Free trade in health care

Free trade in health care
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First Published: Wed, May 28 2008. 12 38 AM IST
Updated: Wed, May 28 2008. 12 38 AM IST
Health care reform is a major election issue. Yet, while Democrats Hillary Clinton and Barack Obama offer comprehensive plans, important gaps remain. Neither plan addresses the need for more doctors, a problem that governor Mitt Romney ran into when he introduced comprehensive medical coverage in Massachusetts in 2006.
The other problem is the cost, an issue that earlier this year killed governor Arnold Schwarzenegger’s ambitious attempt at reform in California.
No presidential candidate can afford to ignore the potential of international trade in medical services to address these issues. Consider the four modes of service transactions distinguished by the WTO’s 1995 General Agreement on Trade in Services.
Mode 1 refers to “arm’s-length” services that are typically found online: The provider and the user of services do not have to be in physical proximity. Mode 2 relates to patients going to doctors elsewhere. Mode 3 refers mainly to creating and staffing hospitals in other countries. Mode 4 encompasses doctors and other medical personnel going to where the patients are. All modes promise varying, and substantial, cost savings.
Arm’s-length transactions can save a significant fraction of administrative expenditures (estimated by experts at $500 billion annually) by shifting claims processing and customer service offshore. Nearly half of such savings are already in hand. Foreign doctors providing telemedicine offer yet unrealized savings. We estimate that the savings in health care costs could easily reach $70-75 billion.
Mode 2, where US patients go to foreign medical facilities, was considered an exotic idea 15 years ago. Now, this is a reality known as “medical tourism”. Today, many foreign hospitals and physicians are offering world-class services at a fraction of the US prices. Costly procedures with short convalescence periods, which today include heart and joint replacement surgeries, are candidates for such treatment abroad. By our estimates, 30 such procedures, costing about $220 billion in 2005, could have been “exported”.
Mode 3, with hospitals established abroad, will primarily offer our doctors and hospitals considerable opportunity to earn abroad. Of course, the establishment of foreign-owned medical facilities in the US is also possible and could lead to price reductions by offering competition to the US medical industry.
Mode 4 concerns doctors and other medical providers going where the patients are. It offers substantial cost savings since the earnings of foreign doctors are typically lower than those of comparable suppliers in the US.
But the importation of doctors is even more critical in meeting supply needs than in providing lower costs.
According to the 2005 census, the US had an estimated availability of 2.4 doctors per 1,000 population (the number was 3.3 in leading developed countries tracked by the Organisation for Economic Co-operation and Development).
Comprehensive coverage of the more than 45 million uninsured today will require that they can access doctors and related medical personnel. An IOU that cannot be cashed in is worthless.
Massachusetts ran into this problem: Few doctors wanted (or were able, given widespread shortages in many specialities) to treat many of the patients qualifying under the programme. The solution lies in allowing imports of medical personnel tied into tending to the newly insured.
This is what the Great Society programme did in the 1960s, with imports of doctors whose visas tied them, for specific periods, to serving remote, rural areas. US-trained physicians practising for a specified period in an “underserved” area were not required to return home.
It is time to expand such programmes—for instance, by making physicians trained at accredited foreign institutions eligible for such entry into the US. But in order to do this, both Democratic candidates will first need to abandon their party’s antipathy to foreign trade.
The Wall Street Journal
Jagdish Bhagwati is a professor at Columbia University and senior fellow at the Council on Foreign Relations. Sandip Madan is CEO of Global Healthnet. Comment at
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First Published: Wed, May 28 2008. 12 38 AM IST