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Management Services report released

15 March 2005

Management Services report released

The Ministry of Health has released the Review of Primary Health Organisation Management Services.

The report was commissioned from Auckland-based business consultants Capital Strategy in 2004 and contains several recommendations requiring further work within the Ministry and with District Health Boards (DHBs), to explore possible implementation issues.

The report identifies how complicated the delivery of management services can be and that a single solution may not be possible. This conclusion has been reinforced by discussions the Ministry has had with DHBs and PHOs.

The report’s key findings are:

Small PHOs (fewer than 20,000 enrolees) are generally not delivering on all required management services primarily because they do not have the staff needed to undertake all requirements

Medium-sized PHOs (between 20,001 and 75,000 enrolees) are better able to meet the requirements than small PHOs

The actual management service costs that the PHOs surveyed reported varied considerably by PHO - ranging from $4 - $6 per head for large PHOs, up to $28 for medium PHOs, and up to $38 for small PHOs. These ranges are somewhat misleading as the financial information from PHOs was inconsistent and incomplete. For example, if the PHO reporting $38 per head is removed from the small PHO sample, the maximum in that range is reduced to $15 per head.

Consideration should be given to defining a minimum PHO size.

If PHOs are not part of a network or shared service arrangement, it was estimated that management service fixed costs could be $364,000 (or $18.20 per head) for the small PHO and $579,000 (or $7.72 to $11.58 per head) for the medium-to-large PHO. Shared service arrangements could reduce these costs considerably - down to $280,000 ($14 per head) in the case of small PHOs.

In response to this report, the Ministry of Health notes that the primary health sector is still settling down into the PHO infrastructure, it could be counter-productive to define a minimum PHO size. A paper on PHO size recently presented to the PHO Taskforce emphasises the complexity of this issue and how PHO size may affect different functions of the organisation in various positive and negative ways.

Nevertheless, the viability of small PHOs is an issue. There are factors apart from the level of management funding and PHO size that can affect a small PHO’s viability. Other factors include clinical governance capability, a high need enrolled population and the level of infrastructure required to support monitoring and reporting requirements.

In terms of the management services funding issue, some small to medium PHOs are already moving to establish shared services arrangements. A key way of developing the management infrastructure and support is through existing providers, support agencies and District Health Boards. The Ministry expects DHBs and PHOs to collaborate on proposals to improve management service efficiency.

Given the importance of small PHOs to the Primary Health Care Strategy and the community, and after careful consideration of all the evidence, the Ministry is pleased to announce additional financial support of up to $3 million for small PHOs in 2005/06. The Ministry will be working with DHBs on details of how this funding is to be applied.

The Ministry is also funding a feasibility study on establishing shared service arrangements for small PHOs. This will assist the Ministry to provide guidance and assistance to DHBs and small PHOs seeking to establish shared service arrangements. The Ministry is also looking at other ways to provide incentives and assistance to small PHOs wishing to enter into shared service arrangements.

The Ministry has never prescribed a minimum or maximum size for PHOs, as it recognises that PHOs need to be flexible in size and structure to meet the needs of the communities that they serve. Small, community-based PHOs are making a valuable contribution to the implementation of the Primary Health Care Strategy although they face the issue of critical mass for management and information systems. Larger PHOs are more likely to have critical mass for management but need to put special effort into remaining close to the communities they serve.

The report can be read in full online at the Ministry of Health's website _ or download the Review of Primary Health Organisation Management Services here

Questions and answers

What are the findings of the report?

The Management Services Fee review report found that generally small PHOs (fewer than 20,000 enrollees) and some small-to-medium sized PHOs are not delivering all the required management services. This is primarily because their per head fixed costs for management services is higher than the per head management services fee they receive.

The report recommended increasing the management services fee for small PHOs. The review found shared management service arrangements can significantly reduce small PHOs' management services costs and that consideration should be given to defining a minimum PHO size.

Who wrote the report?

The Ministry of Health commissioned independent business consultants Capital Strategy Ltd to write the report. It was reviewed by a group made up of District Health Board and PHO representatives and the group's feedback was incorporated in the final report.

Why do PHOs get management fees?

This money is used to fulfil administrative responsibilities associated with PHOs, such as making sure there is community engagement and representation. Also patient registers must be processed and there are formal enrolment, reporting and monitoring requirements. This is critical to changing lifestyle risks to health such as smoking and lack of exercise. The benefits range from ensuring recall systems can work, through to enabling different services to be provided, and accountability for public money.

What is the management fee rate?

For PHOs with populations of up to 75,000 people, they receive $9.46 per person for the first 20,000 enrollees, and $4.60 per person for 20,001-75,000 people enrolled.

For example, a PHO with 30,000 people enrolled would get $189,200 (20,000 x $9.46) plus $46,000 (10,000 x $4.60).


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