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Thomas Hardy, Michael Cullen & Health Specialists







Once again thank you for the opportunity to address your Conference. My comments are personal rather than official Association observations although I believe that they are broadly consistent. I have been asked to speak on the issues currently facing the Association and the health sector. Within this context the themes of 19th century English novelist Thomas Hardy and current Finance Minister and Deputy Prime Minister Michael Cullen provide useful reference points.

In preparing this address I was reminded of two of Hardy¡¦s prevalent themes. The first was the role of inevitable fate in eventual outcomes. One only has to recollect Jude the Obscure (a most appropriate name for many of those who manage and guide our health system) to recall the significance of fatalism.

The second theme relates to Hardy¡¦s magnificent descriptions of the Wessex countryside. After vividly describing extraordinary rural settings, as Professor Andrew Hornblow, (former Dean of the Christchurch Clinical School and current chairperson of the Health Workforce Advisory Committee) is fond of noting, Hardy immediately zeros in on the dung heap in the corner of the field.

If ever two terms aptly sum up the direction of our health system, fate and dung heaps are at the forefront of what immediately comes to mind. But where does the cerebral Dr Michael Cullen fit in? In an interesting address on 16 June titled ¡¥Issues in the finance portfolio¡¦ to the equally cerebral Chen and Palmer seminar, Dr Cullen made several musings about health spending that are pertinent because they allow us to get into the mind of such a key player in the political and economic decision-making process who has held the finance portfolio since late 1999.

Dr Cullen¡¦s Musings

In summary Dr Cullen observed that in his view:

1. The financing of health is the ¡¥single largest and most intractable conundrum that all developed economies face¡¦

2. Access to health services is an ¡¥acutely sensitive political issue¡¦ both in terms of media coverage and opposition political parties.

3. Health technology is exploding with many of the new treatments and interventions ¡¥enormously expensive¡¦.

4. Health expenditure has increased by 45% in only a decade and will reach 19.7% of total government spending in 2006, a 60% increase on the 1993 share of government spending.

5. Treasury estimates that the over 65s make up 12% of the population but consume 39% of health spending (5.5% and 26% respectively for the over 75s). The over 65s and over 75s proportions are expected to double and treble respectively by 2051.

6. There are constant statements that the health system is under-funded, short-changed and operating on a shoe-string.

7. The challenge is to grow the health budget by seeing it as a dividend from a better performing economy rather than by taking more out of a limited fiscal pool. New Zealand can¡¦t forever increase health spending faster than total government spending.

Dr Cullen is making these observations in contemplative mode as he provides us with the useful opportunity to get inside his mind as the person who may still be Minister of Finance in 2006 but probably will have opted for a new career direction before his dreaded 2051.

His points are compelling, intelligent and perceptive. They should not be dismissed out of hand simply because he holds the finance portfolio although some might argue what better justification does one need for such a dismissal. He astutely highlights the political nub of the problem; that is, while governments pour large and increasing amounts of monies into the health system, there appears to be no evident increased gains and increasing, or at least not reduced, dissatisfaction.

Initial Questions about Health Spending

One of the first things that struck me about his musings was the lack of research and analysis on health spending except at an aggregate and programme level. Where is the disaggregation analysis? Where does the money go and how well is it spent? How do we reconcile the high level of aggregate spending (albeit it modest by international standards) with the fact that in broad terms, during the first half of the 1990s government spending on public hospitals fell in real per capita terms by around 13% and then in the second half increased by a roughly comparable amount? How do we reconcile Dr Cullen¡¦s observations with his own Budget in 2001/02 in which, once all the mirrors were stripped away, the increased funding for existing public hospital services was a mere 0.03% ($0.9m)? New Zealand¡¦s information on the effectiveness of health spending is surprisingly poor in a country with a small population but no shortage of bureaucracy to undertake the analysis.

Dr Cullen¡¦s musings fail to consider the nature of health spending in the decade before he sat on the Treasury benches. As discussed above there were two parts to the 1990s applicable to the most capitated part of the health system, public hospitals. But this is not simply a matter of it all ¡¥coming out in the wash¡¦. A significant component of the increased government funding for public hospitals in the second half of that decade was allocated for time-limited elective service waiting times initiatives, in response to political imperatives to reduce embarrassing waiting list statistics. While the funding was welcomed by those working at the ¡¥coal-face¡¦ its ad hoc (time-limited) nature meant that medium to longer-term planning for the provision of services could not be undertaken. This is an example of how increased funding, even if on a low base, had its effectiveness minimised because of the method of funding. To be fair to Dr Cullen, the current government has shifted this time-limited funding that would otherwise have now been terminated into permanent base-line funding. This is a sound but recent measure.

Compounding the problems of understanding health spending in the 1990s is that we have minimal understanding of where it went beyond a limited programme basis and how effective it was. Most of the overall increase went outside secondary or public hospital care and largely to the primary part of the sector, the part that was largely not capitated. But my impression is that this was barely noticed by general practitioners at the clinical frontline who saw their incomes either decline or maintained only through increased activity. Did much of the increased monies get absorbed into demand-driven services, politically favoured IPAs, bureaucratic funding structures, or the transaction costs associated with the then competitive system? We suspect so but we do not precisely know.

We don¡¦t fully know the significance of the leg-iron of DHB deficits and nor does Dr Cullen consider their effect. In the 1990s deficits rocketed out of control and then suddenly they disappeared and the books were balanced. While some chief executives boasted that this was due to their fiscal skill and prudence, we know that the then government¡¦s deficit switch mechanism made the difference. This was a most helpful move at the time but to what extent did the one-off deficit switch camouflage the healthiness of funding levels? Subsequently DHB deficits again increased to levels comparable to the 1990s levels. Was this due to the original fragility of funding levels camouflaged by the earlier deficit switch or was it due to the devastating effect of the 0.03% increase to funding for existing public hospital services in the 2001-02 Budget (or to a combination of both)?

It is also worth noting that a significant part of increased health spending under the government¡¦s four year funding package, itself a sound concept, is primary care. This is commendable but inevitably the benefits will be long-term. The returns that Dr Cullen might hope to see will take many years before they might have an effect in, for example, reducing hospital admissions and increasing satisfaction.

What we do know is that there has been considerable wastage in the health system. The extent, degree and horror of numerous incidents vary but they are prevalent. Millions of dollars were wasted on each occasion in Waikato with the Proudfoot consultancy, again wasted with a Deloitte¡¦s project in Taranaki, and yet again repeated with the ill-fated Shared Medical Systems information technology at both Waikato and Capital & Coast. On a smaller scale hundreds of thousands of dollars have been wasted or ineffectively spent in other examples such as external consultancies engaged in Wanganui, Canterbury and Capital & Coast.

These are all examples that occurred in the 1990s but the health system was rife with them and the period of time is an important part of the time period covered by Dr Cullen¡¦s observations. Further, these examples also had disastrous effects on the morale of the workforce that is ultimately the key ingredient in the production of quality and added value in the health system. These examples confirm the graphic observation of Dr Peter Roberts in his recently published book Snakes and Ladders that bad policy is more dangerous for patient care than flesh-eating bugs.

These examples also make the point that not only do we lack information on the disaggregation of health spending but even more so we know little of the effectiveness of this same spending except that there is a high, perhaps rampant, level of ineffectiveness. If the questions raised by Dr Cullen are to be addressed then it is the matter of effectiveness that we (the government and the sector) should be focussing on.

The Labour-Progressive Party government could legitimately note that these examples occurred before rather than during its watch. Absolutely true but this is not the point. Dr Cullen¡¦s historical overview includes this period of his predecessors¡¦ watches. It is probably fair to say that the wasted expenditure on outside and inappropriate consultants has diminished significantly under his watch although, albeit on a smaller magnitude, a recent consultant¡¦s report recommending privatisation at the Lakes DHB appears to be of similar ilk even if the consultant rates might be cheaper than some of the worse 1990s examples suggesting perhaps that little has changed except scale. On the positive side and by way of marked contrast, the Otago DHB has recently produced an in-house consultation document on managing acute demand that adopts an unusual approach of plain language and practical suggestions.

The serious issues and concerns in the recent report of Professor Ranginui Walker on the accountability, or lack thereof, of Maori health providers, particularly the lack of rigorous evaluation of achievement of objectives, should also be considered by Dr Cullen. I suggest that if the same analysis was applied to evaluating the performance of other non-Maori private providers, one might reach similar conclusions.

As a further aside, Dr Cullen should not be so sweeping in his comments about the cost of new technology. Technology costs but it also saves as well as enhances effectiveness and efficiency. One only has to look at the various advances that have led to the growth of day surgery contributing to reduced length of stay and more patients being treated.

Effectiveness of Health Spending

But the real issue to consider is: Has the health system improved in terms of understanding the effectiveness of health spending since Dr Cullen¡¦s watch began? My contention is that it has not because, apart from wisely changing the legislative environment and removing the application of the perverse incentives of the Commerce and Companies Acts, the understanding of effectiveness is still weak. While more money is poured in to the health system, doctors and dentists are not noticing a discernible difference for the better. This means that in addition to knowing little about the disaggregation of health spending and whether it is getting to the clinical frontline, we know even less about its effectiveness.

I do not know whether our health system is overall adequately funded or under-funded. The most common international comparison is health spending as a proportion of Gross Domestic Product where, alongside other OECD nations New Zealand is somewhere in the middle, not bad but not flash or excessive. But I have never been fully comfortable with this comparison. If it was to be believed then the United States would have the best health system in the OECD but we know this to be nonsense once access and transaction costs are considered. This comparison does not sufficiently consider government initiatives that are health related but are provided in other areas of government spending such as housing.

But I do know that New Zealand specialises in ineffectiveness. In broad terms I identify two key overarching factors that provide a necessary framework for enabling greater effectiveness of health spending:

1. Integration of funding and provision. Of the two the former is most critical but both are important for achievement of objectives and avoidance of duplication, obscurity of purpose, and unnecessary transaction costs. Aside from the unbundling of ACC our government health funding is integrated or single payer. To a large extent our system through district health boards is publicly provided for secondary and tertiary care and privately provided but publicly regulated for primary care. However, DHBs are adopting under pressure, crisis management, modes of decision-making that help to undermine the advantages of integration provided by integrated public provision.

2. A culture and environment of trust and confidence in which health professionals and the values of professionalism are at the core of decision and policy-making so that their culture is the prevalent organisational culture. Health professionals need to be empowered in order that their experience and skills can be utilised to ensure the effectiveness of health spending. This is precisely what we do not have and is the main focus of my address to you today recognising that the health system is labour-intensive and that the most critical investment is human capital.

It is important that the question of how to better enable effectiveness is considered, because the consequences of not enabling it contribute to and perpetuate the problem that Dr Cullen has identified. The sustained financial pressures that district health boards are subjected to force them down the track of short-term decision-making in a sector where the best and most effective decisions are made when done so on a medium to long-term basis. An evitable outcome of ¡¥short-termism¡¦ is to resort to crisis management and short-sightedness at the expense of longer-term investment of human capital.

There are several areas where ineffectiveness of health spending deserves mentioning. In some instances they also lead to risky or dangerous actual or potential situations. They are:

„h The extent of unmet need is unknown with little work being undertaken to understand its significance and implications, including fiscal, down the track for the health system. We know that many people have unmet needs in areas important to their health and safety but we don¡¦t know how many. We can reasonably anticipate that at some point in time many of them will turn up in some form either in the health system or within some other social policy portfolio probably costing more than would have been the case if the unmet need had been met when it should have been. Denied or delayed care is not only unfair and inequitable care but often is also fiscally more costly care. Early intervention and prevention is safer and longer-term cheaper than delayed ¡¥ambulance at the bottom of the cliff¡¦ measures.

„h Linked to the problem of unmet demand is the application of the points and booking system for elective services. Research should have been done, but has not been, on the cost effectiveness of treating patients appropriately referred by general practitioners instead of taking them off the waiting lists and hoping that they don¡¦t deteriorate further. When funding does not match legitimate clinical needs then the points system arbitrarily and dangerously endeavours to distinguish between the sick, the very sick and the very, very sick. Consistently the main government party of the 1990s and today vigorously defended the points system and equally so the main opposition party vigorously opposed it both then and now. The only difference is that the two political parties have changed roles.

„h The lack of an aggressive coordinated recruitment and retention strategy for senior dental and medical positions, inclusive of improved competitive employment conditions, causes excessive consequential reliance on the costly alternative of locum employment. A distinct financially attractive ¡¥mini-labour market¡¦ has emerged for locums who are well-placed to ¡¥call the shots¡¦. Locums are much needed but the variable quality and the disruption on continuity of patient care also cause further additional expenses. Staffing shortages also lead to other expensive alternatives such as the Tairawhiti DHB¡¦s recent increased use of helicopter services.

„h No effective work has been done on the capacity needs of DHBs to provide patient and other health services. The benefits and enhanced effectiveness of integrated provision have not been explored. This requires a pro-active approach but DHBs and their managements are so much on the back-foot and so guided by ¡¥short-termism¡¦ that this is simply not happening. The Prime Minister¡¦s sensible advocacy of the importance of capacity building in the wider social policy and other fields is simply not part of the planning horizon of DHBs or the Health Ministry.

„h Linked to the failure to plan for capacity building is the question of public-private partnerships that the government has a general interest in for the economy as a whole is unable to be effectively explored in the health sector because, in the absence of a pro-active vision and strategy for the future, it simply risks degenerating into a pretext for privatisation due to the ¡¥short-termism¡¦ of decision-making and pressures to shift risk. There is already evidence of this. The difference between this and the previous decades may be that in the 1990s privatisation was driven by an ideological idea whereas in this decade it is driven by a lack of ideas. Some privatised services have been reclaimed by DHBs and their predecessors, some of which have either fallen over or ¡¥turned to custard¡¦, while others have been politically and bureaucratically favoured to supposedly ¡¥succeed¡¦. My earlier reference to the wider implications of Dr Walker¡¦s investigation of Maori providers is apt in this context.

„h The high level of disharmony and mistrust in the primary sector between medical organisations and the Ministry of Health are significantly undermining the ability to ensure that Primary Health Organisations become effective organisations facilitating better health delivery and outcomes. This unsatisfactory environment in which such a critical policy imperative is being implemented risks leading to PHOs degenerating into new duplicative and inefficient bureaucratic edifices complicated by excessive transaction processes.

These are examples of ineffectiveness that severely restricts the capacity to improve and enhance the utilisation of government health spending. While there is much merit in the concept of a four-year funding package as announced by government, its potential benefits are undermined by the failure to address effectiveness.

Engagement, Empowerment and Values of Health Professionals

This leads to the next question of how can effectiveness best be provided? As discussed above I see the key issue as one of a working relationship of trust and confidence in which health professionals are actively engaged and empowered in decision-making. This has to go beyond the level of rhetoric.

I commend the excellent comments by ACC Minister Ruth Dyson at the launch of Dr Roberts¡¦ Snakes and Ladders book on 2 July. Her statement about safety cultures, that is, ¡¥broadly speaking, a shared set of beliefs, attitudes, values and ways of behaving that support prevention of injury¡¦ could readily be adapted to the health system. And she correctly noted that the ¡¥two major inquiries into services at Christchurch and Gisborne hospitals by the Health and Disability Services Commissioner drew attention to that disempowerment of the health professions.¡¦ Regrettably every positive statement valuing professionalism and health professionals from the Health Minister and her colleagues is immediately undermined whenever the chair of the Auckland DHB opens his mouth.

Central to resolving effectiveness is the relationship between management and health professionals. Their respective contributions need to be understood. Management is an administrative overhead that does not of itself produce value in the health system. Management is most effective when it seeks to better facilitate the effectiveness and efficiency of the work of health professionals for it is health professionals that produce and add value. Overwhelmingly it has been the initiatives of health professionals that keep the system going at times of adversity and stress and also who generate the improvements and innovations that lead to increased effectiveness, quality and productivity.

Management faces serious difficulties because of the overwhelming tendency to see their relationship through the paradigm of power relationships. Empowerment of health professionals therefore becomes an encroachment on the ¡¥rightful¡¦ role and prerogative of management. Many managers have limited experience on what works and what does not work, especially those removed from operational matters. The contribution of management is compounded by high turnover inclusive of the extraordinary tendency of a few poor performers to suddenly reappear reborn in another part of the country portrayed as a bright new broom.

I must qualify these comments with the statement that there are many managers that I respect and consider it an honour to know based on my experience of their dedication, integrity and ability. But my point is that management as an entity is compromised by the paradigm it operates in, the lack of an overall national strategy and professionally based culture for them to operate within, and the excessive level of continued poor performance by too many individuals. One poor manager undermines the credibility of 10 good managers.

This relationship between management and health professionals must be changed if we are to get the effectiveness in the use of health spending that might make Dr Cullen sleep better at night and not fret about his dreaded 2051. Health professionals are the most valuable but also most untapped resource that the health system has available to it. They do not need to be motivated; they do not require crude incentives such as performance bonuses. Their motivation and the benefits that flow from it comes from being allowed to do what their professionalism drives them to want to do.

By way of contrast I point to the example of a novel exciting approach in New South Wales in which there is a three year review of metropolitan acute services generated by a health minister who had the temerity to ask why was there no health plan or strategy. It is driven by a health professional based taskforce that was established because of the mistrust towards the state health department by professionals at the workplace. The taskforce is reviewing service by service and in doing so actively engaging with and involving all affected health professionals drawing upon their expertise and ensuring their confidence in the process. The taskforce is incrementally making a series of practical recommendations to improve, rationalise and more effectively provide specific acute services that almost in their entirety are being adopted by the state government. We have nothing to compare with this in New Zealand.

But the finger can¡¦t simply be pointed at DHB managers. National leadership from the top is critical in a small country like New Zealand. We have a document called the NZ Health Strategy but to call it a strategy is like calling a fish a bicycle. It is a commendable statement of high policy that few would dispute and a valuable starting point. But it is not a strategy. A strategy is a plan for implementation. But the government lacks effective advice on how this might best be done.

The government¡¦s key advice for what happens in the health system comes from two main quarters ¡V DHB chairs and the Health Ministry. It is difficult to imagine two parts of the health system more divorced from the practical operation of the system and health professionals at the clinical frontline. This is not to say that the government does not value the input and work of health professionals or the advice of professional bodies such as the ASMS. Indeed it is hard to recall such an approachable, personable and accessible health minister than the present incumbent. But the simple fact of the matter is that we can¡¦t compete on a regular ongoing basis as the main two pillars of advice because the system has not been sufficiently re-orientated to allow this to happen. This is also not to say that the advice received from DHB chairs and the Ministry is always or often bad advice. But it is distant advice and not sufficiently connected with the real expertise in the system to advise on how effectiveness might be better improved in a fiscally responsible manner.

The ASMS has sought to raise the question of effectiveness in our national DHB collective agreement negotiations that are currently underway. These negotiations are more than simply providing decent terms and conditions of employment for senior doctors and dentists that would better enable DHBs to effectively recruit and retain. We are also seeking ways in which the expertise of our members can be better used by DHBs in workforce development and education including staffing plans, recruitment and retention strategies, and enhanced democratic involvement in DHB decision-making. To date, however, DHBs appear to be baulking at the prospect of this approach apparently, through their paradigm, seeing it as an encroachment on and threat to their authority. While this sort of negativity continues we will never turn around the environment to one that encourages effective health spending.

Back to the Dung Heap?

And so I say to Dr Cullen that he raises good questions but to a large extent the solution rests in the hands of him and his government colleagues. We need more analysis of disaggregated health spending but we need much more than this. We need national leadership to provide the engagement and empowerment of health professionals at all levels of the system from developing national strategies to operational performance at the workplace. The inability to use the health systems most effective and skilled resources is extraordinary although internationally not out of kilter.

We have yet to scratch the surface over what might be possible. While those who wield undue power and influence in the system continue to see engagement and empowerment as some form of hegemonic challenge we will continue to flounder, we will never know whether the health system is overall well funded but we do know that funding is ineffectively utilised. DHBs will not make the necessary transition from crown health enterprises cum hospital and health services to being greater than the sum of the parts. And the fatalism described so well by Thomas Hardy will continue to leave us frolicking in the dung heaps in the corner of the field.

Ian Powell


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