<mark>patients are less likely to seek treatment from informal private practitioners, where the quality of services is generally poor. Finally, a large share of the fund goes to the hospital in the form of user fees. This contributes to the financial base of the hospital and promotes the development of the public hospital system.</mark> <u><mark>Source:</mark></u> <mark>Meessen and Ir (2005).</mark> A third important challenge is the development of adequate human resources, in terms of both numbers and skills. Experience has shown that as countries grow richer the demand for health services grows even more rapidly. Often, the supply of new graduates cannot keep up with demand. As described in Section II, shortages of medical personnel exist in one form or another in most of the ASEAN countries considered here. Addressing these shortages requires investments in medical education and sufficient pay incentives for students to enter the medical field. Since there is a long time lag before medical students become practicing doctors, governments need to plan for the long term.

A fourth challenge of greatest priority to the poorer ASEAN countries is the development of regulatory capacity in the health care sector. As described in Section II, regulations in Cambodia, Indonesia, Laos and Vietnam are both underdeveloped and inadequately enforced. Patients in these countries are adversely affected by poor quality medical treatment and sometimes even suffer abusive practices. Strengthening regulatory systems requites dedicated efforts by governments, combined with technical assistance from richer countries and specialized international health agencies.

The effects of trade policy need to be assessed in the light of the strategies governments have in addressing the challenges outlined above. In some areas, trade reforms can be helpful in advancing objectives set by governments. In other areas, trade can make existing problems worse. The effects will also differ across countries, as already illustrated in the previous section. With these considerations in mind, the remainder of this section explores two questions. First, how are domestic policy and trade policy best sequenced? And second, what is the role of international agreements and cooperation within ASEAN?

_How are domestic policy and trade policy best sequenced?_ In Malaysia and Thailand, the growth of private hospitals has provoked a brain drain of health professional from the public sector towards the private sector. Greater mode 2 exports would channel more healthcare resources in the private sector towards servicing foreign and high income local patients, to the detriment of low and middle-income patients. Ideally, this problem needs to be addressed before actively promoting mode 2 exports. There are three ways in which supply shortages could be alleviated: (i) invest in the education of more health professionals; (ii) stem the brain drain from the public sector and rural areas by appropriate incentives; and (iii) import foreign healthcare professionals.

Increasing the supply of healthcare professionals require resources and time. Currently medical education in all ASEAN countries is heavily subsidized by the government. Given that the private sector is also the beneficiary of medical graduates, it makes sense that they should also 24