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Importing medical tourism

By Daniel M. Ryan
web posted April 18, 2011

You may have heard of "medical tourism." It refers to a new industry that's bringing a lot of dollars to Third World nations, like India, through providing medical services more cheaply than in North America. Although the term is sometimes used pejoratively, a lot of that disdain is the result of good old unimaginativeness. We like to believe that the home system is the most efficient system; any out-of-nation'ers who find a way to repair a heart more cheaply must be doing so by cutting corners. Said belief is not unlike believing the home team is the best team.

One of the mysteries of the medical industry is why costs keep going up. There's no need to bring up the oft-invoked computer industry to illustrate this enigma; cost reduction has been close to the norm since the Industrial Revolution. The person who builds a better mousetrap may not have the world beat a path to her door, but the person who builds a cheaper mousetrap will. Wal-Mart became one of America's largest corporations by cutting costs. Henry Ford won wide renown by using the assembly line to make cars much cheaper than they were beforehand. The history of business is replete with innovations that have had the effect of making the same product cheaper. Innovations, which would have been dismissed as the product of a too-fertile imagination had they not been implemented by business pioneers.

Health-care delivery has been a notable exception in North America. There's been a lot of digital ink deployed to explain why. The most common explanation is rooted in the third-party-payer nature of health care. Typically, even in the ostensibly private American health-care system, no-one spends his or her own money on health care. It's someone else, a third party, who foots the bill. Since said third party is typically an agent, he's spending money that doesn't belong to him. Consequently, the incentive to economize is diminished. The agent problem is one that crops up in both government-owned health-care systems and ostensibly private ones.

In such systems, economization takes a different form. Instead of focussing on how to deliver the same or a similar product more cheaply, à là Henry Ford or Sam Walton, the delivery personnel focus on doing the previously impossible. When dollars spent don't matter so much, breakthroughs do. An agent who says "I saved 5% on the same standard of health care" might get a pat on the head, but not much recognition. Since he's spending someone else's money, he doesn't have any financial incentive for shaving costs. He has to live on effectiveness: other people's impressions of his work. "I saved 5%" doesn't sound very effective.

Not when compared with "I funded a new way to treat lung cancer" or "I funded a less debilitating AIDS drug." Of the two, the 5-percenter or the new-breakthrougher, which sounds more impressive? Which would you promote, and which would you leave to do the donkey work? Were you the boss, which one makes you look better? Which one brings better headlines?

If those two were Ministers of Health, which one would you vote for? Especially if any tax increases coming from cost overruns are ones you won't have to pay? When seen in this light, the humble cost-cutter doesn't look all that impressive. Had a Henry Ford or a Sam Walton been health-care administrators, they would have retired at entry level jobs…unless they got with the big-headline, big-spending program. More likely, they would have gotten out of the racket and into an industry where their cost-cutting creativity would have made them money.

Enter The Third World 

A long-standing trope of the Western world holds that progress is monolithic. "Progress" means going one way and only one way; no multi-tracking allowed. If you've ever heard someone say that tightening up divorce laws is tantamount to demanding everyone go back to using slide rules, you've bumped into that kind of "monolith mind."

Needless to say, calling non-Western countries "developing nations" fits in well with the monolith mindset. The term "developing nations" implies that they're behind us "developed nations." They get A+s for effort, whereas we rate only Bs or Cs, but they're clearly playing catch-up to special old us. Not unlike the slipstick-wielding '50s man who insisted there was no way "Japanese junk" would ever be of higher quality than North American products, we tend to assume that developed nations are behind us in the important things. If they're growing faster than us, it must be because they're despoiling the environment or doing something unethical. If they're coining serious money in places where we haven't the foggiest idea how, it must be because they're cutting corners or relying on lower social standards. They couldn't be ahead of us: we're "developed" and they're only "developing."

It's this kind of barrier, natural and apparently common-sensical, which makes "medical tourism" a term of denigration.  How could an Indian heart surgeon perform a bypass at only a sixth of the cost the North American system? If you believe that India is nothing more than a wannabe America or Canada, you'll immediately suspect corner-cutting. The alternative – that said Indian heart surgeon might be a Henry Ford of heart surgery, which we lack – isn't that easy to swallow.

Case in point: Devi Shetty. He's an Indian heart surgeon of some repute who's about to build new specialty heart hospitals at a cost of $4 million each in four to five months' time. These are hospitals that are supposed to cost $30 million and take three years. He promises that he and his staff will be able to perform basic open-heart surgery for $800. No less an authority than the Guardian has proclaimed him a man who's revolutionizing heath care for the poor. He got his cardiac training in the U.K. Where he got his economizing talent from, I can't say. But, I can say that India has gotten itself quite the Dr. Ford. There's an evident resemblance to the man who sold $1500 cars for $825 (later, $290.) Needless to say, there were a lot of old-style auto craftsmen who insisted that the only way to sell an $825 car was to sell dangerous junk.

Half Off, On Spec

Most everyone knows now that health care is a budget-buster. Although the present new-cures incentive path has brought forth a lot of pioneering innovations, we've gotten to the point where delivering the same care more cheaply has become more necessary. Unless that kind of economization is encouraged, health care might drive developed countries' governments into cases of developed insolvency.

There's a straightforward way to call forth the talents of economizers like Dr. Shetty. Common operations, like bypass surgeries, should be costed by an impartial team of outside accountants. Once the average cost of each procedure is pinned down, the government should offer this straightforward deal: it will pay a surgeon or team of surgeons, non-profit or profit, half that cost for each procedure done properly. On spec, without any busybodying over the successful bidders' profit margins.

Since the needed talent is evidently in the Third World, this program should be combined with relaxed immigration rules for qualified physicians and surgeons from Third World countries. If that's where the talents are, then that's where to get them from.

Once the talents set up shop and deliver, the government will be paying out half as much for medical procedures that collectively cost a lot. That's the way to harness entrepreneurial cost-avoiding creativity where it's badly needed. A glance at estimated health-care costs in 2020 or 2030 will show why.

Of course, there would have to be controls on those new hospitals. In the United States, the trial lawyers would suffice. Any cost-cutting hospital found to cut corners would be hit hard in their pocketbooks. In a country like Canada, where judges and juries are far charier with awards to victorious plaintiffs, blacklisting the botches would work. You screw up, you're cancelled and not invited back.

Note that this approach doesn't require a partially privatized health-care system. The deal can be struck by the government with the new-model hospital directly, leaving the same delivery mechanism to the patient intact. In my home province of Ontario, this would men the Ontario government would reap the 50% savings and the patient would flash the Ontario health card as before.

This new system won't make the pioneers and craftspeople obsolete, but it will confine their efforts to complex procedures that can't be standardized. More to the point, it will encourage the youngsters in the field to develop creative ways of delivering the same services at lower prices.

In so doing, they would serve a greater purpose than money-getting: they would also be doing their part to save their governments from bankruptcy. Harnessing entrepreneurial creativity, if done the above half-off on-spec way, would remove a large and possibly lethal lodestone from governments' budgets. ESR

Daniel M. Ryan is an occasional contributor to The Gold Standard Now, and currently watching the gold market. He can be reached at danielmryan@primus.ca.

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