Today, increases in the demand for healthcare are driving European governments to look for ways to control growth in healthcare expenditures and at the same time improve health outcomes. Consideration of ways to enhance trade in healthcare goods and services is important for governments as they struggle to find resources to finance this increasing demand for healthcare.
TTIP and the Health of Nations
Today, increases in the demand for healthcare are driving European governments to look for ways to control growth in healthcare expenditures and at the same time improve health outcomes. Healthcare demand will most likely grow even faster in future decades as the European population continues to age – with 20% of the population predicted to be over the age of 65 by 2025 – and other demographic shifts take hold. Consideration of ways to enhance trade in healthcare goods and services is important for governments as they struggle to find resources to finance this increasing demand for healthcare.
Trade has a natural role in healthcare – and countries already trade extensively in medical equipment and pharmaceuticals, for example. Now it is time to expand the role of trade in healthcare – and there is no better way to begin that process than through the Transatlantic Trade and Investment Partnership (TTIP).
TTIP is an opportunity for Europe and the United States to lower the cost of providing high-quality healthcare and support better health outcomes. Trade is an integral part of healthcare, and current obstacles to trade raise the cost for healthcare systems to deliver better healthcare to patients. In the healthcare sector, costs of trade (like tariffs and regulatory divergence) cannot be passed on to consumers as they can in other sectors. Trade costs rather depress the amount and quality of healthcare that can be offered to patients.
To improve the conditions for trade in healthcare goods and services is not a veiled effort to make public healthcare systems private. Nor will TTIP or any other trade agreement have that effect. The key role of TTIP is to reduce the cost of key inputs to healthcare delivery that are already traded. In Europe and the United States, two very advanced healthcare markets, TTIP can help to spur specialisation by helping companies to access markets for new and innovative products in a faster way.
Like other sectors, the healthcare sector needs big markets and a connected world to allow for fast and cost-effective innovation bringing new opportunities to treat illnesses and end suffering. While it is difficult to foster more cross-border healthcare cooperation between countries in large and multilateral trade deals, TTIP offers a chance to improve access to healthcare innovation by reducing artificial transatlantic barriers that only serve to raise the barriers to provide high-quality affordable healthcare.
A healthcare agenda for TTIP is important for both the European Union and the United States, as they are the leading players in the market for healthcare goods and services. They have strong export and import interests. As the healthcare market gets more specialised, the EU and the US need bigger markets to make especially new healthcare technology affordable.
Healthcare and Trade – A Natural Partnership
Trade costs for new technology can be significantly reduced. Tariffs are not the big problem. Trade costs are expanded by divergences in regulation and because the trend of increasing regulation disconnects market from each other. That disconnection needs to be reversed – and the EU and the US can do that in TTIP without lowering the ambition of regulation.
Healthcare is increasingly dependent on input services like logistics and data. These services are critical for the modernisation of healthcare as well as the ambition to make healthcare accessible for all. A healthcare agenda in TTIP needs to focus attention on such services and ensure that markets are not fractured by neglect.
Modern trade policy is about improving the quality of institutions. Trade policy should help to foster greater transparency and predictability in the way institutions operate. For instance, governments need to become more transparent about their policies and strategies for reimbursement of healthcare services and input, including in the procurement of goods and services. They need to give greater attention to providing core institutional support against threats to innovation. TTIP, like previous trade agreements that the EU and the US have entered with South Korea, should improve the institutional quality of healthcare policy.
Trade is important to make healthcare more innovative and affordable. European healthcare systems have obvious supply constraints. But the constraints can be different between countries and show significant variation also within factors of healthcare inputs. Some, but not all, of these constraints reflect factor endowments, the way that core factors of production – like labour, human capital or physical capital – operate. Trade is a combination of factor endowments crossing borders, and if they would be allowed to do so also in healthcare delivery, the depressing effects of healthcare supply constraints would naturally ease.
Determinants of trade are already having an impact on the composition of healthcare services, but not in a rational way. It is limited to strategies of ‘outsourcing’ within a given organisation and system – and those limitations prevent a faster rate of healthcare specialisation. If countries trade rather than just outsource, healthcare systems would use their resources in a smarter way.
There is significant variability also in healthcare demand. Even if most countries in Europe are moving in the same demand direction in the aggregate (due to ageing, higher income, and other factors) there is variability between countries about the exact direction and its speed. Natural demand variability is yet another factor that determines trade and that should be better coordinated in healthcare systems. Trade is that natural coordinator.
Most studies show that labour productivity growth in healthcare is low or stagnant. There are proven ways to improve the productivity of healthcare by combining factor endowments in smarter ways. This is already done within national or regional healthcare systems, albeit at a small degree. But the absence of having a combination of factor endowments across borders limits the capacity to improve productivity for both low-skilled and high-skilled healthcare delivery.
Productivity reflects the input of technology – and the organisation around investments in technology. European healthcare systems generally have a comparatively low technology and capital intensity in healthcare – and this intensity is likely to climb faster than in other countries just because European healthcare systems need to catch up. Variations in technology intensity also reflect different factor-endowment strengths and weaknesses.
The organisation around technology investments can lower the output effect of investments in technology. It is a consequence of not utilising the investment and lack of complementary investment. Trade can help to cut trade costs of technology – and improve utilisation by matching supply and demand.
A TTIP Agenda for the Healthcare Sector
The promise of TTIP is to usher EU and US trade policy into the twenty-first century. It should address trade barriers that prevent the European and American economies from moving up the value-added chain. The healthcare sector, which is far more constrained by trade barriers than many other sectors, should be a core area for TTIP. A healthcare agenda for TTIP could help to reduce the cost of healthcare innovation at the same time as it boosts transatlantic trade and delivers better healthcare outcomes
Remaining tariffs for healthcare technology and equipment should be eliminated. Divergences in regulations should be reduced in areas where both sides share the regulatory objective. Market access and rules for key services inputs for the healthcare sector should improve. Both sides should improve transparency and predictability in regulations and the way that healthcare institutions operate. Importantly, the EU and the US should broach a new strategy to improve market access and rules for healthcare trade globally. The healthcare sector is accelerating the speed of innovation, but regulations must enable new innovations to reach patients in a safe and affordable way.