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Make money on medical tourism

Last year, more than 500,000 U.S. citizens traveled abroad for health care. They went to Thailand to get heart bypass surgeries for $11,000 instead of the $130,000 it would cost in the U.S. Or they went to India for spinal fusion at $5,500 a pop, well below the $62,000 sticker price in the states.
Image: Bay View Private Hospital
The accommodations at Bay View Private Hospital in Mossel Bay on the southern tip of South Africa, make for a luxurious convalescence from plastic surgery. Best known for its Cardiac Cath Lab, where heart surgeries and diagnostics are regularly run at less than half the cost in the U.S. Bay View Private Hospital
/ Source: Forbes

Last year, more than 500,000 U.S. citizens traveled abroad for health care. They went to Thailand to get heart bypass surgeries for $11,000 instead of the $130,000 it would cost in the U.S. Or they went to India for spinal fusion at $5,500 a pop, well below the $62,000 sticker price in the states.

The trend of more people traveling abroad to get medical treatment shouldn't take Americans by surprise. As our population grows older and health care costs keep rising, more people want cheaper ways to get hip replacements and liposuction. Web sites like facilitate medical tourism and allow potential patients to comb through vacation-like packages for procedures and destinations as if they were going on a honeymoon.

This is getting everyone's attention. Consulting firm Mercer is developing programs for companies to allow them to outsource elective surgeries. The West Virginia state legislature is considering a plan to cover state employees for foreign treatment, including first-class flights for the patient and a companion, plus recovery in a four-star hotel and other incentives like bonuses and sick leave.

So how can investors cash in on this boom? By buying stock in countries' medical infrastructure, like hospitals, airports and medical record management companies.

David A. Semple, portfolio manager of the Van Eck Global, manages the firm's emerging-market fund, which includes medical tourism plays. The fund, with a 1.95 percent expense ratio, is up 38 percent in 2007, besting its benchmark by 13 percent.

One play he recommends is Thailand's Bumrungrad International Hospital in Bangkok. "It's certainly better than any hospital I've ever been to in the U.S. or the U.K.," says Semple, noting the hospital has a doorman and is home to a Starbucks. "This is a far cut above the rest."

Bumrungrad had 66,000 American patients last year and is seeing tremendous demand from the Middle East. In 2005, 70,000 patients came to the hospital, 13 times as many just five years earlier.

With a price-to-earnings ratio of 27, Bumrungrad is not cheap. Nor are many of the other picks that Semple recommends.

He says the higher prices are justified for two reasons. One, because of the high demand for the companies' services and, thus, the stock. Second, investors will ultimately benefit from the companies' real estate holdings. Semple says his picks can cash in on land they own, much like the strategy Edward S. Lampert touted in 2004 when he combined Sears and Kmart into Sears Holdings.

But how easy is it to get your hands on one of Semple's stock picks?

Well, it does take some effort since none have American Depositary Receipts, meaning investors will have to buy shares directly from the foreign exchanges. Charles Schwab Corp. can do it, but the trade value must be more than $5,000, and investors will have to fork over the greater of two fees: $100 or .5 percent of principal.

TD Ameritrade can facilitate some trades online, but if certain stocks aren't available, all an investor has to do is call a broker. This carries an additional custody charge, which varies depending on what exchange the stock is listed on but doesn't exceed $100.

One major landowner is Minor International, a Thailand-focused company that owns 630 restaurants and 15 hotels and resorts in Asia. Semple says many medical tourists will choose to stay in posh accommodations, which means those owned by Minor, which operates properties under the Four Seasons and Marriott names.

Minor's net income has risen 236 percent since 2003, and the company's sales are up 57 percent during that period. And although the stock is up 32 percent year-to-date, Semple still suspects there's more to come, given the strong demand for high-end facilities in the region.

Rounding out Semple's picks in Southeast Asia are health care company Parkway Holdings, Airports of Thailand. Parkway, based in Singapore, owns hospitals and diagnostic services. Semple likes the company because of its size. It owns hospitals in Brunei, China, India and Malaysia. It also has a nurse-training school in Pakistan.

Semple chooses Airports of Thailand for one simple reason: To get to the country, most people need to fly and must use the company's facilities. This is his most expensive pick, but he cites the company's real estate holdings, which extend beyond Bangkok and into provincial airports like Chiang Mai and Chiang Rai in northern Thailand, and Hat Yai and Phuket in the south.

Singapore will likely be a hotbed of medical tourism in the years to come. The island nation treated 374,000 foreign patients in 2005, up from 147,000 in 2000. The country is expecting 500,000 patients this year.

A host of companies are poised to benefit from this, including Raffles medical, the country’s largest private healthcare provider with 60 clinics. The company is trying to raise the number of foreign patients it gets at its flagship hospital from the current 30% to more than 50% during the next two years. Its expansion also includes a goal of adding five new clinics every year.

Biosensors, a company that manufactures medical devices like heart stents and blood pressure transducers, will also rake it in as more medical tourists come to Singapore. Here’s why: a coronary angioplasty in Singapore costs $20,000 — $10,000 cheaper than what it would cost in the United States.

Heading west to Turkey is Acibadem Saglik Hizmetleri, owner and operator of hospitals and clinics throughout the Middle Eastern nation. The country only recently turned away from socialized medicine and is now experimenting with partial privatization. Semple says those behind Acibadem are trying to make Turkey the region's center for health care.

Europeans have been heading to Turkey for health care because most have already vacationed there and are comfortable with the country's infrastructure. They also go for the price. Staff and facility costs are the cheapest in the region, mainly because the hospital has no legal costs to cover since all liability is in the patient's hands.

"You swap out your rights [when you go abroad for medical treatment]," Semple says. "There is more risk."

This risk, though, is being mitigated by insurance companies that stand to benefit if more of their clients go abroad for cheaper surgeries. This is already happening. In March, BlueCross BlueShield of South Carolina began covering surgeries at Bumrungrad, while United Group Programs in Boca Raton, Fla., has targeted self-insured employers by promoting overseas surgeries to 40 corporations. UGP claims its plan saves employers 50 percent in health care costs and cuts employee contributions to zero.