High Impact on the Medical Travel Industry Presented by Laura Carabello

1. U.S. Healthcare Reform: High Impact on the Medical Travel Industry Presented by Laura Carabello Principal CPR Strategic Marketing & Communications www.cpronline.com Publisher and Executive Editor Medical Travel Today www.medicaltraveltoday.com

2. A PERFECT STORM FOR MEDICAL TRAVEL Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 • Growing Number of Insured with access to care • More Americans with chronic disease • “Baby Boomers” becoming seniors • Shortage of physicians • Downturn in U.S. economy • Medical inflation continues to exceed standard price inflation • Better American hospitals exiting public reimbursement programs

3. Not a “Done Deal” Uncertainty remains • At least fourteen states are challenging constitutionality – more political theater than a challenge with teeth • Counter proposals and heated debates likely to continue • US physicians are “outraged”

4. Not a “Done Deal” cont.  A Plea from America's Physicians To Kill the Healthcare Bill...Before it Kills Medicine in America

5. PARALLELS TO U.K. AND CANADA Government sponsored healthcare systems • Limited access to care • Long wait times UK and Canadian citizens travel extensively to other parts of the world for quality medical care. Americans are likely to follow this pattern.

6. HEALTH REFORM: POSITIVE SIGNALS FOR MEDICAL TRAVEL INDUSTRY Reform does not include any language that limits or encourages international medical tourism Stage is set for “disruptive innovation models”: medical travel, telemedicine, retail clinics, mhealth (mobile health) and other models that: • Reduce costs • Deliver value • Meet consumer demands for convenience and quality • Offer price transparency • Promote improved health care outcomes

7. HEALTH REFORM: POSITIVE SIGNALS FOR MEDICAL TRAVEL INDUSTRY cont. Timing is right: Much like the restaurant industry, medical travel for health services adoption is a matter of “location, location, location.”

8. Facts and Results FACTS: The Uninsured Before Reform US Census Bureau: 17 percent of US population under age 65 without health insurance last year.

9. Facts and Results • Texas: highest 26.5 percent • Florida: 24.8 percent. (second place!) • Massachusetts: lowest percent of uninsured for those under 65 — 4.6 percent • Most Americans over age 65 have publicly funded Medicare insurance

10. Facts and Results cont. • Seven million undocumented immigrants, who are excluded, comprise 33% remaining uninsured • 16 million are people who don't have to -- or choose not to -- purchase health insurance under the mandate • Young, healthy people may prefer paying the $95 fine in 2014 to buying insurance Post Reform: More than 25 million will be under- insured Congressional Budget Office (CBO): 32 million uninsured

11. Facts and Results cont. RESULTS: Under and Uninsured more likely to opt for medical tourism • More insurance companies will target this group to offer them domestic and overseas health insurance options • Employers face penalties if they don’t provide insurance to employees – likely to result in layoffs and greater interest in medical travel • Full reforms not implemented until 2014 and beyond – time for medical travel programs to generate traction • Dental medical tourism will continue to flourish

12. Medical Travel Industry Can Leverage Post-Reform Environment • Compromised Access to Care • Spiraling Costs • U.S. Hospital Labor Costs Continue to Rise • Domestic Medical Travel Becomes Attractive • Non-covered benefits • Existing Coverage Affected • Uninsured Will Not Really Get Coverage • Physician-owned Hospitals in Peril

13. Compromised Access to Care Availability of insurance does not mean availability of care

14. Compromised Access to Care cont. 32M people will potentially have insurance,putting undue pressure on a declining number of physicians -- especially in primary care

15. Compromised Access to Care cont. Longer wait times for care are expected: • The wait can be as long as two months • Boston has the longest wait, averaging 49.6 days* • Patients in northern Massachusetts travel to New Hampshire because of the wait times** • *ABC News. June 2009 • **ABC News. March 2010 Massachusetts has similar reforms and health insurance is mandated:

16. Compromised Access to Care cont. Longer wait times for care are expected:

17. Prices will Rise….Quality will go down Individuals will turn to medical travel as a viable, quality alternative to “waiting it out” in the U.S. U.S. hospitals that do not have waits will also be highly attractive

18. Expect Spiraling Costs THEN: Health care reform initially conceived as a solution to: • Impending insolvency of the Medicare program in 2018 • Means to expand coverage to the uninsured NOW: • Legislation primarily directed to expand coverage for uninsured • Reforms not expected to control costs • True causes of US system’s escalating health care costs not addressed directly Medical Travel Industry offers lower cost, quality care

19. Expect Spiraling Costs cont. FUTURE: • Cost of care outside U.S. appears to remain stable • Overseas, savings of 50 to 80 percent are available on some procedures Medical travel will continue to present less expensive options for quality care.

20. U.S. Hospital Labor Costs Continue to Rise • US Domestic Hospitals: • Hospital care in US is the biggest driver of overall health care spending growth…33 percent of every health care dollar spent • Cost of labor: Single most important factor for the accelerated growth in spending* • Accounts for more than half of growth in cost of purchased goods and services* • Foreign hospitals: • Often not contending with these extraordinary labor costs • Better positioned to hold down their pricing • Medical travelers will be the beneficiaries and will look forward to accessing less expensive options for quality care • *American Hospital Association, “The Cost of Caring,” March 2010

21. Domestic Medical Travel: Attractive to Many • Some hospitals within the U.S. can match the pricing of foreign hospitals: • Excess capacity • Centers of Excellence (COE) • Surmount “labor cost” problems • COEs across the country generate better outcomes at lower costs • Perform a high quantity of a given procedure while producing measurably superior clinical results • Better outcomes mitigate liability claims, stem the tendency toward defensive medicine

22. Domestic Medical Travel: Attractive to Manycont. March 2010: Lowe's Companies Inc., second-largest home improvement retailer in U.S., strikes three-year agreement with the Cleveland Clinic Lowe’s Store Locations First time a multi-state national company has chosen one specialist hospital and made it available to employees Incentives to employees: Reduced out-of-pocket costs to go to Cleveland for heart procedures

23. Non-covered Benefits Cost containment strategies under health care reform may increase the scope of non-covered benefits for many Americans Plastic surgery, gastric bypass, and dental procedures: Americans already willing to travel for affordable, high-quality care -- likely to accelerate in the coming years, with or without health reform Procedures not yet FDA-approved but available outside our borders:  Stem cell procedures, HIFU (ultrasound treatment for prostate cancer) and others will continue to attract medical travelers Treatment for end-of-life diseases: Look for a bump in medical travel volume

24. Existing Coverage Affected CBO Estimates: Employers will drop coverage for five million people, forcing them to purchase individual insurance Disruption of care forcing many with new insurance to find new primary care physicians since existing physicians may not have contracts with the new plans One Georgia-based employer: “With the economy in the state it's in, some businesses may consider paying the $2,000-per-employee penalty for not covering workers rather than paying higher benefit costs.”* Many Americans will travel to another area where medical care is more readily available Increased volume for annual physicals that can be accessed for extremely reasonable fees *FierceHealthcare, April 1, 2010

25. Uninsured Will Not Really Get Coverage While uninsured will have greater access to coverage than prior to reforms… Employer and individual mandates create bizarre incentives: Many people with coverage will elect to go without insurance CBO estimates: five million people will lose employer-sponsored health coverage Many will opt to pay upwards of $5,000 annually for individual insurance vs. paying a modest penalty and purchasing basic care out-of-pocket Those who opt to go without insurance will always have the option of obtaining insurance if/when they get really sick because of guaranteed issue requirements Bottom-line: Only those who are sick will purchase insurance, driving up insurance prices for everyone

26. Physicians Are Angry Reforms Don’t Address Tort Reform, Spiraling Malpractice Costs

27. Physicians Are Angry cont. Fees for specialists may be drastically cut…Some say they will retire early Growing number will refuse to accept Medicare and Medicaid patients Shrinking number of physicians may force patients to travel for quality medical care

28. Shortages of primary care physicians – and specialists Surgery, the journal of the Society of University Surgeons, reports an expected shortage of 1,300 general surgeons in the United States by 2010 Few Americans will tolerate not having access to a specialist or having care rationed because of a limited number of skilled physicians Long term: Shortage of about 160,000 physicians by 2025* Shortage of 41,000 general surgeons, even after accounting for the supply of international medical graduates** Hospitals in the US and outside the country will attract patients who can’t access specialty care close to home *American Medical News, 2010 **Source:  Association of American Medical Colleges' Center for Workforce Studies

29. Physician-owned Hospitals in Peril Prohibits existing physician-owned hospitals from expanding and bans new ones from contracting with Medicare “The legislation virtually destroys over 60 hospitals that are currently under development, and leaves little room for the future growth of the industry.”* *Molly Sandvig, Executive Director of Physician Hospitals of America (PHA)

30. Physician-owned Hospitals in Peril cont. • Restrictions go into effect immediately-- impacts nearly 300 new and existing facilities • Rural and inner city hospitals being rescued and kept open by physician investment will close • Grandfathers in new and existing physician-owned hospitals that earn Medicare certification by Aug. 1, 2010 — a deadline that more than 60 hospitals currently under development can’t meet • Prohibits existing facilities from adding beds, ORs or procedure rooms -- unless they can meet 4 "allowable growth criteria" – and none can do it! Non-physician-owned hospitals in US and abroad Centers of Excellence will attract more patients willing to travel for expertise. Disenfranchised physicians in the US may opt to open their own facilities in other countries. Stay tuned on this one!

31. Forecasts: Medical TravelLikely to Expand “Regulating premiums won’t do anything to reduce the soaring costs of medical care. This would be like capping the prices automakers can charge consumers but letting the steel, rubber, and technology manufacturers charge the automakers whatever they want.”  -Karen Ignagni, Wall Street Journal, February 23, 2010

32. A Window of opportunity Reputed benefits largely do not kick-in until 2014 No guarantee that programs and initiatives will ever be funded: Opponents may take control of Congress and then simply withhold monies Americans may find the reforms distasteful: • Extensive rationing of care • Lower overall healthcare quality – higher costs • Dramatically reduced options

33. A Window of opportunity cont. Increased channels to leverage interdependence of the employers and carriers Carriers: Likely to innovate when forced and pulled by their employer clients Large Group Market: Longer buying cycles, but key influencer to the carriers Adoption here helps to validate and accelerate adoption by mid-market aggregators Mid-market: Shorter buying cycles, quicker decisions Dependence on aggregators (TPAs, consultants, brokers) Validation and increased volume will push large group market

34. Megatrends in Global Health Care Megatrend 12: Medical tourism The allure of good care at much lower prices will cause increasing numbers of people to go abroad for cheaper treatment. The Deloitte Center for Health Solutions predicts that the number of Americans traveling abroad for treatment will soar to more than 1.6 million in 2012. Will cost pressures cause payers around the world to be more amenable to sending patients in their countries abroad for cheaper treatment?

35. 475 Market StreetElmwood Park, NJ 07407800.752.5588 x12 or 201.641.1911 x12www.cpronline.comLaura Carabello, lcarabello@cpronline.com