Hospital governance and incentive design: The case of corporatized public hospitals in Lebanon

There are three potential levels of governmental activity in health: regulation, finance and service provision. Regulatory functions include decisions on the rules of system configuration and the definition of roles for the public and private sector. Finance functions determine the extent of universal health coverage using public funds. The government may also be involved in direct provision of services, as the owner and manager of hospitals and primary care services. Political constraints for hospital privatization and the lack of private entrepreneurial activities are the two main factors that contribute to government involvement in providing health services. This paper focuses on the provision side. In recent years, corporatization has been introduced as an institutional design for public hospitals that seeks to improve efficiency and reduce transfers in a publicly owned, decentralized health system. This paper considers decentralization as a reallocation of decision rights to lower levels of the public sector. It seeks to show how such a strategy creates new needs for monitoring and control of decentralized units. In seeking to better understand the role of governance and incentives in corporatized hospitals, this work explores the design of corporate boards of public hospitals, the institutional lynchpin of such systems. It shows how principal-agent theory, in particular the multitasking and common agency approaches, can provide a useful analytical lens in understanding hospital board design in the case of Lebanon. Implications for health policy and management will be shown.