American Journal of Law & Medicine

International law, telemedicine & health insurance: China as a case study.


Whosoever commands the trade of the world commands the riches of the world and hence the world itself.

Sir Walter Raleigh

The 1975 movie Rollerball predicted that in the year 2018 the nation-states of the world would be supplanted by city-states producing specialized products. (1) For example, Rollerball predicted that Houston would have a monopoly on the energy market. For many years the discussion of such a future was limited to the annals of science fiction. This, however, is no longer true as commentators on globalization increasingly view the geopolitical world as having Rollerballian aspects. (2) So a reasonable question to contemplate is whether such a future is applicable to healthcare; i.e., will there be a single city providing healthcare services to the world?

The short answer is probably "no" for two reasons. First, Ricardo's theory of comparative advantage, (3) which is the intellectual underpinning of the fictional Rollerball and the actual phenomena of globalization, is too idealized a concept to become reality. (4) Second, by dividing today's world population of 4 billion people by the ideal Rollerballian city-state population of 2.5 million, (5) would mean that world of 2018 would have 160,000 city-states that would have to negotiate trade relationships. (6) Given this unwieldy number of political units, it is reasonable to presume that our current global community of about 160 nations and existing international trade laws will remain more or less intact. (7)

Yet Rollerball's vision of the future is not entirely without merit. Globalization of telemedical services is already a reality. (8) Ultimately, telemedicine is likely to mean that far fewer healthcare institutions will be needed; (9) and conceptually a handful of cities might be able to provide specialized healthcare services to the world. Moreover, because of the worldwide expansion of both health insurance and capital markets, (10) the increased ability of patients to pay for medical services indicates that today's telemedicine market should continue to expand in parallel with the global expansion of the insurance market. (11) In fact, as health insurance becomes available worldwide, and entrepreneurial healthcare providers in the U.S. become increasingly embroiled in domestic market competition, U.S. providers are likely to view telemedicine as a method to expand their markets overseas to developing countries in order to capture "fantastic" profits. (12)

Of course, the opening of international telemedical markets will mean that for the first time, healthcare providers will need some understanding of international law. Yet few healthcare providers, or their attorneys, have any insight into classic international law, let alone international law that might apply to Rollerballian multinational telemedical centers. Accordingly, this article seeks to stimulate discussion on the impact of international law on the global practice of telemedicine by looking at the effect of health globalization on China as a case study. (13)

Part II of this article begins with a discussion of cardiac surgery. This section demonstrates that international telemedicine need not be a one-way street where medical jobs move from developed to developing countries. Rather, under some conditions developing nations may find it more advantageous in the long run to purchase some high-tech medical services from developed countries. (14) Notably, such conditions will be favored by the global expansion of capital markets. Part II concludes with a hypothetical surgical misadventure wherein a U.S. cardiac surgeon injures an insured patient in Beijing. (15) This hypothetical is designed to illustrate (1) the global economic forces that are being imposed on international telemedicine; and (2) the questions raised concerning the ability of international law to provide the injured Chinese patient with compensation. Key to understanding this hypothetical is an arbitration clause in the patient's health insurance contract. Part III provides a primer on international law with emphasis on the General Agreement on Trade in Services (GATS), (16) which regulates global trade; and the New York Convention, (17) which controls the interpretation of international arbitration clauses. The discussion of these international treaties is then used in Part IV to analyze the surgical misadventure hypothetical of Part I. Viewing the hypothetical under the microscope of international law demonstrates that if a Chinese patient files a lawsuit, either in China or in the U.S., any judgment received is unlikely to be enforced. If, however, the patient should elect to recover compensation under the arbitration clause, the New York Convention changes everything, because the New York Convention enforces arbitration awards. (18) Arbitration awards for international telemedical misadventures, therefore, will have an impact on the medical malpractice coverage market as insurers will be asked to cover the losses that providers incur during arbitration. Accordingly, Part VI concludes with a discussion of how international arbitration in telemedicine will help to foster a paradigm shift in malpractice underwriting from a system based on community ratings to a system based on experience ratings.

Importantly, lurking in the background of this paper is the notion that the delivery of healthcare is increasingly not a local, but global, process. Globalization changes industries because a hidden fist rather than an invisible hand more often drives market expansion. Just as the global expansion of the McDonald Corporation led to its dependency on McDonald Douglas F-14 planes for protection, the globalization of medicine will depend increasingly on the vicissitudes of capital markets and hybrid diversified multinational corporations (DMCs). (19) Because globalization is not going to stop, nor is the world likely to undo two decades of changes associated with globalization, it is time to recognize and make adjustments for the fact that local economic forces no longer shape the practice of medicine.



As a medical student in the 1970's, I learned that the history of cardiothoracic surgery was technology-driven. According to my teachers, the field of thoracic surgery (primarily surgery of the lungs and esophagus) expanded rapidly after 1930 because of the development of reliable ventilators, which assists a patient's breathing under general anesthesia. Cardiac surgery, which until the 1950s was considered impossible because the heart moved, (20) had to await the development of Dr. Gibbon's "heart-lung" machine. (21) As the first efficacious cardiopulmonary bypass machine, Dr. Gibbon's pump allowed for surgery to be performed on the hearts of patients with congenital anomalies and defective valves. A decade or so later, coronary artery surgery became feasible with the development of cardioplegia, which produced temporary cardiac standstill, thereby greatly facilitating the sewing of a vein to a coronary artery. As my teachers knew, such a timeline coupled with hagiographies of the surgeons involved with these innovations makes for wonderful reading. Unfortunately, this type of history provides subsequent generations with little insight into the economic forces that propelled the technological innovation.

Viewed through the lens of economics, the history of cardiac surgery takes on an entirely different character; especially when one realizes that necessity is the mother of invention. Prior to World War II (WWII), while some thoracic surgeons occasionally performed operations for lung cancer, most thoracic surgeons made their living by operating on the spaces around the lung; i.e., on the complications of bacterial pneumonia and tuberculosis. (22) Alexander Fleming's discovery of penicillin in 1938, which was soon followed by the development of streptomycin (23) in 1943, meant that the number of patients who required surgery for complications of pneumonia or tuberculosis would steadily drop; and that is exactly what happened. This raised a troubling question in the minds of thoracic surgeons: if effective medical treatment had eradicated the disease-states on which they operated, just how were these surgeons to make a living?

Enter Gibbon. While it is true that Dr. Gibbon had started work on the bypass machine prior to WWII, the economic needs of so many surgeons to find a new market where they could apply their trade increased the level of competition to produce a bypass pump. (24) Soon Drs. Kirklin, Lillehei, Dodrill and others all entered the competition to develop a bypass machine, (25) but it was Dr. Gibbon's pump oxygenator that would ultimately prevail over the competition. With an efficacious bypass machine, thoracic surgeons transformed themselves into cardiac surgeons, and operations on congenital anomalies and defective heart valves became commonplace. (26) The plethora of cardiac cases also meant that the thoracic surgeons' worries of underemployment abated during the late 1950s.

While times may have been good for these newly-minted cardiac surgeons, there was one small problem with their business plan: it had built-in obsolescence. Each year only about 5,000 new cases of congenital heart disease develop in the U.S. (27) So while it was true that in the 1950s and 1960s there were some adults with untreated congenital heart disease, as cardiac surgery become more common place this backlog of cases would eventually dissipate, leaving only a limited number of new surgical cases each year.

The reason why surgery for damaged valves was ultimately destined for obsolescence is more complicated. Historically, the most common reason for valve surgery is rheumatic valvular heart disease, which is a latent manifestation of untreated childhood strep throat infection. Once again the appearance of penicillin, which is an efficacious treatment for childhood strep throat as well as pneumonia, changed the need for cardiac surgical intervention. Routine administration of penicillin to children with strep throat, beginning in the late 1950s, eradicated not only the acute illness but also the latent manifestation of rheumatic valve disease. Accordingly by the 1960s, it was predictable that the number of defective valves requiring surgical replacement would ultimately fall during the 1970s and 80s, and that is exactly what happened. Not surprisingly, as the number of congenital and rheumatic heart cases dropped off in the late 1960s, cardiac surgeons started to feel the specter of underemployment looming once again, and knew it was time to find a new market.

Coronary artery disease, which caused 494,382 deaths in 2002, (28) promised full employment for cardiac surgeons and would prove to be an irresistible market for these nomadic surgeons. For many years after Dr. Gibbon invented the cardiopulmonary bypass machine, cardiac surgeons had shied away from performing surgery on the small coronary arteries because of the technical demands needed to sew blood vessels together on a moving heart. Once again, however, technology driven by necessity came to the rescue. During the mid-1970s an efficacious cardioplegia solution for stopping the heart became commercially available. (29) Cardioplegia so facilitated coronary artery surgery that even surgeons of average dexterity were soon able to perform the bypass operation.

Viewed in this light, it becomes clear that cardiac surgeons did not so much enter the field of coronary artery surgery because of the development of cardioplegia, but rather cardiac surgeons went looking for cardioplegia precisely so that they could enter a new market. This observation is important because the past is often prologue to the future. The fact that physicians have reinvented themselves in the past is predictive of the possibility that they will reinvent themselves in the future if their existing markets collapse (and this phenomenon is not limited to cardiac surgeons (30)).

Fast-forward to the present: Two decades of disruptive innovations have substantially eliminated the market for coronary artery surgeons in America. A disruptive innovation is any new technology or methodology that allows a service to be provided cheaper and/or in a more convenient fashion. (31) In particular, Andreas Gruentzig performed the first percutaneous transluminal coronary angioplasty (PTCA) in 1977 on a patient with coronary artery disease. (32) PTCA, of course, had instant market appeal because it allowed patients with coronary artery disease to receive treatment without having their chests opened. At first PTCA was of limited value because of a high incidence of disease recurrence; (33) but the use of drug eluding stents and other medications have largely eliminated this limitation. (34) As consequences of these and other disruptive innovations, recently trained cardiac surgeons found themselves entering a market that is "soft" for their services; (35) and more experienced cardiac surgeons were worried that drug eluding stents would make their services obsolete. (36) In short, once again cardiothoracic surgeons found that they needed to reinvent themselves and search for a new market. The real question is, which market is ripe for an influx of surgeons who have historically worked as nomads? (37)


China's healthcare market is currently in need of cardiac surgeons. Although Chinese cardiac surgeons are currently performing 70,000 operations per year; these surgeons are only meeting 1-2% of China's demand for cardiac surgery services. (38) Resolution of this supply-demand mismatch will take more than just trained surgeons; (39) resolution will also require a mature insurance system for provider compensation (40) and appropriate facilities to perform surgery. (41)

Conceptually, surgeons can be obtained from three sources: education, immigration, or via cyber transportation. (42) To meet the demand for cardiac surgical services, China could educate is own citizens to become surgeons. But if China elects to increase the supply of its cardiac surgeons by expanding its education system, it would first need to consider a number of preliminary concerns. First, it takes a long time to educate and train surgeons. (43) Cardiac surgeons in America train for seven years after medical school to attain board certification. Second, even if China were willing to commit the resources to train physicians after medical school to become cardiac surgeons, China would first have to improve its medical school system. At present it is possible to practice medicine in China without the equivalent of a doctorate degree; and even when physicians in China receive formal medical school training, they are often under-educated by western standards. (44) Thus, it may be some time before China is in a position to train a substantial number of its citizens to become cardiac surgeons.

Third, even if China were willing to build up its education system to increase the supply of cardiac surgeons, China must contemplate whether it as a society really wants to make a commitment to producing large numbers of high-tech specialists who will soon become obsolete. Given that some of Chinese medical journals are published in English, (45) many in China are capable of understanding the history of cardiothoracic surgery in America. These individuals will be aware that the story of cardiothoracic surgery is one of disruptive innovations leading to the surgeons' nomadic movements into newer fields. Moreover, nothing compels China to reinvent the wheel. So China may be better off in the long run if it encourages its best and brightest to go into fields other than surgery. In the meantime, as China waits for the backlog of congenital heart cases to be eliminated and rheumatic valve disease to be eradicated by penicillin, China can meet its short-term demands for cardiac surgeons by obtaining the needed surgeons via immigration or cybersurgery. (46)

There are also pros and cons to any decision by the Chinese government to liberalize its immigration policies to obtain surgeons. (47) Opening its borders to foreign cardiac surgeons would probably be the quickest method to meet China's current demand for cardiac surgical services. Unfortunately there are several drawbacks to obtaining the needed surgeons via a liberal immigration policy. First, China would still need appropriate facilities to perform surgeries and an insurance system to reimburse the surgeons. (48) Thus, until the Chinese insurance and capital markets are more mature, it may be premature for China to liberalize its immigration policies to obtain surgeons. Second, immigrating surgeons who are not fluent in Chinese would encounter significant communication problems. (49) Finally, China is well aware that liberalization of its immigration polices will make its society more complex, thereby indirectly increasing the potential for social unrest. (50) So liberalization of its immigration policies alone, like education, is unlikely to resolve China's demand for cardiac surgeons.

Perhaps a better solution to China's immediate need for cardiac surgeons is to import these surgeons via cyberspace. Cybersurgery is a method of providing remote surgical expertise by using existing telemedical technology to operate a remote robotic surgical instrument. (51) Although America has thus far been slow to appreciate the potentials of cybersurgery, the same is not true of other nations. Canada in particular has advanced cybersurgery well beyond the prototypic demonstration stage. In 2004, the Canadian government announced that its cybersurgery operational center was up and running. (52) This center, which is located in Hamilton, Ont., is routinely involved in the intra-operative care of patients located 231 miles away in North Bay, Ont. Thus, from a technologic point of view nothing bars a surgeon located in America from operating on patients located in China. (53)

Conceptually, rather than increase the social demands on its society by ramping up its education system or importing foreign surgeons, China could meet its immediate need for cardiac surgeons by hiring American cyber cardiac surgeons. Such an approach would not place strains on the Chinese society because the use of cybersurgery would: (1) eliminate China's need to educate highly trained specialists whose skill-set would quickly become obsolete; (2) avoid potential social unrest associated with the need to assimilate foreign surgeons; and (3) circumvent the problem of foreign surgeons living in China having to become fluent in Chinese. (54)

Still, whether the demand for cardiac surgeons in China is met through increasing the number of surgeons by physical or telemedical presence, (55) the surgeons will want to be paid. Ideally, underemployed American surgeons would like to maintain their current level of income, which may be problematic at present, in part because the Chinese are a poor people who cannot afford to pay much for needed medical services or to purchase insurance. (56) And even when China does develop a more mature insurance market, China is likely to learn from America's experience that it is necessary to control the wage-incentives given to providers to avoid over utilization. (57)

One of the ways China will be able to control provider incentives is by stimulating price competition among providers. Nothing mandates that China must get its cybersurgeons from America. China is free shop the world, especially Canada, for its cybersurgeons. (58) Canadian surgeons, who for years have been reimbursed at rates substantially less than their American counterparts, have a competitive advantage when negotiating contracts with Chinese insurance carriers because of their lower salary expectations. (59) While nomadic American surgeons would understandably want to maintain their income level, they are unlikely to achieve that goal in a global cybersurgery market where American surgeons are competing with foreign cybersurgeons with lower income expectations.

Regardless of the fair market value for cardiac surgery services in cyberspace, the importance of the above discussion is that it demonstrates that telemedicine does not have to be a one-way street where physicians' jobs move from developed countries to developing countries, as currently illustrated by the field of radiology. (60) To the contrary, given the right combination of pressure from underemployed remote surgeons and sufficient reimbursement, highly skilled jobs in medicine may move from developing countries to developed countries. Developing countries may for a time find it easier to import substantial volumes of high-tech medical care as they wait for innovative technologies to solve their long-term public health concerns. But if the U.S. is to retain its most highly skilled physicians and capitalize on opening of markets in developing countries, America needs to embark on a policy that will keep its medical and telemedical technology at global forefront. (61) Failure of America to invest in a telemedical future will allow countries like Canada that have made the investments in telemedical to reap the benefits of the globalizations of telemedicine. Failure to recognize that telemedicine is catalyzing a paradigm shift in medicine, transforming it from a locally provided service into an international commodity, will have dire consequences for America--once America's professional white-collar jobs are outsourced they are unlikely to return. (62)


1. The Chinese Insurance Market

a. Overview

For the past two decades, China has experienced unprecedented economic growth, expanding its GDP from $50 billion in 1978 to $950 billion in 1999. (63) Yet the average Chinese citizen does not seem to have benefited from this economic explosion. In particular, healthcare in China is prohibitively expensive (when it can be found) (64) and some Chinese literally die in the streets because of lack of access to affordable healthcare. (65) Thus unsurprisingly, many commentators, from both inside and outside of China, acknowledge that what China needs most today is a healthcare system that works. (66)

The characteristics of effective healthcare systems for developing nations like China are: (1) equitable access to quality care; (2) affordable health insurance; and (3) financial sustainability. (67) Access to healthcare in China is very inequitable. (68) For example, although 60% of China's population lives in rural regions, only 20% of China's health services resources are located in the rural regions. (69) Telemedicine, which improves access to care, would help to rectify this misdistribution of resources. (70) Given that a telemedical business can be established with existing technology and minimal capital expenditures, (71) China could likely improve its healthcare system by providing insurance coverage for telemedical services. Such insurance coverage would stimulate providers to enter the telemedical market, thereby improving access to care in rural China. Of course the devil is in the details.

In contrast to the actual delivery of healthcare, China faces significant problems developing a functional health insurance system. One of the keys to improving health insurance in China is the development of a risk-spreading system to distribute the risks associated with adverse medical events over as many covered lives as possible. (72) Yet, China's health insurance system today is rudimentary, with little ability to spread risk. (73) Health insurance, which has only been available for a decade in China, (74) is principally underwritten by life insurance companies. (75) Collectively, these insurers have only created three medical insurance products that are available nationwide; hence only a fraction of China's population has healthcare insurance. (76)

China of course wants this situation to change. In the near future, China wants to double the number of citizens who have health insurance coverage, so that the total number of individuals with health insurance would increase to 76 million. (77) While this is a laudable goal, China will still need to find a way to make health insurance affordable, because like the cost of healthcare, few individuals in China can afford the cost of health insurance. Attempts to make health insurance affordable in China have met with limited success thus far because insurers provide either minimal coverage benefits, (78) or else require excessive co-payments, (79) in order to be able to sell policies with low premiums. Accordingly, to the average Chinese citizen, current health insurance products leave much to be desired. In fact, health insurance products are so poor that those with insurance still pay 58% of their medical costs out-of-pocket. (80)

To be fair to the Chinese health insurers, more factors than the price of premiums determine coverage benefits and co-payments. Other factors including medical inflation forecasts and the nature of insurance underwriting also influence the prices at which premiums are set. (81) Chinese health insurers, like most health insurers around the world, fear the impact of medical inflation on their own profitability. (82) Between 1993 and 2003, medical inflation in China operated at a rate of 14%, a rate that exceeded the increase in average wages. (83) In part, China's double-digit medical inflation is related to heightened expectations of the citizenry, (84) and the increasing use of innovative medical technology. (85) Medical inflation in China is also related to the incentives physicians receive from insurance payments, (86) as in the U.S. (87) China has already discovered that patient demands and physician incentives have resulted in over-utilization of China's existing medical resources, thereby causing the country as a whole to spend too much on healthcare. (88) Such shifts in wealth (toward providers and away from personal savings) can have a deleterious effect on China's capital market, (89) which must remain healthy if China is to continue as an industrial powerhouse. China needs healthcare insurance reform not only to better its healthcare system but also to strengthen its capital markets. The real questions concern how to accomplish such reform. (90)

Health insurance reform is complicated because of the nature of underwriting. Insurance is the business of managing risk; and an "ideal insurable risk" has four characteristics: (1) a low frequency of occurrence (i.e. the insured event rarely occurs); (2), the virtual irreplaceability of the insured's loss from the insured's perspective; (3) the resulting strong motivation for the insured to avoid loss; and (4) the inability of the insured to manipulate the risk of loss once the insurance contract is written. …

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