Feature

The health cost of free trade

Global ‘free trade’ rules threaten the integrity of basic services such as health and water – and the General Agreement on Trade in Services should come with its own health warning, says John Hilary

Remember the good old days when global trade rules just covered bananas, coffee and tuna? Now, as the World Trade Organisation (WTO) expands into areas previously untouched by its ‘free trade’ agenda, the integrity of such basic services as health, water and sanitation is under threat.

With increasing pressure on governments to allow market forces and privatisation into basic service sectors, there are serious concerns about the health impact of the WTO’s trade regime.

GATS – the General Agreement on Trade in Services – is the framework under which the most powerful trading blocs, such as the EU and USA, are pushing for increased commercialisation of health and water services across the world.

Adopted as one of the key pillars of the new global trade structure in 1994, GATS works through successive rounds of liberalisation to create new markets for foreign service providers, such as private hospitals, clinics and medical insurance companies.

Although countries are supposed to be allowed to proceed with liberalisation in line with their own needs and priorities, it is the commercial interests of private sector providers that are forcing the pace.

This pressure for increased private sector involvement in basic services risks exacerbating problems of equity, quality and capacity in public health systems, many of which are already under severe strain. Research by Save the Children has revealed how increased commercialisation threatens children’s right to health.

The introduction of cost-recovery programmes in the health sector (often under pressure from the International Monetary Fund and the World Bank) has forced many families into a ‘medical poverty trap’, whereby they have to choose between incurring long-term debt in order to pay medical expenses or simply foregoing even essential health care.

In Vietnam, for example, a country known for its achievements in sustaining low infant and maternal mortality rates in the pre-liberalisation period, the introduction of fees for health care has led to greatly increased inequality in access to such care between rich and poor families. Half of poor households with a family member who need medical care are now forced to borrow money or sell livestock to meet the expenses, with chronic illness leading families into severe debt. As a result many families have kept their children away from health clinics: the number of public health care consultations halved in the first seven years following the introduction of liberalisation in 1986.

Private sector ‘cream skimming’

For developing countries with failing health systems, private investment can seem an attractive source of capital and medical technology at a time when other resources are thin on the ground. Yet involving private companies in health care has the potential to marginalise poorer patients even further.

Companies seek markets in which they can be assured of sufficient returns, and this typically concentrates investment in more affluent areas. Loans provided by the World Bank’s International Finance Corporation, for instance, are predominantly directed towards expatriates and the richer communities of the country in question, not the majority of the population.

This practice of ‘cream skimming’ is already familiar from the field of private health insurance; insurance companies and health maintenance organisations (HMOs) typically favour the healthy and wealthy over high-risk customers, and exclude the latter by means of prohibitive premiums.

Similarly, in terms of direct health care provision, the private sector’s profit-making imperative makes it of limited relevance to those sections of society that are unable to pay for its services, even though it is they who need the extra investment most.

Yet private investment in health care is not simply an irrelevance to poor people. An expanding private sector draws professionals away from public health systems and exacerbate shortages of trained and qualified staff. This was evident in Thailand, for example, during the 1980s and 1990s.

Often it is the most highly skilled staff who make the move to the private sector, lowering the overall standard of care in the public health system.

More generally, cream skimming undermines the very ability of public health systems to sustain themselves financially, as it denies the basic principles of cross-subsidisation and risk-pooling by which the healthy support the ill, the young the old, and the rich the poor.

Profit before quality

There are potential conflicts of interest between commercial pressures and public health goals when private companies are introduced into public health services. In industrialised countries this has commonly meant poorer quality services as a result of cost-cutting, often through the substitution of casual for skilled labour.

It has also led to service planning being led by financial rather than clinical imperatives, with accompanying reductions in the clinical workforce and service capacity.

In the US, where the health care market has become increasingly competitive, HMOs have responded by pressurising doctors to withhold treatment from patients. By means of performance-related pay mechanisms linking their income to the clinical costs they incur, doctors are encouraged to refer the lowest possible number of patients to specialists or to hospitals. Those who minimise costs get bonuses, while doctors who generate above-average costs risk expulsion by the HMO.

In developing countries, commercial pressures lead to similar cost-minimising strategies. One study of private clinics in Malaysia revealed that many fail to assess new clients properly in their provision of family planning services, with cervical screening undertaken only if requested. Conversely, private practitioners in Egypt have been found to be less likely than public sector workers to administer (inexpensive) oral rehydration solution, and more likely to prescribe antidiarrhoeal drugs – even though the latter are contraindicated in the country’s national programme.

Involving private companies in the health sector requires very definite structural conditions if it is not to damage the quality of health care delivery in systems which are already under severe strain. As the WHO has stressed, national and regional health authorities need highly developed regulatory, analytical and managerial capacity if they are to see any benefit from working with the private sector.

But in the majority of poorer countries, this regulatory capacity is simply non-existent. As a result, the introduction of private sector investment threatens to divert care from public health priorities and to compromise quality of health care further.

Worse still, GATS itself undermines the ability of governments to regulate services in the interests of public health, as it requires countries to limit regulations so that they do not restrict trade (see box opposite).

Privatisation of water

As with health care, increased commercialisation has further restricted poor families’ access to clean water and sanitation in many parts of the world. Cost recovery and water privatisation schemes have typically involved significant price rises, often putting water well beyond the reach of low-income households.

In Ghana, for example, where the World Bank is making water privatisation one of the conditions which will trigger hundreds of millions of dollars in additional loans, it is feared that water tariffs could rise by up to 300 per cent – well beyond the means of most families. And low-income families in the Mauritanian capital Nouakchott now have to spend up to a fifth of their household budget on water.

Where households are unable to sustain such a level of expenditure, children are often exposed to health risks from water collected from rivers or other untreated sources. More than two million children die from diseases related to water and sanitation every year, while millions more suffer from health problems such as schistosomiasis and intestinal worms.

Despite the health problems that increased commercialisation of water services brings, the European Union is trying to use the current round of GATS liberalisation to open up public water systems in countries around the world. Documents leaked in April 2002 reveal how the EU is targeting the water sectors of other countries for penetration by its own private water companies.

At the same time, US health companies are urging their government to push for increased market opportunities in foreign health sectors. As the powerful Coalition of Service Industries reminded the US Trade Representative at the start of the current round of GATS liberalisation: ‘Contestable markets in every sector and in every WTO member is the ultimate goal.’

Together with groups in many other countries, Save the Children is campaigning for a halt to the GATS liberalisation process. Increased commercialisation of the health and water sectors is the wrong model to adopt if we are serious about providing universal access to basic services. There must be an informed public debate at both national and international level on the alternatives to liberalisation, and an end to profit-led privatisation schemes. Only then can we hope to provide children throughout the world with their right to a healthy future.

FIND OUT MORE

The Wrong Model: GATS, Trade Liberalisation and Children’s Right to Health

Available free of charge from Save the Children: request by email from j.hilary@scfuk.org.uk