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A Denver businessman wants to fix America’s health care system — by doing your knee replacement in Mexico

Part entrepreneur and part activist, North American Specialty Hospital CEO James Polsfut has carved out a business model from the dysfunction of U.S. health care

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James Polsfut cuts briskly through the sleek coworking space in Denver’s RiNo neighborhood where his company has its offices and angles toward a conference room.

He’s tall, thin, deep-voiced, with a shock of white hair that makes him look every bit the prototypical American businessman — which he was, for years, as an executive with General Electric in Mexico City and in finance in Colorado. He once ran for state treasurer and another time applied to be Denver Public Schools superintendent. He clearly likes a puzzle.

In the conference room, he uncaps a dry-erase marker and scribbles down a flurry of thoughts about American health care — perhaps the biggest puzzle of them all. The whiteboard fills up with notes on transparency, quality metrics, bundled billing. And price.

“It’s difficult to reduce the cost significantly in the United States,” he says, “given that we live in hyperinflated cost structures.”

Colorado, meet the guy who wants to make your health care more affordable — by doing your joint replacement surgeries and complex drug infusions in Mexico.

James Polsfut. (Handout)

Polsfut is the CEO and co-founder of North American Specialty Hospital, which isn’t so much a traditional hospital as it is a rather audacious business plan. His company works with employers across the country looking to lower what they spend on health care for their employees. When a worker needs a knee replacement, or an infusion of a pricey drug, Polsfut and NASH connect that worker with an American doctor. All care before and after the surgery or infusion is done in the United States.

But, when it comes time to actually perform the procedure, both doctor and patient get on a plane and head down to Cancún. Rather than facing high out-of-pocket expenses, the employee pays nothing, including for the travel.

The final cost for everything to the company? Half of what it would be in the United States.

Polsfut, who has degrees from Harvard and Stanford but no real prior experience working in health care, marvels that no one has done this before.

“Sometimes,” he says, “the occasional outsider might bring some fresh perspective.”

Denver orthopedist Dr. Charlie Yang, second from right, talks with Dawn Moss, a recent North American Specialty Hospital patient in Cancun, Mexico. Moss’s mother, Carolyn Saxon, and Mexican orthopedist Dr. Daniel Rios listen on. (Handout)

If you are alive in America, it’s probably no surprise to you that our health care system is kind of a hot mess.

As a country, we spend more than $3.5 trillion dollars a year on health care, more than any other country on Earth, even when adjusting for population size. Spending on health care takes up roughly a third of Colorado’s state budget — and that’s just for people covered by Medicaid.

Lawmakers continually try to address this problem, but many of their efforts amount to working around the edges. In Colorado, legislators and regulators have built elaborate — and effective — policy contraptions, like reinsurance, that leverage dollars from complicated federal systems and inject them into complicated state systems. But much of that work currently focuses on a small percentage of Coloradans who buy their insurance themselves.

Similar to national rates, about half of all Coloradans receive health coverage through an employer. And this is where the absurdities of the health care system really start to bite.

Families in Colorado have it pretty good. We, on average, pay the ninth-lowest premiums in the country for our employer-sponsored insurance — around $5,000 a year per family, according to the Kaiser Family Foundation. But the companies we work for have it worse, paying more than $13,000 per family per year for their contribution — ranking 21st nationally for lowest contributions by employers.

Add the two together and that means the total cost to insure a family with employer-sponsored coverage in Colorado is $1,500 per month. It’s a mortgage payment for your family’s health. And this doesn’t even include the rising deductibles that families have to pay before their coverage really kicks in.

Though premiums fell this year for people who buy their own coverage, costs for employer-sponsored insurance continued to rise. In an annual survey of Colorado companies by the Denver-based Employers Council, 75% said they expected their company’s health insurance premiums to rise in 2020. Only 6% said they were sure premiums weren’t going to go up.

Those numbers track with what Leo Tokar, an executive in Denver at the massive independent insurance broker Lockton, is seeing.

Tokar said employers have been getting hit with about an 8% annual increase in their health care costs in Colorado. Companies are able to take some of the sting out of that by tweaking plan designs or changing insurance carriers. But the final tallies still come out to around a 5% increase per year, enough to keep companies from raising workers’ pay more, Tokar said.

Discussions about big-picture ways to fight rising health care costs often break down in disagreement between conflicting interests.

“It stifles the conversation where people can’t agree on how to address it,” Tokar said.

So, employers have been striking out on their own, trying to take control of their spending.

There was a decades-long trend toward companies becoming “self-insured.” That means, rather than spending money to buy insurance, they become the insurance company and pay for their employee health expenses right out of their own budgets. (Insurance companies are often brought in to manage the claims.)

In 1998, about 41% of workers with insurance were covered by self-funded plans in America. By 2015, that number hit 60%, though it’s wobbled a bit since then.

The reason for the wobble is, it turns out, self-funded plans aren’t any better at controlling costs than traditional insurance. So employers have begun seeking out new solutions that sound zanier and zanier.

There are now medical second-opinion firms that double-check whether a worker really needs that procedure. Companies like Walmart are flying their employees across the country when they need certain surgeries, hoping for better outcomes that return workers to their jobs more quickly. Employee wellness programs have become the norm, with companies now even looking into their employees’ sleep patterns.

In Utah, an insurer for government employees is offering to fly its members to San Diego and pay them money to cross the border to fill their most expensive prescriptions in Tijuana.

James Polsfut doesn’t sound so loony anymore, does he?

The Galenia Hospital in Cancun, Mexico. The North American Specialty Hospital operates within Galenia, which is accredited by the U.S. accrediting body The Joint Commission. A Sheraton hotel is attached to the hospital. (Handout)

Galenia Hospital in Cancún, Mexico, sits far outside the bars and nightspots of the city’s famous tourist zone.

Sleekly modern in design, it’s relatively new as far as hospitals go — finished in 2006. Patients who fly down for treatment stay in a Sheraton hotel that’s attached to the hospital. But here’s its real draw: It’s one of only eight Mexican hospitals accredited by The Joint Commission, the influential body that accredits thousands of U.S. hospitals.

This is a key point in Polsfut’s business model. So-called “medical tourism” is not new. People have been traveling to other countries to receive cheaper care for decades. But Polsfut wants to make traveling for treatment less of, as he says, “a blind leap to some faraway country.”

So, in addition to operating within a U.S-accredited hospital, NASH uses American doctors, working in coordination with doctors in Mexico — all of whom have received training in the United States. It carries American liability insurance. It plans to soon be rated by the American hospital-grading company Leapfrog.

NASH exceeds American standards for providing physical therapy post-surgery. And it rigorously tracks its quality measures, which Polsfut says compare favorably to procedures performed in American hospitals.

“The only thing we don’t have that’s U.S. is the ground under the hospital,” he says.

Well, that and the price.

Polsfut says a typical knee replacement surgery in the United States for a person with private insurance averages around $40,000. Out of that, the surgeon might get $1,500, he says.

NASH, however, often pays surgeons double that to operate in Mexico. (A surgeon will typically fly down to Cancún once every few months and perform maybe a dozen surgeries for NASH over three days before heading home.) And there isn’t a lot of cost savings using Mexican nurses and support staff, either.

“Labor is not where the savings is derived,” Polsfut says.

So what makes operating in Mexico that much cheaper? Polsfut says it’s down to the cost of the medical supplies and the fees that hospitals charge.

Using the example of a knee surgery again, Polsfut says a state-of-the-art replacement joint might be around $8,000 in the U.S. Buying that exact same brand and model of artificial joint directly from the manufacturer, but in Mexico, will cost only $2,000, he says.

There’s a similarly precipitous drop in hospital fees. A hospital might charge a patient $30,000 for all its services during a knee replacement in America, Polsfut says. In Mexico, it’d be $10,000.

Tallied together, Polsfut says transporting the best parts of the American medical system south of the border and fusing them with the cost structures of the Mexican medical system can drop that $40,000 price tag for a knee replacement down to $20,000.

For patients, that can be life-changing, Polsfut says. He tells stories of workers who had decided not to have surgery or treatment because they couldn’t pay for their chunk of the bill.

“These are hard-working, blue collar, long-term employees, and they are increasingly not being able to be served by the U.S. health care system,” he says. “…These are Americans who have health care plans, and they’re being left out of the system.”

NASH now has contracts with companies covering roughly 3 million people, Polsfut says. (He did not say whether any of those companies are located in Colorado.) He’s expanding operations soon to also include a hospital in Cabo San Lucas, and there are plans to grow further. He gives regular speeches to health care business groups.

At times, Polsfut can sound much more like a health care activist than a member of the industry. He is full of praise for Gov. Jared Polis’ price-capping, consumer-empowering health care agenda — policies that Colorado hospital leaders have been less enthused about.

Step back, and all of this can seem a little dissonant. Here he is running a business built atop the dysfunction of American health care while simultaneously criticizing that same dysfunction.

So it has to be asked: If America ever gets its act together, is there still a place for NASH?

“No!” Polsfut exclaims.

He seems almost giddy about this point.

“That would be a good thing, honestly.”

He begins to talk about how NASH might be able to nudge American health care in the right direction, creating a little competition that gets big players’ attention here. Maybe that would be enough to get opposing sides together to come up with a long-term fix. He would be proud to do that, even if it meant his company was left in a smoldering heap, he says.

But then the giddiness leaves his voice, and he returns to the conclusion that has ended just about every conversation about health reform in America for generations — the conclusion that will likely keep NASH in business for a long time to come.

“Unfortunately,” he says, “I’m not optimistic that the health care system in the United States will right itself anytime soon.”

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