HEALTH CARE TOURISM – A CLASSIC EXAMPLE OF DISRUPTIVE INNOVATION

Ed Brooker, M.A.E.S.

Professor Niagara College 135 Taylor Road

Niagara-on-the-Lake, Ontario L0S 1J0 Canada

Phone: 905-641-2252 x4612 Email: ebrooker@niagarac.on.ca

Frank M. Go, PhD Professor

Center for Tourism Management Rotterdam School of Management

Erasmus University Rotterdam, Netherlands Phone: +31 10 408 9576 Email: F.Go@fbk.eur.nl

Inquiries should be addressed to Ed Brooker

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HEALTH CARE TOURISM – A CLASSIC EXAMPLE OF DISRUPTIVE INNOVATION

ABSTRACT Health care tourism has received extensive media attention in the last 12 months, and in so doing, has shed light on Clayton Christensen’s ideas on disruptive innovation. This paper will explore the intersection of health care tourism and disruptive innovation, illustrating how the former is in fact a classic example of disruptive innovation, and thus provides insights into the importance of considering disruptive innovation in a tourism oriented strategy, for both destinations and enterprises. INTRODUCTION Health care tourism has become a popular subject in the press, and to a lesser degree in academic circles. If we believe the journalists, millions of aging baby boomers are traveling to exotic locations in order to undertake a medical procedure of some type and while in the country, these same patients are touring the various tourist attractions that a destination has to offer. The facts may be difficult to ascertain from the media, but it does appear that a ‘growing’ number of individuals are in fact leaving their own destinations, and are traveling to a foreign space in order to receive some sort of heath care or cure. Countries such as India, Thailand, Malaysia, and the Philippines are actively pursuing ‘medical tourists’ to come to their country to receive the medical attention that they are seeking. Some estimates suggest that in 2006, nearly half a million patients will visit India for medical care. A report by McKinsey Consulting predicts that medical tourism in India will generate approximately $2.2 billion per year by 2012 (Yelaja, 2006). While medical tourism is not a new phenomenon – Europeans have been traveling to spa towns such as Bath, England or Baden Baden, Germany for centuries - it’s only been within the past 3 years that the idea of traveling for the specific purpose of partaking in some sort of cure or wellness program has become an emerging alternative. This point is clearly noted in the emergence of a handful of medical travel agencies in Canada (Floyd et al, 2006). Essentially, these companies specialize in advising and arranging travel for patients wishing to forgo long waiting lines for health care or gain access to an otherwise non-available medical procedure. Why (Travel For Medical Attention?) Health care tourism has emerged as a market niche opportunity for several reasons. The aging baby boom generation is now reaching their 50’s and 60’s and therefore are increasingly in need of health care services. Unfortunately, Canadians have to wait inordinate amounts of time before they may receive the help they need. According to a provincial government website, 90 percent of Ontario patients needing hip replacements wait 336 days; 395 days for knee replacements; and 291 days for cataract removal. In India, a normal wait for surgery of any kind is zero to 10 days. Shimo (2006) notes “There’s an enormous sense of frustration with the public system. There are close to a million on waiting lists, and these people are tired of putting their lives on hold.” In the United States, where an estimated 43 million people do not have health insurance, the key motivation is cost. An American patient can expect to pay anywhere from 25 to 80 percent less by traveling to a foreign country such as India or Thailand compared to having the medical procedure done in the U.S. For example, typical cardiac surgery that may cost $30,000 is available for $6,000 U.S.

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While most American’s who travel abroad for elective surgery do so on an individual basis, a situation has arisen in North Carolina that is representative of the subject of medical tourism. A small manufacturing company is considering offering its employees the option of traveling to India to receive care for company-insured medical procedures. As a further incentive, the company is considering depositing up to 25 percent of the savings (by going to India) in the employee’s bank account (Martinez, 2006). Other factors that contribute to the rise in popularity of medical tourism include the affordability of international travel, favorable exchange rates, rapidly improving technology, and perhaps a key – access to information. Individuals can now retrieve information first hand through the Internet and research the various available options. How (Travel for Medical Attention) While the cost savings and avoidance of long waiting lines are attractive incentives to travel, the average North American is reluctant to travel to a third world country with their health on the line. India for example has severe problems with basic infrastructure issues such as water and sewage. The key selling point is that North Americans (and Europeans, Australians, etc.) would be cared for in an Internationally Certified Hospital, which in many cases are branded health-care facilities that focus in part on attracting the medical tourist. In essence, the hospitals promote themselves through websites, medical tourism brokers, trade shows, and publicity in an effort to tell “their story”. Safety, care, and cure are the key buzzwords. Many hospitals offer a value-laden ‘all-inclusive’ package that includes pick-up at the airport, travel to the hospital, a quality room, food, and perhaps even a tour of a local tourist attraction on the way back to the airport. The Underserved Will Show Us The Way The 2004 Global Innovation Outlook (GIO) study looked at health care, and came to a dramatic conclusion – the ‘system’ needs to provide better quality service to more people more efficiently and at lower cost. The study further suggests that “the underserved will show us the way”. Who are the underserved? Is it the Canadian who has to wait for government funded health care? Is it the American who does not have health insurance, and cannot afford to pay $100,000 for a life-saving operation? Is it the Indian who cannot even access health care in his/her own land, while a ‘tourist’ receives treatment? It is very evident from a Canadian perspective that governments cannot afford to continue to plow millions of dollars into the current health care system, where the level of service is rapidly deteriorating. According to Glen Roberts, director of health programs for the (Canadian) Conference Board, “Health care, as it is currently funded, is unsustainable”. The result is the potential for wide-spread outsourcing of medical care and cure away from North American health care facilities. In India, estimates put 80 percent of all healthcare spending as private ‘out of pocket’. This does not bode well for the millions of impoverished people in rural areas. In other words, the current health care situations in Canada, the United States and India are setting the table for disruptive innovation to occur. To quote from the 2004 GIO study, “Clearly systems such as these will be unable to scale in their current form to meet the needs of large undeserved populations unless radical innovation occurs, including new models for public health

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care spending, more affordable care, and institutions that will work together to supply it (IBM, 2004).” THE TABLE HAS BEEN SET FOR … DISRUPTIVE INNOVATION Background Disruptive innovations are successfully exploited processes, technologies, products, services or business models that allow organizations to significantly change conventional competitive rules, consequently transforming the demands and needs of existing markets. New performance dimensions are introduced in direct conflict with traditional approaches, which historically could have been offered by specialists, to enable a larger population of customers to consume products and services in a more convenient setting. The disruption takes a foothold in an underserved customer segment (or those who choose non-purchase as an alternative) and both the path and resource dependence of incumbent organizations result in their displacement as a major player, thus offering the disrupter significant new wealth opportunities (Thomond et al, 2003). Disruptive innovation often originates from a group of industry outsiders or mavericks – those who are not familiar with the preconceived norms or processes, and when confronted with them, question their validity. Incumbents may dismiss the new approach or product at first and then either absorb it and become major players as new products are developed for the mass market or incumbents find they have missed out on the new wave altogether and are heading for decline. Eventually the market stabilizes, change slows down and the market consolidates often with a new set of winners, until of course another wave of disruptive innovation starts the whole cycle all over again (Harris, 2006). Disruptive innovation usually gets its foothold by offering a different level of performance than the norm, but at a level that is good enough for a meaningful number of customers. A variety of examples could be cited, ranging from the Apple IPod, eBay, digital cameras, internet shopping, and satellite TV. Further back, it was the motor car, the electric light, and the telephone. Gradually, a new (disruptive) product or process improves to the point where it may replace the incumbent. Gilbert and Bower (2002) frame the concept of disruptive innovation by suggesting that people are busy trying to make a “new idea” fit the old model, and in so doing, fail to figure out the best way to serve new markets with new business models. Disruptive innovation is a normal marketing phenomenon, but one that is clearly overlooked within tourism circles. The most commonly cited example is Southwest Airlines which initially disrupted the norm by offering low cost air travel, passing on savings found through a variety of non-standard approaches. Today low cost airlines attract approximately 30% of the market, although most incumbent airlines viewed the new approach as an unlikely threat. Disruptive Innovation and Health Tourism What is the relationship between disruptive innovation and health tourism? The later appears to be the “disruptive’ consumer response to the existing state of health care in developed countries. Health tourism therefore needs to be looked at as a symptom rather than a solution. By its nature, it indicates that Canadians, Americans, Europeans, Australians, etc. are becoming less and less tolerant of accepting the status quo with their respective health care systems. A portion of these markets are currently willing to travel great distances, and incur a sense of adventure for the simple pursuit of timely and cost-effective health care, and thereby bypassing the current health care delivery system. Surely, governments and hospitals will see this trend for what it is – a golden opportunity to rethink the manner in which health care is currently provided. Canadians and Americans perhaps need to take a look at an emerging Dutch situation, where the third largest operator of vacation homes/campsites has capitalized on the concept of health care

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tourism, in an effort to gain a competitive edge, while addressing glaring needs with local health care. Roompot is the third largest holiday park operator in the Netherlands and considered to be the market leader in ‘sea park’ holidays along the Dutch North Sea coast. The business has grown over a 40-year period from an initial local family campground to an enterprise that now operates 41 parks which collectively offer a total of 3,450 holiday bungalows, 1,800 mobile homes, 5,950 campsites and 400 marina slots. All the parks are positioned in the mid to higher end of the market, attracting families and mature couples seeking quality facilities and services (Brooker and Go, 2006). RP Care is a modular extension of Roompot Vacations, and provides the opportunity for guests to obtain a variety of quality health and wellness services while enjoying a Dutch sea and sand vacation at a Roompot Park. Services range from kidney dialysis (care), cosmetic surgery, and therapy (cure). While some services are on site within a Park (kidney dialysis), other’s are based on recuperation at the Park with family and friends as opposed to staying in the hospital. Doctors actually make house calls to their patients at the Parks. These services are based on partnership arrangements with local hospitals, doctors, and insurance companies, in an effort to provide a local, domestic alternative to health care tourism (Brooker & Go, 2006). This intersection of holiday parks and health care is a clear example of disruptive innovation within the tourism industry. It’s been driven by competition, a will to thrive rather than survive, and the capitalization on external environmental factors. Yet very few Canadian tourism operators are thinking along disruptive lines. Citing Christensen’s theories on disruptive innovation, organizations usually develop mind-sets and processes that revolve around doing what they already know. Once that pattern becomes established, managers have great difficulty justifying to others or even themselves the need to turn their processes upside down in order to respond to a barely emerging market change. By the time the threat is apparent, however, it’s usually too late; upstart companies have seized a substantial lead. Very few Canadian tourism operators have made the linkage with health care. Spa tourism has been recently reviewed by the Canadian Tourism Commission, but it’s clear that the basis for capitalization on health tourism from a domestic point of view will require substantial innovation – the type that is only found through disruptive innovation. Conclusion Health care tourism should be the catalyst for North American health organizations and tourism organizations to come together in ways that they have never done before. They need to both shake off their individual complacency’s, embrace change, and work together to develop a domestic response to health care tourism. The ball is now in their court. References: Brooker, E. and Go, F. (2006). The Relationship between branding and innovation: The SMTE perspective in Keller, P. and Bieger, T. (Eds.) Marketing Efficiency in Tourism: Coping with Volatile Demand. Berlin: Erich Schmidt Verlag, pp. 53-63. Brooker, E. and Go. F. (2006).Sea, Sand and Surgery – The Role of Disruptive Innovation at RP Care. OECD forthcoming. Floyd, M., Izenberg, D, Kelly, B., Shimo, A & Treble, P. (2006). Medical Services Directory. McLeans, May 1, 2006. Gilbert, C. and Bower, J. (2002). Disruptive Change. Harvard Business Review, May, 2002, pp. 95-101.

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Harris, M. (2006). Disruptive Innovation – Confronting Mavericks. Retrieved Sept. 6, 2006, www.mi2g.com/cgi/mi2g/frameset.php?pageid=http%3A//www.mi2g.com/cgi/mi2g/press/060906.php IBM, (2004). Global Innovation Outlook, 2004 Retrieved May 9, 2006. www.ibm.com/ondemand/us/innovation/gio.shtml Martinez, R. (2006). A passage to India for surgery. Retrieved from www.newsobserver.com/559/story/452757, June 21, 2006. Shimo, A. (2006). Private Medical Care In Canada. McLeans, May 1, 2006 Thomond, P., Herzberg, T. and Lettice, F. (2003). Disruptive Innovation: Removing the Innovator’s Dilemma. British Academy of Management, 2003 Conference Proceedings. Yelaja, P. (2006). India offers surgery in a hurry. Toronto Star, June 18, 2006

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