Applying the Decision Rights to a Case of Hospital Institutional Design
Corporatization, a hybrid between public sector ownership and privatization, is an organizational form that is increasingly being adopted in the social sectors. In the health sector, the high costs of public hospitals, new technological development...
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| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/11/1643371/applying-decision-rights-case-hospital-institutional-design http://hdl.handle.net/10986/19422 |
| Summary: | Corporatization, a hybrid between public
sector ownership and privatization, is an organizational
form that is increasingly being adopted in the social
sectors. In the health sector, the high costs of public
hospitals, new technological developments, changes in demand
for primary and secondary health care, and efficiency
considerations have necessitated shifts in organizational
boundaries, leading to conversions in hospital ownership. In
the past decade hospitals have been converted from public to
nonprofit and from nonprofit to for-profit in industrial and
developing countries alike. The debate around these
conversions has centered mostly on the tradeoff between
equity and efficiency involved in the shift from public to
private provision of services. Eid argues that more
important than this dichotomy is creating appropriate
incentives and matching incentives with goals through
institutional design. Because corporatization combines
elements of both private and public ownership, it is
difficult to design. Among the challenges is deciding where
on the spectrum from a budgetary unit to a privatized
enterprise a hospital should lie. Another challenge is
aligning incentives-not just within the hospital but also
between the hospital and the ministry of health. Eid draws
on the decision rights approach to analyze how an innovative
hospital in Lebanon, H�ital Dahr El-Bachek (HDB),
corporatized itself and became the best in the public sector
over a period of seven years. To study HDB's
experience, she develops a decision rights analysis
framework that tracks the formation, evolution, and dilution
of decision rights. She finds that: There are important
lessons from bottom-up, demand-driven institutional design
that can inform the design of top-down, supply-driven
institutions, such as laws and regulations. An understanding
of mechanisms of risk sharing and high-powered incentives
created from the bottom up can inform the design of
corporatized organizations. Key to good design are decision
rights complementarities that provide the most complete (and
flexible) contract possible, regardless of where ownership
lies. In designing systemwide institutions for
corporatization, Eid argues, risk transfer is important in
satisfying the two most important objectives of the reform.
The first objective is establishing hard budget constraints
to control sectoral costs. At HDB, the decision right to
raise revenue through user fees was complemented by decision
rights that created accountability and legal liability.
Together, these decision rights kept spending within
HDB's means-in contrast with international experience
with corporatization, where budget deficits have been a
perennial problem. However, the informality of the decision
rights precluded the exercising of those created to design
long-term financial policy, resulting in timid capital
expenditure plans. The second important objective of
corporatization is improving hospital performance, including
providing better service at a low cost for the patient. Eid
argues that high-powered incentives are key. Among the most
interesting of HDB's decision rights allocations was
the pairing of claimant and control rights to produce
high-powered incentives for the director. Not surprisingly,
the most successful examples of corporatization worldwide
have experimented with incentive schemes for hospital
managers that seek to provide high-powered incentives in
this way. |
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