Laissez Faire Medicine

Many, many years ago, the Nobel Prize-winning economist Kenneth Arrow wrote an article about asymmetry of information in medical care (your doctor knows more than you do).  Since then, countless textbook authors, op-ed writers and policywonk briefers have seized on Arrow's observation to argue that a free market  will not work in health care.  Ergo, we need a regulated, institutionalized, bureaucratized market – like what we have in the US and almost everywhere else.

The problem with this line of reasoning is that it commits what logicians call the fallacy of the excluded middle.  The unstated, and therefore unexamined, minor premise is: regulated markets can solve the problem, or at least do better than free markets.  As it turns out, this minor premise is difficult, if not impossible, to defend.

What brings all this to mind is medical tourism.  In the international marketplace a booming, bustling, vibrant, completely free market for medical care is emerging.  Indeed, the words "free market" do not do it justice.  It's as close to laissez faire capitalism as anything Adam Smith might have hoped for.

And guess what?  In this market, patients are getting information about price, quality, you name it – the very information no one can get back home.  The reason: since almost all "medical tourists" pay with their own money, providers compete based on price and quality.  By contrast, providers back home do not compete based on anything.

[Note to Secretary Leavitt: If you want transparency in health care, no need to beg and plead.  Just outlaw third-party health insurance.]

Here's what's happening.  Estimates vary, but as many as half a million Americans travel outside the United States for health care every year,  and the number is growing by leaps and bounds.  Amazingly, 70,000 British patients (who are supposed to be getting health care for free!) will leave the UK this year for health care abroad.  These patients are going to such places as India, Thailand and Singapore, as well as countries south of our border.  Americans are finding package prices (that may include airfare and hotel rooms) that are one-third, one-fourth or even one-fifth of what they would pay in the US.

Virtually every major US insurer is actively studying how to enter this international market.

Despite lower cost, the quality of health care abroad can be high.  For example:

  • Foreign doctors are often board certified in the United States.
  • About 140 hospitals abroad are accredited by the Joint Commission International (an arm of the organization that accredits American hospitals participating in Medicare), and that number will double in the next few years.
  • Some foreign hospitals are owned, managed or affiliated with prestigious American universities or health care systems such as the Cleveland Clinic and Johns Hopkins International.
  • The best foreign hospitals not only post quality data (e.g., their case-adjusted mortality rates), they compare their rates to those at the best US hospitals.
  • There are even medical travel bureaus that help patients find high quality care to meet their needs.

In general, quality is not a medical problem, it is a political problem.  Host countries must be willing to allow facilities to operate that cater to foreigners and provide a level of care to which most local citizens do not have access.

Here is my favorite Uwe Reinhardt quote: Medical tourism "has the potential of doing to the U.S. health care system what the Japanese auto industry did to American carmakers."

Here is my prediction: Long before the last American hospital closes its doors, the industry will undergo radical change.  Already there are centers of excellence around the country gearing up to (you guessed it!) compete on price and quality.

To view the NCPA's new study on medical tourism, go to 

Comments (14)

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  1. Bill Waters says:

    Well thought out and said. People make their own decisions on food, clothing, shelter, transportation, employment—all more essential than health care. Government would make a mess on those if they intervened.

    Are they saying that the consumer doesn’t know enough about medicine and so the decisions should be left to the high-school dropouts and marginal graduates who answer the phone?

    They are doing a sorry job.

  2. Steven Bassett says:

    Wonderful! I say “Amen” even with Uwe — and amen means “let it be so”. If Uwe “breaks bread” with the payers maybe he will encourage them to incorporate foreign hospitals into their networks as BCBS SC has done.

  3. Chris Ewin says:

    Great comments…Especially:
    Note to Secretary Leavitt: If you want transparency in health care, no need to beg and plead. Just outlaw third-party health insurance.
    We (SIMPD) couldn’t agree any more.

  4. John R. Graham says:

    I was on a panel discussion a couple of weeks ago with a gentleman from a regional hospital trade association in Southern California and I was amazed how we clashed. He blamed Rx spending for out-of-control health costs and denied that any cost-shifting occurred!

  5. Dennis Shea says:

    I always enjoy reading your comments, but had to react to this. I don’t think any conservative would support using the power of government to “outlaw” third party insurance. Certainly, government needs to change to level the playing field between current insurance arrangements and alternatives, but let’s not actively encourage government to take on any additional powers in restricting mutually beneficial contracts, even if they take the form of third party insurance.

  6. Marti Settle says:

    So, John, Why did I travel to Mexico to get my Lap Band for $6500 total ( all costs included except airfare) instead of paying $20,000 US?

    By the way, the Mexican Surgeon was so good he only needed four tiny incisions instead of the normal 5 incisions. By the way, most American lap band surgeons have been trained by the elite surgeons from Mexico.

  7. Bob says:


    The major concern about medical tourism is that once the patient returns home, if a complication occurs where do they turn? Kind of like the Cooper Clinic. They are the most expensive show in town, but all they do is examine and perform tests. Once you are out of there, if you have a problem, they WILL NOT take care of you. With medical tourism, if a cardic patient has an expensive procedure overseas, and gets into trouble once home, a local physician might very easily say “sorry, call the doctor who took care of you”. And in many instances, I am not sure that I wouldn’t agree with that response.

    That is why we need to fix the system. Merely having the surgery overseas saves the patient money, but it doesn’t solve the bigger problem.

    How do we eliminate the TPA’s? I’m all for it.

  8. Roger Beauchamp says:

    Amen. If we can transition out of third party payment, we will be the host for medical tourists because value for the health care dollar will be restored.

  9. DLW says:

    Hello John,

    What an excellent articla and great link to the NCPA. I am co director of America’s Medical Solutions Pvt. Ltd., an Indian medical tourism company located in Bombay (Mumbai), India. We three directors are all Americans serving our fellow Americans and other westerners. Your article hit the nail on the head even as our existence and services should prove. We also appreciate anything you or your readers are doing to correct the federal Stark laws, but feel that Laissez Faire Medicine can even take care of this problem all by itself too.


    Don Wood

  10. Dick Downing says:

    A good friend of mine needed about $12,000 worth of dental work done. He decided to go to Costa Rica to sae some money. The bill for the dental work was approximately $750.00. Since he had to stay around for a week to get the crowns made he rented a motorcycle and toured the island. He checked out the rain forest, the volcano, and both the Atlantic and Pacific coasts. His round trip plane fair from the DC area was around $500. His medically supervised lodging with a couple of meals a day ran about $60 or 70 dollars a day.
    I’m planning on going down soon. I need to have a couple of implants done. Down there they do same day implants which means you don’t have to wait for them to heal and adhere for 6 months and then go back down. They can be chewed on with care the next day. I was just in to see my dentist on another matter and he took a look at the rest of my teeth. He insists that most of them need root canals, pins, build up and crowns. On top of the implants that would be done by another dentist his estimate was $18,347. The implants, build up and crowns would be around another $8400.00 here. I’m in the process of getting estimates currently but my friend says with the implants it will probably cost somewhere in the $3000.00 range.

  11. You can pay a lot of money to a cosmetic surgeon in the States or you could go to medical tourism destinations like India, Argentina, or Thailand and received the same treatment for a fraction of the cost. Medical tourism provides you with affordable options for face lifts, Botox, liposuction, and breast implants.

  12. Truda says:

    The major concern about medical tourism is that once the patient returns home, if a complication occurs where do they turn? Kind of like the Cooper Clinic. They are the most expensive show in town, but all they do is examine and perform tests

  13. […] National Center for Policy Analysis has written a good bit about medical tourism, the U.S. hospital reaction to medical tourism, and those shopping for health care. Here is the […]

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