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Measuring trade liberalization
against public health objectives:
the case of health services
HEALTH
ECONOMICS
TECHNICAL BRIEFING NOTE
Measuring trade liberalization
against public health objectives:
the case of health services
Orvill ADAMS and Colette KINNON
WHO Task Force on Health Economics
WHO TASK FORCE ON
HEALTH ECONOMICS
December 1997
Documents of the WHO Task Force on Health Economics
A bibliography of WHO literature
WHO/1 FHE/93.1 e-mail access:
hecon 1 @who.ch (English)
hecon lf@who.ch (French)
A guide to selected WHO literature
WHO/TFHE/94.1 e-mail access:
hecon2@who.ch (English)
hecon2f@who.ch (French)
Une demarche participative de reduction des couts hospitaliers. Hospices cantonaux vaudois (Suisse)
WHO/TFHE/95.1 e-mail access:
hecon3@who.ch (French)
hecon3e@who.ch (English)
Environment, health and sustainable development: the role of economic instruments and policies
WHO/TFHE/95.2 e-mail access:
hecon4@who.ch (English)
hecon4f@who.ch (French)
Identification of needs in health economics in developing countries
WHO/TFHE/95.3 e-mail access:
hecon5@who.ch (English)
hecon5f@who.ch (French)
Health economics: a WHO perspective
WHO/1 bH£/95.4 e-mail access:
hecon6@who.ch (English)
WTO: what's in it for WHO?
WHO/1 FHE/95.5 e-mail access:
hecon8@who.ch (English)
hecon8f@who.ch (French)
hecon8s@who.ch (Spanish)
Cost analysis and cost containment in tuberculosis control programmes:
the case of Malawi
WHO/TFHE/96.1 e-mail access:
hecon9@who.ch (English)
Drugs and health sector reform
WHO/TFHE/96.2 e-mail access:
hecon 10@who.ch (English)
A guide to selected WHO literature. Supplement: January 1994 - May 1996
WHO/1 FHE/96.3 e-mail access:
hecon 12@who.ch (English)
The Uruguay Round and drugs
WHO/TFHE/97.1
Technical briefing notes:
Privatization in health
WHO/TFHE/TBN/95.1 e-mail access: hecon7@who.ch (English)
Poverty and health: an overview of the basic linkages and public policy measures
WHO/1FHE/TBN/96.1 e-mail access: hecon 1 l@who.ch (English)
© World Health Organization, 1997
This document is not a formal publication of the World Health Organization (WHO), and all rights are reserved
by the Organization. The document may, however, be freely reviewed, abstracted, reproduced and translated,
in part or in whole, but not for sale or for use in conjunction with commercial purposes.
The views expressed in documents by named authors are solely the responsibility of those authors.
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CONTENTS
Foreword .................................................................................................................. v
Preface: Health services in a changing technological and
economic environment .......................................................................... vii
Summary................................................................................................................ ix
1.
Liberalizing trade in services ........................................................................ 1
2.
Cross-border trade.......................................................................................... 3
3.
Movement of consumers................................................................................. 7
3.1
Movement of patients ................................................................... 7
3.2
Movement of students................................................................. 10
4.
Foreign commercial presence...................................................................... 13
5.
Movement of persons supplying services.................................................. 17
6.
Trade-offs for developing countries.......................................................... 21
Bibliography ......................................................................................................... 23
iii
ACKNOWLEDGEMENTS
The authors wish to thank Guy Carrin,Task Force on Health Economics, Douglas Bettcher,
Policy Action Coordination Team, Joe Kutzin, Division of Analysis, Research and
Assessment, and Pacal Zum of the University of Lausanne for their valuable comments
and contributions.
FOREWORD
Building upon activities already undertaken in the area of health economics, the DirectorGeneral created the Task Force on Health Economics in November 1993 in order to enhance
WHO's support to Member States'. Its goal is to further the application of health economics
in the formulation and implementation of health policies, giving priority to countries in
greatest need.
The Task Force aims not only to strengthen the technical content of WHO programmes so that
they can better adapt the tools of health economics to country needs, but also to foster
cooperation among development agencies in applying health economics at country level.
A series of documents in English and French is now available (listed on page ii) to help meet
the information needs of both those involved in the organization, planning and financing of
the health sector and health professionals whose expertise may lie in other areas.
The Task Force recently launched a new series of Technical briefing notes which tackle
subjects of concern to health policy decision-makers, particularly in developing countries.
They are intended to provide readers who are not necessarily familiar with the health
economics aspects of a subject with information designed for nonspecialists.
The subject of trade in health services was first discussed at a meeting between the DirectorGeneral of WHO and the Group of 77 and China (Geneva, 17 December 1996), which was
followed by the joint UNCTAD/WHO Expert Meeting on International Trade in Health
Services (Geneva, 16 to 18 June 1997). The present paper was originally drafted as WHO's
technical response to the UNCTAD Secretariat's Background Note for the Meeting,
"International trade in health services: difficulties and opportunities for developing
countries"123, which in turn drew from a report of the Pan American Health Organization on
trade in health services in Latin America and the Caribbean issued a few years earlier? The
WHO paper complemented UNCTAD's commercial standpoint with a qualitative health
dimension. A compilation of papers presented at the Expert Meeting and other material will
be published jointly by WHO and UNCTAD in the first half of 1998.
WHO's technical response has been reworked in the form of this Briefing Note in order to
provide a concise and up-to-date overview of an area of growing interest for health and trade
authorities alike.
1 Members of the Task Force are : F. S. Antezana (Chairman), M. Jancloes (Vice-Chairman), G. Carrin
(Secretary), O. B. R. Adams, A. Alban, A.L. Creese, D.B. Evans, K. Janovsky, J.M. Kasonde, C. Kinnon,
E.Lambo, C.L. Lissner, P. Lowry, M. Miller, J.H. Perrot, B. Sabri, Than Sein, G. Velasquez, C. Vieira,
A.E. Wasunna, H. Zbllner.
2 Unpublished document TD/B/COM.l/EM.'/i.
3 D. Diaz, M. Hurtado, International trade in health services: main issues and opportunities for the countries of
Latin America and the Caribbean. Washington, Pan American Health Organization, 1994 (Technical Reports
Series No. 33).
V
PREFACE
Health services in a changing technological and economic
ENVIRONMENT
We at WHO appreciate it that UNCTAD chose to highlight the subject of trade in health
services through an Experts' Meeting.4 It reflects a recognition of the commercial potential
of the sector and has provided us with the opportunity of working in a new area in order to put
forward the public health viewpoint.
In fact, we have been able to add to the store of knowledge and experience we are gradually
building up in relation to trade and the health sector as a result of the entry into force of the
World Trade Organization agreements. The agreements on the application of sanitary and
phytosanitary measures and on technical barriers to trade have spotlighted our work of setting
international quality and safety standards in such areas as pharmaceuticals, biological
substances, food products, or toxic chemicals. We have also been examining the implications
of the intellectual property rights agreement on continuing access to low-price, effective
medicines. This is now being complemented by the understanding we have gained of the
potential effects for the health sector of international trade in services as promoted by the
agreement on trade in service.
All this is an indication of the extent to which the health sector - and I am thinking especially
of that in developing countries - has had to adapt to a wholly new set of parameters. This new
context derives from, first, the steady advance towards free markets throughout the world, and
second, increasing globalization of the economy. Health authorities have had to take on board
the concept of cost-effectiveness of interventions, and the need to make hard choices as to
priorities in the face of shrinking resources. They have had to accommodate to the private
supply of services that had previously been considered a public responsibility par excellence;
they might now have to face the challenge of handling foreign private investment. They' have
had to absorb a remarkable array of new high technology - will it prove a boon or a bane for
a developing country? And now they' have to face the reality' that health services are a tradable
commodity'; that the health sector can be an entrepreneur, bringing in revenue not only from
health interventions but also in nonmedical domains, such as health tourism.
The growing exchange of health-related goods and services between countries is a reality we
acknowledge. However, the benefits derived from trade should be channelled, first and
foremost, to improving the health and living conditions of the population. In this, we are
convinced that international trade and public health action can be mutually supportive. Our
4 Joint UNCTAD/WHO Expert Meeting on International Trade in Health Services, Geneva, 16 to 18 June
1997.
vii
concern is to guard against the risk of financial interests taking precedence over people's
health. As trade develops, we want to be sure that agreements and policies provide for the
protection of people's health, and the safety and quality of traded goods and services. But,
most of all, we want these commercial activities to contribute to greater equity in access to
health services, so that the needs of the poor and the marginalized are not overlooked in the
process.
The innovative ideas discussed at the Experts' Meeting are helping to shape the guidance we
provide to health authorities, so that they can take advantage of new opportunities offered by
trade, while guarding against any erosion of the efforts to achieve equal access of everyone
to quality health care. The interaction between health and trade should be a two-way process
from which both sides can benefit. But the real winners will be people - for whom that
process holds out the prospect of both healthier and wealthier lives.
Dr F. S< Antezaaa^ Deputy Director-General a.i.
Chairman, WHO Task Force on Health Economics
viii
SUMMARY
This Briefing Note is intended to complement a commercial viewpoint of trade in health
services with a qualitative public health dimension. It analyses systematically the four modes
of trade identified in the General Agreement of Trade in Services from the standpoint of
health systems in developing countries. In order to make a preliminary appraisal of the
potential impact of this trade, three health policy objectives are taken as a yardstick: equity
of access, quality of services and efficient use of resources.
Cross-border trade, which involves in particular telemedicine, together with certain support
services, is not yet widespread in developing countries. Although it could help in the
provision of services in remote areas, it requires substantial investment in equipment,
communications infrastructure, and training of personnel.
Movement of consumers involves both patients seeking treatment abroad and students
receiving foreign training. Flows are usually from developing to industrialized countries, but
movement in the opposite direction is also occurring as developed country patients seek good
quality treatment at lower prices abroad. Health authorities would need to ensure that any
upgrading of services for foreign patients extends equally to domestic patients, and that these
are not excluded from the services offered to foreigners.
Foreign education can help to upgrade the skills of personnel, provided that students return
home, and the training they receive matches needs in the home country. Much attention has
been given to designing incentives to encourage trainees to return, and to finding other
solutions, such as setting up regional training facilities.
Foreign commercial presence in the health sector so far is limited in developing countries,
and its penetration will depend on the size and value of the target market. It will be a sensitive
area for health authorities to handle as it involves both foreign direct investment and private
sector supply of services. Such investment may not mesh with national health policy
objectives, or may aggravate a trend to a two-tier system, with a different quality' of sendee
for the wealthy and for the needy. Competition among providers may also induce health
facilities increasingly to invest in expensive high-technology equipment.
The movement of personnel to provide health sendees abroad has been a longstanding
problem for developing countries. Their trained staff is often attracted by better working
conditions and higher remuneration elsewhere. This can produce shortages of staff in the
home country which might have to be compensated by an inflow of foreign health personnel.
The home country has to support the cost of training without receiving the benefits, although
this expenditure may be offset to some extent by the remittances sent home by workers
abroad.
Health authorities will need in particular to strengthen their regulatory' framework in order to
ensure that national health systems derive maximum benefit from trade in health sendees in
terms of equity, quality' and efficiency, while reducing potential social cost to a minimum.
HEALTH ECONOMICS
1. LIBERALIZING TRADE IN SER VICES
Trade in services is a rapidly growing activity that accounts for a growing share of national
product in both developing and industrialized countries. In order to regulate this trade
according to the same principles underlying all agreements under the umbrella of the World
Trade Organization (WTO) - notably, most-favoured nation treatment and nondiscrimination
between sources of supply - multilateral negotiations to liberalize trade in services were
introduced into the recent Uruguay Round. The outcome was the General Agreement on Trade
in Services (GATS).
For developing countries, initially reluctant for services to be included in negotiations, the
main objective was to ensure that priority' was given to development, and that national laws
and regulations would remain supreme.5 In effect, under the Agreement, countries select the
service sector or sectors which they agree to open to foreign suppliers; these schedules of
"commitments" are an intrinsic part of the Agreement. Countries are also entitled to place
limitations on these commitments, provided that they are clearly indicated. Although effects
of the Agreement on each sector will depend on the specific commitments made, provision of
a clearer regulatory framework should ease the barriers that limit services trade.
"Services" are difficult to define unambiguously. They tend to be described as being distinct
from physical commodities, being "intangible, nontransferable economic goods". 6 For trade
purposes, GATS defines services in terms of four ways in which they can be supplied:
• cross a border
• through consumption abroad
♦ through commercial presence
• through people who are service suppliers.
Applied to the health sector, examples of these four modes are, in the first case, all forms of
telemedicine; in the second, patients travelling abroad for treatment; in the third,
establishment in a country of foreign health providers, and lastly, health professionals working
outside their home country.
Comparatively few countries have made commitments in the health sector under GATS. In
all, some 27% of WTO Members (industrial and developing countries in equal numbers)
agreed to open up hospital services to foreign enterprises, and 35% (also roughly even among
the two groups) did so for medical and dental services. Some 19%, mostly industrial
countries, scheduled the services of health personnel other than physicians.7
5 UNCTAD, The outcome ofthe Uruguay Round: an initial assessment. New York, United Nations, 1994.
6 G. Bannock, R.E. Baxter, E. Davis, Dictionary ofeconomics. London. Hutchinson Business Books, 1988.
7 C. Kinnon, WTO: what’s in it for WHO?. Geneva, WHO Task Force on Health Economics, 1995.
Unpublished document WHO/TFHE/95.5.
Measuring trade liberalization against public health objectives ...
1
HEALTH ECONOMICS
It would be premature to try to assess the impact of the Agreement specifically on trade in
health services, especially as it is difficult even to quantify the volume of such trade for lack
of consistent, disaggregated data. However, there is growing awareness of its potential for
both industrial and developing countries. In a generalized context of rising health care costs
coupled with a growing trend to reduce public spending in the social sectors, the advantages
of exporting health sector skills and technology, or of attracting higher-spending foreign
customers to health facilities become apparent. Additional financial resources, notably from
foreign exchange earnings, can be channelled to improving national health services, and the
upgrading of both infrastructure to meet a foreign demand and of human resources from
contact with new technology should equally benefit the local population.
The competitive position of a health sendee will depend on various factors: the cost structure,
the quality of health facilities and infrastructure, availability of skilled human resources,
together with natural endowments, cultural affinities or geographical proximity. Developing
countries can make the most of such comparative advantages as lower labour costs, a large
skilled work force, or exclusive therapies. Different actors in a number of developing
countries - governments, public and private sectors jointly, private sector associations or
individual enterprises - are currently utilizing these advantages to benefit from trade.8
Yet the question remains: how can objectives of profitability and resource generation be
reconciled with those of the improvement of the population's health status - the goal of every
health system?
WHO has identified three interim policy' objectives to further that goal: equitable access to
care, quality of care, and efficient use of resources. Equitable access can be generalized as
"equal utilization of health services for the same need" combined with "vertical equity", that
is, users contributing according to their economic capacity. Quality refers to the standard of
the health care system. Efficiency is related to the allocation of resources. Resources are used
efficiently if a given output is produced at minimum cost, or maximum output is produced at
a given cost.
In an attempt to assess whether the objectives of health and of trade could be compatible, the
following sections look at trade in health services under the four modes identified in GATS
(which in practice overlap to some extent) in order to measure its impact against the yardstick
of the three health policy objectives. In doing do, it pinpoints potential positive or adverse
effects on the health sector of such trade, particularly in developing countries.
8
See UNCTAD, International trade in health services: difficulties and opportunities for developing countries.
Geneva, United Nations, 1997. Unpublished document TD/B/COM.l/EM.1/2.
2
WHO TASK FORCE ON HEALTH ECONOMICS
HEALTH ECONOMICS
2.
CROSS-BORDER TRADE
The rapid growth of information technology and telecommunications has greatly expanded
the potential for providing health services across borders, even if they might at times need to
be combined with such conventional means as postal services.
Such trade takes place chiefly in the form of telemedicine, defined as the practice of medical
care using interactive audio, visual and data communications. This includes care delivery,
diagnosis and treatment, and medical education9. To a certain extent, it is a substitute for
direct contact between health care provider and patient, or consultation among providers. It
enables, for example, patients to consult senior physicians, medical students to follow the
most up-to-date courses without the cost of travel, or local clinics to send radiological images
by satellite for rapid interpretation by specialist centres.
For nonclinical purposes, computer-based information and communication systems provide
access throughout the world to specialized data for such uses as management of health
services at community, regional or national levels; laboratory testing, diagnosis and
treatment; or surveillance of disease patterns and trends.
Developing countries find market niches
For obvious reasons, cross-border trade in health services flows chiefly from North to South. For
example, commercial telemedicine services exist between several Arab Gulf countries and the
United States. In developing countries, with fewer high-technology telecommunication facilities
and specialized health professionals able to undertake such services as telediagnosis, supply is
limited. None the less, several are starting to exploit their comparative advantages in this area. For
instance, in some of China's coastal provinces, telediagnosis services are provided to patients in
Taiwan, Macao and other countries of south-east Asia.10 Similarly, several central American
countries send medical samples for diagnosis to Mexico's public health hospitals.11 Further
opportunities are opening in nonclinical sendees. For example, some companies transmit
insurance claims and bills for processing in India, where labour costs are lower.12
9
Health informatics and telemedicine. Report by the Director-General. Geneva, World Health Organization,
1997. Unpublished document EB99/30.
10 Xing Houyuan, The trends of China's medical service exports. Geneva, UNCTADZUNDP, 1997 Restricted
document UNCTAD/MTN/RAS/CB23/Rev. 1.
11 D. Diaz D, M. Hurtado, International trade in health services: main issues and opportunities for the countries
of Latin America and the Caribbean. Washington, Pan American Health Organization, 1994 (Technical
Reports Series No. 33).
12
UNCTAD, International trade in health services.
Measuring trade liberalization against public health objectives „
3
HEALTH ECONOMICS
Although telemedicine and information technology evidently advance fastest in rich countries,
it is the poorest countries that need them most in order to bridge the gaps that cannot be filled
by conventional means. Considerable technical support is being provided to them through
international cooperation involving both noncommercial bodies and some major
corporations.1314
POTENTIAL IMPACT ON THE NA TIONAL HEALTH SECTOR
■ Equity
It is difficult to judge whether increased use of telemedicine in developing countries would
lead to more equitable access to health services, mainly because there are several options for
financing the cost of such technology’. First, imagine that during a number of years those costs
are supported by donors only. District hospitals could take advantage of the services offered,
and access of local populations to higher quality care would improve. In this case, there would
be a movement towards equity. Second, were the costs covered by the public sector, the
assessment would depend on the nature of public finance. Often dominated by indirect
taxation, it might not not be considered equitable from the standpoint of vertical equity.1''
Third, should user fees or health insurance be involved in the financing of telemedicine,
judgments about equity would depend on whether there are fee schemes or health insurance
schedules that take account of people's relative incomes. Moreover, a combination of
financing options could be used, which would make equity judgments even more difficult.
A further consideration concerns the mobility of health professionals. If work in telemedicine
attracted skilled health workers away from other services, because of, for instance,
opportunities to upgrade skills, higher wages or career prospects, the availability of human
resources in the health system might become skewed towards telemedicine patients, thus
reducing equity overall.
Nevertheless, there would be a significant equity gain if telemedicine realizes its potential to
provide remote and underserved populations with otherwise inaccessible services. In general,
clear government policy on the place of telemedicine in the health care system is needed to
ensure that this new technology serves to improve equity.
13 See Health informatics and telemedicine. Geneva, World Health Organization, 1997. Unpublished
document EB99/INF.DOC./9.
14
4
See section 1, penultimate paragraph, for definition.
WHO TASK FORCE ON HEALTH ECONOMICS
HEALTH ECONOMICS
■ Quality
Use of telemedicine can clearly improve the quality of the health system. It offers new
possibilities both to enhance the timeliness and efficacy of health interventions and to
improve the training of health providers. For example, a general practitioner could seek
advice or expert opinion anywhere in the world; or a health worker could obtain from a distant
location guidance of a physician in attending a patient. Use of teleimaging can provide rapid
and reliable diagnoses that local facilities might not have the skills or equipment to supply.
None the less, appropriate mechanisms would be needed to maintain standards of care and
of training associated with use of this technology.
■ Efficiency
The effect of telemedicine on the efficiency of health services needs to be carefully assessed
in developing countries in view of the costs involved. These include not only communications
infrastructure, equipment and operation, but also the training of skilled personnel to run a
communications system.
Here again, the source of funding is an essential element in assessing potential efficiency
gains, and both the public and private sectors are likely to be involved. In view of the
considerable capital investment required, solely private funding is rare in this market; firms
often receive government subsidies in the form of tax exemptions. (The volume of
investment might also provide an argument for maintaining this technology once in place.)
Yet use of public funds to pay for telemedicine raises the question of cost effectiveness.
Investments in less sophisticated types of care or inputs may be more efficient in terms of
reduced morbidity or mortality (or a larger number of quality-adjusted, or disability-adjusted,
life years), and therefore more cost effective.
Other questions that need to be considered are which services will not be provided if scarce
resources are reallocated to resource-absorbing technologies such as telemedicine, and the cost
of development and management of the appropriate legislation and regulations.
Nevertheless, with regard to training, the development of communications for education could
eventually result in fewer trainees or health professionals going abroad to study. Moreover,
the training possibilities offered by telemedicine are likely to be less expensive for the
government than subsidized study overseas. So is therefore a potential for saving resources
in the long term, although it is doubtful whether there would be much effect on the loss of
qualified professionals through migration (see also section 5).
Measuring trade liberalization against public health objectives ...
5
HEALTH ECONOMICS
3. MOVEMENT OF CONSUMERS
Movement of health services consumers include both patients seeking treatment abroad and
students studying abroad. The two groups are discussed separately in the section below.
3.1 MOVEMENT OF PATIENTS
Patients might seek health care abroad for various reasons. Wealthy patients in particular
might wish to take advantage of advanced, specialized treatments unavailable in the home
country or perceived as better quality, or to avoid long waiting lists in the home country.
Industrial countries receive most of these patients, foremost the United States.
Others might go to certain developing countries to benefit from lower-price treatment of equal
quality; including medical and dental outpatient care or paramedical services; or to convalesce
or benefit from such natural endowments as hot springs or spas.15 The trend is enhanced by
rising consumerism that is driving demand for such services as "exotic" or exclusive therapies
or for more affordable sources of services not covered by health insurance, such as cosmetic
surgery.16 Other attractions might be easier access to personal care, or more human relations
with health professionals.
Patients might also travel between developing countries because the home country cannot
provide basic primary or hospital care, or those services are of much lower quality. Others
might be refugees or migrants who demand health services in the host country. In order to
qualify as trade, however, it is assumed that such "intra-South" movement involves the
capacity to pay for services.17
Developing countries might seek to attract foreign patients in order to increase foreign
exchange earnings, provide employment for health personnel, and benefit from economies
of scope that would help to upgrade their health services as whole. Although few give priority
to the development of a specialized subsector, some have invested in improving facilities for
the purposes of receiving foreign patients, often from other countries in the region. They are
in a position to offer good-quality services at lower costs, well-qualified staff, or exclusive
forms of alternative medicine that appeal to customers in industrial countries. In view of
15 UNCTAD, International trade in health services.
16 G. Wolvaardt, Strengthening the capacity and expanding exports of developing countries in the service
sector: health services. Unpublished document, 1997.
17 This may be the case even of refugees. In south-east Guinea, for example, refugees did have capacity to pay
and were “inserted” into the local health systems.
Measuring trade liberalization against public health objectives —
7
HEALTH ECONOMICS
rising health care costs, to which services consumed by a growing number of older people will
increasingly contribute, these advantages lead one expert to suggest that if retired people's
health insurance were portable, more might choose to live in certain developing countries.
Both sides would benefit: the sending country from better contained cost of health services
and the host country from increased revenues.1819
Foreign patients as a source of revenue
A recent study suggests that India has considerable potential for consumption of health services by
foreign patients. With the easing of foreign exchange restrictions in many neighbouring countries
for medical treatment overseas and with few obstacles to impede patients travelling from industrial
countries, India sees itself in an advantageous position. It can offer both "superspecialties’’ such as
cardiovascular surgery, and certain exclusive alternative therapies, highly qualified medical
personnel, and a well-developed pharmaceutical sector. Its chief advantage lies in competitive
prices, which are estimated at around one-fifth to one-tenth those of industrial countries for the same
intervention. Although some improvement might be needed in postoperative treatment, good
marketing should "dispel any misgivings about the quality of services".”
Similarly, Cuba has been developing a supply of services designed specifically for foreign patients.
They are marketed through Servimed, an agency set up ten years ago to generate foreign exchange
from the sale of health tourism packages and to establish joint ventures. The agency has associated
itself with tourist agencies and tour operators abroad in order to promote the sales of various
packages of medical treatment and stays in resorts and spas. Specialities include cardiovascular and
ophthalmological surgery, treatment of pigmentary retinopathy and vitiligo, orthopaedics, substance
abuse rehabilitation, "anti-stress" therapy, and cosmetic surgery. Advantages lie in competitive
prices due to low labour costs, highly qualified health professionals, and certain exclusive
treatments, which draw patients essentially from Latin and North America.20
18 D. Warner, Some developments in trade in health services. Texas, 1997. Unpublished paper.
19 HA.C Prassad, Healthcare exports under consumption abroad mode: opportunities, obstacles and challenges
for developing countries in general and India in particular. New Delhi, Indian Institute of Foreign Trade, 1997.
Unpublished document.
20
8
D. Diaz, M. Hurtado, op. cit.
WHO TASK FORCE ON HEALTH ECONOMICS
HEALTH ECONOMICS
POTENTIAL IMPACTON THE NA TIONAL HEALTH SECTOR
■ Equity
The overriding concern related to equity is that the delivery of health services to paying
foreign patients should not have adverse effects on the health coverage of nationals or their
access to services. In this regard, it is important to consider the source of funds, that is, who
really pays for the services. Use of public funds to subsidize care providers - and even
privately funded services often have some elements of public subsidies - may reduce the
access of the domestic population to health services. The supply of services in the domestic
market could also be affected in cases where public sector providers (physicians, nurses, and
other health professionals) attend foreign patients. Especially when the capacity of a health
care system is limited, foreign patients might compete with domestic ones for services.
■ Quality
Countries must be able to provide quality services if they' wish to attract foreign patients; this
usually involves the upgrading of human and physical resources. Naturally, any improvement
in services stemming from a policy of treating foreign patients should benefit as much as
possible the local population. If separate facilities or health personnel provide care for foreign
patients, quality gains may not spread throughout the system. On the other hand, if these
providers also attend to the general population (for example, through a contractual
arrangement between the government and the provider to supply services to the local
population), more generalized quality gains can be expected.
■ Efficiency
Developing countries may be either proriders of health care or a source of patients. In the first
case, if they use public funds for upgrading of health services to attract foreign patients, and
if such upgrading is based on the acquisition of expensive high technology', there would be a
social cost: fewer resources would be available to improve quality and equitable access in the
rest of the health care system. On the other hand, revenues generated from provision of care
to foreign patients could be allocated in part for upgrading quality or improvement of access
in general, for example, through cross-subsidization. Agreements on portability of insurance
coverage for treatment abroad will be essential for further development of this kind of
activity.
In the second case, a number of governments subsidize the care of their nationals abroad if a
specific treatments is not available in the home country, but the public health sector has to face
difficult policy options. Will these services be provided as a public benefit, and if so, to which
Measuring trade liberalization against public health objectives
9
HEALTH ECONOMICS
range of services will the benefit apply? Concerns have been expressed that where the
benefits exist, they are not always used efficiently (or equitably). For example, patients may
receive services abroad that could have been provided domestically. Where it is cost-effective
for developing countries to use public funds to treat selected patients abroad, it is essential
that related mechanisms should be well managed.
3.2
MOVEMENT OF STUDENTS
The movement of students for undergraduate and for postgraduate education in the health
professions takes place between countries at all levels of development: from developing to
industrial countries, between industrial countries, and also between developing countries.21
Trainees may study abroad for various reasons: educational institutions or specific
programmes may not be available in the home country, or all available training places may be
filled. The choice of country for study may also depend on the fellowship or scholarship
awarded. Another incentive may be the international reputation of the receiving medical,
public health, or nursing schools and the potential for a good educational experience, which
should contribute to better employment possibilities. In some cases the cost of studying
abroad might be lower, although many developing countries now require foreign students to
pay higher fees than nationals in order to capture some of the education subsidies that benefit
national students. The costs of travel and accommodation also have to be taken into account.
On the other hand, foreign diplomas or certificates may not be recognized in the student's
home country. Further study - sometimes in the form of internships - and assessment is often
required before a licence to practice is given.
Developing countries have long been worried by the loss of their trainees who remain abroad
after completion of study. Their concern was reiterated at a recent meeting of Portuguese
speaking African countries; efforts to retain qualified human resources was one of the chief
priorities in their health sector.22 The situation has also started to preoccupy countries that
supply educational services: they apprehend the saturation of their markets by foreign
graduates who do not return home, or the loss of training possibilities to foreign students
paying higher fees than nationals.
21 See A. Mejia, H. Pizurki, E. Royston, Physician and nurse migration: analysis and policy implications
Geneva, World Health Organization, 1979.
22
Final report of the International Consultation on Human Resources for Health for Lusophone African
Countries, Lisbon, May 1996. Geneva, World Health Organization. 1997. (Unpublished document
HDP/97.2).
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It appears, however, that the number of developing country nationals studying abroad are
gradually falling as a result of initiatives by both countries that consume and those that supply
medical education. Some consuming countries are establishing their own training institutions
or are using facilities within the same region where appropriate and feasible.23 For example,
WHO's Regional Office for Africa explicitly encourages WHO fellowships to be used in the
African Region. The increasing use of telecommunications in medical education (see section
2) may also reduce the need for study abroad, although certain new health disciplines will still
require training in the developed countries. Some supplying countries, such as Canada and
the United States, are drawing up more comprehensive plans for health human resources that
include measures to regulate the number of foreign students who can be licenced to practice
in the health care system.
POTENTIAL IMPA CT ON THE NA TIONAL HEALTH SECTOR
■ Equity
Access to health services in developing countries will be affected if overseas students do not
return home, since fellowships are usually awarded for study in disciplines in short supply in
the home country. Moreover, a mismatch may exist between the training received by the
student and the needs of the home country. Where this occurs, returning trainees may be
reluctant to go to needy areas in the country and/or they may not be adequately trained to
perform their duties. The returning provider may also go to the private sector (even though the
need is in the public sector) or may seek positions abroad. In either case, both equity' and
quality are affected.
■ Quality
The return of qualified health personnel clearly improves the quality of health services,
provided that they have received training appropriate to conditions in the home country'.
Training within the same region would help in that regard. However, one of the barriers to a
greater use of training facilities within developing countries is the lack of recognition of their
qualifications Degrees and diplomas from developed countries are often valued more highly.
The design of agreements for mutual recognition of qualifications within and between regions
would help in this respect. On a more global level, countries that supply and those that
consume medical education need to agree on the content of curricula to ensure that it is
relevant to conditions in the students' countries of origin.
23
D. Diaz, M. Hurtado, op. cit.
Measuring trade liberalization against public health objectives —
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■ Efficiency
Developing countries allocate significant public funds to training abroad; returns to
investment are therefore a major consideration. The issue of who pays for training may be
complicated by mixed sources of funding: undergraduate training is mainly subsidized by
public funds, postgraduate training might be acquired abroad privately. A trainee who
remains abroad means loss at least of the cost of undergraduate training. For this reason a
number of countries offer, on a domestic or regional basis, incentives to repatriate. Further,
resource allocation is likely to be inefficient if training abroad does not address health
problems of priority in the students' countries of origin.
Nevertheless, where the foreign educational programme is well managed and oriented to
sending countries' needs, it might be more efficient for a developing country to continue to
support students abroad than to set up its own educational institutions. In this case regional
cooperation may offer a an alternative through the establishment of joint training institutions
tailored to the health needs of a given region.
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4. FOREIGN COMMERCIAL PRESENCE
The extent to which governments might wish to open their health sector to foreign service
suppliers is a policy choice which is likely to depend on their prior experience of national
private provision of health services or - and perhaps more important - of managing contracts
for those services.
In fact, restrictions to foreign commercial presence in the health sector remain in most
countries. Others have only recently started to open up their health sector to foreign
investment, expecting that this will help to improve services, contain costs, and take pressure
of the public sector.2425Investment so far is usually in hospital operation or management or in
health insurance. There is no evidence that foreign health service providers are seeking
especially to invest in developing countries, where only a small percentage of the population
can afford private treatment.
A common pattern of investment is for a foreign provider to enter into a joint venture with
local partners, which helps to ensure access to qualified local health personnel, a supply of
paying patients and a better understanding of local characteristics. Or foreign firms might
offer "managed care" services, which integrates the financing and delivery of medical care
through contracts with physicians and hospitals and links with insurance companies.-5
China's health investments abroad
Investment by health service providers may not necessarily flow from North to South. Since China
launched its "open-door" policy some twenty years ago, a number of domestic enterprises invested
abroad, including either wholly Chinese-owned clinics or small joint-venture hospitals with local
partners. By 1995, more than 100 of these small facilities were registered in some 20 countries,
of which one fifth are in the public sector and the rest, privately run. In joint ventures, mainly small
clinics practising traditional Chinese medicine, the Chinese partner usually provides technology,
services and labour, and the local partner, buildings and equipment. They are located in countries
of Asia, the Middle East, the former Soviet Union, and Eastern Europe.26
24 UNCTAD, International trade in health services.
25 Ibid.
26 Xing Houyuan, The trends of China's medical service exports.
Measuring trade liberalization against public health objectives —
13
HEALTH ECONOMICS
POTENTIAL IMPACTON THE NA TIONAL HEALTH SECTOR
■ Equity
A foreign commercial presence in the health sector, in the form of hospitals or health
insurance schemes might improve delivery of health services, but gains in most developing
countries are likely to accrue to the more affluent segments of the population. The poor would
only benefit from better access to health care if resources were reallocated within the public
sector as a result of a greater use of the private sector by those who could afford to pay. The
presence of foreign commercial firms might also distort the health care market by provoking
an internal brain drain. For countries facing real shortages of skilled health professionals, an
exodus of providers from the public to the private sectors would leave fewer skilled physicians
and nurses working in the public sector to serve the majority of the population. The health
system would risk becoming increasingly two tier, with different subsystems serving different
population groups.
Increased foreign presence in health facility management does not have any obvious
implications for equity in access to health services.
■ Quality
A new or increased foreign commercial presence in hospitals and health management may
improve quality through the introduction of better management techniques and information
systems. Better quality may be perceived, however, as a greater concentration of sophisticated
medical technology, to the detriment of a more realistic and comprehensive approach to
quality in health care. In this case, governments may face pressure to allocate resources to
high technology services rather than to meet their broader societal priorities. Further, the
arrival of foreign hospitals and insurances might cause a substitution effect, with private
services gradually replacing certain publicly provided services. This would attract resources
from the public services, making it difficult for them to maintain whatever quality they have.
In short, foreign competition in the health sector does not necessarily lead to an improvement
in quality. Evidence suggests that for this to happen, the health sector must be well structured
and regulated.
Foreign commercial presence in medical education may have positive externalities for national
educational institutions if there is a sharing of teaching methods, curricula and other materials.
However, if the public sector loses qualified teachers to the private sector, the quality of its
education will suffer.
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■ Efficiency
The impact of new or increased foreign commercial presence on the efficient use of a
country's health sector resources may vary. The presence of foreign firms, through their
investment in health care (e.g. hospitals, health insurance companies, educational
institutions), is likely to increase the overall level of funding in the sector. Under certain
conditions, this inflow of financial resources might reduce the financial pressure on
governmental health-related expenses, allowing public funds to be reallocated in a more
efficient (and equitable) manner. In general, though, these conditions are not obtained
because even private sendees are usually subsidized to some extent (directly or indirectly).
Moreover, public investments - possibly substantial - might be necessary to attract foreign
firms. At a minimum, these would include a clear and attractive set of regulations concerning
the presence of foreign firms. Thus, an expansion of foreign private firms might actually
absorb more public health funds rather than free them.
In principle, an influx of foreign firms should increase competition in the delivery and
financing health services. Unlike most other segments of the economy, however, the
pervasiveness of market failures in the health sector (especially with respect to information)
means that greater competition among providers does not necessarily improve efficiency. It
may lead to an increased volume of services (known as supplier-induced demand), and greater
investment by hospitals in high-technology equipment in order to attract patients. Both these
trends contribute to a rapid escalation of costs. Private competing insurance companies might
also engage in “cream skimming”: trying to select only good risk (i.e. healthy) clients, leaving
the public sector to manage the costs of the higher risk population.
If governments aim to improve the efficiency of the health sector by allowing foreign
commercial presence and stronger competition, they will need a sound capacity for budgeting
and contracting for private actors, and the ability to povide an effective regulatory framework.
Foreign firms, such as transnational insurance or hospital corporations, might be considerably
more sophisticated than the regulatory' arms of government and could to take advantage of
underregulated environments in ways that might be detrimental to the overall equity and
efficiency of the sector. Most important, governments need first to frame clear national
policies on health and health care financing, then determine the scope for an expanded foreign
presence within them.
Measuring trade liberalization against public health objectives
15
HEALTH ECONOMICS
5. MOVEMENT OF PERSONS SUPPL YING SER VICES
The emigration of qualified health personnel professionals, attracted by better living
conditions, higher remuneration, and career opportunities elsewhere is a problem with which
health authorities in developing countries have had to grapple for many years. Indeed, it has
been estimated that 56% of all migrating physicians come from developing countries;27 the
figure for nurses is likely to be higher. Among doctors it is often the categories that are in
short supply who go abroad. In Ethiopia, for example, it is reported that between 1984 and
1994,55.6% of the pathology graduates from the Addis Ababa Faculty of Medicine, left the
country.28
Migration of personnel to the United States and Canada is a significant contributing factor to
the shortage of health care personnel in Jamaica. Yet the flow of skilled health personnel is
not necessarily towards the industrial countries of the North. A recent study found that
doctors and nurses from India also go to the Gulf States and Middle-Eastern countries, often
on short-term contracts, but many as migrants.29
Many factors contribute to sustaining the outflow. Potential earning differentials between
countries may be a big incentive, but poor working and living conditions in the home country
may also pay a big part in the decision to emigrate. Moreover, job-seeking abroad is
facilitated by the fact that health services are particularly labour intensive and the scientific
knowledge acquired has universal application.
Migration of health personnel: filling the gaps
Of graduates of the University of Ghana Medical School between 1985 and 1984 there was an
annual average loss of 8.2%. The cohort that graduated in 1985 numbered 65; by 1997 only 22
remained in the country.30 In order to overcome the shortage of physicians, doctors are being
recruited from Cuba on defined limited-term contracts between the respective governments. The
imported doctors work primarily in rural settings in Ghana.
27 A. Mejia, H. Pizurki, E. Royston, op. cit.
28
S. Ababulgu, Problem of physician migration in Ethiopia Addis Ababa. St. Paul's Hospital, 1997.
Unpublished document.
29 I. Gupta, B. Goldar, A. Mitra, Trade in health services: a case study of India. Delhi, Institute of Economic
Growth, 1997.
30 Volta Regional Research Team. The doctors are out — Where are they? Accra, Ministry of Health, 1997.
Unpublished document.
Measuring trade liberalization against public health objectives „
17
HEALTH ECONOMICS
As a result of the outflow from Jamaica of all kinds of skilled health personnel - public health nurses,
therapists, midwives, technicians and certain categories of medical specialists - 50% of posts for
registered nurses and 30% of midwifery posts remained unfilled in 1995.31 Jamaica is currently
trying to overcome the shortage by recruiting nurses from African countries, including ... Ghana.
POTENTIAL IMPACTON THE NATIONAL HEALTH SECTOR
■ Equity
The outflow of health personnel will have a clear impact on equity’ if it produces shortages in
the home country', thus reducing access to the sendees that would have been provided by the
migrants. The loss of specific categories of health professionals will also reduce the range
of services available. In cases where the number of highly specialized professionals, such as
public health specialists, is very limited, emigration of even a few people could mean that a
whole service area becomes inoperative. On the other hand, if the categories of health
personnel involved are those in which the home country has an oversupply, the question is
more one of efficiency than of equity.
■ Quality
The quality of health care will also suffer if a country is losing its best health professionals.
The outflow of health personnel could be compensated by an inflow of foreign labour, but if
the quality of training is below that of migrating resources, the quality of care can be expected
to deteriorate. Recruitment of health personnel is therefore sometimes restricted by regulation
so as to assure high-quality candidates.
Temporary movements of health personnel could nevertheless have a positive effect on the
quality' of care by contributing to a general upgrading of skills and knowledge when returning
individuals resume their activities in their home country'. Returnees may not, however, be
prepared to work in rural centres or district hospitals unless that was their experience abroad.
■ Efficiency
Economics is a major consideration in the movement of health professionals, as the entire
human resources chain is affected, from production to deployment. In most countries the
31 PAHO internal document. Washington, Pan American Health Organization, 1995.
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education of health personnel is largely subsidized by public funding and requires significant
investments (see section 3.2). The outflow of health personnel in effect provides a subsidy to
the receiving country for which there is no direct compensation. Measures to compensate a
shortage of health personnel as a result of migration would entail additional costs. Costs may
be partially offset by the remittances that migrants send home, which are substantial in such
countries as the Philippines, but the public sector itself is not directly compensated (see
below).
Arrangements to compensate for the benefits host countries gain from the movement of health
personnel could be one way of minimizing the loss of investment in education and training
suffered by developing countries. Governments could arrange contracts for the temporary
employment of health personnel, but seem feasible only if they own the labour (as in the case
of Cuba). Alternatively, some countries have introduced either negative incentives to
migration, such as a migration tax or (partial) refund of tuition by the professional that leaves
too soon after graduation, or positive incentives for professionals abroad to return, such as tax
exemptions or deductions.
The loss of health personnel from needy countries to wealthier ones is already a serious
problem. If barriers to this type of movement are reduced without an appropriate regulatory
framework and/or improvement in working and income conditions in the domestic health
system, equity, quality and efficiency will all suffer. It is worth noting, however, that GATS
places limitations on the presence of persons supplying services, and its provisions do not
apply to people seeking access to foreign labour markets.32
The movement of health personnel also involves broader, macoeconomic issues, such as the
effect of net foreign income and transfers as a result of widespread migration (usually
welcomed by ministries of finance and central banks), or increased household incomes among
certain population groups derived from remittances of family members working abroad.
32
General Agreement on Trade in Services, Annex on Movement of Natural Persons Supplying Services
under the Agreement, paragraph 2.
Measuring trade liberalization against public health objectives ™
19
HEALTH ECONOMICS
6. TRADE-OFFS FOR DEVELOPING COUNTRIES
There is increasing interest in the possibilities that trade in health services might offer,
essentially to increase foreign exchange earnings. In a social sector such as health,
governments will have to make judicious choices in order to reconcile commercial
considerations with the social priority of ensuring access of all the population to good quality
and efficient services. Developing countries in particular are vulnerable to market distortions
which may be detrimental to that objective, as well as being prone to certain chronic problems,
such as those related to the movement of persons supplying health services. Ideally, a policy
to promote such trade should be chosen for the purpose of furthering public health objectives.
INTERNATIONAL TRADE IN HEALTH SERVICES:
ANALYSING TRADE OFFS FOR DEVELOPING COUNTRIES
Health policy objectives
Modes of trade
Cross border
Efficiency
Quality
Equity
Serving remote areas
Improved quality
"Crowding out" nationals
v. improved quality
v. substantial
investment
Movement of consumers
Inflow of foreign patients
Upgraded skills
v. possible loss of
investment
Outflow of students
v. possible freeing up
of resources
Foreign commercial presence Possible "two-tier" system
Movement of persons
supplying services
Reduced access to services
Loss of quality
Loss of public
investment v. foreign
exchange remittances
(private benefit)
Policy-makers need to compare the different options available with national priorities; one
way to do so is through a framework of the kind shown above. This matrix sets out
schematically some of the key issues, presenting the modes of trade along the vertical axis
and the health policy objectives along the horizontal. Some potential trade-offs can be
observed between the policy objectives for a particular mode of trade, as discussed in the
preceding sections.
Naturally, other elements have to be taken into account aside from the three public health
objectives indicated here. There is little evidence as yet of the impact of trade on the
performance of health services, although it is likely to depend on a country's level of the
Measuring trade liberalization against public healthzibjectives
.
MG -'Oo
0514C
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HEALTH ECONOMICS
economic and social development These effects will need to be examined within the context
of health sector reform in order to determine necessary adjustments. Analysis might also be
needed of the impact of trade flow’s on the poorest population groups, which may not be in a
position to express their views. Trade in health services will also have repercussions on
economic sectors - education, tourism, transportation, infrastructure, for instance - and at a
macroeconomic level, for example on employment and immigration policy. These linkages
also need to be better understood. The starting point for all research of this kind is
comparable, disaggregated data, few of which are currently available.
A further step would be to encourage participation of civil society' in the decision-making
process related to trade liberalization and the use of health resources, which would help to
assess the acceptability of new’ policies.
In an optimal situation, a perfectly functioning market in the health sectors (as in others)
would assure the efficient allocation of resources, but that is likely to be incompatible with
social objectives. Governments might therefore seek "second best" solutions in order to
minimize possible damage to public health objectives, while maximizing economic and social
benefits to be obtained from trade in health services. Possible options could include
allocation of part of the revenue from trade to domestic health development, mechanisms to
secure the interaction between foreign (imported) and domestic health services to the benefit
of the whole population, incentive systems to discourage migration of highly qualified health
professionals, and so forth, backed up by greater cooperation among countries, especially
within regional trade groups.
Ultimately, and despite the cost to the health system, all considerations point to the need for
governments to provide a strong and effective regulatory framework for the private actors
involved in trade in health services. But, above all, and especially in developing countries,
they have to be able to enforce it.
In this regard, it may be useful to look beyond national boundaries to the international context.
National health systems are becoming increasingly linked through various aspects of
globalization - one of which is trade. Regulations and standards intended to ensure the
quality and safety of traded health services will increasingly be established on an
internationally agreed basis. This means that governments, when framing policy, setting
standards and drafting legislation will have to take account of the regional and international
context. In turn, a sound international legal and normative framework should both facilitate
their task and complement the national regulatory' environment.
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BIBLIOGRAPHY
Ababulgu S, Problem of physician migration in Ethiopia. Addis Ababa, St. Paul's Hospital,
1997. Unpublished document
DiazD, Hurtado M, International trade in health services: main issues and opportunities for
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Organization, 1994 (Technical Reports Series No. 33)
Final report of the International Consultation on Human Resources for Health for Lusophone
African Countries, Lisbon, May 1996. Geneva, World Health Organization, 1997.
(Unpublished document HDP/97.2)
Gupta I, Goldar B, Mitra A, Trade in health services: a case study of India. Delhi, Institute
of Economic Growth, 1997.
Health informatics and telemedicine. Geneva, World Health Organization, 1997. Unpublished
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1995. Unpublished document WHO/TFHE/95.5
Mejia A, Pizurki H, Royston E, Physician and nurse migration: analysis and policy
implications. Geneva, World Health Organization, 1979
Prassad HAC, Healthcare exports under consumption abroad mode: opportunities, obstacles
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The results of the Uruguay Round ofMultilateral Trade Negotiations: the legal texts.
Geneva, World Trade Organization, 1995
UNCTAD, International trade in health services: difficulties and opportunities for developing
countries. Geneva, United Nations, 1997. Unpublished document TD/B/C0M.1/EM.1/2
Measuring trade liberalization against public health objectives
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Volta Regional Research Team, The doctors are out — Where are they? Accra, Ministry' of
Health, 1997. Unpublished document
Xing Houyuan, The trends of China's medical service exports. Geneva, UNCTAD/UNDP
Regional, 1997. Restricted document UNCTAD/MTN/RAS/CB.23/Rev. 1.
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