Where are the Global Firms? Barriers to Globalization in a Health Care Market in Ontario, Canada
Posted: 29 Jun 2007
Date Written: June 18, 2007
Rationale: Some commentators on global capital and health care markets predict that global health care firms will penetrate markets outside their main domiciles and overwhelm smaller, local health care providers, using superior access to capital, cross-border economies of scale and expertise in global competition. The physiotherapy (PT) market in Ontario, Canada, has been formally open to foreign investors under the North American Free Trade Agreement since 1994 and the General Agreement on Trade in Services since 1995, making it a good case with which to test these aspects of globalization theory. It is interesting because there is some evidence that the involvement of foreign for-profit corporate providers in the PT market has been fairly limited.
Objectives: The objectives of this paper are to investigate the degree to which foreign for-profit health care corporations participate in the market, what parts of the market they are active in, and what the reasons are for the level of participation. The paper will explore whether non-tariff regulatory mechanisms help produce the level of foreign investment.
Methodology: The extent of foreign corporate participation was determined from a database of rehabilitation providers in Ontario and from the results of a 2005 survey of PT providers in selected Ontario counties. The regulatory framework was analyzed through a review of relevant laws and insurer reimbursement mechanisms. Interviews with key informants in the market probed the characteristics of the market that appear to make it attractive or unattractive to foreign investors.
Results: The formal entry and exit barriers are low in this market, and the very few foreign firms that have participated in the market in the past have largely departed, selling to local Canadian management. The reasons for the very low level of foreign investment are believed to be these: (1) public and private health insurers with the support of regulators exercise significant price and quantity control that limit profit opportunities; (2) the regulatory structure requires a high degree of service differentiation, making it difficult for providers to realize economies of scale; (3) fragmented demand means low potential for vertical and horizontal integration, discouraging investment; and (4) in response to the highly-regulated, fragmented demand, existing local provider firms are predominantly small and owned by health professionals who value independence and sacrifice profit levels to remain independent, making it difficult for corporate providers to compete.
Conclusions: Globalization theorists assume that formally open markets are also susceptible to consolidation and ripe for efficiency gains. However, insurer power, fragmented demand and the presence of independent-minded domestic producers whose utility function includes more than profit can produce deep-rooted structural barriers that make a globally-open market uninviting to foreign investors.
Keywords: globalization, health policy, commerce
JEL Classification: I18, F14, F23, F15
Suggested Citation: Suggested Citation