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The purpose of this article is to explain on a macroeconomic level what the effects are of outsourcing physician radiology services to Europe.

The Issue
oSince physician services account for a large portion of health care spending, one way to decrease costs is to outsource physician services to lower wage countries
oEuropean countries spent less on health care partly due to lower wages for physicians (1)
oMost physician services need to be provided locally, but radiology services can easily be provided from anywhere due to the ability of radiology images to be transmitted over the internet

oAlthough outsourcing physician services will decrease costs for the University of Michigan, it will increase the United States (US) current account deficit and expose the University of Michigan to exchange rate fluctuations

Analysis
oDecreased costs of physician services due to outsourcing
The University of Michigan can purchase more physician services in Europe than in the US because average physician wages are $200,000 in the US and $60,000 in Europe (1)
Factor price equalization implies that identical factors of production should be paid the same even if they are in different countries (2)
However, physicians are paid more in the US because they have access to higher levels of capital and technology which makes them more productive
oOutsourcing physician services will worsen the US current account deficit due to increased importation of services
A countries economic transactions with the rest of the world are measured by the balance of payments which is comprised of the current account and the capital account
The current account consists of goods, services, income, and transfers
The current account deficit is improved by the surplus of exports over imports in the trade of services(3) therefore increased importation of services will worsen the current account deficit
oWorsening of the current deficit means increasing the capital account surplus because the balance of payments sums to zero
A surplus on the capital account means the US is a net borrower because capital is entering the country due to borrowing abroad
oThe current account deficit is likely to continue to increase due to a growing importation of goods especially petroleum (3)
oImplications of a capital account surplus
Sustained periods of foreign investment in the US may be optimal if the investments are used to enhance the ability to grow Gross Domestic Product (GDP)

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