Ranbaxy Tarnishes India's Image

In US medical care the system and the laws are manipulated to allow providers to get away with outrageous prices.  "The $2.7 Trillion Medical Bill" of June 1, '13 in the NY Times by Elizabeth Rosenthal is the latest in a stream of recent articles exposing such overpayments in comparison with other countries.  As at the end of my last post I've frequently made favorable references to India, where high quality medical care can be available at a fraction of the cost.

But India remains a developing country where a lot can go wrong.  Even giant corporations here can engage in illegal and damaging practices because of a culture of cutting corners and unscrupulous business leaders thinking they can get away with it.  Some do even worse.

The poster case for such shenanigans is Ranbaxy, which is India's largest pharmaceutical company.  "Dirty Medicine" on May 15, '13 in Fortune details the long-term criminal fraud at Ranbaxy which makes generic Lipitor for millions of Americans, not just products for third world countries.  As the article said:

"On May 13, Ranbaxy pleaded guilty to seven federal criminal counts of selling adulterated drugs with intent to defraud, failing to report that its drugs didn't meet specifications, and making intentionally false statements to the government. Ranbaxy agreed to pay $500 million in fines, forfeitures, and penalties -- the most ever levied against a generic-drug company.  ...

 "It is not a tale of cutting corners or lax manufacturing practices but one of outright fraud, in which the company knowingly sold substandard drugs around the world -- including in the U.S. -- while working to deceive regulators. The impact on patients will likely never be known. But it is clear that millions of people worldwide got medicine of dubious quality from Ranbaxy." 

Ranbaxy's misdeeds occurred with the knowledge and complicity of its top management including then chief and owner Malvinder Singh.  As consequences like actions by USA's FDA were catching up with them, Malvinder Singh and his brother Shivinder Singh sold the company in 2008.  The hapless buyer was Japan's Daiichi Sankyo that paid $4.6 billion, including $2 billion for the Singh brothers' 34% stake.  Daiichi Sankyo seemed unaware of the real extent of Ranbaxy's wrongful practices and its resultant troubles (despite Malvinder's indignant assertions to the contrary) and is seeking legal remedies. 

Ranbaxy itself may repair its image quickly with its unscrupulous former owners gone and succeeded by a more ethical Japanese owner, but the damage to the Indian generics industry may last longer.  Lax domestic oversight should take much of the blame.  Notably, all the wrongdoing was detected and exposed only by foreign agencies, and none all these years by the Indian authorities.  The Indian government could have done a lot to ensure quality control that would not only have protected India's international reputation but more importantly the health of its own people.  It can even now make amends by acknowledging past problems and promising vigorous remedial measures, but sadly is showing little signs of doing so.  Instead in a knee jerk reaction, as I had seen too often during my own tenure in government, it is vehemently and unconditionally defending all Indian generic drug makers. 

In its June 3 statement release the Government of India "hit back" at the "reports of malpractices of pharma manufacturing in India."  It asserts that the Pharma sector "is highly regulated" and that "vested interests are raking up isolated issues reported regarding technical deficiencies on manufacturing".  It says "Government has strong reason to believe that some of the spurious drugs detected in the international markets, alleged to be exported from India, are desperate attempts by other countries getting affected by the strength of Indian pharma industry."  It also cites figures showing the size of the industry (so what?) and talks of the many tests and certifications.  The problem with the latter is that they mean little if they're based on falsified or invented data.  

I'd hope for a more enlightened approach.  Given endemic corruption drug inspectors may give advance warning of "unannounced" site inspections and accept doctored samples for testing as described in the Fortune story.  The Indian authorities should be devising systems that ensure frequent and random testing of drug samples (perhaps simultaneously by two unconnected laboratories) and genuine surprise visits.  Done right, this will protect Indians and far from harming the "good" pharmaceutical companies, it will instead more quickly restore the credibility of the Indian drug industry.  There's also the matter of pursuing strong penalties against wrong-doers.  Alleged sample fraud and data falsification as described in the Fortune story should be thoroughly investigated and the full force of criminal law applied to anyone found guilty.

What about Ranbaxy's future prospects?  Under its new owners and management it already seems to be cleaning up its act. A so-called public interest litigation (PIL) case is pending in the Indian Supreme Court to cancel Ranbaxy's license and issue broader court directives to Indian regulators for better oversight.  The former looks unlikely to happen, and skittish Indian customer pharmacies that had been wary of Ranbaxy following its US troubles now seem to have had their fears allayed.  

But with Malvinder Singh and his clan I'd still have misgivings.  They're no longer in pharmaceuticals but have huge ongoing holdings in health care, including the Fortis group of hospitals, where given their past conduct they can do a lot of damage.  For example, in pursuit of profits they can pressure their doctors and employees to perform unnecessary but lucrative surgeries and treatments.  Whether by government directives, investor pressure or bad publicity in the media, I'd like to see this Singh family relinquish all control over sensitive health care institutions.  It will also be fair if Daiichi Sankyo can claw back a lot of what they paid to acquire Ranbaxy.  Whether or not this happens is an open question.  Knowing they were selling a lemon the Singh brothers would have tried inserting protective clauses in the sale agreement that the unsuspecting Japanese may have signed on to as "routine."

The bottom line is that India promises much in health care products and services, but customers should be wary and choose carefully, to sift the good from the bad.

Write and Wrong

There are - finally - more articles in the popular media exposing price gouging as the root cause of high US health costs.  But two big concerns remain.

First, such writings are still too few and far between to sufficiently penetrate public consciousness to create the political climate and pressure for reforms that align health prices with other countries.  Besides, the message continues to be drowned out by the flood of red herrings and misinformation put out by pundits funded by the health industry, and naively accepted by the media.

For example, type something like "why are US health prices so high" into Google search and you'll get a stream of articles and quotes blaming unnecessary care or treatment for high costs.  This "quantity" argument is quite false since Americans in aggregate get far less care than Europeans in terms of doctor visits (40% less) and hospitalization (20% less) according to OECD health data. This dwarfs any "excess" care Americans receive in the likes of MRIs, heart bypasses and knee replacements. There are also the many sins of omission - you'll see very few articles in health journals on US pricing anomalies, and none that honestly analyze the reasons for them, or how they can be addressed.

Second, and a bigger concern is that even articles sounding the alert on prices contain serious mistakes about root causes and where the money goes, which derail the quest for best solutions.  Why does this happen? One reason is that the authors have spent so much time unearthing and exposing the fact of overpricing that they've little left over to go into tedious research about the reasons.  Most or all authors happen to be "outsiders" getting little help (or even deliberate misinformation) in quest of answers from health experts and academics beholden to their industry.

There's also a psychological mindset as we tend to ascribe the best motives to our doctors who typically care deeply about their patients.  We (wrongly) transfer this trust in doctors to their powerful associations like the AMA that seek to maximize their members' benefits.  To achieve such objectives these bodies manipulate the political system to the extent it lets them, even at heavy cost to the overall economy or societal welfare.  Writers who don't see this are giving a free pass to our doctors while blaming greedy management, bureaucrats, insurers, drug companies and trial lawyers with less benign personae.  While all these players contribute to higher prices the maximum benefit goes to doctors, so the most needed reforms  will cause their earnings to drop.  And conversely, avoiding reforms opposed by doctor groups almost guarantees continuance of overpricing. 

 Here to my mind are five examples of some welcome facts mixed with misstatements and oversight that can lead away from good solutions:

1) Steven Brill in his famous Mar. 4 / Feb. 20, '13 "Bitter Pill" Time article admirably exposed outrageous charging by US health providers.  He further drove home this message in various media interviews, including on Jon Stewart's Daily Show on Feb. 21.  His biggest mistake lay in ignoring his own dictum of "following the money" to declare that "Everyone in health care makes money (from overpricing) except for doctors."  He says most of the excess money goes to the hospitals' top executives, citing hospital CEO salaries even in "non-profit" University hospitals that are multiples of those of their university presidents.  Actually, under 1% of large hospital revenues typically go towards C-Suite (including CEO) salaries.   Also, administrative heads of departments in hospitals are not bureaucrats but invariably senior doctors in a dual role.

So where do most of hospital excess revenues (i.e., those over and above what their European counterparts would take in for equivalent services) go?  A lot of it goes to doctors either in the form of salaries or perks hidden (for PR and tax purposes) as expenses. About the latter, think of lavish family vacations passed off as conferences, luxury cars expended as work vehicles, and payments on large homes treated as home offices.  Hospitals zealously guard their books which is why Brill who spent most of his energies digging into details of overpricing may not have grasped how the money is really spent.  Other than excess compensation there are of course other big buckets of unnecessary expenses or inefficiency as well.  These include bottlenecks due to regulations or union contracts, administrative costs due to a complex insurance system and fear of litigation, and sheer ineptness in a system devoid of market competition.

2)  Bill Keller, former executive editor of The New York Times and as well informed a person as any, acknowledged how even he was led to believe that high US health costs were due to too much care.  As he wrote in the Times' "Carrots for Doctors" on Jan. 27, '13 he finally learned the true culprit was prices.  His main point was that pay-for-performance (P4P) will do little to improve "our absurdly priced, underperforming health care system" and he did well to highlight the role of pricing. 

But Keller remains mistaken about the true cause of overpricing (which is managed scarcity of doctor supply and the market power of hospitals) and ways to correct this.  He is duped by the doctors' propaganda of "the high price of malpractice insurance being a favorite, and genuine culprit."  (It actually averages just 3.2% of doctors' revenue according to this site.)  He also over-emphasizes the role of single payer systems in keeping prices down, suggesting a damaging converse that in its absence (as it's "politically unpalatable") we must live with high prices.  See examples in the point below to debunk this.

3) Ezra Klein has been key in mainstream coverage of pricing issues as in his Mar. 3, '12 "Why an MRI Costs $1,080 in America and $280 in France".  However, his views like in his Feb. 25, '13 Wonktalk with Sarah Kliff discussing Brill's Time article overemphasizes the need and role of "rate-setting" as the answer.  Rate-setting is where the government, typically in a single payer system according to Klein, lays down the rates that hospitals can charge for various services and procedures.  This implies that prices can only be brought down significantly if we bring about a single payer system, which is a non-starter with Republicans.  While I'm all for single payer which can solve a lot of problems it is by no means the only viable option.

A parallel route can achieve similar or better results while being acceptable (at least in theory) to Republicans and free market thinkers.  This includes introducing real competition through trade, allowing new hospitals with disruptive business and operational models be set up and letting the supply of doctors rise.  Take the example of top Indian and Thai hospitals with prices that are a third of European hospitals (or a sixth of what US hospitals typically get) that are magnets for medical tourism.  Their prices are not determined by any kind of rate-setting but by market forces, and unlike US hospitals they disclose their "real" prices for various procedures and services up front.

4) Scott Gottlieb in his "The Doctor Won't See You Now..." March 14 Op-Ed in the WSJ lambasts Obamacare for "making the local doctor-owned medical practice a relic."  He says this happens because Obamacare (a) favors hospital owned accountable care organizations (ACOs), (b) replaces fee-for-service with flat pricing, and (c) is "mandating all medical offices install expensive IT systems."

 Dr. Gottlieb rightly questions the savings potential of ACOs, and the long standing anomaly of Medicare paying higher rates for services by doctors as hospital employees than those in private practice.  But most of his remaining narrative is flawed.

Rates paid to US doctors in private practice are multiples of those paid to their European counterparts - it's just that prices for doctor services in hospitals is more egregious.  So it isn't a case of hapless doctors being so squeezed as to throw up their hands in private practice, but of being lured into hospitals with even more lavish pay packages and shorter hours.

Flat pricing is what takes away the incentive for wasteful and unneeded care, not to talk of stopping to reward bad care and medical mistakes with more fees for additional services.  World class hospitals abroad that attract medical tourists have flat pricing. This enables them to quote up front for surgical packages, in contrast to the hideously opaque US pricing system.

The government is right to use the carrot (subsidies for conversion) and stick (lower payments for holdouts) policy to get medical establishment to migrate to electronic health record keeping (EHR).  It improves efficiency, makes prior patient history easily accessible and exchangeable for better treatment, lowers costs long term and reduces medical mistakes.  Thanks partly at least to the government push over half of doctors and 80% of hospitals have switched to EHRs, up from 17% and 9% respectively in 2008.

5) Lisa Krieger in her Feb. 5, '12 "Cost of Dying" in Mercury News exposed overpricing without even realizing it as she was focused instead on unnecessary end of life care for her 88 year-old father. She doesn't question the $323,000 charges at Stanford Hospital for 10 days of stay with mostly standard tests and care.  Just the stay in their intensive care unit (ICU) was billed at $25,000 per day.  Ms. Krieger sympathizes with the hospital for receiving "only" $67,800 from Medicare ($6,780 per day!) so that, according to her, they'd need to make up their losses by overcharging private insurers. 

In contrast my 94 year-old father-in-law was taken to one of Pune's (India) best hospitals - Ruby Hall Clinic - this past month.  He was there for eight days receiving essentially the same treatment and tests as described by Ms. Krieger for her father.  It included MRI's, CT Scans, pathology tests, feeding tube, oxygen mask, round the clock nursing care, etc.  He too was in the ICU, in the cardiac care section (CCU) with a deluxe private room.  He passed away after eight days despite all efforts.  There isn't a more upright, decent and engaging person than he was, but that's another story.  His total bill as a private and cash paying patient was about $3,000, or $400 per day, that too at the most upscale and priciest hospital by Pune standards.  That's 6% of the rate at which "stingy" Medicare paid Stanford Hospital, or 1% of what Stanford would have charged an uninsured patient.

Our sky-high health care prices and resultant financial and budgetary morass is an offshoot of a corrupt legislative environment influenced by powerful medical interests.  While the popular media articles drawing long overdue attention to such prices are welcome, the above examples show the need for much more in-depth reporting of the true reasons and fixes for this.  Only then can public awareness and outrage rise enough to force politicians to act.

Do Our Doctor Imports Hurt Their Home Countries?

The US has only about two thirds of Europe's per capita availability of doctors.  This scarcity is the largest cause of severe overpricing of medical services that underlies the US health care crisis.  Any sensible policy should massively expand the domestic pipeline of doctor supply, but there's a decade's gap between initiating such long overdue measures and boosting the ranks of trained doctors.

The immediate solution is to import highly qualified and experienced doctors from accredited medical institutions around the world that can be put in place in as little as a year or two. Attracting such doctors is easy as actual US physician earnings are about thrice those in Europe and tenfold over their peers in developing countries.  Setting high standards and requiring these foreign doctors to clear the same board exams as domestic doctors should address any real or feigned concerns about quality of care.

Objectors also cite the plight of countries like India (a front page WSJ story on July 30) whose best doctors are ideal candidates because of their qualifications, salary differential, and fluency in English.  They say India already has much fewer doctors per capita, and its populace will suffer further hardship if the US poaches their top medical practitioners.  Such concerns by US doctors and their proxies are probably self serving and hypocritical, aimed at preserving their "scarcity premium" and thwarting competition in their home turf.  It is like US workers opposing imports out of professed solidarity with foreign workers toiling in sweat shops.

I had briefly countered in my June 27, 2010 post that remittances to, and investments in their country of origin by immigrant US doctors should by themselves generate enough resources to train several more doctors.  But in our collaborative work Prof. Jagdish Bhagwati has been questioned about this "brain drain" even by some policy advisers with legitimate concerns about the donor countries.  So here's more elaboration for why the benefits of this free flow of doctors should exceed the costs for a donor country like India:

1. Remittances finance replacement doctors.  As compared to the US, India is not only far more cost efficient in medical treatment but also in training doctors.  And it's not just because US and Canadian medical schools absurdly require entrants to be college graduates, unlike medical schools elsewhere that only require completion of high school.  It's also that quality education in India costs only 10%-20% annually of the tab in USA.  So while the 11 or more years of post high school that it takes to get a doctor through residency in the US costs about $600,000, training to the same level in India in 7 years costs about $40,000.

Consider now remittances and money flow benefits by emigrant doctors which have never been tracked separately.  There are various estimates of remittances by all Indian emigrants, but a US Congressional report has private remittances from the US to India at $3.2B as quoted on Feb. 25, 2011 by the Economic Times.  This comes to 5%-6% of worldwide remittance inflows from the Indian diaspora, estimated by the Indian government to be $40.8B in the eight months from April to December of 2009.  According to the 2009 American Community Survey of the US Census Bureau (S0201) there are 2.6 million Indian immigrants of which 1 million are full time workers, so the annual remittance per worker is $3,200.

But the mean earnings of an Indian worker are $80,000 while doctors average over 4 times this. Taking remittances in the same proportion of earnings, an emigrant Indian doctor would remit $12,000.  Even if we scale this down to half (Prof. Bhagwati thinks the well-off Indians here may not send to relatives back home at the same rate and may instead simply bring them over) that is $6,000 annually. Over a 25 year career span in the US that's $150,000 in remittances alone - enough to train four new Indian doctors for every exported one.  These numbers exclude informal or illegal remittances like hawala transactions - the reason a World Bank report regards official estimates to considerably underestimate actual money flows.

2. Benefits of shared expertize and enhanced country brand.  We saw how countries that banned or restricted emigration during the Iron Curtain years limited the development and vibrancy of their own skilled workforce.  Conversely, the free flow of ideas, knowledge and experience between emigrant Indian professionals and their home country counterparts has enriched and raised professional, including medical, standards in India.  Then there are perceptions in the US.  One in 20 doctors here is of Indian origin which is a reason why patients think well of, and are comfortable with them. That can significantly boost medical tourism to India if and when constraints of politics and worries about legal exposure abate.

3. Outsized contributions by doctors returning home. Indian doctors in the US get first hand experience in the world's best system in terms of quality of health care (even if it's also the least cost effective.)  They have it so good here that in terms of percentage very few return home. But those that do have an immensely positive and transformational impact on Indian medical care.  Most of the top private medical hospitals in India have been founded or are headed by doctors who have practiced in the US or UK.  These include the Apollo Hospitals Group founded by Dr. Pratap Reddy, Escorts and now Medanta - The Medicity set up by Dr. Naresh Trehan, the Asian Heart Institute headed by Dr. Ramakanta Panda, and Narayana Hrudayalaya established by Dr. Devi Shetty.  Within such hospitals are prominent US and UK trained doctors who are renowned for their specialist surgical expertise and have trained many other doctors.

In sum, a free movement of doctors should be a win-win for both the US and the donor country.  Not all imported doctors will come from developing countries, of course.  The enormous earnings differential between the doctors in the US and other first world countries will persist to some extent even if and when US doctor scarcities are addressed.  This will ensure that many doctors from Europe including the most affluent countries like UK, Germany and France will come to the US if they're allowed to practice here.

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Aside: Some other useful background readings and links:

• A 2006 overview of skilled Indian migration to developed and gulf countries by Binod Khadria.
• American FactFinder of the US Census Bureau for US population, demographic and economic data.

How Trade Can Transform US Health Care

 [This post is part of my ongoing collaboration with Prof. Jagdish Bhagwati.]

Imagine that lawmakers come together to solve the health care (and budget) crisis by taking all the steps outlined in my last post.  Intrinsic to their plan is the critical role of trade in health services to achieve quick results.

There are four ways in which such trade occurs. "Arm's length" services are typically found online: The provider and the patient can be physically far apart. In medical travel patients go to doctors elsewhere. A third way is by foreign entities creating and staffing hospitals in the US. Finally, foreign doctors and other medical personnel can be brought to the US to tend to patients here.

A narrative below illustrates how wisely implementing a comprehensive trade policy in health services can transform our health care experience and costs.

Jane isn’t feeling well and goes to a facility staffed by two nurses.  This has some typical medical examination rooms which also include a couple of large LCD screens and a video cam that allow for Skype like videoconferencing.  A nurse asks Jane for the reason for her visit then ushers her into one of these rooms.  The screens lights up and Jane is instantly in video conference with Dr. Gupta, an experienced and highly qualified primary care physician based in India.  Dr. Gupta has cleared the rigorous medical board exams set by the US state Jane resides in, and is licensed to practice telemedicine here. 

It feels as if Dr. Gupta is in the same room as Jane, except that the nurse does all the examining under his directions and reports her findings.  Dr. Gupta then prescribes medication, treatment and follow-up visits if needed.  Also, if Jane needs a specialist like a cardiologist, Dr. Gupta instantly connects her to one.  Cardiologist Dr. Sharma appears on the second screen.  Dr. Gupta briefs Dr. Sharma about Jane and either stays on or hands off to Dr. Sharma who then “examines” Jane with the nurse’s help before prescribing treatment.  Any imaging tests ordered (MRI, PET, CAT, X-Ray) are digitally transmitted and reported on by a certified India based radiologist.


Jane’s insurer pays $10 - $15 for each doctor.  This is twice their domestic rate, and enough incentive for them to have obtained US certification and practice telemedicine.  The insurer also pays $15-$20 to cover the US nurse’s and the facility maintenance charges.  The cost of a typical visit ranges from $25 for a PCP to $45 for a PCP-specialist combo, which is just a third to a sixth of normal US payments. 

Since it is all digitally captured, Jane has the option of saving and retaining her consultation, or having it deleted for privacy reasons.  If she likes these doctors she can ask to see them specifically and schedule future visits accordingly.  She can also anonymously rate them, for the benefit of health authorities and other patients.


If Jane needs a major surgery like hip or knee replacement or a heart bypass, she and a companion can go on an all expenses paid trip to India.  She is treated at a top Indian hospital with a safety record at par or better than US hospitals, and recuperates in a five star hotel before returning home.  Her insurer pays a third in all of what it costs for the procedure in the US.  The incentive for Jane to go is high quality (and even pampered) care with lower chances of complications, and a waiver of all deductibles and co-pays.


Of course, in a majority of situations medical travel is not feasible.  Jane then goes to a new local hospital that is run by a foreign chain that has combined high quality with low cost in hospitals in its home country.  It incorporated its efficiency and superior practices into its US holdings, and is profitable even on reduced Medicare and Medicaid payments. 


When Jane needs to see local doctors she goes to highly experienced and qualified foreign doctors who have been certified to practice after clearing all US board exams.  They are no longer required to undergo US medical residency which was the main impediment to augmenting doctor supply.  Even after Medicaid rate cuts these doctors seeing such patients make many times what they earned back home, and happily accept all patients.


Then there’s Jane’s friend Mary who is very distrustful of foreign health care providers and insists on “all-American” care.  Even Mary is now much better off.  Thanks to the increased supply of providers she no longer has to wait to see her US doctors.  They’re also more attentive now and no longer spurn Medicare or Medicaid patients even after the reduction of rates.  The same holds for her local US hospital that seems to be improving its quality and cost efficiency by learning from the foreign transplants.  Having less market power it too now accepts lower insurer rates.

 So benefits of the trade in health services flow not just to those who directly avail of them, but also to the rest that don’t.  Moreover, the gains come quickly, as early as in 2012, with almost full effects in place in 3-5 years.  As compared to this, purely domestic solutions, for example, of increasing the supply of doctors will take a decade to even begin showing some effect. 

Also, although federal orchestration and coordination is clearly preferable, a lot of the benefits can be availed at the states level by their own legislative and executive action.  That is because many of the impediments to trade in health services originate in, or are at least addressable through state enactments.  These include licensing requirements of qualified foreign doctors, permission to set up hospitals, who can prescribe drugs, and limits of legal exposure.

What will be the impact of such trade on American jobs?  Thanks to the ongoing and projected scarcities among health care providers their loss of jobs will be minimal.  Some like the doctors are likely to see their outsize earning premiums over their European counterparts decrease significantly but will still earn handsomely.  Other medical personnel in short supply may also lose a chunk of their overtime earnings, but are very unlikely to lose their jobs.  In contrast the jobs outside of the health industry should increase since reduced health care overhead makes US labor more attractive to employers.  This should vastly outweigh any decrease in health jobs.

Apart from service improvements and expanded coverage, what are the potential savings?  A lot depends on how this trade is allowed and which modes are emphasized.  But broadly speaking, the “US premium” on the price of health services can easily be brought from the present over 100% to about 30% over the prices in Europe.

Chastened medical providers who presently sneer at Medicaid rates and threaten to turn away Medicare patients if the rates are reduced may instead vie for this business.  In addition to lower domestic prices due to competition, there will be direct savings from off-shored services.  All told, the total US health expenditure can drop from a NHE projected $3.3 trillion in 2014 by over $1 trillion annually, with more than half of this being public funds of CME and the states.  Even in 2012 if action is taken right away to qualify foreign providers, telemedicine and medical travel can kick in to yield relatively painless savings of about $50 billion.

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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.

Can Superbugs Doom Medical Travel?

Domestic providers can gleefully celebrate.  the UK journal Lancet Infectious Diseases on August 11 has raised the alarm of antibiotic resistant bacteria being spread across the world by patients receiving medical treatment in India and Pakistan.  The article specifically voiced concerns about medical travel.  Mainstream media like the WSJ on August 12 have picked up the refrain. 

This has created an uproar in India, with political leaders crying foul and the Indian health establishment downplaying the report.  Ulterior motives and underhanded means have been ascribed to the drug company Wyeth (now part of Pfizer) that sponsored the study, and to western providers who tend to undermine medical travel.  Even a  lead author of this article, India based Kartheyan Kumarasamy who also published an earlier alert in March, said the warnings had been overblown.

"It's all hype and not as bad as it sounds," he said, adding "The conclusion that the bacteria was transmitted from India is hypothetical. Unless we analyze samples from across the globe to trace its origin, we can only speculate."  The LA Times on August 13 quoted US experts who called the threat overblown, and the NY Times on August 11 similarly had them "put it in perspective."

Professor Jagdish Bhagwati and I have conferred after his contact on this with policy makers in India as well as some American protectionists who regularly spar with him on trade issues.  Here are our views on four key aspects of this story:

Is the study exaggerating the dangers, and should the Western medical experts be trusted to give unbiased opinions?  Sadly, it will likely be several months or even years before the validity of the concerns raised by the study are strongly established one way or the other.  We should certainly listen to Western experts but be aware that medical travel is a threat and unwelcome competition for many Western providers.

They do not have a good track record of honest assessment.  Many have exploited patient anxieties over medical travel by playing up, distorting or even inventing risks of substandard care, lack of recourse if anything goes wrong, dying in a strange land, etc. For example, in my June 11, 2009 post I described how the NY times Op-Ed on medical travel by three US doctors was biased and misleading, while seemingly objective.

Another factor that should give their audience pause: Many of these experts are warning, not just against medical travel to India, but against medical travel abroad, period.  In sum, all these views should be carefully weighed against facts, potential conflicts of interest or industry allegiances, and counter-arguments.

Will this affect the flow and growth of medical tourism to India?  Many medical travelers and policy makers may subscribe to "When in doubt, don't."  So some impact on the patient traffic to India seems inevitable, even if fears (after a long time, to the point above) are ultimately found to be misplaced or highly exaggerated.  The world isn't always fair.  But the damage can be considerably mitigated and result in net benefits for Indians if effective and prompt action is taken by the health authorities and hospitals.  This brings us to the next question.

What corrective steps should be taken in India?  Antibiotic overuse and abuse is an endemic problem here, perhaps more so than in the West.  This is largely behind the creation of superbugs.  The current spotlight should jolt the Indian authorities into cleaning house and raising awareness among the general population of providers and patients.  It can become a case of the small medical travel tail wagging the large Indian health care dog, to everyone's benefit.

Indian health authorities can also join Western efforts to encourage and facilitate development of more new drugs to combat gram negative bacteria like the NDM-1 superbug.  Though two existing drugs are presently effective it is vital to have more in the pipeline.  Many experts have also stressed the need for the tracking, collection and transparency of data on outbreaks of drug resistant bacteria in hospitals and the general populace.

Tens of thousands of medical travelers from the West have been treated in India in the past year.  Indian health authorities can coordinate efforts to reach these former patients and offer free testing for pathogens in their home countries.  This will allow treatment and reassure against the risk of spread of superbugs in those countries, while building a database that guides further policy and actions.  This will involve some costs and the home countries are likely to agree to bear part or most of them.  Managed properly, this is certainly money well spent. 

The findings, whatever they are, should be widely shared and made public.  Honesty and transparency is likely the best policy that will build confidence and credibility over the long term.  Even more importantly, it's the right thing to do. 

Tertiary care hospitals popular with medical travelers can take effective steps like: a) Further strengthening or emphasizing infection control practices (though the top ones already have infection and complication rates that are far lower than in the US overall), b) Sharing verifiable statistics and practices with patients and health agencies, and c) Keeping and treating medical travelers separately (and perhaps by country of origin) from the Indian patients.  This isolation could be decried as discrimination or special treatment reserved for more privileged medical travelers if not handled properly.  But it can be truthfully positioned as an infection control measure, and a two way street that also protects Indian patients from pathogens (like MRSA) possibly carried by foreigners.

Should and will this story significantly damp medical travel in general?   Certainly not.  While India is logically a premier medical travel destination because of high quality and low cost of care, it is by no means the only one.  Medical travelers having misgivings about India can look to other destinations like Malaysia, Singapore or even Turkey as alternatives with many good JCI accredited facilities.  They are likely not as cheap as India but still offer enormous cost savings and offsetting advantages of better amenities and visitor friendly infrastructure outside of the hospitals and hotels.

So even in the worst case scenario, while the numbers may change slightly, our overall case for medical travel laid out in my May 13 post remains as strong and compelling as ever.

Savings Through Free Trade - "Their" Hospitals Here

Of the four modes of trade in health care services we saw how the first (telemedicine) and the second (medical travel) can together save the US well over a trillion dollars in ten years. But they have a key limitation.

That is, the major chunk of health care services still cannot be delivered here remotely, or obtained by patients going abroad. Even if medical travel is nurtured and allowed to mature, over 80% of hospital care will still be availed domestically. This is where the third mode of trade, namely foreign entities setting up hospitals in the US itself can play a key role. How? Primarily by applying the same innovations, practices and experience domestically that enable hospitals abroad to thrive while charging a fraction of the typical US prices.

Let's revisit some instances, starting with my personal experience. Instead of the $1000+ typically paid per MRI in the US, we paid between $80 and $160 each for my in-laws' MRIs (including radiologist fees) in Pune, India. US providers frequently cite high capital costs to justify their pricing, but the Indian providers used the same MRI machines. My father-in-law's 25 day hospital treatment and stay including two major surgeries cost just $6K in Pune, India, compared to a $200K+ expected tab at "negotiated" rates in the US. A heart bypass or a heart valve procedure costs about $8K each in a top JCI approved facility in India, compared to about $60K and $100K respectively in the US.

This UK TimesOnline May 14, 2010 article about Dr. Devi Shetty builds on a Nov. 25, 2009 WSJ report, describing his "assemby line" no-frills approach to heart bypass surgeries. It reduces average costs to just $2K, while bettering overall US outcomes. At the more luxurious facilities like the Asia Heart Institute in Mumbai the mortality rate for these surgeries is 0.6% - 0.8% which matches the best in the US, at the Cleveland Clinic and the Mayo Clinic.

Now Dr. Shetty is setting up a 2,000 bed hospital in the Cayman Islands, primarily to serve US medical travelers at much lower prices than back home. An obvious question is, why aren't foreigners setting up such facilities right here in the US, making them more convenient and accessible to patients, and serving far higher volumes? The reason is onerous legal and regulatory barriers to starting of new hospitals. These restrictions are a lot worse when foreign entities are involved - as a result, I am not aware of the existence of any foreign owned hospitals in the US.

It is important to note that we need more hospitals regardless of ownership simply to reverse the trend since the early 1990s of hospital consolidation that have jacked up prices. A February 2006 RWJF report finds (p. 4) that 90% of MSAs (metropolitan areas) face concentrated markets. This results in at least a 5% price increase (may be a lot more) purely due to this lack of competition. But foreign-run hospitals with their overseas experience and cost efficient practices introduce a whole new dynamic that will likely drop prices much more dramatically.

Some policy changes needed to increase hospital supply, particularly with foreign participation, are:

• Easing the process and shortening the time line for approval. A February 2007 CFR report describes the policies around foreign ownership of US infrastructure that includes hospitals. In response to the 9/11 attacks the February 2003 National Strategy for Critical Infrastructure and Key Assets specifically mentions hospitals (p.41). It makes perfect sense to ensure that key hospitals that are owned by US entities are there to cope with any mass crisis. But if foreign owned hospitals are simply adding to this core health capability, why restrict their entry or discourage it with a torturous, uncertain process of scrutiny?
• Creating standard guidelines and norms, and identifying under-served or non-competitive areas where foreign hospitals are encouraged, facilitating quick approvals.
• Doing away with state regulations that hold up hospital creation in general, like the CON (Certificate of Need) laws. The rationale cited for these is to restrict hospital build up and expansion that may push unneeded services on to patients, in order to utilize the extra capacity, thus raising costs. But such restriction cause greater damage by reducing competition. They make as little sense as for the government to disallow more auto factories, or more planes for airlines, or to needlessly trip up free markets in other ways.

Another question is, if foreign hospitals can be so cost effective, can US hospital managers copy their practices to rejigger existing hospitals or set up new ones to be just as economical? Then costs can be controlled just as effectively without the need for foreign entities to set up shop here. The answer: while this is theoretically possible, it's very unlikely in practice (except for the caveat below in the concluding para.)

Why? First, because incumbents need to unlearn many or most of the ways they've operated all this while, and then internalize and implement radically different procedures. Second, they'll be weighed down by their own legacy of decisions and agreements with constituents like health worker unions. For example, a cardiologist had told me years ago how he could schedule 20 patients a day for nuclear stress tests on the expensive equipment in his own clinic. In contrast the hospitals typically scheduled only 5 or less patients daily, due to lack of flexibility in functions and procedures agreed upon in collective agreements with their staff.

In contrast, foreign management may far more easily adapt their low cost systems to accommodate US regulations and circumstances. It's the concept of reverse innovation that includes GE inventing the hand held ECG and portable ultrasound machines in India and China respectively. These cost a tenth of the traditional versions, and have now been brought into the US market. Another example: the Tata Nano is a $2,500 car developed in India, and is coming into the US with adaptations and a $4,500 price tag - still much below anything attainable by US manufacturers.

In the service sector too traditional companies typically fail to match innovative rivals using disruptive systems, even when they have a chance to study the new systems. Delta Airlines and United Airlines sought to create "an airline within an airline" with their Song and Ted subsidiaries respectively, in an effort to emulate the success of SouthWest Airlines. Both failed as have almost all similar efforts by other airlines.

All this underscores the advisability of letting foreign hospitals enter the US market.

What are the potential savings? As we have seen, just the re-introduction of competition in the concentrated hospital market saves at least 5% through hospital price reduction. From NCHS (CDC/HHS) health publication 2009 (Table 127) this shaves off $35B from hospital expenditures in 2007, or $545B over the next 10 years, half of it in public funds. The CBO tends to restrict savings projections to hard data so it may concede only this amount.

But the actual savings are likely to be much higher. These will partly be from reductions in payments agreed to by foreign-run hospitals and the rest from sea changes forced upon traditional hospitals through increased competition. European hospital prices are almost 50% less than in the US, so it is realistic to expect price drops halfway to that level, or 25%. That will be savings of $175B in 2007, or $2.73 trillion over the next 10 years, with $1.36 trillion in public funds.

But didn't I say earlier that US hospitals would resist drastic changes? That won't hold when their very survival is threatened, as when foreign competitors move in. In that case they will have to change, and can recruit foreigners or outsiders as advisers or senior management to help make the transition. To see a parallel, this has recently happened in the US auto and the airline industry. The prospect of foreign presence and forced change leading to dramatic price drops may not be eagerly welcomed by the domestic hospital industry, but it will be of great benefit to nearly everyone else.

Savings Through Free Trade - Medical Travel

Medical travel is the second (and most talked about) of the four modes of trade in health services envisaged under GATS. It's also popularly called medical tourism, a term the industry wants to change, to stress the more serious treatment aspect over any incidental entertainment or sightseeing.

While the first mode telemedicine described earlier is an alternative for some doctor office visits, medical travel does the same for some costly inpatient hospital procedures. Its potential was touched upon in our December 10 overview. Here's a further and updated look.

The main reason for outbound US medical travel are cost savings, which can be up to 90% for a destination country like India. This holds even for procedures performed by US or UK trained and certified doctors in JCI accredited hospitals, with outcomes at least as good as back home. Naturally, only patients who have strong financial or other incentives (not just to save their insurers or employers money) will opt to go.

So far almost all US medical travelers have been the self-payers, either the uninsured or those coming for cosmetic or dental procedures not covered by their insurance. This is a sliver, estimated by Deloitte to be 878,000 in 2010, of the total potential clientele. After all, even among the uninsured who are 15% of the populace or 45 million, less than a third can afford to pay the still significant sum up front for travel and treatment abroad.

Medical travel's ability to significantly address US health costs will be unlocked only if the largest payers (private insurers, employers and public agencies) sign on. They can induce their patients to voluntarily opt for medical travel by passing on some of the savings. But they haven't done so yet. Why?

Private insurers and employers are most worried about legal and PR exposure if some surgeries abroad end badly (which is inevitable, even if complications occur at much below US rates.) These payers fear multimillion dollar lawsuits in which capricious juries may side with their "home boy" plaintiffs regardless of the merits and the precautions taken. Even a few "jackpot" awards can wipe out the entire savings, not to mention any fallout from adverse publicity. In analogy to G.W. Bush paraphrasing the IRA on terrorism, trial lawyers just have to get lucky once, while defending payers have to win (almost) 100% of the time. Given the almost random outcomes of jury trials, successfully defending all cases is a tall order, and in any event involves high legal costs.

Prior safeguard or dispute resolution agreements are of limited value as courts may rule that patients cannot waive their basic right to sue in US courts. Then there's the problem in getting patients to volunteer through financial rewards, like passing along a portion of the savings to them. Even when it's purely voluntary, such financial incentives can be portrayed in malpractice lawsuits as coercive or unduly influencing patients.

There are also other reasons why private insurers hesitate to embrace medical travel:

• Fear that the lure of financial gain may cause patients otherwise hesitant or on the fence about undergoing procedures to go for them along with the medical travel option. This can increase expenses and offset some of the savings. (This is largely fixable through a proper screening, eligibility and incentive design process.)
• Collective inertia among the oligarchs (the major insurers) who feel that their launch of such an initiative will trigger similar actions by their rivals. Thus their potential gains are reduced through the resultant competitive activity, so the effort isn't worthwhile.
• Where insurers are merely administering plans and passing on the costs, say to the self-insured employers, they may have little incentive to push such innovation.
• Insurers are aware that health reformers will push them to lower rates, and are holding such options in hand to use only when these exigencies arise.

The government agencies like CMS have neither legal exposure nor many other private payer concerns as an impediment to the medical travel option. Juries identifying with taxpayers are less likely to award huge payments to plaintiffs that come out of public funds. Public agencies also lack the motive to profit from misdeeds or to cut corners to save money that can form the basis for punitive damages.

But the government and the lawmakers have very different, political and protectionist reasons for staying clear of medical travel. US providers portray foreign medical travel in protectionist terms as loss of American business and jobs. They also raise concerns (sometimes ignoring the facts) about the quality of treatment overseas, and lack of recourse of aggrieved patients to US courts. Their most potent weapon of course is their lobbying and financial clout with Congress and the administration. It's primarily for this reason that you don't hear anyone in CMS, HHS, the rest of the Obama administration as well as in Congress seriously considering the medical travel option.

All this may change as sky high prices, domestic supplier shortages, the health costs related crises in federal and the states budgets, and public awareness trumps the current political nexus. If the government acts effectively on medical travel this will not only save taxpayer funds and benefit publicly funded patients, but also pull along the private payers on this. Here's how:

• Medicare and Medicaid should create protocols to select and qualify foreign providers, identify procedures to be covered, offer financial and other incentives for patients to volunteer, track and disseminate quality and outcomes information, redress treatment problems, etc.
• Private insurers and employers strictly following the same (or better) practices and procedures will get legal cover from adverse outcomes beyond their control. Besides, if the government agencies are doing it, then private payers will also be shielded from adverse publicity or allegations of insidious motives.
• The lawmakers and the administration should pass measures reducing legal risks and costs for public and private payers adopting and implementing this option in good faith. These steps can include laws to restrict jury shopping, requiring arbitration by bodies set up for the purpose, limiting damages and imposing malpractice caps. Such laws will need to be carefully crafted to avoid being struck down as unconstitutional by the courts.

So what are the expected savings from medical travel other than for cosmetic, dental and medically unnecessary procedures? Prof. Jagdish Bhagwati and I looked at all the major surgical procedures and identified 30 that are suitable for medical travel to places as far as Asia. These cost at least $25,000 each, are commonly performed, involve standard techniques, have quick recovery times, and are typically one-time surgeries.

In 2007 these 30 procedures cost a total of $300B. Assuming 25% of patients of these procedures opt for medical travel, the direct savings are $57B annually. The data sources, assumptions and basis for calculations are described in the footnote below. This does not include the effect of lower US prices as a result of competition, or medical travel for smaller procedures to Mexico from border areas like California and Texas. It also excludes possibilities from ideas going as far back as 1993, like hospital ships catering to coastal cities like New York.

Over the next 10 years the savings come to $950B, about half in public funds. Looked another way, these direct savings in public funds from medical travel alone meet half the projected cost of the recently enacted health care reforms.

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Footnote: Data sources, assumptions and calculations leading up to the projected savings from medical travel:

1) The online query system HCUPnet (part of AHRQ in HHS) is used to get the statistics on all hospital procedures. This includes the aggregate charges for all hospital stays, their breakdown by procedures under the simplified CCS categories, the number of each principal procedure and mean charges per procedure. These are for the latest available year (2007).

2) HCUP only has hospital charges (billing), not the actual payment to the hospital, which is less than what is charged. On the other hand HCUP charges do not include the physician (surgeon, anesthesiologist, etc.) fees that make up almost a fourth of the total payment, which we need. So we need a factor to reduce the charges to actual estimated payments, and then add back payments to physicians.

3) To get the factor in (2) above we compare the aggregate civilian hospital charges for all stays nationally ($1,032B obtained from HCUP) with the actual hospital expenditures obtained from the NCHS (CDC / HHS) Health publication, 2009 ($696B from Table 127, less $38B for VA hospital expenses, equals $658B). This gives us the overall conversion factor of 64% to convert charges into actual payment received by hospitals. We then take physician fees to be added to be 30% of hospital payments, or 23% of the total payment.

4) From the list of the top 200 procedures in HCUP nationally we select 30 that meet our selection criteria. These include a minimum cost of $25K in the US, no need for a subsequent procedure / trip, short recovery time allowing the patient to return to the US within a month, and only highly standardized procedures (e.g., excluding cancer treatment where better US care may be available.)

5) Our total cost of overseas treatment is based on package rates (including air travel and hotel stay while recuperating) to the most popular JCI accredited medical travel destination hospitals in India with US or UK certified / trained physicians. Savings for other destinations like Singapore, Turkey or Costa Rica will be lower.

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.

The (Deliberately?) Overlooked Promise of Free Trade in Health Care

Congress labors to find savings of about $900B over 10 years to fund pending health care reforms and covering the uninsured. It has even cut $43B or 13% of Medicare spending on home care, which is arguably a cheap and efficient alternative to far more expensive hospital or nursing home care.

Yet there is almost total silence on the most promising and quick way to exceed the desired savings, while improving care for patients. I'm talking about the trade solution that Prof. Jagdish Bhagwati and I wrote about in the WSJ on May 27, 2008, (with a more detailed version posted on our website.)

Of the four modes (types under GATS) of trade in health care, our annual savings estimate from just the first two is $120B. This consists of $75B from remotely delivered services like tele-medicine, claims processing and customer service (mode 1), and $45B from medical tourism (mode 2). About a fourth of these savings is the government or public share that can be "scored" by the Congressional Budget Office (CBO), given the right trade-friendly steps. This is $30B of annual savings that over a 10 year period covers over a third of the funding required for the health reforms pending consideration in Congress.

Modes 3 and 4 of health care trade can actually realize far higher savings than the first two, though they may be hard to quantify (and hence not adequately count) in the strict CBO methodology.

Mode 3 with hospitals established abroad is of particular interest in the establishment of foreign-run medical facilities in the US. It is also one in which our thinking has evolved in terms of estimated potential savings. We thought foreign establishments could lead to price reductions, mainly by offering competition to the increasingly concentrated medical industry. A Report in February 2006 from the Robert Wood Johnson Foundation has described this trend to concentration since 1990 and has concluded that 90% of the larger metropolitan areas now face concentrated markets.

What we hadn't considered explicitly was the concept and power of reverse innovation in driving down US hospital prices. For instance, US hospitals trapped in the straitjacket of their current mindset and practices have a hard time lowering the package price of their heart bypass surgeries much below $60,000. Yet Dr. Devi Shetty makes a profit in India while charging just $2,000 per procedure. He is setting up a large hospital in the Cayman Islands to serve US patients at low prices. But why not make legislative and regulatory changes to allow such new hospitals in the US itself?

Mode 4 encompasses importing foreign doctors into the US. Even if the seriously flawed US policy responsible for acute doctor shortages is corrected, a big if, it will take more than a decade for the domestic supply to ease the imbalance. While these scarcities are a bonanza for US doctors in terms of inflated salaries and guaranteed over-employment they impose a huge cost on payers and patients. Extending coverage to the uninsured and swelling the ranks of patients exacerbates the crisis.

Allowing highly qualified foreign physicians trained in accredited international institutions to practice in the US after clearing board exams can ease shortages without compromising quality. Given the doctor pay disparities between the US and other such places (including Europe) and the benefit of broadened experience it will be easy to attract the right doctors even with temporary visas or limited US rotations. To ensure that such imported doctors fill the highest need, their visas and their permission to practice can even be made conditional on their working in designated under-served areas.

This easing of doctor scarcities will improve patients' access to health care and quality of care, while also helping rein in excessive salaries that are over twice the European average. While the CBO may refuse to factor all these benefits, one saving that it can quantify are the Medicare cuts of fees to physicians under the Sustainable Growth Rate (SGR). These never take hold in large part (other than lobbying pressures) due to the fear that then an insufficient number of physicians will agree to see Medicare patients.

The imported doctors can be expected to accept the reduced fees or agree to a fixed salary model that is more cost effective, and yet generous in comparison to their earnings in their home country. To make matters even more certain the admittance of these foreign physicians into the US can also be made contingent on their acceptance of such terms and fees as the administration sees fit. As the House bill passed on Nov. 19 shows, the cost of doing away with these cuts is $210B.

In sum the collective benefits and savings of trade in health care dwarfs the measures being considered by Congress now, and debated in the media. These options seem to have so far been studiously ignored or kept off the table, as lawmakers avoid antagonizing industry interests. But the huge social cost of neglecting this potential and a lack of good alternatives makes a strong case for lawmakers rethinking their stance.

Another Pune Hospital From Up Close

In our current India trip I've come into close contact with another major hospital in Pune, India. This time it is Ruby Hall Clinic (aka Grant Medical Foundation) which is more plush than Inlaks & Budhrani Hospital that I first talked about in my Oct. 28, '08 post. It's a more likely destination for Western medical tourists, though still imperfect including from the perspective of its geographic location and distance from an international airport.

On Dec. 24th after arriving in Pune Anita and I took my in-laws (Daddy and Mummy) by ambulance to Inlaks for a thorough follow-up medical examination. The pronouncements by Dr. R and Dr. P were very encouraging. Daddy had recovered well from his two surgeries 2 - 3 months earlier, and both Daddy and Mummy needed just some minor adjustments in their medications. Our system of having four good round-the-clock attendants and daily home visits by a physical therapist seemed to have worked well. Mummy's main problem was a persistent irritation in the throat and esophagus that sometimes caused her to throw up while eating. Dr. R ascribed this irritation to a drug she was taking to control heart function and blood pressure, and switched it.

On December 25 while we were dining together, Mummy gagged on a mouthful of food. Familiar with the drill, Shabana (her attendant) brought a pan as she coughed and retched, and then quietened with her head down while (we thought) regaining her breath. But a few moments later we asked whether she was okay and there was no response. She was immobile and slumped over with her eyes open. I immediately did a Heimlich Maneuver in case something was choking her. No effect. Then suspecting a major stroke attack I dialled 101 (the Indian equivalent of 911) for an ambulance though the system worked differently from the US.

The operator advised me to directly call the ambulance service of the hospital and gave me the number of Ruby Hall that I picked among the choices. The Ruby Hall dispatcher was quick, and asked if I wanted a doctor to come with the ambulance for an extra charge and I said yes. (Otherwise they send ward boys to help evacuate the patient, but they are not trained and equipped like the paramedics in the US.)

Mummy came to four minutes after her attack, just as I put down the phone. She didn't recall losing consciousness, and wondered what the fuss was about. Fifteen minutes later at about 10pm the Ruby Hall ambulance arrived with a resident doctor from the trauma unit and other staff. The doctor asked questions, examined Mummy, and found her functions and vital signs to be near normal. Mummy was then carried down from their second story apartment to the waiting ambulance and we arrived at the Ruby Hall emergency and trauma center.

There, she was further examined by other personnel including the emergency medical officer, then sent for head MRI, X-ray and other tests. They found nothing alarming. By now it was well past midnight, and she was moved to a nice big private room in the in-patient wing. Our attendant Shabana whom I had brought with me had done a good job helping tend to Mummy and stayed the night with her in the hospital.

In the morning the senior neurologist Dr. B. came into Mummy's room, examined her as well as the test reports and told us she hadn't suffered a stroke and there was nothing to worry about. She had merely fainted ("transient loss of consciousness") because her fit of coughing and heaving had temporarily restricted blood flow to her brain, with no other ill effects. If it ever happens again, he advised, she should be made to lie down (this time she had been kept propped in her wheelchair) so that the increased blood flow to her head revives her more rapidly. By 4pm that evening Mummy was back at home. Anita had stayed back at the apartment to take care of it as well as Daddy, and there was relief and celebration when we all got back together.

The outcome was the best we could have hoped for under the circumstances, and we went ahead with our plans to fly to Delhi the following morning. Our overall experience with Ruby Hall was very good. Here are some highlights:

Ruby Hall is certainly more upscale than Inlaks. Security staff at the entrances checks bags (a fallout of the Nov. 26 '08 terror attacks in Mumbai.) The staff to patients ratio is higher and the rooms and corridors are cleaner. In the inpatient wing the attentive female staff at the nurses' station was smartly dressed in two distinct types of sarees. I learned that nurses wore one type, and the other was worn by "coordinators" who were there to help schedule appointments for patients, assign them rooms, look to their comforts, regulate visitors, etc.

There were several residents and interns in the emergency and trauma center when we had arrived around 10pm who looked very young and not too experienced. They did have a "full-fledged" doctor in the emergency medical officer and a head resident, who both also looked thirtyish or less. But when I think back to emergency room visits to US hospitals during off-hours the availability of doctors is far less.

The canteen and food catering service was impressive. Poor Shabana hadn't had time to eat dinner in our rush to the hospital. When we finally settled into the private ward past 1 am, I could order in sandwiches, tea and coffee from the limited menu they offer round the clock. And during regular mealtimes they had an extensive menu and good preparations of vegetarian and non-vegetarian fare that would have done an upscale restaurant proud. The prices were low too - under $2 per entree. I half-joked that we should come here when we want to eat out.

Some folks had warned me that hospitals like Ruby Hall may try to keep patients longer and order more tests than are necessary just to increase their earnings. But I found absolutely no evidence of this. In fact, Mummy was upgraded to a "super-luxury room" at no extra charge because the deluxe room we sought was unavailable.

The senior doctors here (who are mostly "consultants") enjoy a good reputation, including the neurologist Dr. B who was competent, genial, and committed to his patients. He was very accessible and gave me all the extra time I requested to discuss Mummy's condition and prognosis.

In overall prices Ruby Hall is costlier than Inlaks, but still remarkably inexpensive by Western standards. We paid a total of Rs. 15,000 ($310) including $160 for the MRI and X-rays, $60 for a deluxe private room, and $25 for the two ambulance trips (with the doctor on board for the inbound trip). Our total also included $42 for an optional bone mineral density (BMD) test that we went for since Dr. R from Inlaks had recommended it though Inlaks didn't have the equipment and Ruby Hall happened to be offering it.

One shouldn't extrapolate from a single instance and I've heard a couple of stories to the contrary about Ruby Hall. But our own experience there was very good.

A Common Doctor Blind Spot

Patient alert: Many doctors seem to have a blindspot while treating infections. This can subject patients to needless agony or worse. I have personally observed this at least half a dozen times in India and the US, and some cases ended very badly. In all of these the patients were intensively treated with all kinds of strong antibiotics, to no avail. Here they are in chronological order:

1. Over forty years ago my father's uncle suffered a slow and agonizing death from virtual starvation after being hospitalized and then released. He refused to eat anything, and by the time they figured out why, it was too late.
2. My brother Kaku as an infant was afflicted with this infection and suffered for weeks after a hernia operation. It even transferred to my mother who was breast-feeding him. Finally, a very good and experienced doctor diagnosed the problem and it disappeared quickly.
3. Vivek from my college and subsequently my IAS batchmate in HP had a severe illness in the late 70's that landed him in one hospital in India and then another for several weeks. He had high fever, loss of appetite, yellow eyes and other symptoms of hepatitis that had doctors stumped since he did not respond to conventional treatments. Starting from a healthy body weight he lost about forty pounds in that time before doctors in India's famed AIIMS hospital correctly identified the infection. They then quickly (and easily) treated him, bringing him back from the brink.
4. In the late 80's my friend Raj was hospitalised in LA for several days with high fever and other symptoms that defied any treatment. Finally, a doctor of Indian origin happened upon his case, asked him one very relevant question, then ordered a test that confirmed that doctor's suspicions and prescribed medication that rapidly cured Raj.
5. About 10 years ago my young cousin Pavan in the US who was a medical student had a tonsillectomy. A few days later the pain in his throat was so acute despite all the medicines he received that he couldn't eat. Based on her experience (and high intelligence) my mother who has no medical background guessed at the problem and asked Pavan's family to bring it up with his doctor. The doctor after needless delay finally listened and Pavan was treated, but his prolonged suffering caused him to miss his medical board exams that year.
6. Just last month my father-in-law (Daddy) was recovering from two major surgeries at Inlaks hospital in Pune, including complications of pneumonia and hospital acquired infections. His lungs cleared and surgical wounds healed after a strong regimen of antibiotics, but he continued suffer from cough and persistent throat irritation. He couldn't sleep, asked to gargle every 15 - 30 minutes even at night. The Inlaks doctors ordered more antibiotics and tests and thought the irritation was due to residual infection in the breathing passages, as well as the feeding tube that was subsequently inserted because Daddy wouldn't eat or drink. But the problems was as bad or worse for several days after the feeding tube was removed and he was taken back home. Then I had Dr. I examine Daddy at home. Dr. I is very intelligent and sought after though he doesn't have quite the fancy qualifications of the Inlaks doctors. He had Daddy open his mouth wide, depressed his tongue and peered at the back of his throat with a flashlight. That was enough to provide the answer and clearing the condition in two days, though this was after two weeks of avoidable suffering and debilitation.

There is a common thread in all these cases. The doctors did not consider anything beyond bacteria and viruses as the cause of the infections, or simply ascribed the problem to "weakness" or irritation.

But in four of these cases at 1, 2, 5 and 6 above involving my great-uncle, brother Kaku, cousin Pavan and Daddy respectively the culprit was oral fungus, commonly known as thrush. The "good" bacteria in the oral cavity normally keeps this fungus in check, but antibiotics can kill this good bacteria. Then this very painful fungus infects the delicate lining of the oral cavity and typically shows up as white spots (though these may not be visible in the esophagus.) Once diagnosed, thrush is easily and rapidly treated. But if doctors who don't catch on and simply give more antibiotics can make the problem worse instead of better.

In case 3 involving my colleague Vivek, the culprit was amoebiasis where it was the amoeba that had invaded the liver. Again, while antibiotics don't work at all, anti-amoebic medications rapidly clear the condition - provided the doctors make the correct call.

Wanna guess what Raj had come down with in case 4? Well, it was malaria. The American doctors did not have this on their radar as it rarely occurs in the US. But the Indian doctor asked Raj if he had been abroad recently, and when Raj mentioned his recent trip to India, the doctor asked for his blood to be tested for the malarial parasite, and viola!

The takeaway: it seems to be a fairly common doctors' blind spot. If conventional treatment isn't working ask your doctor early on if he / she has considered and ruled out non-bacterial and non-viral infections like those caused by fungi, amoeba and parasites.