Posts Tagged ‘Regulation’

Healthcare Needs a Warning Label

March 22, 2017

By Anjum Altaf

Healthcare is dangerous to your health. Ask your neighbor for verification. You will likely hear more than one first-hand experience of someone dead who should be very much alive.

This outcome is unsurprising for three principal reasons related to peculiarities of the industry, social attitudes of the population, and  commercialization of the economy.

First, the industry. Healthcare is a field exhibiting the starkest asymmetry of information between providers and consumers. Every incidence of illness is in some way new and patients have insufficient knowledge to question diagnoses or prescriptions without second opinions and retesting for which there is often no time. In healthcare lives are literally at stake unlike, say, in education, where, if dissatisfied, one can change a child’s school and start again.

Second, social attitudes. People, by and large, still attribute unfavourable outcomes to divine will. Even when convinced of poor service, they rationalize that intentions of providers must have been good but that the patient’s time to die, one way or another, had arrived. This no doubt provides solace to the bereaved but does nothing to hold poor service accountable or provide countervailing pressure for improvement.

Third, commercialization. The logic of the market has now fully permeated the provision of healthcare earlier regarded as a social service yielding providers a respected status in society. Income maximization is now a much more salient motivation. In private conversations, medical professionals even point to the emergence of collusive networks among physicians, laboratory owners, pharmacists, and equipment and medicine suppliers aimed solely at fleecing patients without even the pretence of providing care.

As a result standard norms of economic theory are upended – the free market in healthcare does not minimize cost of service, competition does not drive out bad providers, and it is not only the fittest that survive. Because patients do not have the luxury of withdrawing from the market, poor performance actually increases the revenue transferred to providers as patients shuttle helplessly from one facility to another.

Given these factors, the only way to protect patients is very tight regulation in which the state, the traditional regulator, despite continuing attempts, has failed to measure up to needs. In fact, standards of service and accountability have continued to slip simply because growth in the number of providers and facilities has outstripped regulatory capacity.

While there is no alternative to regulation, it is generally accepted that expecting the state to discharge that function in Pakistan is unrealistic. The record shows that the state politicizes the operations of the regulatory body and compromises its independence. It uses its powers for patronage and does not appoint competent professionals to positions of leadership. Many of the officials it does appoint use the opportunity for rent seeking. There is no other explanation for the number of private medical colleges licensed without adequate faculty and the number of facilities advertising themselves as hospitals without fulfilling basic requirements.

Given that lives are at stake, citizens cannot afford to wait indefinitely for a caring state to emerge. A second-best solution is urgently called for. One alternative is to push to privatize the regulatory function while being cognizant of the private sector’s weaknesses and hedging appropriately in the interest of the citizens.

The only function remaining with the state regulator would be to bid out the regulatory contracts for predefined terms to established private audit firms with reputations to defend. Since this is a major departure, the experiment can be piloted in one sub-district or small city. The private regulator would categorize and register all facilities, ensure compliance with minimum requirements, introduce standard record-keeping protocols, and initiate a regime of random inspections. Based on cumulative review of records, facilities would be assigned quality rankings to be disclosed to citizens. Facilities falling below acceptable standards would be given a limited time to improve to avoid losing their operating license. Registration fees could partly finance the experiment.

In parallel with this privatization, a board of credible individuals would serve as an independent watchdog on behalf of the local population. In addition, the federation of newspapers could nominate a set of journalists to report regularly on the experiment. Thus circumscribed, the second-best alternative could be expected to prove more effective than the state regulator. Based on the results of the pilot, the arrangement could be fine-tuned before expanding its coverage.

For the longer run, however, the existing model of curative care is unsuitable in a country where incomes are low, the incidence of ill-health is high, and basic public health infrastructure – safe water and sanitation, clean air, pest control, etc. – is missing. Populist attempts to make curative care affordable will prove to be unsustainable. We need to transition to a wellness model based on preventive care in which households are visited, monitored, and guided at regular intervals independent of episodes of sickness.

Such a model could also be tried on a pilot basis in one jurisdiction. There are a number of very successful examples to learn from. In 2014, the Director-General of the World Health Organization recommended Cuba’s preventive healthcare model to the entire developing world even though it is not considered politically correct to applaud anything happening in that country. In Cuba, family physicians supported by para-medical staff deliver primary care and preventive services at the local level to panels of patients, about 1,000 patients per physician, with patients and caregivers generally living in the same community.

Even an affluent country like England subscribes to a similar model in which family practitioners and ancillary staff responsible for registered populations of patients act as gatekeepers to specialist care.

Healthcare in Pakistan is out of control and in bad shape and it is up to citizens to articulate alternatives to avoid more tragic losses. This can be a common cause for the rich and poor because not even all the well-off can travel abroad for their check-ups and medical needs.

This opinion appeared in Dawn on March 21, 2017 and is reproduced here with permission of the author.

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Privatization and its Conundrums

March 28, 2016

By Anjum Altaf and Nadeem ul Haque

Should PIA, a State Owned Enterprise (SOE), be privatized or not? It is poorly run, losing a great deal of money, and a drain on the budget. But what does that have to do with PIA being a SOE? Therein lies the real question and some answers to our particular predicament in Pakistan.

If one were to line up all potential services with the smallest in scale at one end to the biggest at the other, readers would likely agree that the smallest (say, tea stalls at a railway station) are better provided privately and the largest (say, national defense) by the public sector. The reasons are not hard to fathom – bureaucracies are not good at adapting to rapid changes in market conditions and consumer preferences; markets cannot exclude those unwilling to pay for a service like national defense.

In between these two extremes, almost all services beyond a minimum scale can be provided equally well by both public and private sectors – ownership matters less than arrangements for management. It might surprise some that the most efficient utilities in the world are in Singapore, all operated by SOEs. The example of airlines itself proves the point – readers can easily look up public and private airlines that are equally successful. In fact, if PIA were to be sold it would most likely be to one of the state-owned Middle East airlines demolishing immediately the argument that an airline cannot be run efficiently by the public sector.

This should bring us to the crux of the issue – it is not that an airline cannot be run efficiently by the state; what is being implied is that it cannot be run by the state in Pakistan. This should immediately raise the question WHY? Why is the Pakistani state unable to run an airline efficiently?

Here one should not be distracted by the argument that has become the implicit rationale for privatization of SOEs in Pakistan – that the public sector is dishonest. This is an invalid basis for deciding how a service is to be provided – one cannot legitimately compare the reality of one sector with the ideal of another. The private sector has an equal share of dishonesty – from the local milkman who mixes water in milk to the shady pharmaceutical companies marketing adulterated drugs, to the global corporations regularly charged with fraud.

This opens up a set of issues. Once the airline is privatized what would be our position on the provision of ancillary services like airport facilities and traffic control and allocation of routes? Wouldn’t these also need to be privatized because otherwise they would remain in incompetent hands and negatively affect the efficiency of the privatized airline?

And if our governments are actually dishonest or incompetent, or both, as alleged, how can we be sure that they would be honest or competent in the process of privatizing a SOE? Isn’t it a fact that almost every attempt at privatization in Pakistan has been dogged by scams? And how wisely would it use the proceeds?

We also know that all services involving human safety need to be regulated. How can we expect a dishonest and incompetent state to regulate efficiently when it is not able to operate efficiently? Wouldn’t powerful private interests subvert the regulatory apparatus to further their interests just as private firms buy out state agents to jigger their electricity bills? Should regulation also be privatized?

We reach a dead end if there are no credible answers to these questions. The logical implications of using the argument of state dishonesty and incompetence for privatization are momentous leading straight to the conclusion, absurd as it might sound, that the state itself ought to be privatized. It would be much more efficient to give the management of Pakistan to the state of Singapore.

Having identified the big question at issue we can return to the relatively minor one of PIA. Airlines operate in a market open to competition and therefore the service can be offered privately without difficulty. Networked services like railways, electricity, gas, and water, on the other hand, are natural monopolies and much more difficult to privatize although examples exist where this has been managed.

At the level of pure theory and in an ideal world, the private sector maximizes profits within a set of externally imposed rules that prevent it from cheating; the public sector maximizes public welfare at least cost in a framework of accountability that prevents it from abuse of power.

Without honest regulation and public accountability neither sector will deliver – we are at best indulging in a second-order debate. Even if PIA is privatized, the state will retain control over huge assets that it would continue to mismanage. The problem that motivated the privatization of PIA will not go away unless we face up to the real conundrum of the incompetent state and do something about it.

This opinion appeared in Dawn on March 27, 2016 and is reproduced here with permission of the authors.

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