THE DIRECTION OF THE
NEW ZEALAND PUBLIC HEALTH SYSTEM OR:
How Many Surrealists Does It Take To Change A Light Bulb
NEW ZEALAND SOCIETY OF HOSPITAL AND COMMUNITY DENTISTRY CONFERENCE
JAMES COOK HOTEL, WELLINGTON
FRIDAY 27 JULY 2001
ASSOCIATION OF SALARIED MEDICAL SPECIALISTS
Once again thank you for the opportunity to address your annual conference. You keep asking me back, I don’t know why
but I enjoy it. I also commend you for your choice of the Minister of Health as my warm up act. My theme is the
direction of the country’s public health system now that we are a little over half way through the first term of the
Labour-Alliance government. I make the usual qualification that my comments should not be seen as official Association
positions although I do not believe they are inconsistent with the Association’s approach and perspective.
We are a somewhat unusual union organisation that experienced increasing membership in the past decade whereas most
decreased. Our membership growth continues to increase. Further, we have a national president in the form of Dr Peter
Roberts who has a photograph of Sean Connery on his hospital identification card on the premise that there is no
difference. And a vice president in the form of Dr David Galler whose overriding ambition in life is to be the first
Jewish pope. We are in good heart!
At your conference last year in New Plymouth it was too early to tell other than to make some assumptions. Nevertheless,
it was significant that the then largest United States based Health Maintenance Organisation Aetna had already
concluded, on the basis of what was known about Labour-Alliance health policies, that New Zealand was no longer a market
likely to produce the profit returns that they had invested so much in. They came for profits and concluded that the
changed government meant that their opportunities had vanished. Arguably this might still be the most significant litmus
test over whether there has been a change of direction from National led to Labour-Alliance administrations in health
However, litmus test or not, one cannot simply make judgements on the fiscal assessment of a multi-national health
business. One has to look at other macro factors as well as delve below high policy to a micro level. It raises the
question of what is our direction and is it proceeding on the basis of intent and planning or on the basis of dithering?
If we can answer this question then we can also answer the question of how many surrealists does it take to change a
As an unemployable ‘political scientist’ and unemployable ‘historian’ let me offer some political predictions
appreciating of course that prediction is an inexact science. I am mindful of two political maxims – one longstanding
and the other recent. Former British Prime Minister Harold Wilson once said that a week is a long time in politics. In
other words, no matter how well founded one’s assumptions might be one week, the following week they might be dumped in
the dustbin of history. An enormous amount can change within a week of political life with fortunes rising and
Meanwhile Deputy Prime Minister Jim Anderton recently stated that one bad day in government is still well ahead of 365
good days in opposition. In other words despite the fun political parties might have in opposition it is not a patch on
the thrill of being in government. It is not enough to advocate policies that are so dear to particular parties such as
economic and regional development in Mr Anderton’s case. The greatest excitement and joy comes out of implementation,
going from advocacy to the ‘doing’. The political parties in this coalition government are determined to achieve
Within the context of Harold Wilson’s often repeated maxim that a good old-fashioned health crisis could bring about, my
expectation that in broad terms the type of policy direction we have now is likely to prevail after the next election in
2002. I say this for two reasons.
First, the pattern of polling has been clear for some years. Since the 1996 general election there has been a constant
pattern of Labour/Alliance and more latterly Green combinations well ahead of the opposite National/ACT alternative
combination. Of the over 100 reputable polls since that election I can only recall the alternative combination, even
with the unpredictable NZ First thrown in, heading their rival in 2-3. Whether it is a combination of Labour-Alliance,
Labour-Green or all three unless there is a significant change in public mood the type of philosophical underpinning and
policy direction that we currently have is likely to continue. In this context it is also worth noting that the National
Party has stated that if elected it would not look to again restructure the health system.
Second, one of the consequences of proportional representation appears to be that electoral swings are minimised. It is
my view that the former ‘first past the post’ system exaggerated the size of swings in political mood and the electoral
outcome was significantly greater than the proportional shift among the voting public. One of the messages in this is
that the policies of political parties should be more or less in line with the underlying values and mores of the
public. No where is this more important that health.
Public and Health Professional Ethos
Somewhat speculatively it is useful to note some characteristics of New Zealanders that are consistent with the ethos of
health professionals and the way in which the health system works. The extent to which the public health system aligns
with these characteristics is, to a large degree, the extent to which it has public support and a sense of ownership
over. Although simplistic the way New Zealanders live sums it all up. In general we live in neighbourhoods and
communities based on families, whanau, relationships and friendships and participate collectively in employment, sport,
cultural, professional and recreational activities.
Our lives centre on a mix of individualism and collectivism. There will always be differences in degree and variations
but we do not live in either total individual isolation or some form of centralist Stalinist straitjacket. We are
diverse and inter-connected.
Our public health system works best when it is aligned with a mix of collective underpinning and individual initiative.
This is where health professionals come from. Collaboration, teamwork, professionalism and inter-disciplinary work are
absolutely essential if quality is to be ensured. These attributes are integral to vocational training and the various
ethical codes that help shape the way in which health professionals do what they do.
What was the Market Experiment of the 1990s?
One can only understand the pressures currently confronting the health system by understanding the decade of market
experimentation that we just have come out of. Comprehending its ramifications are critical if we are to have a fuller
understanding of the current problems and challenges that now face us. Not doing this is rather like trying to
understand the inability of the All Blacks to win lineouts after a policy of selecting height deficient locks.
In 1993 our publicly provided health system based on statutory authorities known as area health boards were replaced
crown health enterprises (subsequently hospital and health services) that were more narrowly based on secondary and
tertiary care. They were state-owned companies with our publicly provided health system now for the first time governed
by the Commerce and Companies Acts.
Under this radical upheaval commercial competition was now the name of the game, the ethos at the core of the system
that was to drive its future direction. This meant that CHEs were to compete rather than cooperate with each other and
also compete with the private sector. Owing to its relative small size the private sector required a boost in order to
establish a ‘level playing field’ for business competition. This included the ill-fated cumbersome and inefficient
attempt at user charges for public hospitals.
We had services put up for contestable bidding with strong suggestions of ideological favouritism towards the private
sector. GPs were encouraged to hold funds in order to purchase secondary services. Privatisation encroached upon the
public system at least around the margins. And it became difficult to promote greater clinical coordination and
integration between primary and secondary care without being locked in to privatisation masked under the language of
first managed care and then integrated care.
I have been fortunate in my job to have the opportunity over the years to discuss health system issues with
international authorities including in the World Health Organisation, the OECD and academia. The overwhelming lesson I
have learnt is that if a country wants to have a health system that provides more or less universal and comprehensive
services of good quality in order of priority it requires:
1. Single public based funding system. The more fragmented the funding sources the more fragmented and less integrated
the delivery and organisation of health services. This does not preclude separate additional private systems but can
most effectively be provided by the state or a state created and regulated mechanism.
2. Public provision. This is supplementary and, in relative terms, less critical. Regulated social insurance systems in
western Europe, for example, are still able to produce integrated universal comprehensive services. Public provision
reinforces the integration that single funding provides and also does not preclude separate private provision.
The approach of the 1990s market experiment was to attempt to introduce competition and consequently fragmentation at
the second rather than first and more important pillar of an integrated public health system. The closest they got was
the short-lived formation of four regional funding authorities and the unbundling of ACC funding for public hospitals.
The original design for alternative health care plans that would have helped introduce competition to funding were put
on hold because of complexity. Consequently the inroads it was hoped competition would make were more limited and
despite all the difficulties and disruption the integrity of the core of the publicly provided health system largely
It was inevitable that this ideological experiment would fail. Markets thrive on short-term unpredictability whereas
public good provision thrives on longer-term predictability. In addition to failing to introduce competition into
funding rather than provision thereby blunting its impact, it also came into conflict with the cooperative ethos of
health professionals and the wider public. Rather than being in alignment it went toward our health system in the
opposite direction of this underpinning ethos.
Further, it was compounded by under-funding that whether intentional or not was consistent with an approach of creating
a ‘level playing field’ for the private sector and enhancing privatisation capacity. In the first half of the decade
public hospitals were seriously under-funded in relation to the costs of running them and maintaining services. In real
per capita terms funding fell by around 13% according to the Health Ministry’s Income and Expenditure Trends. Coupled
with the unpopular ideology, out-of-control CHE deficits and the embarrassment of increasing waiting list statistics,
public reaction was strong. Threats to access and the viability of valued services led to public outcry inclusive of
large uncoordinated demonstrations in the middle of the decade.
The result was inevitable. The language of competition was dropped and replaced with that of cooperation although the
underpinning legislation was fundamentally unchanged including Commerce Act coverage that promoted competition and
condemned so-called ‘anti-competitive’ practices. Funding increased in the rest of the decade compensating largely in
dollar terms for the preceding under-funding. But there were two important constraints:
1. Public hospitals can’t run like hirepool companies. Infrastructure and resource damage can’t be restored overnight.
Neither can the pessimistic and low morale of a labour intensive service whose key advances and quality depend on its
considerable intellectual capital.
2. The additional funding was disproportionately time-limited and linking to waiting times initiatives. In mental health
new funding was also provided but largely linked to the expansion of new services rather than the maintenance of
Thus by the end of the last decade and up until the last general election we had a public health system that was betwixt
and between. It was a direction-less hybrid governed by legislation promoting competition on the one hand and managed by
policy statements promoting cooperation on the other with the in-built capacity for disruption. In this confusing
context it was only 12 months prior to the last election that the multi-national Aetna through its then half-owned
independent practitioner association came close to controlling the funding for Tauranga public hospital under the guise
of integrated care.
Why was Change Needed?
So change was needed. Our neglected needs included:
1. An underpinning legislative framework aligned with the ethos and values of health professionals and the public.
2. A capacity for workforce development and planning that had been neglected because of the false ideological belief
that markets would sort things out. A decade of lost opportunity precluded the health system’s ability to anticipate and
plan for predictable domestic shortages in skilled staff at a time of predictable increasing international shortages.
Under the market approach planning was a miss-spelt four-letter word. And now the chickens are coming home to roost!
3. In a country of less than 4 million people how could we justify two central government agencies, the Ministry of
Health and Health Funding Authority, competing against each other for the ear of the Health Minister? The potential for
robust policy advice was compromised by the risk of competing bureaucratic fiefdoms each claiming that their moat around
their castle was better than the other’s.
4. Effectiveness was undermined by a high level of distrust and at times disrespect between those responsible for policy
advice and implementation at a national level and those responsible for providing health services at the front-line. The
former involved the Ministry and HFA while the latter involved health managers and health professionals. While
personalities might have played a contributory role it was the underlying system that created this divide.
5. The straitjacket of privatisation constrained the capacity for greater primary-secondary care coordination and
integration despite some good things happening such as the Canterbury elderly care project.
6. The preoccupation of ‘working to contract’ was out of line with the professional approach of going the extra mile and
the public need for this to happen. Government through its funding agencies during the 1990s emphasised the unreal
position of public hospitals doing what they were contracted to do and nothing more. Health professionals were between
the proverbial rock and a hard place coping with legitimate public pressure and professional ethos to meet important
patient needs and political pressure to stick to the regime of the funding contract. There were also some hints that
this was starting to encroach upon the professionalism of health professionals. Confining activities to the literal
contents of one’s job description was not too far removed from public hospitals confining their activities to their
7. In the all-important concern for quality there was an obsession with formal indicators, preferably with a numerical
or tick box basis. Indicators are important but quality is more effective achieved by placing professional values and
culture at the forefront of organisational delivery.
8. Although it was needed there was no effective long-term planning over funding needs for both primary and secondary
care. Some work was done in developing a sustainable funding path but it was not sufficiently long-term and integral to
Budget decision-making processes. We need, for example, information on the medium to long term expected acute admission
patterns that could form the basis of a real sustainable funding path but do not have it.
Not to put too fine a point on it change was needed because no matter how hard one tries to buff it one can never get a
turd to shine.
Examining the Change: Problems and Challenges
Certainly much has changed since the election of the Labour-Alliance government around 18 months ago. The legislative
framework has changed with the removal of coverage of the Commerce and Companies Acts. Our legislative framework is now
better aligned with public and health professional values. There is now only one central government health bureaucracy,
workforce development and planning is no longer ideologically frowned upon with positive moves being made in this
direction, and primary-secondary coordination can now be more clearly dealt with without the straitjacket of
But controversy is rampant and after a period of relative quiet health is in the media headlines perhaps as much as it
was during the high (or low) points of the past decade. Some of this is involves legacies of the past decade and
chickens coming home to roost. It is not easy to turn around the damage of a misplaced decade within 18 months.
But some of it also has to do with the performance of the government that has grasped some issues well but others not
so. While the Minister has to take responsibility for both credits and debits, it is much more than ministerial
responsibility. It is more so cabinet and government responsibility inclusive of both coalition parties.
It is fair to say that the actual doing of policy implementation is both much more exciting but also much harder than
its advocacy. I understand that Karl Marx once said, presumably not in Das Capital, that the difference between
philosophy and real life is the difference between masturbation and sex. This has to be qualified by Woody Allen’s
philosophic utterance that the former was good, however, because it always involved someone you loved.
The problem in the doing, in the putting in place, is due in my assessment to a series of connected factors additional
but linked to the legacies of the 1990s. These include:
1. Lack of rigorous involvement and engagement between government and representative bodies of health professionals well
placed to assess the pulse of the health sector. The government is certainly consultative and open but this has yet to
advance to the next level of inter-active engagement at a level comparable to that of government-Ministry interaction.
3. Lack of confidence by DHBs in the performance of the Ministry in negotiating with them and in advising the Minister.
I can’t comment on the veracity or accuracy of the criticisms and it is too easy to scapegoat the Ministry for
disappointments and things that go wrong. But I have simply heard too many quiet mutterings to suggest that this is
widespread and serious.
5. At times less than rigorous advice and sometimes-poor advice to government on particular issues including adequacy of
funding levels and privatisation proposals.
7. Expectations are too high on the ability of boards to provide positive leadership. Despite how they appear as lines
on paper, boards are not the apex of the system. This is much more the work of health professionals at the front-line
and the extraordinarily amount of wisdom and expertise they have accumulated coupled with the energy and drive of their
professionalism and standards. Effective change and advancement will not be delivered by top-down hierarchical
Two Key Issues among Many
Arising out of this situation the government is facing serious problems, all of which are resolvable but require its
will and direction to resolve them. In essence the new direction has yet to address the disruptive deficiencies of the
past decade and the mode of implementation in this context has ironically served to compound them
There are several key issues such as confusing signals over private provision and too greater reliance on formal
indicators for quality rather than the professionalism of health professionals. The two I have focused on are funding
Money is not the only important thing in life but it is well ahead of what is in second place. For reasons discussed
above our public health system has been systemically under-funded and under-capitalised. Unfortunately a shocker of a
Budget camouflaged by claims of $330-350m additional funding made the situation worse. Superficially there is more money
but if there were a dollar for every mirror in it we would have the best-funded health system in the world.
In some respects the government was an invidious position. The former government had previous put in an additional but
time-limited $80m for elective services that was due to terminate on 30 June 2001. The new government’s dilemma was that
not to continue it would have involved taking the blame for a cut intended by its predecessor but it would not take much
credit for carrying it over. It did the latter and, sensibly so, made it part of the permanent baseline rather than
time-limited. This was then in terms of the Budget new funding but in terms of DHBs and health professionals funding
that they were already dependent on. The government deserves praise on this aspect of the Budget spending on health.
But that is as far as it goes. The rest was a large component for services that were demand driven and demand paid
anyway (mainly primary care and to a lesser extent pharmaceuticals) and new initiatives such as in mental health.
This then left an increase of $46.7m for the maintenance of existing capitated public hospital services. Had this been
real money then it would have represented a little under half the increased cost of running public hospitals. But a
closer examination revealed a bizarre situation of technical reductions in which components were transferred back and
forth, overwhelmingly forth at a speed faster than the dialogue between White House aides on the West Wing. These
included debts of the former Health Funding Authority, disabilities services transfers and capital charges.
As a result of this extraordinary display of high velocity mirrors $46.7m became $0.9m. In other words, an increase of
around 0.03% to maintain existing public hospital services when their running costs are expected to increase by around
This leaves two alternatives – reduction of services or increasing deficits. The latter is the most likely and despite
the poor economics that underpin it the lesser of two evils. This is exactly the situation that the former government
faced towards the end of the last decade. With deficits nationally well over $220m they got round it through creative
accounting known as the ‘deficit switch’ in which the debt was transferred centrally to the HFA. And then chief
executives started to quietly promote that they had been so fiscally responsible because they had reduced their deficits
by several million. Not a bad argument for a pay increase!
This government will have to consider a similar approach if it wants to avoid reductions to the range and quality of
patient services. Either another ‘deficit switch’ or an injection of equity funding can do this.
The government does have options in health funding. For example, without compromising its desire to set up a pre-funding
asset for superannuation it could have had a different pace of implementation in the Budget. Instead of $600m in the
first year it could have been a lesser amount ($500m or $550m for example) with a different phase-in period.
Superannuation is a critical issue requiring appropriate planning but is it the predominant issue?
Alternatively it could have set a different figure for the net public debt to GDP ratio. The government’s target is 20%
by 2003. But this Budget is predicated on a forecast of 17.8% by that date.
The point I wish to make is that the government had options but insofar as health funding is concerned has made the
wrong ones. It has listened too much to misleading arguments about how much money went into the health system in the
late 1990s, unquantified claims about savings that can be made and the extent to which primary care can reduce pressures
on secondary care. It is hard to cost shift in health. If electives are not treated many will come back as more
expensive acutes. If the elderly are not admitted into elderly services many will get through the door as medical
admissions. Now that DHBs are also responsible for primary care the scope for cost shifting is further minimised.
Instead the government should be using the expertise in the sector to advise it on, for example, what are the likely
acute and urgent pressures likely to be in the next few years and what sustainable funding path is needed for the system
to cope. It needs the advice of this same expertise over the pressure and needs of existing services as a separate issue
from new initiatives. The expertise is there. It is simply under-utilised.
And it has repeated fundamental errors of its predecessors. It has restructured and under-funded at the same time;
exactly what happened when first area health boards and then crown health enterprises were introduced. History repeats
itself too much and too fatally!
Bureaucracy and Transition Costs
Excessive bureaucracy and transaction costs were a major criticism of the market experiment of the 1990s including by
the current government coalition parties when in opposition and for good reason. One of the initial criticisms of the
new DHB system was that it would lead to 21 different health services. I always felt that this criticism lacked
precision and was too sweeping particularly given that DHBs would be governed by a binding national health strategy and
ministerial approved annual plans.
There is, however, a problem of a different nature largely due to the fact that so many of those that advise government
and manage the system were potty trained in the ideology of the 1990s. This included the belief that there was a
fundamental tension and conflict between funding and providing. Consequently we had to have what was called the
This view continues to prevail and now many DHBs are replicating the funder-provider split that used to exist on a
national level up to 21 different times. But while there may be some tension between funding and providing it is more of
role demarcation and operational good ‘house-keeping’ than conflict of interest. Its significance is exaggerated and is
less important than, for example, relationships between different health professional groups, between health
professionals and managers, and between DHBs and central government. But the effect of over-stating its significance is
to increase bureaucracy and transaction costs by creating provider and funding arms with artificially generated walls
If the government is going to achieve its highly laudable objectives it is going to have to realise that the part of the
health sector that is most in tune with and aligned to those objectives are health professionals. They must be actively
engaged at a much higher level than is currently the case. The gearbox of involvement must go well beyond formal and
accessible consultation to a new higher gear of active and regular engagement on both macro and micro issues.
If this can be achieved then we might be better placed to also answer the question of how many surrealists does it take
to replace a light bulb. The answer of course is a fish. But whether that is a fish with or without a bicycle I do not