Savings Through Free Trade - Telemedicine

You've probably heard it often. The recently enacted health reforms are great for increasing coverage of Americans, but not (in Obama's words, despite his assertions) for "bending the cost curve." The HHS experts said they will actually increase costs (though there are benign views of this). Millions of the newly insured will also further strain our health resources.

To lower costs, plus improve access and quality, Prof. Jagdish Bhagwati and I have long espoused free trade in health care. Here's a closer look at telemedicine, the first of the four types of trade in health services.

There is a commonality in these true-life (except for the last) stories:

• Our older daughter Sheena was visiting us on a Thanksgiving weekend when she developed high fever with chills. I took her to our Danbury Hospital emergency room. A physician's assistant examined her, ordered chest X-rays and preliminary treatment while consulting with the supervising doctor (who subsequently billed for his services). She was diagnosed with pneumonia, and three hours later we were back home with prescribed antibiotics that subsequently cleared her condition.

• Our younger daughter Rubina had an MRI taken of her injured knee (all fine now) at St. Luke's Hospital in New York. Of the payment of $2,000 for the MRI, $400 went to the radiologist who studied the MRI and reported his findings.

• In October 2008 Daddy (my father-in-law) suffered grave complications after a surgery in Inlaks Hospital in Pune. I learned that his surgeon Dr. P sought and received guidance from Dr. L who is very well regarded, and the head of surgery at Inlaks. When I subsequently spoke with Dr. L he knew all the details and assured me all will turn out well. Fortunately, it did.

• In the famous TV serial House, the brilliant and eccentric Dr. Gregory House has a team of diagnosticians reporting to him about patients with complex diseases. In a typical episode House orders a series of tests and treatments while playing mind games with his hospital colleagues and mulling over feedback from his team. He finally arrives at a brilliant solution that saves the patient's life.

In all these instances the doctor in question was never in the same room as the patient. Sheena's doctor guided his assistant from a different part of the hospital. Dr. L needed just to see the charts and hear the accounts about Daddy's condition from Dr. P. The same holds for House except that he generally ends up coming to the patient to make some caustic personal remark while announcing his conclusions and the cure. Rubina's radiologist got all information and images digitally on his computer screen and sent reports back the same way.

Any of these tasks could be performed by an appropriately qualified doctor half way around the world. Online access and video conferencing would give that doctor even closer contact with the patient than in the instances above. Given the scarcity of doctors in the US and their extreme prices, remotely delivered services hold vast promise provided we can overcome the obstacles and entrenched interests. In time, even complex medical interventions can be done routinely and cost effectively through remote surgery. Over three years ago a surgeon in New York removed a woman patient's gall bladder in France 4,000 miles away, and the technology is maturing.

The biggest obstacle to such treatment of Americans by foreign doctors is that they need to be licensed in the state where the patient resides. The license requirements typically include clearing all three parts of an examination (USMLE) that in turn require completing at least a year of US residency. So these very residency slots that constrain US doctor supply prevent foreign doctors from treating US patients as well.

But here's the kicker: it looks like any of the states can break free of this restriction. They can set up parallel criteria to let foreign doctors get licensed to practice within their jurisdiction, including through telemedicine. The states of course can and should impose stringent eligibility and screening criteria to ensure they permit only eminently qualified foreign doctors. Ideally the federal government should lead in orchestrating the requirements to be adopted by the states. There will of course be strong political pressures and lobbying against this by special interests. After all, even ideas since 1998 for telemedicine within the US across state lines have gone nowhere.

Still, the states are free to proceed on their own even if such a federal initiative is lacking. In particular, the states with large under-served areas and/ or those facing big health care budget shortfalls can benefit themselves and their residents by going this route. They can require information about all foreign doctors and their qualifications to be explicitly disclosed so that patients can stick to US trained doctors if they so want. That will conform to the mantra of consumer directed choice, free markets and transparency of information.

If it's allowed to happen the enormous benefits of this approach will depend on how well it is conceived and implemented. Some aspects and ways to make it more effective:

• Emphasize quality. Restrict eligibility only to foreign doctors who have substantial experience and are trained in reputed, approved institutions, so they are expected to be on par or better than their typical US counterparts. They should clear the USMLE provided the doctor dominated bodies sponsoring the tests agrees to let them participate.

• Even if only highly qualified foreign doctors are licensed the price difference can be enormous, and should be fully leveraged. For example, such doctors in India charge about $5 per consultation, and (after taking the trouble to fulfill US licensing requirements) can be paid, say, just $10 per remote consultation.

• Make the most of health IT and electronic medical records so that these doctors can readily see the patient's reports and medical images, prescribe medication, refer to other doctors (including US based ones) as needed, and bill for their services.

• Offer patients multiple ways to consult the doctor. They can do it right from home, either over the phone, or by video conference since Skype, cheap broadband and PCs make it all too easy. Even a "copay" of $10" covers the full cost while virtually (pun intended) making it as convenient and effortless as an instant house call. Or the patient can be allowed to walk into any of the designated facilities staffed by nurses who can participate in the consultation, follow the doctor's directions, take measurements, draw samples for testing, etc. Again, since a US doctor's services are not involved, the copay can be waived or kept very low so both the patient and the insurer/payer benefit.

What are the expected savings? Here are ballpark figures under some realistic assumptions:

• Primary care. CDC's NAMCS 2008 report estimates 902 million doctor office visits in 2006. Of these 50.6% or 458 million were to primary care doctors in general or family medicine, internal medicine or pediatrics. Assuming an average payment of $70, and 25% of these off-shored through telemedicine at 20% of the cost, the total primary care savings are $6.4B annually.

• Specialist care. Of the remaining 49.4% or 444 million specialist visits with an average payment of $140, assume 10% can be substituted by off-shore telemedicine at 20% of the cost. The savings are $5B annually.

• Diagnostic radiology. According to CDC's National Center for Health Statistics in its 2009 complete report (Table 108) there are over 17,000 diagnostic radiologists. RSNA news says they bill $1.46 million on average, or $25B annually. Assuming a fourth of these are off-shored at a fifth of the payment, the annual savings are $5B.

So apart from meeting the crisis of extra demand, telemedicine saves over $16B annually as in 2006, about half of this in public funds, in proportion to their share of the total US health expenditure. The 2006 total health expenditure was $2.1 trillion and the CMS Actuary projections (Table 5, p. 37) over the next 10 years is over $35 trillion. Using this extrapolation, telemedicine will save $267B over 10 years, of which $133B is in public funds.

These figures don't factor in the effect of extra competition and supply of physician services that will almost certainly help reduce the "scarcity premium" in US physician prices. This can dwarf even the considerable direct savings projected above, not to mention the benefit of increased and convenient access to services by patients.

Finally, all this is from just one (the remotely delivered kind) form of trade in health services, out of the four modes envisaged by GATS. More on the remaining three later.

Dec. 21, 2012 update: Telemedicine within the US is now maturing - see The Atlantic Dec. 11, 2012 article.  The same thing can be done with foreign based doctors.