Selective Regulator Decoupling and Organizations’ Strategic Responses

Organizations often respond to institutional pressures by symbolically adopting policies and procedures but decoupling them from actual practice. Literature has examined why organizations decouple from regulatory pressures. In this study, we argue that decoupling occurs within regulatory agencies and results from a combination of conflicting institutional pressures, complex goals, and internal fragmentation. Further, regulatory decoupling is selective—that is, regulators fail to adequately enforce standards only for one set of organizations. Regulated organizations that benefit from selective regulatory decoupling use nonmarket strategies to maintain their favorable regulatory status, and, in the process, selectively decouple their norms in one organizational activity but not others. As an empirical context, we use the hospital industry in which regulators have to balance conflicting pressures to be tough on fraud while maintaining the community’s access to essential but unprofitable services, such as charity care and medical education. In response, hospital regulators selectively decouple and exhibit leniency in enforcement of mispricing practices toward “beneficent hospitals,” defined as hospitals that provide more charity care and medical education. In turn, beneficent hospitals selectively decouple their service and profit goals by providing unprofitable services to uninsured patients, while mispricing insured patients to earn higher reimbursements.