Economic Survey 2021 Suggests Rating Agencies, Regulator For Healthcare
Given the information asymmetries that make unregulated private enterprise suboptimal in healthcare, a sectoral regulator that undertakes regulation and supervision of the healthcare sector must be seriously considered: Economic Survey 2020-21

Economic Survey 2021 Suggests Rating Agencies, Regulator For Healthcare

The Economic Survey 2020-21 has recommended setting up of a sectoral regulator, along with a credit rating agency-like infrastructure to assess the quality of healthcare providers—both doctors and hospitals, and to tackle the issue of information asymmetries.

“Specifically, credit rating agencies assess the likelihood of the firm repaying the debt that it takes from the investors, thereby the quality of the firm borrowing the money. Similarly, healthcare policymakers should consider creating agencies to assess the quality of the healthcare providers – both doctors and hospitals,” the survey said in its fifth chapter titled “Healthcare takes centre stage, finally!”.

Citing the example of Quality and Outcomes Framework introduced by the National Health Service in the U.K. in 2004, the report said quality assessment practices could include national standards for major chronic diseases, annual appraisals of all doctors, and widespread use of clinical audits to compare practices, sometimes with public release of data. “These should be evaluated carefully and considered for implementation,” it said.

It also recommended setting up a healthcare sector-focussed regulator to frame regulations and supervise private enterprises, to tackle the issue of information asymmetry.

“Finally, given the information asymmetries that make unregulated private enterprise sub-optimal in healthcare, a sectoral regulator that undertakes regulation and supervision of the healthcare sector must be seriously considered,” it said. “This is especially pertinent as regulation has grown in importance as a key lever for governments to affect the quantity, quality, safety and distribution of services in health systems.”

This, as the problem of asymmetric information in healthcare, the report said, reflects in the “substantial variation in costs for treating the same disease between public and private sector”.

“The quality of treatment in the private sector does not seem to be markedly better when compared to the public sector,” the survey said. “Yet, the costs of treatment are not only uniformly higher in the private sector, the differences are humongous for in-patient treatments of severe illnesses such as cancers (3.7x), cardio (6.8x), injuries (5.9x), gastro (6.2x), and respiratory (5.2x).”

The problem of information asymmetry also leads to higher insurance premiums as some private hospitals, it said, resort to higher pricing and excess usage of procedures profitable to them, considering the reimbursement rates are pre-negotiated with insurance companies.

“With limited visibility into patients’ medical records and no standardised treatment protocols, insurance companies have a risk of adverse selection at the time of policy issuance and a risk of moral hazard at the time of claims,” it said. “To safeguard against these risks, insurance companies resort to high premiums and restriction of services covered in the insurance policy.”

Therefore, the report suggested that the mitigation of information asymmetry would also help lower insurance premiums, enable the offering of better products and help increase the insurance penetration in the country.

Key highlights from the report:

  • Following the Covid-19 pandemic, a key portfolio decision that healthcare policy must make is about the relative importance placed on communicable versus non-communicable diseases. As pandemics represent rare events, healthcare policy can become a victim of “saliency bias”, which involves over-weighting recent phenomena. Given that 71% of global deaths and about 65% of deaths in India are caused by non-communicable diseases, the focus must be on building the healthcare system generally rather than a specific focus on communicable diseases.
  • An increase in public spend from 1% to 2.5-3% of GDP—as envisaged in the National Health Policy 2017—can decrease the out-of-pocket expenditures from 65% to 30% of overall healthcare spend.
  • The National Health Mission has played a critical role in mitigating inequity as the access of the poorest to pre-natal and post-natal care as well as institutional deliveries has increased significantly. Therefore, in conjunction with Ayushman Bharat, the emphasis on the mission should continue.
  • Telemedicine needs to be harnessed to the fullest by investing in internet connectivity and health infrastructure.
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