Salient

The History of Healthcare Reform in Aotearoa

By Tristan Egarr | 29 Sep, 2008

Beginning in 1983, New Zealand’s health system was subjected to two decades of reform. While these reforms were intended to address overblown budgets and move the healthcare into a market economy, each reform was implemented just as the previous one was beginning to bear fruit. This constant state of turmoil meant millions that could have been spent on actual healthcare wasted on rebranding, and staff morale lowered every time they had to spend time relearning a new set of bureaucratic acronyms. Robin Gauld has said that while the last round of reforms in 1999 did improve many aspects of the system, “many of the objectives set for them could have been achieved within the existing health structures, alleviating the need for further disruption to an already reform-wary sector.”

Early Days
New Zealand’s first public hospitals were set up by Governor George Grey to provide care to those who could not afford a private doctor. The Public Health Act 1872 set up local authority health boards, largely funded by local ratepayers with a subsidy from the central government, to support the hospitals (each under its own hospital board). The prevailing political philosophy of the time emphasised the need for hands-off government to encourage self-sufficiency among the colonial population. Many feared that too much taxpayer-funded healthcare would dilute people’s natural instincts towards voluntary charity, although this was tempered by the state’s desire not to see anyone starve. A subsequent Public Health Act in 1900 created a Department of Public Health to take charge of regional authorities in times of crisis; central control was further strengthened by the Hospitals and Charitable Institutions Act 1909 (which provided higher government subsidies to poor districts) and Health Act 1920, which expanded the Department of Public Health into a Department of Health (DOH).

In 1938, the First Labour Government’s Social Security Act attempted to provide free and universally available healthcare to all. However, Labour were foiled by the Medical Association (the organisation of doctors), who refused to comply with the demand that they stop charging wealthy patients fees and become salaried state employees. The Government compromised by instituting a General Medical Services benefit to pay the fees of poorer patients. From then until the 1970s, doctors’ fees rose on average from one-third to two-thirds of the cost of care, straining the health budget. This led to reviews under the Kirk Labour Government, instituted by Muldoon’s subsequent National Government in 1983. National saw a need to integrate the curative services of hospital boards with the largely preventative focus of district health offices. To this effect, they set up 14 Area Health Boards to provide funding to each region on a population basis; over the course of the 1980s the Fourth Labour Government continued this reform, slowly dissolving the old hospital boards.

Markets: Making Hospitals Compete
The Fourth Labour Government also instituted a series of reviews and inquiries with the aim of reorienting the health system around a competitive market ethos. They retained the Area Health Boards because they provided a simple, transparent funding system, but attempted to tighten funding. The health system then and now takes up around 7% of New Zealand’s GDP, notably lower than the US health system – the most market oriented in the world – which costs around 12% of GDP. By 1990, the Area Health Board structure was finally in place. But in 1990 National was elected to power and the shit really hit the fan.

Taking Labour’s various reviews to heart, the Fourth National Government under Jim Bolger argued that the Area Health Board system provided little incentive for efficiency in public health. On 1 July 1993 a massive reform took place, characterised by an explosion of acronyms. The Area Health Boards became 23 Crown Health Enterprises (CHEs), which were expected to compete via the market and meet service-for-money targets. Meanwhile, four Regional Health Authorities (RHAs) provided the funding to CHEs; they in turn came under a Public Health Commission (PHC), under the renamed Ministry of Health (MOH, as opposed to the old DOH). This diluted the Minister’s chain of command, so that when Christchurch’s CHE argued it would have to make cutback to meet service targets, then- Minister of Health Jenny Shipley was able to stand back and proclaim that it was a business matter for the CHE and the RHA to resolve. By 1996 the PHC had been dissolved, and another series of reforms under the National-New Zealand First coalition amalgamated all four RHAs into one central Health Funding Authority (HFA), in conjunction with the sole pharmaceutical buyer Pharmac (set up by the RHAs, Pharmac’s ability to control the cost of pharmaceutical funding is regarded as one of the few successes of National’s reforms).

While the creation of a sole HFA removed much of the confusion of the old model, the fact that the RHAs’ 520 staff were forced to reapply for a smaller number of jobs eroded morale, and the single entity’s new power brought it into conflict with the Ministry of Health, whose role was now intended to be one of policy-making rather than operations – but the two organisations’ roles were never clearly delineated. CHEs were renamed Hospital and Health Services (HHSs), with greater emphasis on service provision. However, the idea that hospitals should compete remained. Most commentators note that the service ‘targets’ competing hospitals should meet cannot be clearly defined, and the idea of reporting on the effectiveness of these targets within the medical world is not always possible. Basically, the idea that hospitals should compete for patients and dollars is just retarded. For instance, the HHS HealthCare Otago felt obliged to sell off its geriatric homes in order to provide more efficient ‘core’ services. Fuck you, Fourth National Government.

Another facet of National’s reforms was the initiation of a prioritized points-based booking system to reduce the problem of waiting lists for surgery. While this system had some success, it functioned differently in different regions, leading to an unfair provision of services depending upon where a patient resided.

The final round of reform, carried out in 1999 under the Labour- Alliance coalition, replaced HHSs with the current District Health Boards. While this acronym shift may have been unnecessary, the new regime under Minister Annette King eventually saw a reduction in the amount of change and a reduced emphasis on market competition. The HFA was absorbed into the MOH, reducing conflict and the duplication or roles. Problems with waiting lists remained, with Labour courting controversy when it dumped thousands of low-priority patients in an attempt to clear the lists, but overall the amount of health turmoil has been reduced. But continuing problems, particularly with our own Capital and Coast District Health Board’s fraught efforts to secure adequate funding, demonstrate that problems remain.

For more information, read Revolving Doors: New Zealand’s Health Reforms by Robin Gauld.