(This is the full article by Jagdish Bhagwati and Sandip Madan. A shortened version appeared in The Wall Street Journal on May 27, 2008.)
Healthcare reform has acquired political salience in the
forthcoming Presidential election, with the widespread anxiety over wages
and jobs making the economy a leading issue. Yet, while the Democratic
contenders, Senators Clinton and Obama, claim credit for offering
alternative comprehensive plans, they both leave important gaps regarding
two key questions. The first concerns the availability of doctors to meet
the needs of the newly-insured, a problem that Governor Mitt Romney ran
into when he introduced comprehensive medical coverage in
To address these questions effectively, both the candidates can ill afford to ignore exploiting the potential offered by international transactions in medical services. But to do this, they will need to abandon the Democratic Party’s growing antipathy to an embrace of openness: loving healthcare and hating trade are incompatible positions. The containment of costs, using all existing modes of cross-border service transactions can be expected to save sizeable sums annually. Besides, the problem of finding doctors for the newly-insured can be overcome by taking a leaf from President Lyndon B. Johnson’s ambitious Great Society program importation of doctors and other professionals to serve in the backward regions of the United States that enjoyed little access to available personnel within the US itself.
I: Containing Costs
The full potential of saving medical costs, for any specification of eligible medical relief, can be obtained by looking systematically at the four modes of service transactions distinguished by the WTO’s 1995 General Agreement on Trade in Services. Mode 1 refers to “long distance” or “arm’s length” services that are typically today online: the provider and the user of services do not have to be in physical proximity like with haircuts. The other three modes require proximity, however. 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, though substantial, cost savings.
Mode 1 can help save a significant fraction of the current
administrative expenditures conservatively estimated by experts at $500
billion annually, by shifting claims processing and customer service
offshore: nearly half of such savings are already in hand. If foreign
doctors are further allowed to provide telemedicine, that can reduce the
demand to see primary physicians. Again, diagnostic radiology offers
yet-unrealized savings, through both cheaper prices paid abroad and
through the beneficial price-reducing effects in the
Mode 2, where US patients go to foreign medical facilities, was
considered an exotic idea when one of us (Bhagwati) proposed
fifteen ago in 1993
(Journal of Commerce) that American patients could go to India and
fix their dental afflictions and see the Taj Mahal for much less than what
the dentist would cost in the United States: now this is a reality, known
as “medical tourism”. Today, many foreign hospitals and physicians are
offering world class services at prices that are a fraction of the
Mode 3, with hospitals established abroad, would seem to offer our doctors and hospitals considerable opportunity to earn abroad: a “gain” that could balance off the “loss” under Modes 1 and 2. But here also, the reverse establishment of medical facilities in the US is possible and 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. Admittedly, however, the cost savings from such competition are unlikely to be very large.
Mode 4, where the provider goes to the user of services, concerns
doctors and other medical personnel going where the patients are, however
offers substantial cost savings since the earnings of foreign medical
personnel are typically lower than those of comparable suppliers in the
II: Importing Doctors
But Mode 4 is far more important in meeting supply needs rather
than in providing lower costs if healthcare reform is to be viable.
According to the Census, the
Governor Romney ran into this problem: few doctors wanted (or were
able, given widespread shortages in many specialties) to treat many of the
indigent patients qualifying under the program. The Wall Street
This is precisely what the Great Society program did in the 1960s, with imports of doctors whose visas tied them, for specific periods, into serving the remote rural areas. In particular, waivers were granted from J-1 obligation to return home to physicians practicing for a specified period in an “underserved” area. Faced with the choice of having to expand doctor-producing US facilities (which would augment the supply permanently), the American Medical Association preferred the alternative of creating a segmented market and a policy of imports that could be terminated by lobbying when necessary.
The Great Society program carried enough moral weight for the politicians then to overcome entry-restricting lobbying demands. With the political attention being lavished on healthcare reform today, would it be too much to expect that our reform-minded politicians do the same?
Jagdish Bhagwati is
University Professor, Economics, Law and Political Science, at
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