Today when an Industry in Vizag, has seemingly a technical glitch in their refrigeration system, it resulted in huge gas leak. Which resulted in death of people as well as temporary displacement of population surrounding the industry. One of the reasons for the glitch has been attributed to long restart scenario, as industry was temporarily stopped due to Covid 19. Now this industry must incur the financial burden and need to go through a long legal battle. Details about the incident is still evolving while writing this blog, However, as evident from this scenario that most likely it might be due consequences of COVID-19 scenario. Visualize similar situations many companies around the world are undergoing either silently or even known but have bound legally and cannot make any adjustments. Many regulatory restrictions have been imposed on industries like what they can manufacture or what they can not which item is need of the hour etc.

These overall costs of meeting the regulatory compliance are huge and when they are analyzed from the perspective of Cost Benefit Analysis, Health Related Quality of Life will not only help organizations in better assessing their regulatory position but also reduce regulatory costs. There are exceptionally good frameworks available for assessing the regulatory cost assessment which help decision makers with regulatory costs for better decision making.

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When you look from the aspect of Regulatory cost it is nothing but all the costs needed to adopt to a regulatory requirement. It can be either direct cost or indirect cost. It is not that regulatory costs are always needed to be borne by the industries alone, even consumers or governments are also impacted. Different types of regulatory costs which are of significance in current scenario include i. compliance costs to manage the Covid – 19 requirements, ii. financial costs  and iii. economic costs for example lack of wages or non-wage labor costs.

Now coming to the compliance requirements for Covid – 19 scenario it is concerned with putting restrictions on general functioning of an business unless it is of essential segment. Some of the restrictions include working with suggested number of persons with in the premises and other restrictions which differ from country to country. These compliance requirements are necessary to meet the targets imposed by governments. It started off with additional burden on administrative expenditure on organizations like regular reporting to government agencies on testing, employee’s wellbeing checks, tracking welfare etc. This information sharing obligation not only have a burden on organizations but also additional administrative activities. Besides administrative costs, it needed to provide additional support mechanisms for compliance like making the online enabling tools making available to team like equipment costs, material costs and overhead costs and additional capital costs are needed to manage.

The other kind of costs incurred by organizations are around introduction of product portfolios, their release to market i.e.,  increased duration, increased timelines do increase the cost of production or cost of its release to market. Such costs which can also be termed as second round costs result in behavioral changes which result in cost changes. For example, for some of medicines the raw material availability was a factor that their product cost rose dramatically.

Yet another kind of costs which are faced by organizations are include diversion of funds  manage the covid – 19 which otherwise might have been invested in product development or expansion management activity. This has a huge impact on organizations to get into innovation or other future state scenarios. Instead they need to divert all their funds to meet the operational requirements

Of all the costs which are mentioned above you need to consider the implementation costs for various regulatory requirements, which not only require making administrative arrangements but also ensuring organizations are ready to handle them as well. It needs to be tackled with both wage and non-wage scenarios, organizations needed to pay rental costs while not actively using the facility, material storage costs when it comes to warehouse management etc. Detailed steps on how to carry out assessment and costing depends on the economy you are targeting, and guidance documents can be referred such as OECD guidance on regulatory cost calculation.

It is not that just industries are weathering the current restrictions with the regulatory burden due to Covid – 19, even governments need to have additional administrative measures like setting up task forces, communication channels and emergency personal availability etc. This not only impact the Government expenditure even impact the GDP of the country. When a careful assessment of impact is studied it will give a very good insight on the regulatory burden of such scenarios. These assessments will help organizations in formulating strategies to identify some factor of risk in their operational activities. These types of analysis help organizations and even counties to counter the benefit cost analysis of regulatory strategies which are looked from the perspective of monetary value.

As can referenced in some literature  CBA analysis are mixed with Cost – Effectiveness Analysis (CEA) for economically significant health and safety regulatory like US, OMB guidance in year 2003. These types of analysis needed to be seen not only from a single dimension measures like number of deaths averted but also Health adjusted life years (HALY). There are various metrices available which can be used to calculate such integrated cost calculation measures like  Health related quality of life (HRQL)or Quality adjusted life years (QALY) . Again, such calculations are needed to be seen from the ethical perspective and might different from scenario to scenario perspective,.

In his book on Valuing health for Regulatory Cost – Effectiveness Analysis, Wilhelmine Miller et.al.,  highlighted that HALY & QALY estimates can be derived by characterizing the existing health conditions and compare with other health states and multiply the values for different health states by estimates of the duration of each state. Available HRQL indexes include the EuroQol-5D (Gianluigi Balestroni & Giorgio Bertolotti, 2012) which is widely used in clinical studies, Health Utilities Index (HRQoL) Reviewed by John Horsman et.al, 2003, is widely used to interpret and carrying out comparison of disease and treatment outcomes and long term sequelae at the local, national and international levels. Quality of Well-Being Scale, which measures overall status and well-being over the previous three days in four areas: physical activities, social activities, mobility, and symptom/problem complexes, and the SF-6D. To quote SF-6D takes into consideration any limitations in the kind of work or other activities as the result of physical health; accomplishing less due to emotional problems; bodily pain and its interference with normal work; nervousness, depression, and energy level; and interference with social activities due to physical or emotional problems

Further Wilhelmine Miller et.al.,  went on to conclude economic analyses are routinely supplemented by other types of research and information from the public to provide more comprehensive information and suggested 11 recommendations on how to use above metrices. However which integrated metrics is to be used to carry out the assessment and its acceptance is important to formulate strategy. Such HRQL or QALY calculation and assessment to suit to current scenario is beyond the scope of current blog and readers can refer external content highlighting Regulatory Economics books.

In the current scenario every Industry, Government and enterprise should make a conscious plan of collating such cost information &  HALY & QALY estimates by  factoring ethical, societal and scientific strategies and an world bodies should compile such information globally to help decision makers in planning future epidemics. Industries should also plan for consolidated IT tools which can draw information from multiple sections and provide holistic view showcasing regulatory costs and corresponding Health metrices.

Thanks

Jayakumar

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