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Speech to Assoc of Salaried Medical Specialists

Hon Michael Cullen
6 November 2003
Speech Notes

Speech to Assoc of Salaried Medical Specialists
Hotel Intercontinental, Grey Street, Wellington

Thank you for the invitation to address your conference.

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.

From the perspective of a hospital ward one might readily ask whether anything could be more important, or more worthy of extra resources from the public purse. And it would seem puzzling that any fiscal surplus the government might generate should go anywhere else than into purchasing more health care.

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.

As both Minister of Finance and Minister of Revenue, I am acutely aware that any dollar spent by the government must first be appropriated from taxpayers, and that taxpayers need first to earn those dollars in an economy where making a living is not always easy. Paying tax has never been a priority for New Zealanders, and never will be.

Hence I have two strong imperatives:

First, to foster a growing economy, so that New Zealanders can afford the public services government provides and support the lifestyle they wish for their families;

And second, to provide New Zealanders with assurances that public resources are being wisely and effectively spent.

It is hardly a surprise to find that these competing sets of imperatives make it difficult for me as Finance Minister and you as medical specialists to always see eye to eye on the question of expenditure on health care. However, as I will argue later, there are future challenges to the affordability of our health system that make it essential that clinicians and those in charge of managing the health care resource work together cooperatively.

So it is important to lay out the facts, so that we can focus on those areas where there is real disagreement and real issues to be faced. I want to run through some of those facts now.

Fact number one is that health spending by the government has been rising in real per capita terms over the course of the last 10 years:

- In 1993/94 public expenditure on health amounted to $1,357 per person. When my government came to power in 1999, that figure had risen to around $1,800 per person, adjusting for inflation.

- This financial year we are forecast to spend $2,016 per person. That represents a 48 percent increase over the space of one decade in what we spend on every New Zealander’s health care.

Fact number two is that health spending is an increasing share of the government’s budget. Other priorities have been squeezed in order to divert more resources to health. In 1993/94, health accounted for 15.5 percent of government expenditure. This year it will account for close to 20 percent. For the sake of clarity, I should point out that health expenses under this definition do not equate to Vote Health. Health expenses are based on the Core Crown expense concept and therefore include health spending not within Vote Health (for example, some of the ACC non-earners account) and exclude GST.

Fact number three is that public health expenditure has also been growing as a proportion of GDP.

- It accounted for 5.1 percent of GDP in 1993/94, and has risen to 6.2 percent of GDP this year.

- Although the last few years have seen strong economic growth, health spending has still grown faster than GDP. Hypothetically, if this trend were to continue of course, our economy will eventually comprise nothing but a health system, although one suspects it will have collapsed before then.

Fact number four is that New Zealand’s health spending is not niggardly compared to other OECD countries. The trend in almost all OECD countries over the past thirty years has been for a steady increase in the proportion of GDP spent on health. Wealthier countries have tended to spend a greater proportion of their GDP on health than less wealthy countries. However, this relationship has become less pronounced over time. This suggests that the richer, higher-spending countries in the OECD are restricting growth in the percentage of GDP spent on health and that the relatively less wealthy countries may be catching up.

It is notable that only three countries spend more than 10 percent of their GDP on health – Germany (10.6 percent), Switzerland (10.7 percent) and the United States (13.1 percent). It is also notable that New Zealand spends about what you would expect on the health services given our wealth, although we are in fact a little above the line which correlates GDP and health spending: that is, we spend a bit more on health that would be expected in international terms given our current level of national income.

Most notably there is no clear evidence that, amongst developed nations, an increase in the proportional expenditure on health is associated with an improvement in health status. There are relatively low spending countries, such as Japan, which enjoy lower rates of mortality and morbidity than relatively high spending ones.

We all know why this is the case. Health status is determined by some important variables – such as nutrition, exercise, smoking, accident prevention and stress – which have nothing to do with expenditure on health care; and by others – such as cancer screening, environmental health and management of chronic conditions like asthma and diabetes – which are at the low intensity end of health care.

In other words, there is a degree of mismatch between the drivers of good health in a population and the drivers of health care expenditure. Given the magnitude of the expenditure, the taxpayer needs some assurances that health expenditure as a whole is contributing towards better health outcomes for the population.

The ethics of providing health care to the individual cannot be neatly separated from the ethics of providing it to everyone. What I am arguing against is a kind of ethical absolutism (usually indicated by statements beginning with the phrase, “People will die unless more money is provided to my specialty”) that is incontrovertible in its own terms, but not helpful in the public discourse.

The final fact I want to highlight relates to spending on public hospital based care. There is a perception that, since hospital budgets can be readily capped, they are losers compared to other demand-driven parts of the health budget, such as primary health care subsidies and pharmaceuticals. An article in the September edition of your newsletter, The Specialist, alleges that government spending on public hospitals fell during the 1990s, and that in the 2001/2002 budget “once all the mirrors were stripped away, the increased funding for existing public hospital services was a mere 0.03 percent or $900,000.”

In fact the figures show that in the last five years of the twentieth century the total operating expenses of public hospital and health service providers increased from $2.9 billion in 1995/96 to $3.6 billion in 2000/01, an increase of around 25 percent. My government has increased that amount every year, so that it now stands at around $4.4 billion, forecast to increase to $4.6 billion by 2005/06. This represents a 28 percent increase in five years.

What these facts indicate is that whatever resource pressures the health system and the public hospital system as part of it may face are not primarily due to an unwillingness on the part of government to spend. On the contrary, my government has made health expenditure a priority.

- We instituted a generous health funding package, which was originally a three year revenue track to provide planning certainty for the sector. It has now been rolled over for another year to continue to provide that certainty.

- We have now incorporated what were time limited elements in the budget (principally those one-off injections designed to reduce surgical waiting lists) into ongoing baselines. And we have started implementing population based funding formula which splits funding between District Health Boards on the basis of the relative need of their population. This will remove the historical inequities which have in the past disadvantaged regions such as Waitemata and Counties-Manakau.

- There have also been price, technology and demographic adjustment across the whole of Vote Health each year.

Looking ahead, we need to acknowledge that the country has a demographic structure that will in future place considerable strain upon our health resources. It is the same demographic outlook that has led this government to make advance provision for the cost of New Zealand Superannuation through setting aside funds in the New Zealand Superannuation Fund.

We are in fact fortunate at the moment that our current demographic structure is benign in relation to the age profile of need. By historical standards we have relatively few young people, and low fertility rates. In comparison with some other OECD countries we still have relatively few older citizens. These should be the cheap years for the health system. They will not last; and we need to think how we will manage the changes ahead.

Treasury estimates that, at present, people over 65 make up 12 per cent of the population but consume 39 per cent of health spending. People over 75 make up 5.5 per cent of the population but use 26 per cent of the health vote.

The demographic tide in health will begin to turn seriously after the year 2020. By 2051, the proportion of the population over 65 will double compared to what it is now. The proportion over 75 will treble.

Under any realistic scenario we face the prospect of spending an ever increasing share of the national income on public health services. My officials recently modelled health expenditure as a percentage of GDP using different underlying per capita real growth scenarios of 1.0 percent, 1.5 percent and 2.0 percent. Demographic pressure, however, is still strong even in the low growth scenario. Assuming that demographic pressure is funded, the results showed that health expenditure would rise from 6.5 percent of GDP in 2005/06 to 8.6, 10.8 or 13.4 percent, depending upon which underlying real growth assumption was used. The most expensive scenario is the one which most closely approximates the long run experience since 1950. This growth in health spending needs to be seen alongside the base scenario for the cost of New Zealand Superannuation in 2050, which forecasts expenditure in that year at 9.6 percent of GDP.

These figures ought to worry us a great deal. What they say is that the changing demographics may require us to double our health budget in order to provide the current level of services to a future population that comprises a larger proportion of older people. This is not about improving the level the service. It is only about standing still.

Under any realistic scenario we face the prospect of spending an ever increasing share of the national income on public health services. This needs to be set alongside the base scenario for the cost of New Zealand Superannuation in 2050 which forecasts expenditure in that year at 9.6 percent of GDP.

It is my contention that if we do not find more cost effective ways to deliver health services, and in particular ways in which the health system can engage with people at the point where risks to long term health can be averted or controlled, that we will end up spending a much larger share of GDP without any appreciable improvement of overall health status. We will be treading water, and increasingly expensive water at that.

This is where a better working relationship between budget managers and health professionals will become crucial. We need to learn new tricks in making our health dollar go further, and this is most likely to occur if clinicians are playing a major role in redesigning health care.

I am not about to speculate on precisely where the system can be more effective. However, it seems obvious that a major task is getting better integration between primary and secondary care. This is not simply a matter of improving referral procedures. Nor will it be achieved by untargeted increases in the primary health care budget, there being many ways in which primary health care expenditure can seemingly disappear into the ether. The task is to intervene early with the most effective treatment, and thereby reduce the need for more intensive and expensive treatment later on the course of an illness.

This is hardly a new concept. Indeed it is an implicit or explicit principle in most treatment protocols and systems of prioritisation. Nevertheless, the general consensus seems to be that we could improve the integration of these stages of care.

I cite this example because it illustrates the point that 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.

For a variety of reasons, the various reforms of the 1990s did little to overcome the high degree of compartmentalisation in the health system. Instead, cynicism and distrust accentuated the existing silos of primary care, hospital care and disability support. Governments meanwhile retreated into a silo of their own, emerging once a year to announce another ad hoc funding package.

I would like to think that the moves this government has made – including a more secure funding track for DHBs – have gone some way towards re-establishing the goodwill that was lost. It goes without saying that we will not have met the aspirations of all health professionals. Nevertheless, goodwill is not simply a matter of producing an open chequebook. There are major fiscal challenges ahead, and some hard decisions to be taken.

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 the manage limited resources, and find ways forward.

Thank you.


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