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Delivering Health Care Against Funding Constraints

Delivering Quality Health Care Against Funding Constraints

Paper To

All Ireland Health Conference, Irish Medical Organisation And British Medical Association

Waterfront Hall, Belfast, 27 November 2003




In preparing this address and considering the subject matter I was constantly reminded of the difference between what is claimed occurs (eg, lines on paper) and what actually occurs, or more frequently, what does not happen. The development of New Zealand’s health policy, at times at a macro level, and often at a micro level, has strong elements of Lewis Carroll in it. That is, if one says the same thing three times it must be true! I suspect there is some international resonance to this observation.

The theme of this address is developed in the context of a small country with a population of four million, a GDP of $(NZ) 122 billion (approximately 56 billion euro), and a heavy dependence on overseas trade. At different times during its history New Zealand has had a progressive social reform record. This includes the right of women to vote in 1893, labour legislation inclusive of union recognition in 1894, and old age pensions in 1898. In the mid-1930s and 1940s this progressive record extended with the incorporation of the principle of universal access to and provision of key social services including health (predating the formation of the National Health Service in Britain by a decade), followed by a no fault accident compensation system in 1974. From the mid-1980s there was a significant reversal of this direction with a major shift away from collectivism and universalism to individualism and ‘market forces’ based on ideology, often described as ‘neo-liberalism or economic rationalism. In the 1990s this shift extended more fully from the economic to the social sphere, including our health system.

Features of New Zealand’s Health System

A feature of health systems is that periodically they reach certain cross-roads. This was the case in 1999 when a new Labour-led centre-left government was elected replacing the previous conservative (National-led) governments of the 1990s. That cross-road was whether to make a significant break from the prevalent ideology of the 1990s in which market forces were considered the most effective driver of the health system. That is what happened with the New Zealand Public Health and Disability Act 2000 (NZPHD), which marked a significant shift in direction and whose purpose can be summarised as:

1. To provide for the public funding and provision of personal health, public health and disability services and to establish publicly owned organisations to ensure this provision.

2. Pursuing the objectives ‘to the extent that they are achievable within the funding provided.’

3. Endeavouring to promote the ‘integration of all health services, especially primary and secondary.’

The New Zealand health system can now be broadly described as including the following features:

• Predominantly single payer, by government through district health boards (DHBs) and derived from general taxation. Publicly funded health expenditure as a percentage of total health spending was 77.7% in 2003 compared with the weighted OECD mean of 75.3% (77.5% in Ireland and 83.3% in Britain). In 1990, before the introduction of market force ideology it was 82.4% (76.8% in OECD, 71.7% in Ireland and 84.3% in Britain).

• Most secondary and all tertiary care is largely publicly provided by DHBs while primary care is largely privately provided but heavily regulated by government through the DHBs.

• DHBs (21) responsible for the provision of a comprehensive range of health services with objectives such as improving, promoting and protecting the health of all people and communities, integration of health services (especially primary and secondary) and reduction of disparities (refer Appendices 1 and 2 for objectives and functions of DHBs).

• The government’s health focus is largely on (a) primary care and (b) population health (eg, health promotion and disease prevention), in part based on an expectation that this will significantly reduce the demand for secondary and tertiary care. The premise is that prevention is both better than cure and also cheaper.

• Linked to this premise, the establishment of not-for-profit Primary Health Organisations (PHOs) within DHB geographic boundaries through which DHBs are to implement the Primary Health Care Strategy, in part expected to increase access to primary care including through capitation.

• The development by central government of a number of high policy strategies such as the Health Strategy and Disability Strategy for overall guidance to the health sector along with other strategies covering primary health, Maori health, Pacific Health and cancer treatment.

• No fault accident compensation inclusive of work related illness and non-work related injury and accident along with the absence of a right to sue and whose scope is likely to extend into unintended injury in the medical treatment process.

In the context of this address the challenge was nicely summed up by our Finance Minister earlier this month:

It is an unfortunate fact of New Zealand politics that medical specialists and finance ministers seemed to be locked eternally into an adversarial relationship.

It is not difficult to see why this is so. On the one hand, medical specialists are engaged every day in the struggle, if not always between life and death, then at least between quality of life and physical pain and suffering. You provide healing and hope to thousands of New Zealanders and their families; and even those who have never needed hospital treatment take great comfort in knowing that it is available should they need it.

Finance ministers, on the other hand, engage every day with the question of how to improve the economic and financial health of the nation. This involves balancing competing claims for limited government funds from areas as diverse as education, policing, infrastructure, conservation, and social welfare. Some of these decisions – relating to child protection or safer roading, for example – are as much a matter of life and death as those relating to health expenditure. But even those that are not are to varying degrees essential in maintaining our way of life and protecting and promoting our economic well being.

…gains in the efficiency of health-care delivery (gains that not only help spread resources further, but also provide patients with a better service) require that someone, somewhere takes responsibility for how the whole of the health system works, and for shifting the system so that its points of intervention in the lives of individuals are more oriented to maintaining health than to treating disease. To my mind clinicians must play the major leadership role in this regard.

It is my hope that health professionals and government can engage on these issues around an understanding of the facts in all their complexity. There is little to be gained from staking out positions. We need rather to work out principles, address the hard issues of how … [to] manage limited resources, and find ways forward.

The Commercial Competition Experience

A decade ago New Zealand commenced experimenting with commercial competition in the health system, in part as a response to fiscal pressures but more so in response to strong ideological premises. In 1991 the then government announced a fundament shift in direction with a policy paper issued by the Minister of Health that provided the basis of new legislation adopted in 1993. This shift involved adopting, but more aggressively, the ‘internal market’ espoused under the Thatcher government in Britain. Based on the belief that market forces in the form of commercial competition would enhance effectiveness and efficiency some of the key features included no preference for public and private providers (ie, a so-called level playing field but in practice a predisposition towards the latter), privatisation inclusive of contracting out of some secondary services, and public hospitals being run by state-owned companies governed by the Commerce and Companies Acts (the former to prevent anti-competitive behaviour in the health system and the former to encourage a commercial business culture).

Gradually, throughout the 1990s, there was an increasing awareness that this was an ineffective means of driving a modern health system in which the objective was the production of an accessible universal public good. It led to contradictory and perverse incentives, neglect of workforce development and planning (the legacies of which still plague our system), fiscal irresponsibility, and excessive transaction costs. Nor did it reduce government spending. In 1992 publicly funded health expenditure as a percentage of total health spending was 79% whereas by 2000 it was 78%. In the 1992-93 financial year Vote Health real expenditure was $(NZ) 4,877m compared with $(NZ) 6,504m in the 1999-2000 financial year, an increase of 33.4%. In the same period, real per capita government health spending per resident increased by 23% from $(NZ) 1,373 to $(NZ) 1,690.

As an aside, although it is generally recognised in New Zealand that this market competition approach failed in New Zealand in the 1990s, some of its premises appear to feature in the policy direction of the British government and are also advocated for the National Health Service in the Commission on the Reform of Public Services’ publication earlier this year, A better way, two of whose three authors were New Zealand finance ministers during the mid-1980s and early 1990s.

Prioritisation and Quality Improvement

Prioritisation or priority setting was another response to funding constraints. Following on from initial efforts to develop a surgical booking system based on fiscal thresholds and subjective clinical criteria that was unrealistically promoted by the government of the day as a ‘cure-all’ solution to lengthy waiting lists, the National Health Committee (a statutory body set up to advise the Minister of Health on health service priorities) recommended in 1997 that prioritisation decisions be explicit and transparent and based on effectiveness, efficiency, equity and acceptability.

Arguably the main benefit of prioritisation has been greater openness but it has been subject to strong criticisms which go to the core of fiscal effectiveness and quality of care. Prioritisation has been implemented in a haphazard and unvalidated manner and is dangerous for quality standards and patient care in an environment of funding constraints because of its subjective and variable points system and its effect on access to essential services. There are, however, interesting research projects currently underway that we should learn from. In the meantime, a series of papers to the New Zealand Orthopaedic Association’s recent Annual Scientific Meeting highlight the serious limitations of prioritisation in reference to both quality and fiscal imperatives. They reported several negative effects such as high levels of internal inequity, significant medical (including mental health) and social problems for patients referred back to general practitioners, high levels of patient dissatisfaction, substantially increased paperwork for GPs, and diverting GPs from routine general practice.

The current approach in New Zealand, building on prioritisation, has now shifted to quality improvement for which two reports commissioned in 2000 are critical. A quality improvement approach offers discernible advantages in response to funding constraints such as being more likely to engage health professionals and the public, starting from the base of current service delivery and how it might be improved, and focusing on the process and outcomes of care.

But, in my assessment, while in the right direction and a distinct improvement on misplaced reliance on prioritisation, a quality improvement strategy on its own is not enough and does not by itself bridge the critical gap between macro and micro issues and performance. For this we need to draw upon, adapt and borrow from the discussions and debates over safety cultures including external and internal morality and bureaucratic and generative cultures.

External Morality

External morality reflects the wider society’s ethos and the parameters within which the internal morality of medical practitioners operates. In this context New Zealand’s legislative and policy framework has much going for it. Single payer funding and the high level of public provision, particularly in secondary care, provide robust means of avoiding unnecessary fragmentation and promoting more effective integration. Also part of the external morality is the statutory position of the Health & Disability Commissioner responsible for the operation of the statute-derived Code of Patients Rights.

The DHBs objectives and functions are consistent with the provision of a universal public good that includes pro-actively rather than simply reactively confronting health needs. Of particular note in this respect is s23(1)(g) of the NZPHDA requiring DHBs to ‘regularly investigate, assess and monitor the health status of its resident population, any factors that the DHB believes may adversely affect the health status of that population, and the needs of that population for services.’

That is not to say there are not legitimate debates over the form of the DHB system. There are differing views over the value and effectiveness of elected members comprising part of the board membership, the number of DHBs, and whether some should be merged. These are, however, debates around the margins rather than the core of the system.

At the level of policy rather than legislation is the initiation of a tripartite forum process based on the government, district health boards and the Council of Trade Unions (the central union organisation). This is significant given the high unionisation levels of health professionals in New Zealand. Although only in its formative teething days, if approached in the right way this has the potential to enable an improved contribution to more robust and practical national policies but, perhaps more importantly, stronger local bipartite (DHB-union) policy development and implementation.

The main difficulty in the external morality part of the equation is the uncertainty and lack of clarity of the direction of Primary Health Organisations upon which the government attaches so much importance. PHOs (non-government, non-statutory organisations) are charged with leading the most disparate part of the health sector in which there are powerful legacies of distrust. Although PHOs now cover about half of New Zealand’s population, at this stage this is largely lines on paper. Our PHOs unfortunately risk becoming a new unnecessary bureaucratic layer served by management organisations and leading to extra transaction costs. Further, the controversial experience of some non-government health providers highlights the importance of having stringent performance monitoring standards. But this requires considerable compliance and transaction costs, which then begs the question of effectiveness.

It is worth noting the experience of using non-government agencies in the provision of another public good, tertiary education. Public monies are used to fund both public and private providers. According to the overseeing statutory Tertiary Education Commission, less than half the students at 34 (out of 232) publicly funded private education establishments (private providers) passed their courses in 2001 and in nine of them less than half the students even completed their courses. One of the lessons is that it is simply impractical for a statutory body to effectively monitor that many private providers in addition to the much larger approximately 30 public providers.

Nevertheless, it is reasonable to conclude that New Zealand has an external morality framework that in the main is conducive to fronting up to the challenge of delivering quality health care against funding constraints. It is certainly superior to what it replaced. But it is the doing that is difficult. Despite several positive developments including longer term funding packages and a shift from time-limited to baseline funding, nearly three years after the passing of the NZPHDA we are at another cross-road. The gap between cup and lips, between the laudable long-term objectives of the orientation towards primary and population based health care, on the one hand, and the immediate demand driven health care imperatives that daily confront patients and doctors, on the other hand, is large indeed.

Internal Morality and Generative Culture

This time the cross-road involves the culture of the health sector, including its decision-making process and engagement of health professionals. For those working at the front-line of health delivery there has not been a general discernible difference or improvement in the culture of the sector compared with the 1990s. This has a compounding effect as the longer a negative culture remains in place the more embedded and entrenched it becomes and it precludes the ability of the health system to use its greatest resource for ensuring quality of health care in an environment of funding constraints, the internal morality of health professionals, including the medical profession. Our excessive reliance on the external morality to deliver means that our health system continues to function largely in crisis management and short-term modes of decision-making. The capacity to shift to a medium to longer-term approach has not yet been achieved despite the external morality of the system requiring such an approach.

It is useful to raid and adapt the theoretical construct of Professor James Reason involving organisational cultures (bureaucratic and generative). His construct is in the context of the handling of safety information and also includes a third culture, unhelpful to this exercise (pathological).

In summary, the differences between bureaucratic and generative cultures are:

• May not find out necessary information (bureaucratic culture) compared with actively seeking it (generative culture).

• Messengers are listened to if they arrive (bureaucratic) compared with training and rewarding messengers (generative).

• Responsibility is compartmentalised (bureaucratic) compared with sharing responsibility (generative).

• Failures lead to local repairs (bureaucratic) compared with failures leading to far-reaching reforms (generative).

• New ideas often present problems (bureaucratic) compared with new ideas being welcomed (generative).

New Zealand’s DHB organisational culture is still largely bureaucratic (some would argue pathological) which contributes in no small part to our specialisation in fiscal ineffectiveness. Sustained pressures force DHBs into 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 inevitable outcome of ‘short-termism’ is to resort to crisis management and short-sightedness at the expense of longer-term investment in human capital. We don’t know whether we spend enough on health or if we are about right in New Zealand. But health expenditure is expected to reach 19.7% of total government spending in 2006, a 60% increase on the 1993 share of government spending. This requires New Zealand to reassess how effectively we are spending the health dollar in order to address the contradiction of overall increased health spending, increasing difficulties faced by health professionals in providing quality accessible health care at the clinical front line, and intensifying further demands increasing the fiscal pressures on the system.

Medical practitioners are obviously critical to this. Whereas managers play an important role in setting the scene, positively or negatively, in which fiscal value and effectiveness can be added, it is doctors and other health professionals who actually increase this value and effectiveness in particular in a form that is more likely to be longer-term and sustainable. The application, for example, of doctors’ routine daily responsibility of discharging patients can influence both readmission rates and ‘bed-blocking’.

‘Short-termism’ and crisis management leads to the creation and perpetuation of unresolved time bombs. These include:

• The extent of unmet need is unknown with significant implications, including fiscal, down the track for the health system.

• The lack of an aggressive nationally coordinated recruitment and retention strategy causes excessive consequential reliance on costly alternatives.

• Failure to undertake work on further developing the capacity needs of DHBs to provide patient and other health services and taking advantage of the benefits and enhanced effectiveness of integrated provision.

• Addressing the high level of disharmony and distrust in the primary sector between medical practitioners and the Ministry of Health which is significantly undermining the ability to ensure that Primary Health Organisations become effective organisations facilitating better health delivery and outcomes.

Using Professionalism

This leads to the question of how effectiveness can best be provided. Internal morality (ie, professionalism) is the generative culture. It provides the basis for bridging the gap between macro intent and micro performance and giving substance to the external morality. The key issue is one of a working relationship of trust and confidence in which doctors are actively engaged and empowered in the engine-room of decision-making that goes beyond the level of rhetoric. Doctors are the most critical resource, strategically and by location, but also the 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.

There are several ways, many of which are inter-connected, in which our current cross-road can be navigated based on a generative culture in our health system, and within our DHBs based on the empowering of professionalism. These include:

1. An assessment of the unmet need within the communities that make up New Zealand and the consequential development of a strategy, inclusive of implementation plan, to address it.

2. A coordinated and health professional based independent taskforce approach, perhaps within the tripartite process discussed above, to examine the resource (personnel and non-personnel), organisational and delivery needs of the full range of services provided by and through DHBs focussing on improving the effectiveness and alignment of services. This approach is an adaptation of the taskforce review of metropolitan acute services in New South Wales that is currently underway and for reasons of distrust operates independently of the state health department. There are some variations of this approach already being underway in New Zealand such as for cancer treatment services but it is not part of a systemic approach.

3. The question of workforce development and planning at the level of each DHB requires specific work and focus. While DHBs are discussing this nationally it is only at an embryonic outline stage and without effective engagement with health professionals. This would be more effectively achieved through active engagement with health professionals based on joint workforce development taskforces at an individual DHB level charged with developing agreed staffing plans (including the support staffing levels and resources required to meet these objective needs), recruitment and retention strategies to support these staffing plans, and agreed plans for the effective provision of and access to high quality professional development.

4. Encouraging and supporting activities designed to address the vocational needs of non-specialist doctors known in New Zealand as medical officers of special scale, similar to the non-consultant grade in Britain. This is an under-utilised part of the medical workforce that could be much better used to help meet workforce needs and ensuring quality of care. Our College of General Practitioners has taken the initiative with the development of special interests (largely secondary care) based on a generalist training framework. But it is important that such a development is a logical consequence of the evolution of medicine and shaped by the relevant professional college rather than determined by some external political or ideological persuasion. As an aside it is possible that the College of GPs may evolve from a college of doctors working in primary care to a college of generalist doctors in primary and secondary care, including some generalists working in both.

5. General practice offers a key foundation stone in helping address the staffing needs of New Zealand’s public hospitals, including but not confined to rural and provincial. Along similar lines to the above discussion about medical officers of special scale, general practice coupled with supplementary special interests may provide good quality generalist care that many of our secondary care settings would benefit from. It is an attractive prospect that fits in well with current government support for workforce planning and development and primary and secondary care integration.

6. The development of democratic and mandated models of clinical leadership within DHBs, including clinical boards with far-reaching reporting and advisory responsibilities. The most effective clinical leadership in an organisation is that which is based on the mandate of its peers. This includes, by whatever locally agreed means, some form of democratic election/selection.

Aligning External and Internal Morality

In summary, external and internal morality are not opposites: one cannot do without the other, but both are critical to whether quality health care can be delivered in the context of funding constraints. An inherently weak, malign, inappropriate or inefficient external morality erodes the professionalism of health professionals which is the internal morality most likely to generate fiscal effectiveness and maintenance of quality standards. It is not just the effect of the evil extremes of Nazi Germany and apartheid South Africa, for example, that highlight how external morality can corrupt the internal morality of doctors. In the New Zealand of the 1990s the drive under the competitive commercial external morality for health providers to work only to their funding contract showed signs, fortunately not extensively, of extending to medical practitioners working only narrowly to their employment contract rather than the ‘extra mile’ underpinned by the values of professionalism. It is fiscally inefficient and irresponsible to create an overarching morality that encourages any health professional to consider their employment as only a job and to confine their commitment to the health system in this way.

Today New Zealand has a more or less reasonable and appropriate external morality. But we do not place sufficient importance to, or recognition of it as being critical to health care delivery have the internal morality necessary to give it full effect. In part, due to the corrosive ongoing legacies of a decade of market experimentation but it is lazy to blame too much of this failure on this legacy. Ongoing reliance on external morality risks further eroding internal morality. If New Zealand is to successfully and expeditiously work towards bridging the gap between current clinical imperatives and its longer term primary care and population health objectives and if quality improvement is to be at the core of the health system, then we are going to have to move beyond our prevailing bureaucratic culture to a generative culture based on the trust and confidence of and active engagement with medical practitioners and other health professionals.

This is what is required to have an internal morality aligned with our external morality and it is only with such an alignment that we will advance beyond ‘lines on paper’ assertions and instead have a reasonable level of confidence that we can deliver quality health care under funding constraints.

Ian Powell




(S22 OF NZPHDA, 2000)

(1) Every DHB has the following objectives:

(a) to improve, promote, and protect the health of people and communities;

(b) to promote the integration of health services, especially primary and secondary health services;

(c) to promote effective care or support for those in need of personal health services or disability support services;

(d) to promote the inclusion and participation in society and independence of people with disabilities;

(e) to reduce health disparities by improving health outcomes for Maori and other population groups;

(f) to reduce, with a view to eliminating, health outcome disparities between various population groups within New Zealand by developing and implementing, in consultation with the groups concerned, services and programmes designed to raise their health outcomes to those of other New Zealanders;

(g) to exhibit a sense of social responsibility by having regard to the interests of the people to whom it provides, or for whom it arranges the provision of, services;

(h) to foster community participation in health improvement, and in planning for the provision of services and for significant changes to the provision of services;

(i) to uphold the ethical and quality standards commonly expected of providers of services and of public sector organisations;

(j) to exhibit a sense of environmental responsibility by having regard to the environmental implications of its operations;

(k) to be a good employer.

(2) Each DHB must pursue its objectives in accordance with its district strategic plan, its annual plan, its statement of intent, and any directions or requirements given to it by the Minister under section 32 or section 33.



(S23 OF NZPHDA, 2000)

23. Functions of DHBs

(1) For the purpose of pursuing its objectives, each DHB has the following functions:

(a) to ensure the provision of services for its resident population and for other people as specified in its Crown funding agreement;

b) to actively investigate, facilitate, sponsor, and develop co-operative and collaborative arrangements with persons in the health and disability sector or in any other sector to improve, promote, and protect the health of people, and to promote the inclusion and participation in society and independence of people with disabilities;

(c) to issue relevant information to the resident population, persons in the health and disability sector, and persons in any other sector working to improve, promote, and protect the health of people for the purposes of paragraphs (a) and (b);

(d) to establish and maintain processes to enable Maori to participate in, and contribute to, strategies for Maori health improvement;

(e) to continue to foster the development of Maori capacity for participating in the health and disability sector and for providing for the needs of Maori;

(f) to provide relevant information to Maori for the purposes of paragraphs (d) and (e);

(g) to regularly investigate, assess, and monitor the health status of its resident population, any factors that the DHB believes may adversely affect the health status of that population, and the needs of that population for services;

(h) to promote the reduction of adverse social and environmental effects on the health of people and communities;

(i) to monitor the delivery and performance of services by it and by persons engaged by it to provide or arrange for the provision of services;

(j) to participate, where appropriate, in the training of health professionals and other workers in the health and disability sector;

(k) to provide information to the Minister for the purposes of policy development, planning, and monitoring in relation to the performance of the DHB and to the health and disability support needs of New Zealanders;

(l) to provide, or arrange for the provision of, services on behalf of the Crown or any Crown entity within the meaning of the Public Finance Act 1989;

(m) to collaborate with pre-schools and schools within its geographical area on the fostering of health promotion and on disease prevention programmes;

(n) to perform any other functions it is for the time being given by or under any enactment, or authorised to perform by the Minister by written notice to the board of the DHB after consultation with it.

(2) The Minister must, as soon as practicable after giving a notice to a DHB under subsection (1)(n), publish in the Gazette, and present to the House of Representatives, a copy of the notice.

(3) Subsection (1)(c), (f), and (k) is subject to the Privacy Act 1993.

(4) Subsection (1)(c) and (f) does not require a DHB to provide any information that could properly be withheld under the Official Information Act 1982, if a request for that information were made under that Act.

(5) A DHB that, in reliance on subsection (4), decides not to provide relevant information must advise the persons concerned of that decision.

(6) To avoid any doubt, subsection (1)(d) does not limit the capacity of a DHB to establish and maintain processes to enable other population groups to participate in, and contribute to, strategies for the improvement of the health of those groups.

(7) In performing any of its functions in relation to the supply of pharmaceuticals, a DHB must not act inconsistently with the pharmaceutical schedule.


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