- Nat’l Audit Office report on the pvt. healthcare sector regulatory process finds major structural issues & highlights need for legislative & policy reform
Healthcare is not merely a system; it is a fundamental sector that ensures the well-being of any country’s citizens. Globally, countries recognise the importance of investing in health, not just for individual welfare, but for economic and social development. Sri Lanka is no exception. For decades, the country has enjoyed a free healthcare system, which has earned it a high Human Capital Index (the Index measures how much capital each country loses through the lack of education and health) of 0.782, surpassing all South Asian countries by 2022. However, despite this strong public healthcare infrastructure, Sri Lanka has seen a significant rise in the use of private health services, largely due to overcrowded public hospitals and long waiting lists for treatments and surgeries.
The private healthcare sector has increasingly become integral to the country’s health system, offering services to alleviate the growing demand. Yet, this expansion comes with its own set of challenges. In response to these concerns, the Sri Lankan Government introduced the Private Medical Institutions (Registration) Act, No. 21 of 2006, which aimed to regulate the operations of private healthcare institutions. This led to the establishment of the Private Health Services Regulatory Council (PHSRC) in 2007, alongside a division within the Ministry of Health specifically tasked with developing and regulating the private health sector.
Despite these efforts, issues of mismanagement, inefficiencies, and regulatory gaps have continued to persist. In this context, the National Audit Office (NAO) recently conducted a comprehensive evaluation of the performance of Sri Lanka’s private health services regulatory framework. Their findings, outlined in the report titled ‘Evaluation of the Performance of the Private Health Service Regulatory Process in Sri Lanka’, highlight both the structural issues within the regulatory process and the urgent need for reform.
History of pvt. healthcare in SL
The history of private healthcare in Sri Lanka dates back to before the country gained Independence. Following the end of World War II, the British Government recognised the need for private healthcare and transformed a military hospital into the Ceylon Hospital, now a leading private hospital, in 1945. Later, the Nursing Homes (Regulation) Act, No. 16 of 1949 was enacted to regulate nursing homes. Initially serving middle-class elites, private healthcare facilities expanded, particularly after Sri Lanka adopted an open economic system in 1977. These hospitals attracted patients by offering advanced medical equipment, better care, and more efficient services than public hospitals.
A significant shift occurred when Government medical officers were allowed to engage in dual practice after 1977. This, coupled with overcrowding and long wait times in public hospitals, led more people, even those from lower economic backgrounds, to seek services from private hospitals. By 2020, the public sector faced several limitations: 646 Government hospitals were in operation, but there were only 98 doctors per 100,000 people, seven dental surgeons, and four hospital beds per 1,000 people, according to the National Health Information Publication. These conditions pushed many patients to private facilities.
The PHSRC has been responsible for registering and monitoring private healthcare institutions. By last year, the private healthcare sector had grown considerably, driven by both the shortcomings in the public healthcare system and the rising demand for higher-quality services. People increasingly sought private medical care, not only for emergencies, but also for routine and specialist treatments, making private healthcare a key component of the national health landscape.
Growth of the pvt. health sector: A double-edged sword
Over the years, Sri Lanka's private health sector has grown rapidly. This expansion can be attributed to various factors: Overcrowded public hospitals, long waiting times, an economic crisis that has limited Government contributions to healthcare, and a public perception — fueled by recent reports — that Government hospitals use low-quality medicines. As a result, many people are turning to private healthcare providers for faster, albeit more expensive, medical services. However, the private sector’s rise has not been without controversy. The report notes an increase in complaints against private medical institutions, from overcharging to unethical practices. These issues highlight the need for more stringent regulation to ensure that private healthcare remains both effective and fair for all citizens.
A flawed regulatory framework
The regulatory framework for private healthcare in Sri Lanka is largely governed by the Private Medical Institutions (Registration) Act. While the Act was enacted to ensure the registration, monitoring, and regulation of private medical institutions in a timely manner, the NAO’s report reveals significant shortcomings in its implementation.
One of the key findings is the imbalance in the composition of the PHSRC. The council, which is responsible for overseeing the operations of private healthcare institutions, includes a significant number of appointees directly selected by the Minister of Health. As of 2023, 16 out of the 28 members of the council were ministerial appointees, representing 57% of the total membership. This has raised concerns about conflicts of interest, especially as some council members are also owners of the very institutions that are subjected to the regulation.
Moreover, the report highlights that despite the increasing number of private medical institutions in Sri Lanka, many remain unregistered. By 2023, only 171 private hospitals were registered with the PHSRC, yet the NAO observed that a systematic process for identifying and registering private medical institutions was lacking. This gap in regulation has resulted in numerous healthcare facilities operating without proper oversight, posing risks to patient safety.
Inaction on legislative reform
The NAO report also reveals that despite repeated calls for reforms, the Ministry of Health has failed to update or amend the Private Medical Institutions (Registration) Act. While the Ministry has acknowledged the need for revisions, no concrete action has been taken as of 2023. This has led to regulatory stagnation, with outdated laws and regulations unable to effectively address the complexities of the modern private health sector.
For instance, the registration fees set by the PHSRC in 2007 have not been revised in 16 years. Additionally, although the Act mandates that private medical institutions adhere to certain standards of accreditation, these criteria have yet to be formally implemented or enforced. The failure to establish clear guidelines for service provision, staff qualifications, and pricing has left the private health sector in a state of disarray, with little accountability.
Complaints and accountability
The growing number of complaints against private medical institutions is another area of concern highlighted in the NAO report. Between 2017 and June 2023, the Regulatory Council’s Sub-Committee on Complaints received 99 complaints, 52% of which were related to just nine of Sri Lanka’s leading private hospitals. The nature of these complaints ranges from overcharging and mistreatment, to professional ethics violations, and even allegations of organ trafficking.
What is particularly alarming is the lack of transparency and consistency in how these complaints are handled. Various Government bodies, including the Ministry’s Flying Squad Division, the Consumer Affairs Authority, and the Central Environmental Authority (CEA), have received similar complaints. Yet, there is uncertainty as to whether these complaints have been adequately investigated or resolved, raising questions about the effectiveness of the regulatory bodies.
Environmental concerns
Another area of deficiency noted in the report is the management of clinical waste by private healthcare institutions. The NAO found that 10 out of 19 complaints received by the CEA in the last three years pertained to private hospitals not complying with environmental regulations regarding waste disposal. This is especially concerning given that some of these hospitals are represented on the Governing Board of the PHSRC, further highlighting potential conflicts of interest.
Recommendations
The NAO report makes a series of recommendations aimed at addressing the deficiencies in the private healthcare regulatory process. These recommendations emphasise the need for a more strong and transparent regulatory framework that prioritises patient safety, service quality, and accountability.
Legislative overhaul
The report recommends that the Parliament pass a new regulatory Act specifically focused on overseeing the private health sector. This Act should address the governance-related issues within the PHSRC, ensuring that public sector officials have greater decision-making power to avoid conflicts of interest. Alternatively, the Private Medical Institutions (Registration) Act should be amended to strengthen its regulatory provisions, particularly concerning the registration, accreditation, and monitoring of private medical institutions.
Additionally, regulations that have been formulated but are not yet presented to the Parliament must be approved and implemented as a matter of urgency. These include provisions related to price controls, quality standards, and environmental compliance. The report emphasises the need for these regulations to be backed by appropriate penalties for non-compliance.
Transparency and accountability
One of the audit’s key recommendations is to enhance the transparency of the regulatory process. This includes publishing all fees charged by private hospitals and medical institutions online, as well as providing patients with clear information on how these fees are determined. Furthermore, the report suggests developing a formal complaints system that allows patients to report issues online and ensuring that the complaints are addressed in a timely and transparent manner.
Another important recommendation is to integrate private health services into the national health information system. Currently, there is no comprehensive data on private medical institutions, which hampers the ability of regulatory bodies to monitor and evaluate the sector effectively. By including private healthcare data in the national system, regulators can better track service quality, patient outcomes, and resource utilisation.
Strengthening human resources & environmental standards
The report also calls for stricter enforcement of regulations related to human resources in private medical institutions. Many private hospitals rely on Government-employed healthcare professionals, who often work in private facilities during their official duty hours. This practice undermines the public healthcare system and needs to be curtailed through more rigorous oversight.
In terms of environmental standards, the report recommends that the Government enforce existing laws regarding the disposal of clinical waste and ensure that all private hospitals are compliant. It suggests making the acquisition of environmental protection licences and waste management certifications mandatory for the registration of private medical institutions.
Towards a balanced & equitable healthcare system
The findings from the NAO’s evaluation make it clear that while private medical institutions play a vital role in Sri Lanka’s healthcare system, their regulation is currently inadequate. The imbalance in governance, the lack of enforcement of the existing laws, and the absence of a coherent pricing strategy all contribute to a system that is neither transparent nor accountable.
To ensure the long-term sustainability and equity of Sri Lanka’s healthcare system, it is imperative that the Government acts swiftly to implement the recommendations outlined in the report. By doing so, the country can strike a balance between public and private healthcare services, ensuring that all citizens have access to high-quality, affordable healthcare, regardless of whether they choose to seek treatment in the public or private sector.
Sri Lanka’s private health sector is at a crossroads. While it has the potential to complement the public healthcare system and alleviate some of its pressures, without sufficient regulation, it risks becoming an unchecked system that serves only the privileged. Through legislative reform, improved transparency, and stronger governance, Sri Lanka can move towards a more balanced and equitable healthcare system that benefits all its citizens.