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Globalizing Healthcare: A Prescription with Side Effects

from Grazia Ietto-Gillies

The piece by Dean Baker of 14 Oct 2010 (Globalizing Healthcare: A Prescription with Benefits) is very interesting and, no doubt, well meant. However, it does not take account of the wider implications of his globalizing prescription. There are many side effects of the prescribed medicine. 

            The US healthcare system is one of the most inefficient in the world: of all OECD countries, it has by far the highest expenditure on health as percentage of GDP (15.2% against an OECD average of 8.9%). This is reflected in the health expenditure per capita which stands at $ 6037 against an average of 2640 for all OECD countries. However, the outcomes of this large expenditure are not brilliant. Life expectancy at 77.8 years is lower than all OECD countries except for Turkey (71.2), Slovak Republic (74.1), Poland (75.0), Mexico (75.2) Hungary (72.8) and Czech Republic (75.8). Moreover, the US infant mortality rate (deaths per 1000 live births) at 6.8 is the highest among developed countries: of all the OECD countries only Turkey (24.6) and Mexico (19.7) have worse rates than the US.  

            High expenditure, poor performance: a clear case of inefficient system. Can we get any clue from the OECD data about reasons for this inefficiency? Well, yes. One clue – and I am aware that it is only a clue – might be found in the fact that – among the OECD countries – the US has the lowest public expenditure as percentage of total health expenditure (44.7%) except for Greece (44.6). In other words the US healthcare is more privatized than any other OECD country: it is highly privatized on both the funding side (via insurance companies) and the provision side (via private health care providers). (Data for 2004).

Why is the US system so costly and inefficient? There are various reasons for this. First, because the corporations – involved in the service on both the funding and provision sides – must pay dividends to their shareholders.  Second, because the involvement of many funders, providers and administrative operators at all stages of the process requires the services of bureaucrats, administrators and managers to deal with the paper work and contracts. Weiner et al (2001: 19) report that in the US some 12-15 per cent of budgets go on administrative costs: they reckoned that the US system spent 100 times more per patient on administration than the British NHS which, at the time, was mostly public on both the funding and provision sides. And this in spite of much wider diffusion and utilization of IT in the US health sector (Weiner et al., 2001). Third, because the contracts and inevitable litigations about them require lawyers’ fees: it is, in fact, a heaven-sent system for lawyers. Fourth, I would agree with Baker that most doctors in the US – and indeed the UK – are probably overpaid, though I have not looked at this aspect in detail.       

Now for Dean Baker’s prescription.  The further liberalization of the healthcare sector world wide has the immediate consequence of opening up the sector in other countries for investment by US – and other countries’ – health care providers and insurance companies. They would love to have more globalization/liberalization and be free to penetrate healthcare provision in countries currently sheltered from the onslaught of private provision or funding. After all the investment opportunities in the US may be drying out and further liberalization would give them opportunities in other countries.

Yes, further liberalization may result in higher mobility of healthcare professionals across the world. But do we really want to take away doctors and nurses from developing countries? The suggested adjustment in taxation would be unlikely to compensate these countries and certainly not in the short term. The shortage of doctors in the US and indeed the UK is in large part due to entry barriers set usually by the professions via very high university entry requirements. Other professions set similar high entry barriers such as accountants. It is a problem that needs bringing into the public domain and openly debating.

My conclusion? The US healthcare system is in great trouble but we cannot cure it by exporting the problems elsewhere. Moreover, I am not convinced that further liberalization would be in the interest of the average US citizen: they need weaker healthcare corporations not stronger ones. Yes, they also need more doctors but they have the resources to train them.

Ietto-Gillies, G. 2008,  “On quasi-markets and privatizations in public services”, review article of The Other Invisible Hand. Delivering Public Services through Choice and Competition, by Julian Le Grand, International Review of Applied Economics, 22, 3: 387- 95, May).

Weiner, J.P. Lewis, R. and Gillam S. 2001, US managed care and PCTs: lessons to a small island from a lost continent: King’s Fund Publications, King’s Fund London.

Grazia Ietto-Gillies


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