Tuesday, May 30, 2006

LCCS: Low Cost Country Surgery

Low cost country sourcing has been a hot button topic in spend management and particularly strategic sourcing for the last several years. Here in the United States, consumers sit at the end of long supply chains with goods that travel more miles before they are sold than many people will travel in a lifetime, unless they need elective surgery that is.

In the May 29 issue of Time (the Dixie Chicks issue), Unmesh Kher writes about the latest trend in outsourcing, elective surgery. A procedure to repair a herniated disk that costs $90,000 in Louisiana costs $10,000 at the Bumrungrad Hospital in Shanghai.

If you're talking to your surgeon friend at the country club, he definitely has some reasons to be scared.

  1. The uninsured love this product. At 10% on the dollar against tens of thousands of dollars, this can be the difference between personal bankruptcy.
  2. Insurance companies like this product. At these rates, they can sell more policies to more people. For people in traditional policies they can "manage costs" by convincing patients to venture overseas.
  3. Traditional companies are interested. They can give their employees a free vacation to Bangkok or Mumbai AND lower insurance premiums.
  4. General Electric is getting into this business, partnering to open a luxury hospital complex in Delhi.

Now, I'll bet your Doctor friend will have some objections that sound suspiciously like those raised by incumbent suppliers in an Ariba Inc. reverse auction:

  1. What about quality? -- International hospitals are already pursuing accreditation and certification, and they're recruiting U.S. trained doctors, and what about your error and accidental death rates?
  2. You're really going to buy this on price? -- In the insurance system we have now pricing is opaque and complex. The one thing we do know, it's high. International providers are giving transparent pricing information, but they're also offering upgraded services like luxury accommodations and extended stays.
  3. What if something goes wrong? -- Doctors will actually argue that you should do your surgery in the US because if something goes wrong, it's easier to sue them. This is probably their best argument, but how long before a U.S. medical center "partners" with an international medical center to make this one go away.
  4. You are going to put suppliers out of business. Hospitals are high-cost institutions and are consolidating. Now they'll face global competition on their highest margin product, elective surgery.

So baby boomers, if your back aches, or your knees aren't what they used to be, it could be your big chance to see the world.

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