Can We Improve the New Zealand Health System?

Keywords: Governance; Health;

Discussions on the effectiveness of the health system need to separate out the funding from the provision. The Labour Government has poured a lot of money into the public health system in recent years (the boost actually began earlier under the National-NZF coalition government in 1996), and it has been disappointed by the results. It has concluded that there is something wrong on the providing side.

I would be a bit more cautious. We dont actually know where the money has gone. Some has gone into public health (such as education and prevention) and, although not all of it has been spent wisely, any benefits will be in the years ahead. Some has gone into primary care, which might be functioning better (although there is a worry about the adequacy of GP’s remuneration), some has gone into high pay for hospital specialist as we compete with rising world medical salaries, and some has been used to deal with the backlog from past failures to provide adequate resources. (Probably some has gone into new technologies which are not very effective or efficient, but that is a world-wide problem.) It is an indictment of the Ministry of Health, though, we know so little about where all the extra funding has gone.

But we should acknowledge success. A recent release from the Minister of Health celebrated that New Zealand had done well in a US comparison of six countries. Here are the broad results, but note the study does not include many of the Europeans nations (such as the Scandinavians) who are the real leaders. Even so, we came second, behind Germany and ahead of Britain, Australia, Canada and the lamentable last of the US.

Patient Safety 4 5 2 3 1 6
Effectiveness 4 2 3 6 5 1
Patient-centeredness 3 5 1 2 4 6
Timeliness 4 6 1 2 5 3
Efficiency 4 5 1 2 5 3
Equity 2 4 5 3 1 6
4 5 1 2 3 6


They also gave comparisons of outlays on health. International value comparisons are tricky. The study used the GDP PPP deflators. Forgive me for not going into them in detail, but basically they reflect the price of everything produced. There also exist Health Care PPP deflators (which I dont entirely trust). In the next table, I give the results for both measures.

Using GDP
$2903 $3003 $2996 $1886 $2231 $5635
%US 52 53 53 33 40 100
Using Health Sector
$2970 $2507 $2704 $2205 $2251 $2829
%US 105 89 96 78 80 100

What the data using GDP deflator says is that the US spends the most on health in terms of the GDP it forgoes. But this is partly because the US sector’s remuneration is so expensive (relative to US average wages). When you look at the actual inputs (which is what in principle the Health Sector deflator is doing) it appears that the US is doing relatively less well.

By either measure we are not funding (public and private) the health system as well as the other five. We and Britain are about 20% lower than the US, but we probably spend it more efficiently because relatively more goes into public health, it is allocated more by need and less by ability to pay, there is less defensive medicine here, and a private insurance system is more costly to run than public provision. .

The implication is that we should be spending more on health to be internationally comparable (sorry to have to say that Michael Cullen) , but not a lot more (cheers off stage from Treasury officials). On outturn terms, we seem to be doing reasonably well in comparison with the others.

However there is no health system in the world without public criticism. As I understand it, the government is turning its mind to whether it can improve provision. I shall make just a few remarks.

As a general rule the opportunities for competitive supply are limited in New Zealand. Perhaps in Auckland you can get a choice of hospital for your heart surgery, but you cant in Invercargill. I am not ideologically antagonistic to competitive supply, but the efficacy of competition is frequently overrated.

For instance, health providers tend to compete on the basis of perceived quality without reference to price, rather than actual quality for price. They rely on the uniformed patient to be unable to make efficient price-conscious judgements. (Patients may be also shielded from price by a third party funder – say private insurance.)

Second, those who advocate health insurance are confusing funding with provision. What they are saying, I think when they are not muddled, is that a particular form of health insurance can increase the competitive supply mechanism. Perhaps, and only for selective treatments. In any case, they often dont define what they mean by health insurance – it could range from voluntary private insurance to compulsory public insurance (ACC is an example of the latter) with a host of possible arrangements in between – so the advocation is not making much progress.

(Incidentally, I use to be very nervous over the effect of private purchase of health care (and hence supplementary private insurance), which is sometimes associated with ‘queue jumping’ and superior access for the rich over the poor. I am more relaxed today for the following reasons. If the public sector is effectively utilising all its available funds, then queue jumping is sucking more resources into the health sector, and so is increasing overall welfare. There are a couple of major caveats. First it is possible that the private sector obtains its resources at the expense of the public sector – rather than offshore – which would be to the public detriment. Second – and I owe this to an insight from Geoff Fougere many years ago – a strong health private sector may discourage politicians funding the public health sector.)

Third, there is evidence of dysfunction within the hospital system. I dont hear about all of the DHBs, but too frequently I hear of demoralisation among the clinicians working at the sharp end of the treating of patients. The problem seems to arise from what I called the ‘cult of the generic manager’, the view that this approach to management does not need to know much about the activity it is managing, and so discounts the contribution of professionals to management. ( Some of my writing.)

Its partly an attitude of mind, captured by a research program investigating the DHBs involving interviewing board members and managers. When I asked whether they were also interviewing clinicians, a blankness swept over the researcher’s face. The fact that the clinicians whose success or otherwise would determine the success of the treatment – the ultimate health of the patients – seemed to have completely escaped the project.

We dont know how expensive this management system is. I favour a bench-marking exercise in which individual DHBs report on their management outlays as a proportion of total funds and compare them. (Incidentally, universities do this for their administrative systems.) Of course there will be economies of scale, and there are also effects from service mix and board area. So the data has to be handled sensitively. But you can be sure that were the data available, there would be close scrutiny of the outliers and some of the more pernicious managerial waste would be eliminated.

I hear a lot of grumbling from clinicians about the managers in their hospitals. They may not be entirely right. Clinicians think in terms of their own patients – bless them – and often miss the big picture. That means they can be wasteful of resources, devoting them to their individual patients, and not thinking about whether the resources can be better applied elsewhere where the health gains may be greater. (If you have doubts about this, think of the calls for listing some pharmaceutical for public funding, and how infrequently there is any discussion of the economics of the drug. If there are, how crude and self serving the economic claims are.)

Providing it is not dangerous to the patient’s health clinicians are happy to prescribe procedures whose treatment effectiveness is not well understood, and who efficiency (cost effectiveness) is probably low. Unless they become more sensitive to these issues, they are going to find their clinical freedom will be circumscribed.

However, putting in managers to restrict them may not be particularly effective/efficient either, especially if the managers are unsympathetic to and ignorant of the clinician’s task However anecdotes suggests that many managers dont think enough about clinical delivery, and, like that researcher, lose sight of the sharp end of their operation. I reckon that were one to sack every so often the five percent of managers with the most demoralised clinical staff, there would be a marked improvement in health sectoral performance. But curiously – the adverb is ironic – the theory of management which drives the cult of the generic manager is oblivious to the question of its competence.

These considerations dont solve the problem of provider failure which seems to be the government’s current concern. That is because we are stronger on anecdote than research. One once more wonders about the contribution of the Ministry of Health to providing the rigorous overview which is its obligation.

PS. I am grateful for Rob Bowie ‘s comments on an early draft.