Tuesday, May 27, 2008

Our OpEd in WSJ - Free Trade In Health Care

Today (May 27, 2008) The Wall Street Journal carried the Opinion Editorial (OpEd) jointly written by Professor Jagdish Bhagwati and me on p. A19 titled, "We Need Free Trade in Health Care."

Our original version was about 1000 words (shortened to 700 words in the WSJ) and is posted on our Global HealthNet website. For those who do not subscribe to the WSJ, the published version is reproduced below:

We Need Free Trade in Health Care

May 27, 2008; Page A19

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 Gov. 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 Gov. 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 billion-$75 billion.

Mode 2, where U.S. 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 U.S. 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 U.S. is also possible, and could lead to price reductions by offering competition to the U.S. 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 U.S.

But the importation of doctors is even more critical in meeting supply needs than in providing lower costs. According to the 2005 Census, the U.S. had an estimated availability of 2.4 doctors per 1,000 population (the number was 3.3 in leading developed countries tracked by the OECD).
Comprehensive coverage of the over 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 specialties) to treat many of the patients qualifying under the program. The solution lies in allowing imports of medical personnel tied into tending to the newly insured.

This is what the Great Society program did in the 1960s, with imports of doctors whose visas tied them, for specific periods, to serving remote, rural areas. U.S.-trained physicians practicing for a specified period in an "underserved" area were not required to return home.

It is time to expand such programs – for instance, by making physicians trained at accredited foreign institutions eligible for such entry into the U.S. But in order to do this, both Democratic candidates will first need to abandon their party's antipathy to foreign trade.

Mr. Bhagwati is a professor at Columbia University and senior fellow at the Council on Foreign Relations. Mr. Madan is the CEO of Global HealthNet.

Monday, May 5, 2008

Sizing The Causes Of High US Health Costs

I've just updated my work on quantifying the causes (or villains if you will) behind soaring US healthcare costs. This is now posted on our globalhealthnet website.

The article answers a very obvious question that isn't addressed elsewhere: What are all the reasons for US healthcare costs to be over twice those in other first world economies, and what is the precise contribution (in dollars per capita) of each of these factors? Identifying and then understanding the relative magnitude of the problems goes to the heart of the political and policy debates in this election season before proposing any solutions.

In other words if the OECD median healthcare cost is $2,922 per capita in 2005 and the corresponding US figure is a whopping $6,401, what contributes (and how much) to this difference? I list, quantify and briefly discuss the seven factors responsible for this difference. Interestingly, the two smallest factors are the ones that US healthcare apologists play up the most: malpractice insurance premiums that add 1.5% and "more" care and services that add 3.5% to the total bill.

The other five factors adding to US costs in order of their percent contribution are medical resource waste (15%), administrative waste (14%), defensive medicine (9%), inflated physician salaries because of artificially induced scarcity (6%) and higher drug prices (5%).

You'd have expected this topic to have been widely addressed and talked about by the healthcare industry pundits, experts, academics and researchers. Publications like Health Affairs or the New England Journal of Medicine should have been full of peer-reviewed articles on this. But there may be a good reason that hasn't happened.

The industry players collectively benefit enormously from the high US health expenditures. So long as they point fingers at one another without precise quantification it is easier to escape the spotlight and let the existing system continue. A publication like this will offend all players, and anyone dependent on the industry risks losing a career, tenure, research grants, consulting assignments and speaking engagements. People also tend to be protective of their own interest groups. For example in my July 16, 2007 post I had described the distorted reporting by Dr. Sanjay Gupta while critiquing "Sicko" even as he posed as an objective journalist.

Even from my perspective, high US health costs and a dysfunctional system with lots of uninsured people helps boost medical tourism. So why did I write this article? I'd like to think it's a matter of conscience or the satisfaction of working towards a better system for consumers. A more cynical view by others can be that I don't really expect much change from my good-guy efforts. It's like electric utility companies that make their money selling power, and yet send those mailings urging us to conserve energy and offer tips on how to do so.