TRADE, INVESTMENT AND COMPETITIVENESS TRADE, INVESTMENT AND COMPETITIVENESS EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Modalities and Determinants of Trade in Health Services Author: Rupa Chanda © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Cover design and layout: Diego Catto / www.diegocatto.com Rupa Chanda Director, Trade, Investment, and Innovation Division, UNESCAP, Bangkok Professor of Economics, Indian Institute of Management Bangalore, India (on leave) Contents 1. Context and Motivation 5 2. Understanding the modalities of health services trade 6 3. Implications of health services trade 9 3.1 Positive implications 9 3.2 Negative implications 11 3.3 Implications for global health security 12 4. Determinants of health services trade 13 4.1 Macro-level demand- and supply-side drivers 13 4.2 Mode-specific demand-and supply-side drivers 15 4.3 Mode-wise barriers 16 4.4 Summarizing the drivers and constraints 16 4.5 Interlinkages 19 5. Concluding thoughts 20 References 22 1. Context and Motivation The provision of health services forms the backbone of any health system. Accessibility, quality, capacity, organization, availability of human and physical resources, and equity in the provision of health services are essential for a health care system to deliver the desired health and related sustainable development outcomes. Section 2 provides an overview of trade in health services, outlining its defining characteristics and features. Section 3 discusses the positive and negative effects of trade in health services and the associated welfare and health security implications. Section 4 delves into the factors that drive cross-border demand for, and supply of health services and outlines the barriers that constrain this trade. Section 5 concludes by outlining a conceptual framework for the determinants of trade in health services and provides insights the ways in which countries can leverage their natural advantages and shape the enabling policy and regulatory environment to participate in the growing global and regional opportunities for trade in health services, while keeping in mind the need to balance efficiency with equity. Trade in health services is part of the larger phenomenon of globalization of services, wherein services have become increasingly tradeable through different modes of delivery and are playing a growing role in the growth and development process of economies. Although trade in health services has witnessed much slower growth than overall global commercial services trade and accounted for only 0.4 percent of global commercial services trade in 2017 (WTO presentation, Dec 10, 2020)1, it is important to understand its characteristics and modalities. This is because of its implications for health security and achievement of the Sustainable Development Goals (SDGs). As highlighted by the current pandemic, health systems around the world suffer from shortages, inefficiencies, and distortions. Effective health services delivery, both within and across countries, can help countries to address such crises and to prepare better for the future. 1 Global trade in commercial services increased from $2.4 trillion in 2005 to a little over $5 trillion in 2017 as per UNCTAD estimates. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 5 2. Understanding the modalities of health services trade The General Agreement on Trade in Services (GATS) under the World Trade Organization 2 (WTO) provides the framework for understanding the modalities for trade in services, including trade in health services.3 As per the GATS, there are four modes by which services are traded— (i) cross-border delivery or mode 1, which refers to the physical delivery of a service across borders, such as in transport or business process outsourcing services; (ii) consumption abroad or mode 2, which refers to the movement of consumers to other countries to avail of services; (iii) commercial presence or mode 3, which refers to the establishment of a commercial entity in the form of a branch, subsidiary, franchise, affiliate, or joint venture and involves the movement of capital; and (iv) movement of natural persons or mode 4, which refers to the temporary cross- border mobility of service providers without the intent to become a citizen or permanent resident in the other country. All four modes of GATS are pertinent to health services trade. Cross-border delivery or mode 1 in health services involves the shipment of clinical and data services captured in diagnostic reports and sample channels through traditional mail channels and, increasingly, the electronic delivery of health services using interactive, audiovisual, and data communications for diagnostics (tele-radiology, laboratory testing), treatment (remote surgery, surveillance, tele-consultation), indirect health-related services (tele-conferencing, tele-education, upgrading of skills, communication) and administrative functions (transmission of and access to specialized data, records, and information, claims processing, and medical transcriptions).4 The global telehealth market was valued at $14.8 billion in 2021 and is expected to reach $29.5 billion by 2026.5 A range of countries is involved in mode 1-based trade in health services. For instance, telediagnostic, surveillance, and consultation services are provided by US hospitals to hospitals in many Gulf countries and to some countries in Central America. Telepathology services are provided by India’s doctors to hospitals in Nepal and Bangladesh. Cross-border medical transcription services are being increasingly outsourced to developing countries, such as India and the Philippines to reduce costs. Consumption abroad or mode 2 in health services is the most prevalent and long- standing form of trade in health services. It is defined as the consumption of health services abroad and is commonly referred to as medical value travel or medical tourism. It involves the movement of 2 This section is largely based on Chanda (2017) and Hanefield et al. (2018). 3 See WTO (January 2013) for an introduction to the GATS framework. See the full GATS text at https://www.wto.org/english/docs_e/legal_e/26-gats.pdf and WTO (1997) for a background note on trade in health services. 4 Oh et al (2005). 5 https://www.marketdataforecast.com/market-reports/e-Health-market EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 6 consumers from their country of residence to another country been formed in recent years. For instance, the Singapore- for the purposes of diagnostics, treatment, and rehabilitation based Parkway Group has acquired hospitals in Asia and and follow-up services. The global medical tourism market the UK and has created an international chain of hospitals, was estimated at $104.7 billion and 23 million medical value Gleneagles International, through joint ventures with partners travelers in 2019 and was expected to reach a size of $273.7 in India, Indonesia, Malaysia, Sri Lanka, and the UK. The billion and 70 million medical tourists in 2027,6 though COVID-19 aim of such companies is to develop an integrated network has had a significant dampening effect on the medical tourism of health care companies offering a range of high-quality and market and might affect its growth prospects in the immediate cost-effective health services. Mode 3 also involves contract- future. The market consists of many segments, including, based management and administration of foreign-owned or for example, cancer, orthopedics, cosmetic, cardiovascular, joint-venture hospitals. dental, cosmetic, and neurological treatment, among others. According to McKinsey, about 25 percent to 30 percent of these Health services trade also occurs through the temporary patients are expatriates, another 30 percent–35 percent are movement of health personnel or mode 4, including health seeking emergency care, and the remainder are patients who professionals (physicians, specialists, nurses, pharmacists) go abroad to seek treatment (Horsfall and Lunt 2015). Patient and supporting manpower (paramedics, midwives, technicians, flows occur between developing and developed countries as consultants, trainers, health management personnel). Both well as intra-developing and intra-developed countries. There developed and developing countries are engaged in health is also much movement of patients within and across certain services trade via mode 4. There are mode 4 exports from regions, with the Asia-Pacific region accounting for the highest developing to developed countries, such as from India and share of global medical tourism revenues. the Philippines to countries in the Gulf region, or from Cuba to countries in Africa and the Caribbean on short-term contracts. Health services can also be traded through commercial The Middle East is an important host market for a wide range presence or mode 3, wherein hospitals, clinics, diagnostic and of health professionals from developed and developing treatment centers, and nursing homes may be established countries, including doctors, nurses, X-ray technicians, lab across countries. There may be joint ventures, alliances, and technicians, dental hygienists, physiotherapists, and medical management tie-ups between health care organizations across rehabilitation workers. It is to be noted, however, that although countries and regional networks of health care providers that mode 4 refers to temporary, not permanent movement of may be engaged in delivering health care through modes 1 health workers, migration statistics generally do not distinguish and 2 above. Such arrangements may involve acquisition of temporary from permanent movement and so it is difficult to facilities, management contracts, and licensing arrangements get an estimate of the magnitude of this form of health services with some degree of local participation to ensure access to trade.7 certified and adequately trained local persons and to ensure local contacts and commitment. The growing trend toward Table 1 summarizes the four modes by which health services commercial presence in health services is evident from the may be traded and provides examples of the kinds of services many regional health care networks and chains that have that represent each mode. 6 https://alliedmarketresearch.com 7 Under MSITS (United Nations [2012]), mode 4 covers the supply of services through the presence of foreign service suppliers either in their individual capacity or on a contractual basis or as intra-corporate transferees (that is, either as direct employees of a foreign service supplier or on contract through their affiliated firms). Such move- ment must be temporary (though this period is not specified) and the purpose should not be to enter the permanent labor market or for citizenship to qualify under mode 4. However, immigration statistics as currently collected do not provide for a clear distinction between mode 4 and larger cross-border mobility in different services. Further, data on health services are scarce, making it even more difficult to estimate the value of mode 4 trade in this sector. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 7 > > > TA B L E 1 . MODES OF SUPPLY AND RELATED HEALTH SERVICES Mode of supply Health services traded e-health services, telemedicine, teleconferencing, teleradiology. teleconsultation, Mode 1 clinical trials, claims processing, medical transcriptions, research and cross border supply development and experimental services, laboratory testing and trial services, (service crosses border) shipment of lab samples, tele-education, billings Mode 2 Specialized hospital and surgical care undertaken by foreign patients, health consumption abroad tourism, medical and nursing education for overseas students, alternative (consumer crosses border) therapies accessed in other countries Mode 3 Setting up of hospitals, diagnostic facilities, clinics, health insurance companies commercial presence through joint ventures, foreign equity participation, management, and other tie-ups (capital crosses border) Mode 4 Temporary migration of health professionals (physicians, nurses, pharmacists) movement of natural persons (supplier and supporting manpower (paramedics, technicians) crosses border) Source: Author’s construction Trade in health services is also associated with trade in although in practice, these are likely to be valued as trade related ancillary services, such as health insurance, medical in health services.8 There is also related trade in products education and training, and outsourcing services. However, as such as medical equipment, pharmaceuticals, and ancillary per the GATS classification, trade in these related areas would equipment, which are needed for the cross-border provision be considered under other service sectors, such as financial, of health services. education, and computer and related services, respectively, 8 Health-related and social services under the GATS comprise of hospital services, other human health services, medical and dental services, social services, and services provided by midwives, nurses, physiotherapists, and paramedical personnel. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 8 3. Implications of health services trade As with any form of trade, trade in health services can have both beneficial and adverse consequences, depending on the specifics of the country and its national health care system, the regulatory environment governing the health sector and related sectors, the policies adopted to facilitate or constrain this trade, and associated externalities. The following discussion outlines the potential positive and negative implications, both direct and indirect, of health services trade across the different modes of supply and provides some country examples to illustrate these effects. 3.1 Positive implications 9 Exports of health services, as with all other goods and services exports, benefit countries by augmenting their foreign exchange earnings, thereby supporting their balance of payments. This may arise due to the cross-border delivery of health services through telemedicine, or medical tourism-related foreign exchange earnings or employee compensation and remittances arising from cross-border mobility of medical personnel, or dividends and profits earned from investment overseas. These resources can potentially be used toward increasing capacity in the health sector for improving access to health care and other developmental needs. But beyond these standard pecuniary gains from trade, are the many spillover benefits from engaging in and investing in health services trade, both for the health sector and for the wider economy. These externalities may take the form of improved infrastructure, standards, technological upgradation, employment creation, and skilling with beneficial implications for equity, access, costs, and quality. Some examples across the modes highlight the nature of these spillover benefits. For instance, investments in physical infrastructure and human resources associated with telemedicine exports could be leveraged to deliver health services to remote and underserved areas and segments of the population within developing countries, to alleviate human resources constraints in these regions, to enable more cost-effective surveillance of diseases, and to provide affordable, timely, and better quality diagnostic services in poor countries. Efficiency gains due to telemedicine exports may also help increase the flexibility and efficiency of the health care sector by enabling 9 The discussion in this section draws upon Chanda (2017), Chanda (2001a and 200b), Chanda (2002), Adams and Kinnon (1997), Bettcher et al. (2000), UNCTAD/WHO (1997), and UNCTAD (1998). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 9 the use of interactive methods and more rapid and up-to-date treatment. Telemedicine imports under mode 1 can similarly services at lower cost. Hence, health services exports through provide wider access to health services at an affordable price. mode 1 and the associated financial and infrastructural They can alleviate some of the staff shortages for diagnostic resources to support such exports can enable developing services in importing countries. As some of these services countries to increase the capacity for delivering health services are contracted to countries where salaries are lower, there domestically, create employment, and generate profits. is also potential for cost-savings from outsourcing services like radiology. In a similar manner, exports of health services under mode 2 may not only provide additional resources to improve the health Similarly, imports via mode 3, that is, inward foreign direct care system but can also incentivize health care providers to investment (FDI) flows in hospitals and diagnostics, provide seek international accreditation to attract foreign patients, to additional financial resources for investment in the health invest in new technologies, skills, and specializations, and to services sector through the capital account of the balance raise the overall standards and quality of health care in the of payments. Additional benefits could take the form of country. There could also be spinoff benefits in terms of return upgraded quality, standards, and infrastructure; associated migration of expatriate health care professionals and improved inflows of human resources, technology transfer, employment retention of domestic professionals, thereby augmenting creation, development of skills, and specialization; and the human resources capacity in the health care sector. In an overall improvement in the productivity and standards the case of mode 4 exports, beyond the foreign exchange of associated health establishments, thus also potentially earnings from overseas health care personnel, additional improving access to quality health care. The availability of benefits can accrue from the upgrading and exchange of skills private capital and the development of private health care and knowledge, development of specialized expertise, and establishments could also reduce the burden on government associated improvements in standards and practices upon resources and help it to focus on public providers. Affiliations return to the exporting country. and partnerships with reputed health care establishments in other countries made possible by mode 3 imports can lead Thus, health services exports can give rise to pecuniary and to the transfer of technology, management techniques, and nonpecuniary benefits. However, the realization of these best practices. Similar benefits accrue across all modes, benefits depends on how the resources generated from involving a mix of capacity and quality, but the wider impact exports are deployed in the economy, to whom they accrue, on development depends on how governments spread these who captures the benefits, and what developing country benefits through taxes and subsidies, regulations affecting governments do to leverage and share these resources pricing and access, incentives, and redistribution measures. through appropriate policy instruments to meet development additional financial resources for investment in the health needs more widely. The key to realizing the outlined additional services sector through the capital account of the balance of benefits beyond the gains from export earnings is to utilize payments. Additional benefits could take the form of upgraded the capacity, infrastructure, and quality gains resulting from quality, standards, and infrastructure; associated inflows of health services exports for the wider benefit of the health human resources, technology transfer, employment creation, care system. development of skills, and specialization; and an overall improvement in the productivity and standards of associated There are also many developmental benefits that can arise health establishments, thus also potentially improving access from imports of health services, such as alleviating capacity to quality health care. The availability of private capital and and quality constraints and improving access to health care. the development of private health care establishments could For instance, countries that import health services through also reduce the burden on government resources and help consumption abroad can benefit from such trade as mode it to focus on public providers. Affiliations and partnerships 2 can be a means to overcome shortages of physical and with reputed health care establishments in other countries human resources in their health care sector and to address made possible by mode 3 imports can lead to the transfer their need for specialized and better-quality services at of technology, management techniques, and best practices. affordable prices. According to one study, the US health care Similar benefits accrue across all modes, involving a mix of system would save $1.4 billion per year if only 1 in 10 patients capacity and quality, but the wider impact on development were to go abroad for a limited set of 15 highly tradable, low- depends on how governments spread these benefits through risk treatments.10 Such imports can also ease the stress on taxes and subsidies, regulations affecting pricing and access, their health insurance systems and reduce the waiting time for incentives, and redistribution measures. 10 Mattoo and Rathindran (2005), Table 4, p. 20 EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 10 3.2 Negative implications regulatory frameworks governing such establishments, and the fiscal (tax and subsidy) policies that shape the effects on equity and access. On the import side, there are concerns Trade in health services may also have adverse implications relating to malpractice and liability, patient confidentiality and for welfare, depending on the policy environment and how data privacy, aftercare and the quality of treatment associated resources are used and distributed across different segments with mode 2. Further care sought abroad by the affluent of the health system. This is because the gains in capacity might become a substitute for required health care reforms or and quality need not necessarily translate into more equitable investments in the domestic health system. and affordable access to health services. There are potential tradeoffs in each mode of health services trade.11 This is mainly Likewise, mode 3-based imports of health services may come because there is an opportunity cost to investing resources to at the cost of huge initial public investments that may be needed enable such exports, which could be at the expense of access to attract FDI and domestic private sector establishments into and affordability. the sector. Typically, such establishments tend to be super- specialty providers and thus in developing countries the In the case of telemedicine services under mode 1, while provision of public funds and subsidies in the form of cheaper the enabling telemedicine infrastructure may be leveraged land or tax concessions or reduced duties on imports of for providing health care to remote and underserved areas medical equipment and devices to attract foreign commercial domestically and not only for exports, it is also possible that presence could implicitly involve a loss of revenues or a the resources invested in telemedicine would have been diversion of resources from other essential segments, such better invested in basic health care facilities, for immunization, as primary health care or even other development objectives. or curative facilities where there could be a bigger and more There could also be a greater skew between the public direct impact on the poor. There is a possibility that the kinds health care segment and a corporatized segment, which, in of technologies invested in for telemedicine exports may be turn, could result in the outflow of health personnel (often the too specialized and thus would serve only a small segment best and brightest) from the public to the exporting private of the population. Given the highly capital-intensive nature sector segment, if there is wide divergence in pay, working of telemedicine services, the opportunity cost in terms of conditions, standards, exposure, and career progression resource diversion from other forms of health care provision, opportunities. Further, if mode 3 establishments are largely can be high, especially when resources are constrained. focused on high-end technologies and treatments that do not address the needs of the general population, or if they are Exports based on mode 2 may result in a dual market too highly priced and thus cater to only the affluent section of structure, with a high-quality, expensive, more specialized the population who can pay out of pocket or to those who are segment catering to wealthy nationals and medical tourists adequately covered by insurance, then such imports would and a lower-quality, resource-constrained segment catering not necessarily address the equity objectives under the SDGs. to lower- and middle-income people at home. Differential Similarly, in the case of mode 3 exports, resources invested by pricing policies for the medical tourism versus domestic domestic providers overseas can potentially reduce resources segment could lead to “cream skimming” and crowding out available for health care investment domestically. of domestic patients to cater to higher-paying medical tourists unless the government requires establishments to serve the Mode 4 exports of health services can also impose costs local population or incentivizes cross-subsidization between on developing economies. Even though outflows of health the high- and low-paying segments. These potential negative care personnel in this context are to be distinguished from effects on affordability and equity and diversion of resources permanent movement (or brain drain), given the shortage may arise if the gains are appropriated by the private players of quality human resources in the health sector and publicly and a limited segment of the population, and the government funded and subsidized education received by health does not ensure that the potential benefits in terms of better personnel in many developing countries, such exports can standards and quality of care accrue to domestic patients. aggravate existing shortages of quality manpower for the There are also concerns that medical staff may be driven away home population and may involve a high opportunity cost from domestic services towards serving the higher paying where these subsidies could have been spent in attaining medical tourist segment. These negative effects and concerns other development outcomes. are, however, dependent on existing resource conditions, the 11 See Chanda (2001a and 2001b, 2002), Adams and Kinnon (1997), Bettcher et al. (2000), and UNCTAD/WHO (1997), UNCTAD (1998). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 11 3.3 Implications for global health security Overall, trade in health services is not unconditionally positive. there are distributional consequences, some gainers, and While there are financial, skilling, employment, infrastructural some losers, and it is the role of policy to shape these direct capacity, human resource, technology and spillover benefits, and spillover effects in a manner that does not aggravate there can also be undesirable ramifications for equity and inequities and can utilize the gains realized to compensate access. Hence, there is a classic tradeoff between equity and the losers or the wider economy. However, one can argue efficiency, between social and public good-related concerns that this balancing of equity-efficiency considerations is even and commercial interests. However, as the discussion also more important in the case of a sector like health (goods or highlights, whether these tradeoffs in terms of increased services) as the latter is a public good. dualism in resource distribution and access, internal brain drain, or overinvestment in certain segments of care arise These country-level effects have wider repercussions for or not is contingent on the existing conditions in the health health security and preparedness. Clearly, health services care sector. It depends on the availability of human and trade can enable countries to address both national and global physical resources, the quality of infrastructure, the degree of health security their health systems requirements in terms of insurance penetration, price, and subsidy policies, return and augmenting capacity domestically and globally through the reintegration policies for health professionals, how resources sharing of human, technological, financial, and infrastructural are invested in the health sector, and many others. In sum, the resources. There is scope to address specific gaps in the implications depend on the overall structural and regulatory health system, through imports and to use exports to upgrade environment in the health as well as related sectors. capacity at home and in other countries. Thus, trade in health services, if facilitated through bilateral, regional, and other The welfare implications of trade in health services are similar frameworks involving governments, regulators, and industry, to those associated with trade in goods or services in that can help address global health security. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 12 4. Determinants of health services trade Globalization of health services has been driven by a variety of factors, some on the demand side, some on the supply side. These are both macro-level general factors that affect trade in health products as well as services, and services trade-specific factors that are pertinent to one or more modes of supply. The following sections briefly highlight the general demand- as well as supply-side drivers of health services trade followed by a more detailed discussion of the factors that determine health services trade in individual modes of supply as well as the role of intermodal linkages and barriers in shaping health services trade. 4.1 Macro-level demand- and supply-side drivers There are numerous macro -evel drivers of trade in health services that have also influenced the growth in trade in health more generally. Among these numerous factors, key macro drivers on the demand side are demographic and economic development-related forces that have led to increased demand for health services (and products). Key macro drivers on the supply side are technological and research advancements, demographics, liberalization of trade and FDI policies, and deregulation of the health sector. Demographics are a major determinant on the demand side as rising longevity and aging populations have led to increased demand for health goods and services. In addition, with economic development and growing affluence, there has been increased awareness about health needs, a greater willingness to invest in health, and an ability to afford health insurance. Economic development has also led to changes in lifestyle that have caused increased incidence of chronic diseases, thus contributing to increased demand for preventive as well as curative services, including specialized treatments, raising the demand not only for health products, such as medical devices and pharmaceuticals, but also for hospital care, nursing and assisted care, telemedicine, and wellness. This internal demand has spilled over to cross-border demand for health services due to factors such as the lack of human resources and infrastructural capacity in many countries, high costs of health care, lack of insurance coverage, long waiting periods for some treatments, and the greater integration of countries with the world market through people, data, and capital flows. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 13 The supply of cross-border health services has been aided by coupled with growing ease of cross-border travel by patients the opening up of the health sector to trade, FDI, technology has, in turn, created incentives for health care providers in transfer, and outsourcing arrangements, alongside declining other countries to meet this demand by offering differentiated public sector expenditures on health care, which have health care services and taking advantage of the price resulted in greater private sector participation and increased differentials through different modes of supply. The supply of the number of suppliers of health services (hospitals, health services across countries has also been spurred by telemedicine providers, diagnostic facilities, and so on) as well the growing global orientation of health care providers as well as investment in related infrastructure across countries. The as government policies such as the creation of health care liberalization of related services such as telecommunications hubs, FTAs, and bilateral arrangements that promote trade in and insurance has also increased opportunities for supplying health services. health services across borders. Further, advances in technology and research, including the growth of information Thus, broadly, at the macro level, across the various and communication technology (ICT) and possibilities for modes of trade in health services, one can summarize the outsourcing and fragmenting health services delivery into determinants as structural (demographics and development different tasks (transcriptions, diagnostics, and so on) and linked), regulatory (trade, FDI, insurance, other policies), growing health care innovations have expanded the range of infrastructural (range, quality, and availability of facilities), tradeable health services on the supply side. Demographics, and technological (innovations, new segments, devices, coupled with other demand-side factors, are also an important and treatments) in nature. The following section provides a force in shaping the supply of health services. Markets with more detailed discussion of these four broad categories of aging populations and rising demand for health services determinants in shaping trade through individual modes of more generally, have led to a shortage of health workers in health services trade. many countries, affecting the costs of health care delivery, EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 14 4.2 Mode-specific demand-and supply-side drivers Mode 1, or cross-border trade in health services, has been Commercial presence or mode 3-based trade in health largely driven by advancements in ICT and declining costs of services is mainly driven by supply-side factors, in particular electronic delivery, which enable the separability of services, the liberalization of FDI in health care and growing private including health services, from the production process. This sector participation in the provision of health services through has created possibilities for telehealth, medical education, greenfield investments as well as mergers and acquisitions. health management, and the transfer and use of health data Increasingly, there is growing PE and venture capital funding and related diagnostics across countries. Investments in in health technology enterprises engaged in developing telecommunications infrastructure as well as the emergence applications and technology-based health solutions and of health technology startups and innovations have further delivery. Firm-specific advantages, technological innovations, fueled this form of trade. Other major driving forces for mode and the growing demand for health care have fueled cross- 1-based trade in health services are the growing acceptance border investments in different kinds of health services of telemedicine as a form of health care in recent years establishments, including hospitals, clinics, diagnostic facilities, and increased focus by governments on national telehealth telemedicine facilities, and health technology startups. programs and on creating telehealth capacity, trends which have been accelerated by COVID-19. The movement of natural persons or mode 4 trade in health services is caused by a variety of pull and push factors that Mode 2 or consumption abroad of health services is again drive migration. These include factors such as higher wages driven by a combination of demand- and supply-side factors. (driven by higher standards of living and shortages of workers), On the demand side, key factors include the ease of travel better working and living conditions, and more training and and declining travel costs along with increased insurance exposure opportunities that attract health workers from other portability across countries, which have prompted more countries. The absence of these favorable conditions and patients to seek treatment overseas, driven by lower costs of opportunities in the exporting countries for health care workers treatment and the availability of specialized and quality health on the flip side, serves as a push factor. Geographic, linguistic, care services in other countries, and long waiting periods, and cultural proximity between home and host countries, nonavailability of health care services, and stigma attached the extent of economic integration between them, and to certain treatments (like assisted reproductive technologies thepresence of diaspora networks are also important factors. and surrogacy) in the home country. Differences in costs are a Underlying these forces are the aforementioned macro-level major driver. Patients from developed countries can get bypass forces such as population dynamics and aging, which affect surgeries, transplants, and other specialized care done at the demand and supply conditions and wage differentials for one-fourth or one-fifth of the cost in high-quality corporate and health personnel in sending and receiving countries. There super-specialty hospitals in developing countries like India. are also health sector-specific policies and practices, such as In addition, the growth in tie-ups and collaborations between human resource management issues in sending countries, medical establishments and practitioners across countries and which create incentives for outward mobility. Such trade is proactive policies in many countries to promote themselves as also influenced by regulations concerning entry and stay as medical tourism hubs in specific segments, including wellness well as qualification and recognition requirements in receiving tourism, spas, and alternative therapies, leveraging natural countries. Likewise, proactive policies in some source endowments and niches. Governments also incentivize the countries to export health care workers under bilateral mobility establishment of corporate hospitals through fiscal and other arrangements also contributes to such trade. An important incentives, enabling the export of health services through point to note though is that it is often hard to distinguish mode 2. International accreditation by hospitals has also between permanent and temporary mobility and thus which spurred growth in mode 2 trade in health services. Factors, part of such movement of health workers pertains to trade such as geographic, linguistic, and cultural proximity and in health services under mode 4 as opposed to migration diaspora networks influence the pattern of this trade within more broadly. Movement under bilateral arrangements or and across regions, and between certain countries. establishment-based tie-ups can be related to mode 4 trade while much of the other movement driven by differences in living standards and career advancement is largely the long- term migration of health workers. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 15 4.3 Mode-wise barriers in the host country. There may also be restrictions on the exporting country’s side—typically due to concerns over the loss of human capital in the health sector—that prevent the There are also numerous regulatory, infrastructural, and mobility of health workers from the country to other markets. human resource-related barriers that constrain trade in health Increasingly, the global mobility of health care workers and services across all four modes. For instance, trade in mode 1 related trade in health services is affected by importing country is affected by restrictions on the transfer of personal data and adherence to international governance mechanisms, such as data localization requirements under data privacy and patient ethical recruitment codes and intergovernmental agreements confidentiality regulations. Limitations of internet connectivity, (for example, the Commonwealth Code of Practice, the World bandwidth, telecom quality, and costs are also impediments. Health Organization’s (WHO) Ethical Recruitment of Health The lack of sound legal frameworks for digital trade in potential Workers) to ensure that such trade does not result in brain exporting countries can constrain prospects for telemedicine drain in source developing countries and adheres to certain exports to other countries. principles and norms. Mode 2-based trade in health services is affected by the In general, across the modes, the absence of sufficiently lack of insurance portability (especially under national health skilled and trained manpower, in terms of lacking sufficient insurance systems), issues of cross-border liability in cases of numbers who can provide specialized health care, are malpractice, as well as visa and foreign exchange regulations. equipped to utilize medical technologies, and can apply ICT Conditions imposed by insurance providers (requirements for in health care delivery, is a major constraint to exports of accreditation of the establishment providing the service or health services. There are also fewer tangible factors, such recognition of the qualifications of the health care provider) as perceptions about the quality of health professionals and affect the scope for overseas treatment and thus constrain of health care facilities in other countries, about standards consumption abroad of health services. affecting the management of electronic medical records, or about difficulties with cross-jurisdictional malpractice Mode 3-based trade in health services is largely constrained liability, which negatively affect imports of health services. by restrictions on foreign ownership as well as the lack of Furthermore, information and search costs, cultural attitudes supporting physical and other infrastructure and the lack of an and prejudices, and transactions costs are also intangible enabling environment. Policies concerning taxes, subsidies, barriers to trade in health services, especially modes 2 and 4. acquisition of land, and other clearance and regulatory processes as well as the high costs of procuring medical equipment and technologies can also act as barriers. 4.4 Summarizing the drivers and constraints Mode 4-based trade is affected by immigration and labor market regulations, including visa caps, economics needs tests, labor market tests, and labor certification requirements, We summarize the range of demand- and supply-side forces among others in host countries and the lack of recognition of that affect trade in each mode of health services trade in the qualifications as well as nationality and residency conditions following tables. These capture the wide range of factors that that affect the scope for practice by foreign health professionals both facilitate and constrain such trade. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 16 > > > TA B L E 2 . Demand- and Supply-Side Factors Influencing Mode 1 Trade Demand-side factors Supply-side factors Facilitating factors: Facilitating factors: High cost of domestic service Workforce with language skills and qualifications Volume and timing requirements outstrip domestic workforce Technical infrastructure Constraining factors: Constraining factors: Professional and public perception of ‘offshoring’ (diagnostic) Secure electronic environment services Infrastructure (e.g., bandwidth) cost Professional licensing Legal uncertainties and ambiguities Lack of insurance coverage for foreign providers Recognition of qualifications Consistent technical specifications > > > TA B L E 3 . Demand- and Supply-Side Factors Influencing Mode 2 Trade Demand-side factors Supply-side factors Facilitating factors: Facilitating factors: Domestic non-availability High quality High domestic cost Low cost Insurance portability Availability Low-cost air travel Pro-active government & private sectors Long waiting periods with national health care providers Presence of world class establishments providing low-cost, Demand for specialized and alternative treatments high-quality treatment Interest in health cum tourism Availability of qualified manpower Availability of specialized, niche, alternative treatments Policies facilitating investments in multispecialty hospitals Policies facilitating supply of qualified manpower Streamlining of visa procedures for medical tourists Private sector initiatives Growth in telemedicine and foreign investor hospitals Integration of health with tourist facilities Constraining factors: Constraining factors: Lack of insurance portability Meeting standards for care Restrictions on reimbursement by national health care pro- Recognition of foreign insurance vider Lack of recognition of qualifications Problems of cross border payment arrangements Lack of accreditation of health care establishments Medico- liability regulations Restrictions on the operation of foreign health insurance companies Regulations on patient safety EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 17 > > > TA B L E 4 . Demand- and Supply-Side Factors Influencing Mode 3 Trade Demand-side factors Supply-side factors Facilitating factors: Facilitating factors: Desire to increase health care funding Low cost of infrastructure, staff etc. Need for facilities to service ‘health tourists’ (see mode 2) Increasing market for high-end services Desire for skills and technology transfer Trans-national mergers and ‘parent-affiliate model’ Rising incomes/expectations Openness of health system to private sector activity Diaspora contacts Cultural/geographic closeness Constraining factors: Constraining factors: Concerns of private-sector involvement in health care sector High risk/high investment/low returns Cultural/geographic distance Public ownership/control of health sector finance and/or Concerns over internal ‘brain drain’ to foreign facilities production National regulatory policies on private-sector involvement in health care sector Concerns over country stability/ governance Local knowledge > > > TA B L E 5 . Demand- and Supply-Side Factors Influencing Mode 4 Trade Demand-side factors Supply-side factors Facilitating factors: Facilitating factors: Insufficient supply of domestic health workers Remuneration/welfare conditions Demographic, social, and other forces increasing demand Job satisfaction Problems of retention and human resource management Resources and facilities International recruitment campaigns Career opportunities Relaxing immigration requirements Educational and training opportunities Bureaucracy and corruption Occupational risks Government policy to obtain remittances Bi/multi-lateral trade agreements Constraining factors: Constraining factors: Professional licensing Socio-cultural differences Qualification recognition Cost of relocation process EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 18 4.5 Interlinkages It is also important to recognize that the different modes of On the opposite side, restrictions on the movement of trade in health services are interlinked and may be used in health professionals may lead to the substitution of mode combination as complements or may act as substitutes and that 4-based trade with mode 1- or mode 2-based trade in health barriers affecting one mode may affect trade in health services services in feasible segments. While modes are not always through other modes, either positively or negatively. These good substitutes for one another, one or more modes may linkages can enhance health services trade by facilitating often serve as second-best outcomes in the presence of sequential associations and complementing simultaneous impediments affecting a particular mode. Factors such ones. For example, there may be joint venture-based FDI in as technology, consumer preferences, the regulatory hospitals (mode 3), which, in turn, helps attract patients from environment, infrastructure, and human resources, all of which partner countries or third countries for specialized treatments drive trade in health services, also influence the intermodal (mode 2) and may result in supporting teleconsultation and linkages in health services trade. telediagnostic services (mode 1) pre- and post-treatment. The investment in health establishments may also be accompanied There are also linkages with trade and investment in other by the movement of physicians and nurses (mode 4) between areas, including health products (medical equipment, drugs, partner countries. Thus, health services trade often occurs in medicines), research and development, education, and the form of an integrated package involving multiple modes insurance, which have a bearing on prospects for trade in at the same time or by creating supporting opportunities for health services. The main policy implications of such within trade in other modes.12 Inward FDI in hospitals and telehealth and across sector linkages in health services trade are that an facilities can increase the inflow of foreign patients and can integrated and broader view of health services trade is needed simultaneously facilitate telehealth services exports from that recognizes these linkages. For instance, an export the country hosting the FDI. A health care provider may also strategy focusing on modes 2 and 1 of health services would choose to use multiple modes of supply to realize economies need to simultaneously factor in concerns in the tourism, of scale and scope. information technology, and insurance sectors. Policies need to be coherent so that the full potential for trade in health services is realized. 12 Chanda, R. (2006) EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 19 5. Concluding thoughts The preceding discussion has discussed the many factors, both cross-cutting and mode-specific that shape trade in health services. It has also discussed the barriers impeding such trade and the links between different forms of trade within the sector and within developments in related areas outside the sector. Drawing on this discussion, one can derive a conceptual framework that consists of the broad enabling pillars for such trade. Along the lines of the Porter model, there are four key enablers, namely, (a) demand conditions; (b) factor market or supply-side conditions; (c) the supporting ecosystem and business environment; and (d) technology and innovation. Demand conditions refer to the presence of affluent and informed consumers who demand access to health services that are supplied across borders via the movement of data/information, patients, capital, or health workers. Factor market or supply conditions can be inherent or created and refer to the availability of human resources and other infrastructure needed for the supply of health services domestically and across countries. The supporting environment includes aspects, such as the market structure (extent of commercialization), business models and strategies, and market conditions, such as the regulatory environment for trade, investment, data protection, and immigration, among others. The fourth pillar of technology and innovation relates to new opportunities, segments, and modalities for trade in health services. In addition, there are also influencing factors, such as specific intergovernmental agreements and strategies and exogenous shocks in the form of pandemics and other crises that affect each of these four pillars and consequently, the incentives for trade in health services. Government policies can not only strengthen existing advantages of countries in exporting health services but can also create new sources of advantage, thus influencing the magnitude of trade in health services and the resulting implications of such trade. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 20 The discussion also highlights that trade in health services latter involves taking a broad policy direction that addresses has both positive and negative implications. While trade in structural issues in the health care system; seeking synergies health services can potentially improve access to health care, between health services trade and the rest of the health care it may also pose challenges for equity. The consequences system; making policy considerations that maximize the depend on a country’s health care system, the regulatory cross-sectoral positive externalities and minimize negative environment governing the health sector and related sectors ones; leveraging synergies across modes; and using national and policies adopted to facilitate or constrain this trade and its policies as well as multilateral and regional cooperation externalities. Hence, governments need to adopt policies that to ensure the development benefits from such trade. The can balance the competing concerns of equity and efficiency. ultimate objective should be to use forward and backward This requires taking a nuanced approach to providing a linkages between the domestic supply of health services and supportive regulatory and infrastructural environment so that external markets through trade in health services to enable the the potential gains associated with health services trade can development of a more competitive and sustainable domestic be enhanced while the negative effects can be minimized. The health care sector. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 21 References Adams O., and C. Kinnon. 1997. “Measuring Trade Liberalization against Public Health Objectives: The Case of Health Services.” WHO Task Force on Health Economics, Technical Briefing Note, WHO, Geneva. Bettcher D., D. Yach, and G. Emmanuel Guidon. 2000. “Global Trade and Health: Key Linkages and Future Challenges.” Bulletin of the WHO, 78(4). 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