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.


Sunil Chacko said...

Very interesting and provides many ways to reduce costs, and indeed achieve the needed supply of doctors to meet the demand created by the uninsured getting insured, hopefully soon.

But is there a pathway to achieve those objectives? Given the lethargy in the Congress and administration, how might it possibly change?

Sunil Chacko, MD (Kerala), MPH (Harvard), MBA (Columbia)

Sandip Madan said...

As you imply Sunil, this (just) needs political, will which can be helped by the imperative to provide adequate coverage and control costs.

kenrod said...

Congratulations on your article in the WSJ.

I think there is a conspiracy by the medical lobby to keep the numbers of practioners low so they can charge higher fees. The number of immigrants that are doctors should be allowed to dramatically increase.

In Canada, they will grant immigrant status to anyone that will live in the far north for 5 years. Likewise, we should allow doctors to immigrate if they serve a remote community for 5 years.

Sandip Madan said...

Thanks, Kenrod. To your first observation, sure the medical lobby does what serves their interests, especially if the system allows them to do so legally. That 5 year rule in Canada sounds good, and the time frame can be further adjusted.

Other than importing doctors there are also ways to increase the domestic supply over time, as I've mentioned in some earlier posts.