International Trade In Healthcare Services

The rise in cross-border trade in health and the phenomenon of looking Eastwards was predicted by experts way back in the year 1997, says Dr Shyama S Nagarajan

Rise in cross-border trade in health and the phenomenon of looking Eastwards was predicted by experts way back in the year 1997 in a conference by United Nations. Liberalisation of markets in developing countries, its underserved and increasingly growing affluent population has lured private providers globally to invest in healthcare services in the East. Today, in some countries, as in the case of Thailand, the health services trade contributes to a sizeable amount in total services trade or total economy. Therefore, these markets are likely to open up further, with or without the knowledge, experience, and perspective of the academic and commercial healthcare community of the developed world.

India also liberalised foreign direct investment (FDI) in almost all industries, including the hospital sector, through autonomous policies under Mode Three in early 1990s.

However, research showed that the performance of foreign-invested hospitals to large corporate hospitals, owned wholly by domestic entities did not differ greatly in services offered and that the consumers found no strong preference for foreign collaboration hospitals. Does this mean that foreign investment does not achieve its intended results in the Indian health market context?

Another study from Thailand suggests that foreign-owned private health providers have lured physicians away from the public sector, exacerbating staff shortages and unequal access to care by different socio-economic groups. But is it just foreign-owned hospitals that are responsible or privately-owned hospitals also? Does FDI substitute or add to the available private sector supply? What concurrent changes were made in trade and health policy, and did they have any contributory effects? What are the effects of trade in healthcare services in terms of gains in efficiency, quality and availability/supply; or risks equity and accessibility issues in health financing? How are countries managing trade in health services to minimise negative consequences or maximise positive ones?

Research in this regard is limited to few empirical studies about the health system or economic effects of trade in health services or policies affecting such trade, in which the information is mostly anecdotal, point in time, and hard to compare across countries.

Therefore, the trade negotiators are operating largely in dark, unaware of the value of economic benefits of health service trade, to whom it would accrue, and at what cost to the health system. With this in mind, it is important to note that it is not globalisation per se that is good or bad for the developing world, but how we manage this globalisation. Therefore, before we explore into globalisation of health services for an equitable and well-functioning healthcare system, an overview of international trade is warranted.

History

In 1948, 23 countries signed the General Agreement on Tariffs and Trade (GATT), and for 40 years GATT served to maintain a peaceful global trading system amongst 100 members. In the Uruguay Round of Negotiations in 1986 owing to the initial unity of opposition by the developing countries led by Brazil and India, a compromise was reached and negotiations relating to services were taken out of the jurisdictional framework of GATT, and General Agreement on Trade of Services (GATS) was envisaged, to be guided by the objective of development of developing countries, respecting their national regulatory frameworks and not just liberalisation. The WTO thus became a forum for member countries to conduct both, ongoing trade negotiations and facilitate the implementation, administration, operation of signed agreements; and adjudicate disputes with guarantee of remedy within a framework of well-defined principles and explicitly stated commitments to free trade.

But the beginning of GATS negotiations in the year 1987 and the incoming of new framework of WTO in 1995 saw lot of struggles. The developing countries were satisfied with the agreement and formal 'negotiations' of January 1987, which was hardly a 'negotiation' in its real sense. The negotiators of the developed countries comprised hundreds of core experts and specialists deliberating upon the issues, whereas the developing countries were represented by one senior official from the Trade Ministry with no technical support to handle 'negotiations' on such complex topic. And lack of co-ordination among developing countries, resulted in asymmetry and did not involve any give and take. The entire Uruguay Round of 'negotiations' was closely guarded by the trade officials and was withheld not only from public/consumer scrutiny but also from other ministries or departments in the national Governments. Here, one wonders whether power is concentrated on political authority and democratic elections or on financial and economic strengths controlled by powerful market forces operating under faulty global governance supported by rules, institutions and practices that have been formulated by a selected few.

The violent events at Geneva, Seattle, Davos and Washington were signals to the world that people's participation in decision making is a must, so that development plans are people centric with priority to enhance social development, ensuring human well-being for all throughout the world through national and global governance. Representatives of several participating delegations stressed on the need for an examination into the relationships between the international trading system and internationally recognised labour standards, company law, immigration and competition policy including rules on export financing and restrictive business practices. They voiced the need to establish a mechanism to link trade with development, political stability and alleviation of poverty. Therefore, this article is a summary of the secondary resear crease the awareness amongst the stakeholders of the healthcare services.

What Is GATS?

GATS committed the WTO members to achieve a progressively higher level of liberalisation in their services sectors and enter newer markets. To achieve this, WTO members made liberalisation requests to member countries in bilateral meetings at Geneva to open up competition in those sectors, which are of most interest to their service providers. For instance: India has requests from countries like Singapore, China, Brazil, Australia, Turkey, Poland, Thailand, Peru, Jordan and Oman, for full market access and national treatment commitments in Modes 1,2 and 3 and horizontal commitments in Mode 4 for both the professional services. Requests are there for India to allow joint ventures and permit foreign doctors with national licenses in the country of origin to practice for three years or more. Requests are also there for taking commitments in social services delivered through residential institutions to old persons and the handicapped.

Under GATS, services trade — including health services — the member nations are bound by two guiding principles. First, is to disallow bestowing 'most-favoured-nation status', the degree to which a WTO member opens a sector of its service market to any country must be the same for all member countries. The second is 'principle of national treatment', this requires all members to treat service providers, whether domestic or foreign, in the same way by the member Governments. However, the degree to which individual members commit to open their markets to foreign health services providers is quite flexible.

GATS also states that domestic regulations (DR), technical standards or licensing requirements in WTO member countries must not pose 'unnecessary barriers to trade', and should 'not be more burdensome than necessary to ensure the quality of the service'.

However, GATS commitments do not explain whether they represent liberalisation from previous policies, thus, does not capture how trade policies have changed over time and also do not consider the range of DR that often has a strong effect on services' trade. To address the latter problem of DR, the World Bank is developing a database on measures affecting trade in services. This would allow researchers 'to address a range of questions about services trade policy, including identification of barriers to trade; how such barriers differ across services sectors and across countries; and the implications of liberalising trade in services for overall economic performance'.

GATS In Healthcare

The health services covered under WTO are professional services that include medical and dental services; services provided by midwives, nurses; physiotherapists and para-medical personnel and the health services that include hospital services; human health services; and social services including insurance. These services under GATS are supplied in four different modes.

Mode 1: Refers To Cross-border Supplies: Service flows from the territory of one country into the territory of another country where neither patient nor provider crosses a border. Telehealth is one such instance driven primarily by technological change. India has made partial commitments in Mode 1, on provider-to-provider basis between two established medical institutions ie registered doctors of established institutions in India can consult from doctors in institutions of the other member countries. The issues of debate and focus here are on the security, privacy and confidentiality of medical information relayed via telecommunications, the liability for the outcome of medical services delivered by providers through telemedicine.

Mode 2: Refers To Consumption Abroad: Consumer of a service moves into the territory of another member country to obtain the service. Wealthy people in developing countries have long travelled to developed world to obtain specialised care that may be unavailable or provided at a perceived lower level of quality in their own countries. However, the trend seems to have reversed Eastwards now to obtain timely care at lesser expense. Speciality hospitals in India attract US patients by providing international quality services at one-tenth the US cost. India also offers full commitments under Mode 2. Even as there is a potential for 'medical tourism' (a terminology used by the industry), there are issues on the need for discipline in India's DR in the health sector. There are also concerns over the fact that the services in healthcare in India have not been graded and accredited.

Mode 3: Refers To Commercial Presence: Service suppliers of a member country establish a territorial presence (a legal presence) in another member country i.e. FDI in the health sector. Example includes Apollo group of hospitals, which has international presence. Thailand experienced a rapid increase in foreign investment in the hospital sector, contributing to a 65 per cent increase in the number of private hospital beds and investment in advanced health technology for private sector use. US health insurers report their joint ventures in Latin American markets have covered a total of five million lives.

These trends have ignited public policy debates in several countries about the wisdom of allowing unfettered foreign investment in the health sector. Concerns have focused on the need for regulation to ensure improved efficiency and quality while enhancing, or not further impairing, equity in health service provision and financing. The development of insurance regulations specific to the healthcare sector and the requirement to reserve a certain percentage of bed for the poor by private providers is one such initiative. Several countries have advocated stronger measures such as subjecting private hospitals to higher taxes and earmarking the revenues for essential public health programmes, or restricting market practices to achieve more equitable pooling of risks.

As far as India is concerned, a foreign investor can come into India by two routes: Foreign Investment Promotion Board (FIPB) route, which is already existing and is a 100 per cent autonomous route wherein there is no check. The second route is established entity route wherein there is a need for a holding company in India with the present equity of 49 per cent and 51 per cent with the foreign and Indian collaboration respectively. There is a move to increase this to 74 per cent and 26 per cent with a condition that newer technology is brought in along with the investment by the foreign company and later 100 per cent, if some member country asks for more liberalisation.

Here the catch is to define "latest technology". Different experts have their own definition to call a technology as 'new'. However, here the prerogative lies with the Ministry of Health to accept Genetic Engineering Council's (GEC) restrictions or intervene with more restrictions for a foreign service provider. Logically therefore, till such time that 'latest technology' is categorically defined, the best route of entry into the healthcare service delivery is Route 1.

Mode 4: Refers To Presence Or Movement Of Natural Persons: The service supplier temporarily enters the territory of another member country for supply of services — the movement of doctors and nurses across national borders in search of higher wages and better employment opportunities. Mode 4 is a function of market development not covered by any access guarantees or any commitment on market liberalisation by the member countries but constitutes sizeable proportion of trade. GATS considers such migration under the remit of Mode 4 as 'temporary', but is currently ill defined and is difficult to distinguish from permanent migration.

India, Cuba and Philippines are strong 'exporters' of health personnel and receive over USD five billion per year each in workers' remittances. The United Kingdom has recently released a Code of Practice for ethical recruitment by its National Health Service (NHS), complementing its earlier guidance, which cautioned the NHS to refrain from recruiting from developing countries such as South Africa and the Caribbean.

Summary Of Implications Of Trade In Health Services Under GATS

Modes Opportunities Threats

Mode I — Cross border delivery of trade (all forms of telemedicine). Cost-effective surveillance of diseases, helps upgrade skills, enables healthcare delivery to remote and underserved areas. Possible diversion of resource from other health services.

Mode II — Consumption of health services abroad (patients travelling abroad for treatment). Exporting country generates foreign exchange earnings.

Importing country overcomes shortage of physical and human resources. Diversion of resources to serve foreign nationals, crowding out of local population.

Mode III — Commercial presence (establishment of foreign owned hospital/health clinics). Generates additional resources and up gradation of healthcare infrastructure, generates opportunity for employment. Large initial public investments to attract FDI.

Mode IV — Movement of health personnel (doctors, nurses abroad). For the sending country: generates remittances from healthcare professionals working abroad; helps upgrade skills and standards.

For the host country: Reduces shortages of personnel. Brain drain with loss of investment in educating and training such personnel.

Debate

Considering the intricacies of international trade, experts have expressed some serious concerns over throwing open healthcare services to international trade.

• Changes in one sector and cross-border services trade within it influences trends in other service sectors, and factors affecting trade in related goods. The establishment of a new foreign-invested hospital that has the latest medical equipment and highly-trained specialists, for instance, can stimulate the demand for sophisticated high-tech medical care. In turn, the success of such a facility depends on reliable electricity, telecommunications, and clean water, on a relatively stable foreign exchange rate that keeps the cost of imported drugs and equipment affordable, and on expanded health insurance that covers expensive care.
• Health being a human right, public good cannot be captured through market mechanisms. Foreign private healthcare providers, exerting extra pressure on public health system, which is already under severe strain, additionally challenge the public sector that already faces competition from domestic private hospitals.
• Leaving the public sector to provide services only to the poor undermines the possibility of cross-subsidisation and risk pooling on which sustainable health systems is based — dichotomises the social good of public health and the economic good of health services trade.
• ASEAN health officials in Jakarta in 2002 concluded that developing countries should refrain from making health commitments under GATS and should conduct a comprehensive 'health check' with active involvement of health ministries and civil society. The EU, the US and many other countries have also made similar statements. Similar caution has been called for in other environmental services, sectors such as tourism, energy, education and cultural services.
• Once a sector is committed under GATS, punitive rules on the modification of national commitments make it effectively impossible for a country to reverse liberalisation. GATS rules can threaten key public health regulations in WTO member countries and may get challenged. India's new regulation in May 2003 to promote breastfeeding and prohibit the promotion of breast milk substitutes, feeding bottles and marketing of baby foods for the under two's is an example of the type of 'restrictions' which could be under threat. This could be interpreted as 'unnecessary' in the perspective of trade and voices can vouch that there are other ways of achieving the same public health objectives.
• There is no transparency on the qualification required and licensing procedures in several countries.

Despite the current low levels of interest in liberalising health services trade within the context of GATS, Pierre Sauvé, a specialist in services trade with the Organisation for Economic Co-operation and Development (OECD), notes that a lot is happening outside a trade policy framework.

Recommendations

In recognition of these dangers, experts have recommended that WTO member countries should refrain from making any commitments under GATS in the health or health-related sectors. There is an ardent need to call for a change to the GATS rules, which restrict countries from retracting their commitments already made under GATS in response to the concerns of fair trade and risks to population's need for equity, quality, and accessibility of healthcare services.

Instead of promoting further migration in pursuit of only monetary gains, there is a need to retain key personnel in their own health systems, where their presence can make an immediate and lasting difference to the lives of many of the world's most vulnerable sections.

As new forms of cross-border supply emerge, new policy issues and questions are likely to surface, requiring issues on global governance to be addressed with a stronger, broader UN system and a more coherent United Nations. The UN is expected to provide global leadership for equity, to develop a code of conduct for multinational corporations, to create a global central bank as lender of last resort, to develop a global investment trust with redistributive functions, to form an international criminal court wherein civil society representation would be allowed.

Even before these long-term changes are initiated or achieved, many short-term actions that have been suggested by experts are:

• Collective regional initiatives by the developing countries to strengthen their positions in global negotiations, intellectual property rights and other areas.
• Setting up of high-level group by individual countries to co-ordinate policy on globalisation.
• Acceleration of action on debt relief by donor countries so that aids could be redirected in favour of poorer countries and human development.
• Creation of an independent legal aid facility and ombudsman to support the poor and weak countries in the WTO.
• Co-operations amongst member countries to fight global crime and to relax restrictive bank secrecy laws.
• Investigation of new sources of financing the global technology revolution.
• Setting up of a representative task force to review global economic governance, including the large and small countries, rich and poor nations with adequate representation from private sector and the civil society and submit a joint report to concerned authorities.

The Author heads the Healthcare Grading Services at ICRA Ltd.
Email: shyama@icraindia.com