Health care systems in transition: New Zealand Part I: An overview of New Zealand's health care system

Journal of Public Health Medicine                                                            Vol. 18, No. 3, pp. 269-273
                                                                                                   Printed in Great Britain

Health care systems in transition:
New Zealand
Part I: An overview of New Zealand's health

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care system
Toni Ashton

Keywords: New Zealand, health systems transition, AIDS      have a lower life expectancy, lower average incomes,
                                                            higher unemployment and generally poorer health
The country and its people                                  compared with non-Maori. Diseases such as obesity,
                                                            cardiovascular disease and the complications of
New Zealand is located in the south-west Pacific Ocean,     diabetes mellitus all occur more frequently amongst
about 2000 km off the south-east coast of Australia.        both Maori and Pacific Islanders compared with the
The country comprises two main islands plus a number        rest of the population.2
of smaller islands with a combined land area similar           Central to New Zealand's constitutional history is
to that of the United Kingdom. Of the 3-6 million           the Treaty of Waitangi, signed in 1840 between some
inhabitants, 80 per cent of the population is of            Maori tribes and the British Crown, in which Maori
European descent, predominantly British or Irish; the       people ceded sovereignty to the Crown in exchange for
indigenous Maori people and their descendants make          the guaranteed protection of their lands, forests,
up about 13 per cent of the population, and Pacific         fisheries and cultural treasures, and the rights and
Island Polynesians with 4 per cent of the population        privileges reserved for British subjects. It is widely
comprise the third largest ethnic group.' A recent wave     accepted that the Treaty has not been honoured and
of immigration from Asian countries is, however,            that Maori ownership, rights and privileges have been
rapidly reshaping the ethnic mix in some areas.             steadily undermined. Recent efforts by the Government
   Although New Zealand is often perceived to be a          are slowly beginning to redress past grievances, and the
rural country - possibly owing to the historical            Treaty is now central to race relations and to issues
dominance of the agricultural sector in the economy         affecting the social and economic position of Maori,
- 80 per cent of the population now lives in urban          including the health system.
areas, with 50 per cent concentrated in the four main          Since the mid-1980s, the Government has imple-
cities. The rural population is widely dispersed.           mented a programme of rapid and significant economic
Although many fanning areas are relatively affluent,        and social reform, with a general trend towards a
other rural areas - particularly those with a high          greater reliance on market mechanisms. Major initia-
proportion of Maori - are characterized by unemploy-        tives have included the removal of industrial and export
ment, poor housing and poverty.                             subsidies and the deregulation of industry, the restruc-
   European settlement from the late eighteenth century     turing of government departments, the reduction in
had a devastating effect on the health of the Maori         and narrower focusing of welfare benefits and access to
population. Infectious diseases - such as typhoid,          government-funded services, and the corporatization
tuberculosis and venereal diseases took their toll, as
did the introduction of alcohol and firearms. In spite of   Department of Community Health, School of Medicine, University of
a recent narrowing in socio-economic and health status      Auckland, Private Bag 92 019, Auckland, New Zealand
differentials between Maori and non-Maori, Maori still      TONI ASHTON, Senior Lecturer in Health Economics

                                                                                         © Oxford University Press 1996
270                               JOURNAL OF PUBLIC HEALTH MEDICINE
and privatization of state trading departments. The          Eligibility for the higher subsidy levels was also
increased emphasis on market-based service provision         extended to include more low-income families. In
also encouraged the restructuring of other government-       spite of these adjustments, anecdotal evidence suggests
funded services in the early 1990s, including housing,       that the new financial regime has failed to overcome
education and the health system.                             problems of financial barriers governing access to
                                                             primary care for low-income groups.
The New Zealand health care system: an                          Most primary services are delivered by general
                                                             practitioners (GPs), who act as gate keepers to the
                                                             public hospital system and the use of other subsidized
The New Zealand health care system is predominantly          health services such as laboratory tests, Pharmaceuticals,

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(77 per cent) publicly funded,3 with around 91 per cent      physiotherapy and diagnostic imaging. A range of
of this public funding raised through general taxation.      allied health professionals and voluntary organizations
Although there is no special social insurance levy,          also provide primary health services, including mid-
funding for accident-related injuries is raised separately   wives, independent nurse practitioners, public health
through a compulsory state-run insurance scheme.             nurses and the Plunket Society, which provides child
Most private funding is out-of-pocket payments.              health care.
Almost half of the population have some private                 A network of state-owned hospitals provides around
health insurance but this accounts for only 6 per cent       20 000 general, psychiatric and maternity beds (i.e. 5-6
of total health expenditure. Private health insurance        beds per 1000 population).4 In addition, there are
does not provide comprehensive cover and is most             around 7000 private hospital beds, more than 75 per
commonly used to claim reimbursement for primary             cent of which are geriatric or long-stay beds where
care user charges, elective surgery in private hospitals     patients are eligible for income- and asset-tested
and specialist out-patient consultations. Total expen-       government subsidies. The remaining private hospital
diture has increased only marginally over the last           beds are used primarily for privately funded elective
decade although the proportion funded by the state has       surgery. Doctors and other health professionals work-
been falling gradually.                                      ing in public hospitals are salaried. Most specialists also
   Since the Social Security Act of 1938, separate           work part time as private consultants on a fee-for-
funding and development of primary and hospital-             service basis.
based services has existed. The original intention of the
1938 Labour Government had been to provide health
                                                             Recent changes
services free at point of delivery for all subjects,
regardless of income. However, opposition from the           From July 1993, the public health system was
medical profession resulted in the development of            restructured in line with the market-oriented reforms
privately owned fee-for-service primary medical services,    that had been introduced in the wider economy. The
with varying levels of subsidization, operating alongside    central features of this restructuring process were the
a fully subsidized and government-owned public hospi-        separation of the purchaser and provider roles - both
tal service. Although this general structure still largely   of which had previously been undertaken by 14 area
remains in place, changes are currently taking place.        health boards - and the reconfiguration of public
   In 1992 a new regime of subsidies and user charges        hospitals into more business-like structures. The
for health services was introduced. The primary              general tax-based financing arrangements, however,
objective was to improve access for low-income               remained unchanged.
groups by moving away from universal subsidies to a             Four regional health authorities (RHAs) were set up
more directed regime. User charges were introduced for       to purchase all primary, secondary and tertiary health
public hospital services for higher-income groups and        services, including disability support services. In effect,
subsidies for general practice services for higher-income    this means that all government funding for personal
adults were withdrawn entirely. The main group to            health services is now integrated into a single budget
benefit from the changes was low-income working              and that this budget is capped, including the previously
adults. Welfare beneficiaries were also marginally           open-ended fee-for-service primary care payments. The
better off. A number of adjustments have since been          14 area health boards werereconfiguredinto 23 crown
made to this new user-charge regime. Most signifi-           health enterprises (CHEs) which enter into contracts
cantly, the charges for in-patient hospital services were    with RHAs to provide services alongside private
removed just 13 months after they had been introduced,       hospitals or other private providers. CHEs, like NHS
largely because of strong public opposition, whereas         trusts in the United Kingdom, are independent business
charges for out-patient services have been retained.         entities, governed by a government-appointed board of
NEW ZEALAND'S HEALTH CARE SYSTEM                                                271

directors. Under the legislation, CHEs are required to        disease prevention. Public health services have had a
act as successful and efficient businesses while exhibiting   chequered history in recent years. Before 1983, they
a sense of social responsibility.6 A National Advisory        were centrally funded and organized by the Department
Committee on Core Health and Disability Support               of Health through a network of regional offices. The
Services (now known as the National Health Com-               Area Health Boards Act of 1983 provided for the
mittee) was established to advise the Minister of Health      decentralization of these services to the 14 area health
which personal health services should be purchased by         boards which were established progressively between
the RHAs.                                                     1983 and 1989. By 1989, the organization and provision
   Negotiations are currently under way between RHAs          of public health services had been decentralized

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and GPs and other primary care providers to develop           although the Department of Health retained a regula-
mechanisms for purchasing primary care services. Many         tory function.
GPs have joined umbrella groups called Independent               In 1993, public health services were effectively
Practitioner Associations (IPAs) to negotiate contracts.      recentralized as part of the most recent reforms. The
Some of these groups, which range in size up to 300           original proposal was to apply the purchaser-provider
members, have become budget holders for pharma-               model through the establishment of an independent
ceuticals or laboratory tests. As RHA budgets are             Public Health Commission (PHC), which would co-
capped, many GPs are anticipating a move away from            ordinate and purchase public health services, and a
the current fee-for-service form of government subsidy        Public Health Agency, which would be the major
towards capitation payments. However, some IPAs               provider of regionally based public health services. In
strongly support the continuation of fee-for-service          the event, only the PHC was established. Its role was to
payments for general practice services. Regardless of         provide policy advice to the Minister and to purchase
how the public subsidy component is paid to GPs,              public health services. The PHC contracted for services
patient user charges are likely to remain in place for        directly with independent service providers and indir-
general practice services and Pharmaceuticals.                ectly with CHEs via RHAs.
   Separate arrangements have been established for the           During the first year after the reforms were enacted
provision of public health services - population-based        and implemented, a number of problems emerged.
services such as health education, promotion and              Confusion existed concerning the conflicting roles of


                     National Advuoty Committee on
 ADVISORS                         Core                                                                  Contracts
                      Health and Disability Support                                                     Advice
                                Services'                                                               Monitoring



FIGURE 1 The structure of the health care system in New Zealand after recent modifications. 1 Now known as the National
Health Committee, includes independent GPs, IPAs, a range of non-GP primary care providers, and diagnostic and
pharmacy services, includes rest homes, home support services, and a range of services provided by voluntary
272                              JOURNAL OF PUBLIC HEALTH MEDICINE
the PHC as an independent policy advisor while being       compete for contracts, for most services competitive
part and parcel of central government. There was also      purchasing has been minimal to date. Incumbent
confusion about overlapping responsibilities and lines     providers have usually been awarded contracts and
of accountability of the PHC and the Ministry of           few private hospitals have been successful in their
Health, previously known as the Department of Health.      bids.'0 In part, this is because RHAs were required to
Service delivery problems arose as a result of poor        purchase the same type and level of services in the first
service specification and of the unclear boundaries of     year to smooth the transition to the new system. It may
responsibility between different government agents. It     also be because RHAs do not have sufficient informa-
was also apparent that the Government sometimes felt       tion to make informed comparisons between the

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uncomfortable with some of the issues raised by the        quality, cost and efficiency of services offered by
PHC. For example, the PHC was critical of poor             alternative providers. Costings remain crude and
housing conditions which could be traced directly to       there is no standard method for case-mix adjustment
changes in government housing policy. After some brief     for hospitals.
consultation with interested parties, the PHC was             On a more positive note, the contracting process
abolished on 30 June 1995. Its roles are now under-        itself has improved the accountability of providers and
taken by a public health unit located within the           is encouraging the development of better information
Ministry of Health. The structure which has emerged        about the volume, quality and cost of services. The
following these and a number of other modifications to     reforms have also opened up a number of opportunities
the original reformed structure is depicted in Fig. 1.     which have yet to be developed to their full potential. In
                                                           particular, the integration of funding for all personal
                                                           health and disability support services opens up the
Analysis of the 1993 reforms and future
                                                           opportunity to provide a more integrated health service
developments                                               and to improve efficiency and effectiveness by shifting
It is too early to make any overall judgement about the    resources across services and service providers. It
effect that the reforms have had either on the             is expected that the RHAs will move towards the
effectiveness or efficiency of health service provision    development of more co-ordinated care through
or the health status of the population. Before the         the expansion of various types of budget-holding
reforms, throughput of surgical services had been          arrangements.8
steadily increasing, and waiting lists also continued to      Changes are also occurring with respect to services
increase; both of these trends have continued since the    for Maori. Maori have consistently sought to gain
changes were introduced. Improved transparency of          autonomy in health services based upon constitutional
the CHEs' accounting systems has revealed that many        equity arising from the Treaty of Waitangi." Although
of them are infinancialdifficulties and the Government     such autonomy remains little more than a dream,
has had to inject additional funds into the CHEs.          the new structure has opened up both dialogue and
Nevertheless, a number are closing or reducing services,   opportunities for Maori to gain better access to
especially relating to rural hospitals, and some have      and control of health resources. For example, one
reduced staff numbers significantly. For the public,       RHA has negotiated a joint venture with Maori groups
perceptions of the success of the reforms so far are       to jointly purchase services. New community based
probably derived mostly from commentaries in the           health groups which provide more acceptable and
media, most of which tend to focus on negative aspects     appropriate services for Maori are also slowly devel-
such as hospital closures and waiting lists. From the      oping. Nevertheless, some commentators are of the
patient's perspective, most services remain largely        opinion that autonomy cannot be achieved unless a
unchanged.                                                 separate Maori Health Authority with its own budget
   To date, the focus of evaluation has been on the        to purchase health services for Maori is established
process itself rather than on the outcome of the reforms   alongside the four RHAs."
in terms of health indices. It is clear that the process      A major concern of the reformed health care system
itself has been more complicated, has required more        in New Zealand is a lack of overall planning for the
modifications and has been more costly to implement        future. The focus of both the advisory committee on
than originally envisaged.4 This applies especially to     core services and the RHAs is currently on trying to
public health services, where continuous restructuring     establish service priorities. Questions revolve around
has undermined staff morale and resulted in confusion      what services should be purchased today, rather than
and fragmentation of service provision.                    what services are likely to be required in future years.
   Although the structure for personal health services     The structure of New Zealand's population is
was based upon the notion that providers would             expected to change rapidly over the next 25 years.
NEW ZEALAND'S HEALTH CARE SYSTEM                                                      273

Whereas the European population is ageing as the          difficulty is that, as yet, the advisory committee on core
'baby-boomers' of the 1950s are approaching retire-       services has been unable to provide RHAs with
ment age, around 60 per cent of the Maori and Pacific     guidelines on what services they should purchase.
Island population are less than 25 years old. This        Until there is some clarification both of the minimum
clearly has major implications for future service         level of services to be provided and the cost of these
needs.                                                    services, there is a danger that cost containment will be
   There is also a lack of planning with respect to       achieved at the expense of reasonable access to health
routine implementation of new technology. RHAs are        services by the population.
concerned with securing services which meet the health

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needs of their population. This gives CHEs and other
service providers considerable choice as to how their     References
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                                                             Pharmaceutical Management Agency Ltd. PHARMAC -
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