Exporting Healthcare: How Trade Liberalisation and Trade in Health

Services Impact Developing Countries

– A Case Study of South Africa

PhD defence by Jon Mortensen University of Copenhagen

&

Danish Institute for International Studies

Outline of presentation

Context, central issues, definitions and vocabulary

Theoretical perspective

Research questions and hypotheses

Methodology

Central findings

Conclusions

Context and Central Issues

Context:

– Since creation of the World Trade Organisation (WTO) in 1995 international trade in health services (TiHS) has gained momentum – in terms of increased trade and level of media, political and academic attention

– A range of developing countries have actively promoted trade and trade liberalisation in health services, including countries such as India, Thailand and South Africa

– Lack of research

Central issues:

– What are the consequences of WTO’s General Agreement on Trade in Services (GATS)-led trade liberalisation for developing countries’ health policy space?

– What kind of problems and opportunities does TiHS present for developing countries?

WTO’s GATS Definitions and Vocabulary

Health services Ancillary services

Mode 1:

Cross-border supply

Telemedicine e-health

Distance medical education/training Medical transcriptions and other back office services Medical insurance

Mode 2:

Consumption abroad

Medical tourism Expatriates seeking healthcare in country of residence Emergency healthcare

Services surrounding medical tourism (e.g. travel, hotel, restaurants etc.) Medical education/training

Mode 3:

Commercial presence

Investment in/establishment of healthcare facilities (FDI in hospitals and clinics)

Foreign-owned institutions for medical education/training Foreign-owned health insurance providers

Mode 4:

Temporary presence of natural persons

Temporary cross-border movement of health professionals for the purpose of medical practice

Movement of health professionals for other purposes (education/ training)

Theoretical Perspective

Based on economic trade theories:

– New trade theory: increasing returns to scale economies of scale and scope imperfect competition. Trade policy as a potential amplifier of these processes and of benefits from intangible firm assets and agglomeration

– Dynamic trade theory: trade as a motor to accelerate factor accumulation, and domestic and international spill-over effects (learning-by-doing, increased innovation, and transfer of technology and knowledge)

Thus, a ‘trade perspective’ but not one which follows the normative tendency in the literature on TiHS to dichotomise the social good of public health and economic good of health services trade

Rather it predicts gains from TiHS but also risks in accordance with standard criticism of trade liberalisation: increased inequality (within and between countries) and exploitation of countries’ healthcare and human resources.

Thus, not a call for increased trade and trade liberalisation per se but rather a strategic trade policy

Research Questions and hypothesises

Overall RQ: How does increased trade and trade liberalisation impact developing countries’ policy space and welfare?

– Gains: investment, patient and public-sector cost savings, increased patient choice of higher quality services, technology and knowledge transfer, job creation and increased production of health professionals

– Risks: resource drain (two-tier health systems and brain drain) and reduced policy space

Thus, how TiHS impacts countries is an empirical question which should be assessed country-by-country.

Normative ‘one-size-fits-all’ assumptions and policy recommendations are irrelevant.

Research questions and hypotheses (cont.)

Overall RQ addressed through four sub-RQs:

1. How is GATS-led trade liberalisation in services affecting the health policy space of developing countries?

To balance the policy of trade liberalisation with domestic policy concerns, GATS is a flexible agreement which provide ample room for countries to pursue domestic policy priorities, including in the health sector.

2. What are the current trends in TiHS for developing countries?

Developing countries can exploit their strategic trade advantages (e.g., “first world services at third world prices”) and can engage in trade in all modes of supply, but with large variations between individual countries

Research questions and hypothesises (cont.)

3. What is the emerging pattern of FDI-driven TiHS (mode 3 trade) for developing countries?

Mode 3 TiHS does not follow a “comparative advantage” pattern with flows predominantly from developed to developing countries (or more precisely from capital rich to capital poor countries) but a more “messy” pattern as predicted by new and dynamic trade theory

4. Do developing countries benefit or lose from migration of health professionals (mode 4 trade)?

Health professionals agglomerate as predicted by new trade theory but rather than creating a mercantilist zero-sum game in which ‘conveyer belts’ or ‘medical carousels’ drains developing countries of health professionals, the result is a dynamic positive-sum game based on ‘brain gain’ effects, remittances, return (or circular) migration and spill-over effects (from returnees and/or the ‘medical diaspora’).

A Case Study Approach

Definition (one of many, this is Robert Yin’s):

– “empirical inquiry that investigates a contemporary phenomenon within its real-life context, [which] relies on multiple sources of data … and benefits from the prior development of theoretical propositions to guide data collection and analysis”

The case study design

Single country case study of South Africa’s involvement in TiHS focusing on South Africa as exporting country and the UK as the main importer.

South Africa is often referred to as critical case with strategic importance to TiHS, for example in relation to policy space, investment, and brain drain.

Limitation: South African exceptionalism ? My position: South Africa’s transition from authoritarianism and

protectionism to democracy and openness (eg. trade liberalisation) makes it mainstream in economic and trade terms.

Generalisation from the case of South Africa is problematic although hardly irrelevant to countries such as Brazil, Indonesia, Malaysia, South Korea, Thailand and others.

The key limitation is the single case study design. A multiple case country study may have provided more richness of data.

Sources and methods

Fieldwork in South Africa (October through March 2004-05): 37 lengthy semi-structured interviews with 26 informants. Fieldwork in the UK (January 2007): Eight interviews with six informants.

All in all, 45 interviews with 32 informants Other sources:

– Academic literature, consultancy reports, company annual reports, market analysis reports, industrial association reports, government documents and reports, NGO reports and newspaper articles

– Statistical and other data from various databases (from WTO, World Bank, UN, UNCTAD and WHO)

Key limitations

– Fieldwork: a relatively low number of informants and the fact that some of the international expansion of the SA hospital groups occurred post-fieldwork.

– Other sources: a severe shortage of data on TiHS (statistical and otherwise)

Central findings

South Africa has been promoted as a cautionary tale for other developing countries on the pitfalls of GATS

However, GATS exceptions and loopholes provide leeway either by allowing public health and national security exceptions or through ‘accepted’ non-compliance.

Two GATS-inconsistent social policies have been tolerated– Certificate of Need (CoN) (a numerical limitation)– Black Economic Empowerment (BEE) (discriminating policy)

South Africa’s policy space is limited by the government’s agenda-setting and implementing capabilities not GATS.

South Africa is not a cautionary tale. GATS is flexible: gains can be reaped and risks avoided

1. How is GATS-led trade liberalisation in services affecting the health policy space of developing countries?To balance the policy of trade liberalisation with domestic policy concerns, GATS is a flexible agreement which provide ample room for countries to pursue domestic policy priorities, including in the health sector.

Central findings (cont.)

2. What are the current trends in TiHS for developing countries?Developing countries can exploit their strategic trade advantages (e.g., “first world services at third world prices”) and can engage in trade in all modes of supply, but with large variations between individual countriesSouth Africa Developing countries

Mode 1 ÷ ＋

Mode 2 ÷ ＋＋

Mode 3 ＋ ＋

Mode 4 ＋ ＋＋

Central findings (cont.)

The South African private hospital sector is highly developed (~ 30 000 beds or 22% of total in some 200 private hospitals)

The market is saturated and oligopolistic with little if any foreign presence.

South African private hospital groups have made significant international investments:– One group, Netcare, owns the largest private hospital group in the UK

with almost 60 hospitals (acquired in 2006 for £2.2 billion). – Netcare still operates several Independent Treatment Centres for

NHS.– Another group, Mediclinic, operates two hospitals and four clinics in

Dubai (acquired in and developed from 2006) and the largest hospital group in Switzerland with 13 hospitals (acquired in 2007 for $2.4 billion).

3. What is the emerging pattern of FDI-driven TiHS (mode 3 trade) for developing countries?Mode 3 TiHS does not follow a “comparative advantage” pattern with flows predominantly from developed to developing countries (or more precisely from capital rich to capital poor countries) but a more “messy” pattern as predicted by new and dynamic trade theory

Central findings (cont.)

Today, Netcare and Mediclinic derive more than 50% of their revenue from overseas markets. Each group’s international sales alone exceed the total revenue of the large Asian groups (such as India’s Apollo Hospitals and Singapore’s Parkway)

The internationalisation process is well explained by new and dynamic trade theory: – Saturation of the South African private hospital market

pushed the groups to invest overseas to realise economies of scale and to exploit competitive advantages derived from operating in an oligopolistic market protected from outside competition.

– The oligopolistic market ensured ‘super profits’ and a protected market in which to develop their skills (knowledge capital)

– The groups expect to benefit from dynamic gains (spillover effects)

The South African experience is unique. Other developing country groups are smaller, much less ‘globalised’ and have not entered developed country markets.

Central findings (cont.)

South Africa often play the role of ‘victim’ and ‘predator’. Both the ‘conveyor belt’ and the ‘carousel’ metaphor have been generalised from case studies of South Africa

General consensus in South Africa:– “if there is a single major threat to our overall health effort, it is

the continued outward migration of key health professionals, particularly nurses” (former Minster of Health)”

– “at least 5,000 South African doctors moved abroad in 2002”, “over 25 per cent of the 90,000 registered nurses in South Africa left the country in 2002 alone” and “10,000 medical students leave South Africa every year”.

4. Do developing countries benefit or lose from migration of health professionals (mode 4 trade)? Health professionals agglomerate as predicted by new trade theory but rather than creating a mercantilist zero-sum game in which ‘conveyer belts’ or ‘medical carousels’ drains developing countries of health professionals, the result is a dynamic positive-sum game based on ‘brain gain’ effects, remittances, return (or circular) migration and spill-over effects (from returnees and/or the ‘medical diaspora’).

Central findings (cont.)

However, these claims are inconsistent with more systematically gathered data:

Thus, although South Africa is widely reported to suffer from a medical brain drain and agglomeration effects are present, the number of employed health professionals increased over the past decade.

Number of public sector health professionals (filled posts)

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008

Doctors

11472 11164 10972

11091 n/a 12196 13222 13959 14679

Nurses 90654 90797 89569

91298 n/a 95248 96727 99700 104571

Total 114395

113693

116547

116547

n/a 123268

126485 131145

136985

Source: Health System Trust

South African health professionals abroad (% of total)

Year 1995 2000 2004

Doctors

3995 (14.6%)

4412 (13.2%) 4769 (13.1%)

Nurses

n/a 4844 (5%) n/a

Sources: Docquier and Bhagava (2006), Clemens and Pettersson (2008)

Central findings (cont.)

This anomaly cannot be explained by South Africa’s alleged role as a ’predator’:

– In 2000, only 1,434 doctors and 239 nurses from other Sub-Saharan African countries worked in South Africa. Additionally, 834 doctors and 261 nurses from OECD countries worked in South Africa.

– South Africa has, since 1995, enforced a moratorium on recruitment from other poor countries (except a total of some 450 Cuban doctors since 1995)

Rather, data support the existence of ‘positive-sum game’ effects:

– A tenfold increase in privately trained nurses from 1997 – 2006, ie. private nursing colleges trained 62% of all nurses (brain gain effect)

– Evidence of increased return and temporary migration

– Welfare benefits from remittances

– Reports of healthcare investment by migrants The findings do not support a zero-sum game but a positive-sum game

notion of South Africa’s medical migration. South Africa is neither a ‘victim’ nor a ‘predator’ and the ‘conveyor belt/carousel’ metaphors, though generalised from case studies of South Africa, are not verified

Conclusions

What does the central findings tell us about the theory?

– Basically supports post-Krugman trade theory in a new area (services) but suggests that some aspects of more traditional trade models may also be relevant (gravity models)

What does the central findings tell us about the central issues?

– GATS is flexible and South Africa has maintained policy space in spite of health commitments

– The South African hospital groups are among the beneficiaries of increased TiHS. Unclear whether South Africa has or will benefit as well

– Embracing the dynamics of medical migration will likely benefit South Africa, while maintaining that it is a zero-sum game in need of ‘control’ is a symbolic gesture at best and counter productive at worst.

– Thus, for South Africa gains seem to dominate the risks

Conclusions

How and to which extend can the findings be generalised, given the limitations?

– Developing countries with

• Highly developed private healthcare sectors

• Closed economy open economy

• Relatively small domestic markets

Thank You