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Tools for Improving Health System Performance:Tools for Improving Health System Performance:

RegulationRegulation

Hamid Reza Safikhani

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What Is Regulation?

The use of the coercive power of government to get independent organizations to change their behavior

Under this definition, only legal rules, and not incentives or behavior change are included under the heading of regulation.

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• definition of regulation excludes rules and requirements imposed on sellers by purchasers of health insurance or health-care services.

• Regulation includes the full range of legal instruments (e.g., laws, decrees, orders, codes, administrative rules, guidelines), whether issued by the government or by non-governmental bodies (e.g., self-regulatory organizations) to which the government has delegated regulatory power

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Regulation is a major tool of government to remedy imperfect markets when these consist mainly of private actors.

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• A system of perfectly competitive markets will produce a result that is “Pareto Optimal”: no one person’s utility can be increased except by making someone else worse off.

• Even where markets work well, the distribution of well-being they produce may not be acceptable from one or another ethical framework and regulation is then used to achieve a more equitable outcome.

• Many markets do not work well on their own, and governments turn to regulation to improve their functioning.

• Governments may use regulation to advance moral norms that markets cannot be relied upon to foster.

Purposes of Regulation in Health

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• consumers may be unable to judge the quality of the goods or services they consume.

• external effects

• A particular kind of external effect involves merit goods. These are goods with widespread but difficult-to-quantify external benefits-like basic literacy and civic education-that governments often provide outside of the marketplace.

• the existence of monopoly, a single seller, or an oligopoly, a cooperating small number of sellers.

Purposes of Regulation in Health

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Purposes of Regulation in Health

• Establish conditions for markets

• Correct “market failure”

• Achieve non-market goals, e.g.,– Health– Equity of access

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Elements of the Regulatory Process

• Establish rules

• Apply rules to specific cases

• Detect violations (monitoring)

• Impose penalties on violators

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How Regulation Works

Theory• The fear of being detected and penalized

will get the targets of regulation to follow the rules

Practice• If violations are not detected or penalties

not imposed there will be no deterrence effect

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Who Regulates?

Pure case

• Government agencies

Related cases

• Professional or business groups (self regulation using delegated authority)

• Buyers (using the threat of non-purchasing)

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Regulation to Establish The Conditions That Let

Markets Operate

• Define property rights (e.g., patents)

• Prevent fraud

• Enforce contracts

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Perfect Markets (1):Buyers Cannot Judge Quality

• Limit the products available:– Food safety

– Drug purity

– Insurance plan solvency

• Professional Licensing• Licensing/facility

standards

• Regulate Conduct– Professional discipline

– Malpractice liability

• Information– Product labels

– Certification

– Social marketing

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Perfect Markets (2): The Agency Problem and Supplier-Induced Demand

• Limits on number of doctors– Produced

– Practicing

• Limits on foreign doctors• Limits on new technologies• Limits on facilities (“certificate of need” or budget

allocation

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Perfect Markets (3): Counteract Monopoly

• Price controls (e.g., reference prices)

• Limit mergers

• Outlaw cartels and price fixing

• Encourage entry

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Perfect Markets (4): Externalities

• Pollution controls

• Mandatory vaccination

• Public water/sewer

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Regulation for Non-Market Goals:Health and other goals

• Tobacco

• Road safety

• Alcohol

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Regulation for Non-Market Goals:Equity of Access

• Requiring new graduates to serve in underserved areas

• Regulate insurance rates: community rating

• Regulate insurance coverage benefit packages

• Requiring providers to treat all (or all emergency) patients

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Example 1 - Colombia: New Payers

• EPS’s - new private health plans

• Objectives in regulation:– Encourage entry– Assure financial solvency– Equal access and benefits– Collection efficiency

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Example 2 - Bangladesh: Essential Drugs

• Objectives: control expenditures, assure wide access to lower cost drugs, assert economic nationalism

• The Policy: establish a national essential drugs list, emphasizing generics and population health priorities, restrict imports of all drugs not on the list

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Example 3 - India: Consumer Protection

• COPRA: Consumer Protection Act

• Open up access to consumers’ regulation of quality and outcomes– Special consumer courts– Relaxed rules of evidence and decision– Exempted government services

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Some Special Problems in the Health Sector

• Patterns of practices vary substantially (clinical ambiguity)

• Sellers have substantial social and political power

• Science and technology change quickly

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Types of Regulation in the Health Sector

• Health care regulation– Establish the Basic Conditions for Market Exchange– Enhance Equity – Correct Market Failures and Provide Public and Merit Goods

• External Effects and Merit Goods • Help Consumers Make Informed Choices• Protect Buyers from Poor Quality

– Regulations of Input (drug approval, accreditation, licensing)– Regulation of Process (practice guidelines)– Regulation of Outcome (Standard reporting system, clinical audit)

• Control Supplier Induced Demand– Regulation of Manpower– Regulation of Capital Investment

• Counteract Monopoly– Regulation of Monopolies– Regulation of Monopolistic Prices

• Correct Unacceptable Market Results

• Insurance Regulation (risk pooling, adverse selection,….)

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Applying Regulation To Specific Cases Can Be Difficult

• Critical issues may be left unresolved in the wording of the law or regulation

• The available terms do not apply to complex or novel situations

• Unforeseen conditions occur

Therefore, implementation of any planning or regulatory system is critical to its impact

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The Problems of Regulatory Monitoring

• The data you can have inexpensively are often not those you most want

• The data you most want are often expensive to collect

• The most reliable data are collected by regulated entities for their own purposes

• Regulation based on “not quite right” data, it will produce “not quite right” performance

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Self-Reporting

Self-reporting works best when:

• The data are auditable

• The penalties for small violations are small

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Professional Self-Regulation: Advantages

• Professional bodies have expert knowledge

• They are more likely to be seen as legitimate by their members

• They allow governments to avoid responsibility

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Professional Self-Regulation: Disadvantages

• Professions can be too easy on their members

• Professional organizations can become anti-competitive cartels

• The balance of power within the profession may not reflect society’s goal and priorities

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Reporting or Certification As Alternatives to Regulation

• Does not limit consumer choice• May encourage sellers to compete on

improved performance• Less dependent on cumbersome enforcement• Works best when buyers really care about the

performance in questions• Less likely to provoke interest group

opposition

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How to Ensure Successful Regulation

• Agencies doing the work need strong internal leadership and external

accountability

• Technical capability, motivation, and incentives, to staff are critical

• Systems work best when goals and methods are seen as legitimate

• an appropriate regulatory strategy needs to be developed—i.e., decisions made about what and how to regulate.

• agencies have to be established, including the recruitment of staff and the collection of data.

• the detailed rules have to be written. • they have to be applied to specific cases. • Monitoring processes need to be established so that violators can be identified

and either convinced to change their behavior or penalized if they do not.

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How to Ensure Successful Regulation (cont.)

• Continued political support (local, regional, and national)

is helpful – even essential

• Enforcement resources need to be sufficient and

enforcement processes simple

• Effective regulation requires a demanding combination of technical expertise, administrative capacity and political support that is not always easy for nations to provide.