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Hospital Infrastructure Deficit Shows A Different Path Is Needed

We must change how we plan, build and maintain our public hospitals if we are to address their ageing infrastructure and meet changing population needs. This finding results from a new report commissioned by the New Zealand Infrastructure Commission, Te Waihanga into the cost of maintaining and renewing public hospitals.

The Building a healthy future report reveals that over the next thirty years New Zealand will have to spend $115 billion - four times more than we currently do - on hospitals unless we change how we do things. A key factor in this is that half of our hospital estate is over 40 years old - an issue also for many other public infrastructure assets.

"We built a lot of public infrastructure in the 1950s, 60s and 70s which is now reaching the end of its design life," says Te Waihanga Chief Executive Ross Copland. "Hospitals make up around 10% of this. As New Zealand’s wider social infrastructure assets such as our schools, courthouses, prisons are ageing too, it is forcing us to consider how we can extend the useful life of existing assets while reducing the cost of their replacements."

In Building a healthy future, Te Waihanga asked NZIER to model hospital building costs 30 years into the future, considering the growing demand for healthcare services, the physical space needed to deliver services, and the cost of building and maintaining those spaces. Over half of the $115 billion projected costs of this are for maintaining and renewing hospitals, while 25% are from a predicted increase in need for hospital space from an aging population.

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Copland says the results are a significant increase on previous estimates, which ranged from $1.4b to $2b annually over the next decade, and points to the need for change. "This has been driven by alarming increases in the cost per metre to build new hospitals which are now over $20,000 per square metre. Our design efficiency also ranks poorly by comparison to international benchmarks".

"It’s important to acknowledge that these are estimates based on assumptions and incomplete data, Copland says. "But the underlying finding is clear: if we don't change the way we currently plan, build, and use hospitals, our current levels of public debt would roughly double by 2050 just from spending on public hospitals.

"There is a lot we can learn from other countries about how to build infrastructure more efficiently, including concepts like ‘long-life, loose fit’ - where buildings are planned for the long term and allow for changing uses."

International research shows that having standardised design, a long-term work programme, and long-term relationships with trusted suppliers can reduce costs significantly. Copland says examples from education, commercial property and private health providers provide a useful reference for the magnitude of savings that are possible if we change our approach.

He adds that agencies with empowered staff, clear outcomes and autonomy to get on with the job can deliver significant efficiencies. This point was made in a Te Waihanga report that intended to guide New Zealand’s 2022 health infrastructure reforms.

An important step in preparing public hospital infrastructure for the future will be having an integrated, national plan. Health New Zealand, Te Whatu Ora is currently working to deliver a National Infrastructure Investment Plan and Asset Management Strategy which is expected this year.

Building a Healthy Future also says that Government should continue to explore non-built options. This includes re-purposing existing assets and complimentary models of healthcare, a shift from inpatient to outpatient care models, medical innovation and improvements in clinical procedures, virtual care and increased levels of primary care community management.

While Building a healthy future looks at hospitals specifically, Te Waihanga will soon release a report that looks at renewal and investment needs across a broad range of public infrastructure assets over the next 30 years. This research will also help inform New Zealand’s next Infrastructure Strategy.

This new research can be found here: Building a healthy future .


How do the latest hospital estimates relate to past estimates?

District health board 2018 estimates suggested a $14b deficit for buildings needing replacing over the next 10 years (and excluding repairs, maintenance and ICT). While in 2022 this was updated to a figure of $20 billion.

However, the reliability of these numbers was questioned in the Te Waihanga Health Infrastructure Review - as at that time the Health Infrastructure Unit advised that, of the 1,269 buildings it knew of, only 13% had expert assessments.

The current report looks out 30 years and so encompasses far more assets reaching the end of their design life than the 2018 and 2020 estimates. It estimates this will cost an average of 0.7% of GDP each year for the next 30 years, compared to the 0.2% of GDP we currently spend each year on fixing, maintaining and renewing public hospitals. This is the equivalent of a new Dunedin Hospital every year for the next decade.

Does this mean our health system is broken?

The report says that our health system compares well with other high-income countries, and these countries also face a situation of aging hospital infrastructure and demographic pressures.

The restructuring of New Zealand’s health boards into one agency provides an opportunity to adopt greater use of techniques like design standardisation and smarter, more consistent forms of procurement. However, success is not assured. The formative years for Health NZ will be critical to ensure we reset our approach and adopt best practice over the decades ahead.

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