Three of my kids graduated from college and entered the service economy (including one as a health professional) this spring; I've got a fourth in law school. So I read Emmanuel's recent post on the Doha negotiations on trade in services with more than a little interest: The Battle Over Mode 4 Migration at the Doha Round (May 12, 2008). He's written a nice little primer with lots of useful links. "Mode 4" refers to temporary migration of service providers to the country where they will provide the service (the migration of Brazilians to work for the summer in restaurants and motels on Cape Cod, for example).
Jagdish Bhagwati and Sadip Madan argue that trade in services can help developed countries reduce or mitigate health care cost increases We Need Free Trade in Health Care (Wall Street Journal, May 27):
Mode 1 refers to "arm's length" services that are typically found online: The provider and the user of services do not have to be in physical proximity. Mode 2 relates to patients going to doctors elsewhere. Mode 3 refers mainly to creating and staffing hospitals in other countries. Mode 4 encompasses doctors and other medical personnel going to where the patients are. All modes promise varying, and substantial, cost savings.
Arm's-length transactions can save a significant fraction of administrative expenditures (estimated by experts at $500 billion annually) by shifting claims processing and customer service offshore. Nearly half of such savings are already in hand. Foreign doctors providing telemedicine offer yet unrealized savings. We estimate that the savings in health-care costs could easily reach $70 billion-$75 billion.
Mode 2, where U.S. patients go to foreign medical facilities, was considered an exotic idea 15 years ago. Now this is a reality known as "medical tourism." Today, many foreign hospitals and physicians are offering world-class services at a fraction of the U.S. prices. Costly procedures with short convalescence periods, which today include heart and joint replacement surgeries, are candidates for such treatment abroad. By our estimates, 30 such procedures, costing about $220 billion in 2005, could have been "exported."
Mode 3, with hospitals established abroad, will primarily offer our doctors and hospitals considerable opportunity to earn abroad. Of course, the establishment of foreign-owned medical facilities in the U.S. is also possible, and could lead to price reductions by offering competition to the U.S. medical industry.
Mode 4 concerns doctors and other medical providers going where the patients are. It offers substantial cost savings, since the earnings of foreign doctors are typically lower than those of comparable suppliers in the U.S.
Lucy Davis and Fredrik Erixon take up trade in health care in some detail in their recent working paper, The Health of Nations: Conceptualizing Approaches to Trade in Health Care (European Centre for International Political Economy - ECIPE - Policy Brief 4, 2008). ECIPE is sponsoring a conference on trade in health care in the EU in June: Trade in Healthcare: Can Trade Remedy the Cost-Disease in European Health Care Systems?
There may be an opportunity to expand Mode 4 trade in medical services in the U.S. in coming years. First, health costs are a salient issue for almost all Americans. The significant amounts people have at stake may (a) clarify the potential benefits of trade for each voter, and (b) privide sufficient incentives to each to help overcome free rider problems. Secondly, the comparison with medical tourism is striking. Why is it fine for people to go overseas to obtain services, but not for the service providers to come here? What is the logical difference? Why should only relatively more affluent people have the right to overseas service providers? Why should foreign countries or regions obtain the multiplier benefits of a medical base industry? That said, its never wise to overlook the political power of the medical profession.
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