The 1996 Health Post-election Briefings

Chapter 10 of The Whimpering of the State

Keywords: Governance; Health;

An indicator of the poor functioning of democracy in recent years is the gap of perceptions between officials making policy and the concerned public. This is nicely illustrated by contrasting the Coalition Agreement on health policy, drafted by politicians, and the post-election briefings of the three administering agencies, which the politicians did not have access to during their negotiations.[1] While this chapter provides a background for the next on health policy , its primary purpose is to illustrate the gap.

Public perceptions

Fresh from the election hustings where they had been listening to the populace, the politicians probably captured popular concerns about health in the Coalition Agreement, summarised as

(a) The Government is committed to providing a flexible, modern, properly funded, accessible health service that meets changing public needs and expectations. The Coalition Government’s health policy has the overriding goal of ensuring principles of public service replace commercial profit objectives for all publicly provided health and disability services
(b) The Coalition Partners are committed to publicly funded health care that encourages cooperation and collaboration rather than competition between health and disability services.
The principles are similar to those in the Labour–NZF draft agreement, indicative of a widespread national perception. The Agreement goes on to state six ‘non-negotiable’ principles:

1 Retaining the structure which replaces RHAs [Regional Health Authorities] as funder and all health service providers including . . .;
2 Limiting bureaucracy where possible;
3 Removing the ‘for profit focus’ from the CHEs [they were renamed Hospital and Health Services– HHSs] but requiring them to work in a businesslike fashion;
4 Giving greater emphasis to health gain;
5 RHA purchasing from providers on a competitive price volume basis will be replaced with contractual funding agreements . . .
6 The structure replacing RHAs will undertake monitoring, auditing and reporting functions to enhance health gain and financial accountability.

Central to the approach is to emphasise health gain rather than commercial objectives, with priority given to Maori health, child health, and mental health, and to more public spending. The shift was back towards the health system which preceded it. Under pressure from an MMP parliament, the National politicians at last acknowledge that the public desires a primarily publicly funded health system, and primarily publicly provided health care.

Interestingly, one of the government advisers, the Crown Company Monitoring Advisory Unit (CCMAU), which supervises the HHSs, listed some public concerns:

“… Despite most patients being satisfied with the level of care they receive, the wider public are anxious about the public hospital service. The anxiety stems from long waiting times for, and the availability of, some kinds of elective surgery, and concern about the treatment and quality of care – or lack of it – of individual patients.
Also giving rise to this anxiety are a number of perceptions and concerns among the public, including:
● continued debate about the adequacy of Government health funding;
● rejection of the ‘profit-driven’ model for health, and the jargon of management and economics rather than health;
● the news of persistent CHE deficits and levels of debt leading people to believe that the health services in their community will suffer;
● public confusion about the roles of purchaser and provider – i.e. little appreciation that it is the RHA rather than the CHE that must ensure an appropriate level and quality of health services in a community;
● the public airing of conflicts between CHEs and RHAs over contract negotiations;
● apparently irrational decisions such as when, despite long waits for elective surgery, CHEs close theatres for surgery before [the] year’s end because they have completed their annual contract with their RHA;
● a perceived increase in bureaucracy, with more central agencies and more managers (more suits and fewer surgeons); and
● a number of well-publicised resignations of CHE chief executives and chairs.[2]

It continues: ‘These perceptions may or may not accord with reality.’

CCMAU’s list was largely confined to CHEs for which it is responsible, although there are implicit criticisms of RHAs and the total level of funding. It also played down some issues which worry the public. Its emphasis is on surgical waiting lists and it ignores the public’s increasing concerns about psychiatric care, care of the elderly, and long-term care. There is no mention of cost shifting, the mechanism by which the public health systems limits costs to itself by shifting them on to the public. And among the irrationalities the public seethed over, there seemed to be no clear lines of entitlement.[3] However, while the CCMAU report mentioned the public unrest directly, the PEBs of the Treasury and the Ministry of Health (MoH) largely ignored it.

The Treasury briefing

The 1996 Treasury Ministerial Briefing devoted just over six pages – five percent of its total – to health issues. Inevitably the coverage is selective. It made international comparisons of public spending and mortality rates, provided a few anecdotes and statistics, admitted that ‘[w]hile progress has been made, areas of concern clearly remain’, mentioning that waiting times have not diminished and there continue to be disparities in health outcomes, especially that Maori and Pacific Islanders still have poorer health status.[4]

The Treasury briefing goes on to talk about the cost drivers on health spending (technology and ageing), and argues that health gains do not depend on health spending alone, for there is a socio-economic dimension. ‘Good health outcomes are strongly related to opportunities for higher incomes and educational levels. Thus better economic performance and more effective social policies have a key role to play in promoting health outcomes.’[5] Later it adds the individual’s responsibility for positive life-style choices.

The briefing is cautious about the effectiveness of additional spending generating improved health outcomes. One may not be uncomfortable with that conclusion, yet have reservations with the Treasury derivation. Ignore their analysis that total per capita spending has little influence on infant mortality in rich countries – no one should be surprised. Treasury concludes that ‘there does not appear to be a close relationship internationally between total spending per capita and . . . life expectancy . . .’[6] In fact Figure 10.1[not shown here – see book] – with one exception – shows a very plausible relationship. Countries which spend more on health tend to have higher life expectancy (although one may not cause the other). The outlier on the right of the diagram is the United States, well known to be peculiar. The Americans’ extensive use of the private market for health care delivery is extremely expensive and inefficient, so that they appear to get little extra benefit from higher rates of health spending. No one is surprised at this conclusion, although it emphasises the stupidity of being so dependent upon American models, American analysis, and American experts.

Of course, Treasury says that ‘the above factors suggest that how health dollars are spent is just as important as how much is spent’,[7] a frequent theme of recent years. When it came to suggesting improvements, the Treasury was largely satisfied with the current structures and recommended only:

● improve accountabilities within existing structures (including reward structures);
● let structures evolve over time in response to bottom-up innovations. There may be a role for the government to play to encourage the pace of innovation;
● hold on to budgets and allow more devolved decision-making to occur. Special attention needs to be paid to controlling CHE deficits and the frequent ad hoc increases in purchase budgets (which often have a short term focus only);
● strive for clinician cooperation. Clinicians have significant influence in promoting best cost-effective practice. The government needs to ensure consultation with clinicians; information dissemination on best practice and successful innovation; and alignment of incentives, so the clinicians’ day-to-day decisions are made within budget and reflect value for money.[8]

Thus the recommendations hardly address the public’s concerns, illustrating that Treasury has its own agenda, not particularly connected to the everyday concerns of the rest of New Zealand. The second recommendation is almost pure Treasury-speak, unintelligible to anyone on the outside, and subject to at least two interpretations – a contentious one, and a fall-back one if the political process does not like the other. What is ‘bottom-up innovation’? How do ‘structures’ evolve when there is innovation? The soft interpretation is that the recommendation is about integration of primary and secondary health care. But it also might refer to further commercialisation (privatisation, contracting out, cost shifting – there are numerous possibilities) of the public health system. If this seems paranoiac, consider ‘. . . in practice the current health structures are operating in a kind of “half-way house”.’[9] Half-way between where and where? The old public health system and an unstated ultimate destination of a more privatised health system?

The fourth recommendation is perhaps the most eye-catching. Can it really be true that Treasury was acknowledging that clinicians have a role to play in the management of resources? Clinicians had been excluded from the reform process because they were interested parties.[10] The strategy to get clinicians to be more responsible for their resource use, which had been slowly developed from the 1970s, and which was set back by the reforms, appears to at last have Treasury endorsement. But before this is interpreted as an admission of failure of a central feature of the reforms, observe that while clinicians are expected to work within their budgets, there is a vagueness about how the budgets are to be set. If the budgets are simply imposed on clinicians, without involving them in the budget setting and getting their commitment, there will be no gains, only grumbles, exacerbating the clash between resource constraints and the professional (and ethical) duties of the clinician.

The Ministry of Health briefing

The Ministry of Health Ministerial Briefing consists of two volumes. The second was a useful reference on the state of the health system. There were even three paragraphs on the quality of life: a nice reminder as to just how little information we have on one of the most important issues challenging health policy. The first volume, ‘key policy issues’, is harder to follow, and often platitudinous. The briefing acknowledges ‘there is a lack of support among public and clinicians for the role of purchasers – the RHAs – or the role of the managers within publicly owned providers – the CHEs’. Setting down the case for retaining the current structure, a list of current problems is provided:
● costs of contracting;
● lack of support among the community and clinicians (especially within CHEs);
● lack of clear strategic direction;
● difficulty where national co-ordination is required.[11]

This does not sound like the outcomes promised by the health reformers in the early 1990s. The Ministry’s judgement that the clinicians were not supporting their CHEs is chilling (a view consistent with the public understanding). Not surprisingly, the ignoring of clinicians’ involvement in the health reforms, other than to supply services, appears to have caused demoralisation. Together with the apparent implication of the fourth Treasury recommendation, their morale could deteriorate further. However the PEB contained no clear proposals for an alternative health structure.

The Crown Company Monitoring Advisory Unit briefing

The CCMAU Ministerial Briefing was concerned only with the CHEs, and was committed to the commercial model of health provision. CHEs are but a part of its overall brief of monitoring state-owned enterprises, and CCMAU’s internal culture clearly prefers the profit-driven corporation. Thus there is a vigorous criticism of the pre-reform Area Health Board (AHB) system, followed by a justification of the current one, including a point-by-point defence of such issues as competitive pressures, commercial disciplines, ‘commercial’ boards of control, and profits. Unfortunately the briefing does not address the public concerns it lists.

Of course CCMAU reported anecdotes of success, but by the profit measure which CCMAU ought to be judging their responsibility, the record is one of failure. Except of course, people do not directly care about CHE losses, so that the losses may lead to further cutbacks or yet another reform (‘redisorganisation’, as Alan Maynard so aptly put it), with a further worsening of health provision.

The CCMAU briefing showed a chart which reported that in 1994/95 the CHEs were expected to break even in 1996/97, that in 1995/96 the date had been advanced to 1997/98. The CHEs have made a near $200m loss in every year they had operated. It is a classic forecast based on optimism – always with a promise that next year the loss will be significantly less. Free beer tomorrow, but tomorrow never comes.

The balance sheet crisis

However, the CCMAU report underestimated the size of the financial problem, as became clear when the CHE accounts for the year to June 1997 were published. By way of background, in the early 1990s almost all the old AHBs had unsatisfactory balance sheets, which would generate future cash flow difficulties.[12] It is not a major issue: given a choice between a cash deficit and a medical emergency, the priority has to be the patient. But it is better for an institution not to be financially stressed, so it can concentrate on its real task of health care. The reforms of the 1990s were intended to address the imbalances by reconstructing the CHE balance sheets. But they were not put on a sound basis. Four years after the reforms 20 of the 23 CHEs made a loss totalling $228m in the 1996/7 year, with little prospect of the loss substantially reducing in the immediate future. At the same time 20 of the 23 CHEs had a shortage of working capital amounting to over $412m.

In 1990 the Bank of New Zealand required a capital injection of $600m and resulted – so we were told – in the newly elected National Government having to abandon its election promises. The financial difficulties of public health providers are of a similar order of magnitude. There is a difference between the balance sheet of a bank and of a hospital system but, insofar as they are comparable, the aggregate imbalance in the CHE balance sheets is probably slightly larger. Basically this fiscal stress is covered by ‘letters of comfort’ from the shareholders (the government) to the CHEs, which provide guarantees to private lenders. In any case patient health is more important. But the one thing the reforms ought to have achieved was balanced balance sheets.

(The suspicious may ask: if the BNZ financial crisis led to the government abandoning its election promises in 1990, why did it not abandon them in 1996 because of the CHE crisis? The answer is, perhaps, that an incoming government can blame such events on its predecessors: an incumbent government cannot, and so rather than dealing with the matter dramatically, it hides the problem. Even so, the procedures set down in the Fiscal Responsibility Act (FRA), including the publishing before the election of exceptionally comprehensive financial accounts, failed to identify this crisis. So a Bank of New Zealand type crisis can still sneak up on an incoming new government.)


All the briefings, one way or another, mention the problem that given the lack of public commitment to the existing system (and, one might add, its manifest failures as far as the public is concerned), the policy and funding environments are unstable. But the briefings’ diagnosis is the politicians should sell the reforms better, not that the reforms were failing. Revealingly of the governance of New Zealand in recent decades, the officials thought of the politicians as their agents to support their policies, against the public. Under MMP the order is likely to be reversed.

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