- Email: [email protected]
The effect of economic constraints on the health care system in New Zealand
Health Policy, Elsevier
8 (1987)
171
171-181
HPE 00164
The effect of economic constraints on the health care system in New Zealand Marschall
W. Raffel and Norma K. Raffel
College of Human Development, The Pennsylvania University Park, Pennsylvania, U.S.A. Accepted
16 May
State University,
1987
Summary The New Zealand government, in addition to budget restrictions, has introduced population-based hospital funding to contain hospital costs. Moreover, a health services reorganization to increase area-wide integration and coordination of services on a voluntary basis has been advocated. Diffusion and use of expensive medical technologies have been delayed or thwarted. Private hospitals have increased and provide an outlet for those who are able to escape prolonged waiting for treatment and the deteriorating accomodations in public hospitals. Cost containment;
Population-based
funding;
Privatization;
New Zealand
While many countries have been dealing with cost containment in health care primarily by ‘across the board’ cuts, New Zealand has introduced significant administrative changes including a new funding mechanism for health services and a reorganization of its health system to use the available funds more equitably and more efficiently. New Zealand is an economically developed, relatively affluent country with a democratic parliamentary system of government. It is composed of two main islands located in the south-west Pacific Ocean about 1000 miles south-east of Australia and is similar in size to the British Isles. The population is approximately 3.3 million of which 73% is located on the North Island. The majority of the population is of English or Scottish ancestry. About nine percent of the population is Maori (the original settlers from Polynesia) and about 3% are Pacific Island Polynesians.
for correspondence: Professor Marschall W. Raffel, Ph.D. Health Planning and Administration, College of Human Development, The Pennsylvania State University, 115 Henderson Human Development Building, University Park, PA 16802, U.S.A.
Address
172 Table 1 Health care expenditure, Total medical care expenditure share in G.D.P. (%)
Country
Australia Denmark France Germany Italy Netherlands New Zealand Norway Spain U.K. U.S.
7.7 6.3 9.0 8.1 7.2 8.5 5.8 6.8 5.9 6.0 10.4
utilization and rank in selected treatments Infant mortality rank
6 2 3 7 10 4 10 5 1 7 8
No. of days institution care per person/year”
3.2 2.1 3.1 3.5 2.2 4.0 2.7 1.9 1.3 2.3 1.7
No. of persons per hospital bed
91 130 90 90 127 83 100 148 185 124 169
in selected countries - 1994
No. of persons per physicianh
509 416 480 422 798 497 603 477 362 775 498
Patients on treatment for end stage renal failureimillion population Rank
Magnetic resonance imagers/million population
7 6 4 2 8 3 11 9 5 10 1
6
Rank
a Most based on 1983 estimates h 1982 figures Sources:
Poullier, Jean-Pierre, From Risk Aversion to Risk Rating: Trends in OECD Health Care Systems, international Journal of Health Planning and Management, Vol. 2, Special, Table 8, p. 24 (1987). Organization for Economic Co-operation 1960-1983, Table 4, p. 15, Paris (1985).
and Development
(OECD),
Measuring Health Care
New Zealand health care is a combination of public, private, and voluntary services where the government totally finances the costs of public hospital care (80% of the total number of hospital beds) and subsidizes private hospitals, primary care services, and residential homes for the elderly. Public spending on health care was a very high priority until the middle 1970s when its national economic performance declined. Since then determined efforts have been made to constrain public expenditures on health and other social services. The total national medical care expenditure for New Zealand was 5.8% of its Gross Domestic Product (GDP) in 1984, considerably less than most European countries and the U.S. (Table 1). The data in Table 1 suggests that New Zealand is behind many European countries not only in the percent of the GDP spent on medical care, but also in its infant mortality ranking and the use of advanced technology. As concern for the cost of health care increased, the central government, in addition to reducing allocations, took several steps to see that available resources were used as effectively and efficiently as possible. It changed the method of funding hospital boards (which manage the public hospitals) to distribute the resources more equitably and efficiently, reorganized the health services to improve coordination, and involved a wider range of interested people in policy development at the cen-
173
tral government level. Also the government delayed or thwarted the introduction of expensive new technology. These actions and the impact of cost containment on hospital boards, the private hospitals and doctors will be described.
Redistribution of funds hospital boards
using population-based
funding
for
Concern about increasing health costs prompted the central government to examine hospital expenditures which made up close to 75% of the total health budget to see if its allocation to the hospital boards was as equitable and efficient as possible. The 29 locally elected hospital boards dominate the public system of health care in New Zealand, operating the public hospitals including psychiatric hospitals and hospitals for the intellectually handicapped in their area, and providing some community services. Before 1982 the method for distributing funds to them was a ‘block grant, history plus’ system whereby hospital boards received the same amount as the previous year, adjusted for inflation plus money to cover new services and increases in patient admissions. Over the years the population had shifted from the South to the North Island and from rural to city areas and hospital boards developed different needs. Moreover, it was realized that using hospital admissions as a measure of increased need was not satisfactory because the availability of facilities appeared to stimulate the need for them resulting in a cycle of more beds, more patients, more funds [l]. When the method of allocating funds to hospital boards was reviewed, it was decided that a population-based funding system similar in principle to those adopted in England and Scotland would be more appropriate. In 1983 a population-based method of funding was introduced by the central government based on the principle that the need for hospital services is mainly related to the size of the population. Under this system about 93% of the government’s allocation to boards is directly related to the size, age and sex of its population. Adjustments are made to allow for variations in the birth rate in different parts of the country, different levels of sickness based on social, environmental and ethnic factors, patients who travel to other boards for specialist treatment and the number of patients treated in private hospitals. Under this funding formula some boards have been identified as ‘over funded’ and other boards ‘under funded’. Board funding is being gradually decreased or increased each year until each receives the proper amount under the formula. Population-based funding, although strongly resisted in parts of the country with a decreasing population, is generally accepted. It has produced new data that has enabled hospital boards to compare their expenditures and made the value judgements involved more apparent and more open to debate than before. In short, population-based funding has led to significant changes in thinking at the local and national levels, and the use of resources by public hospitals is being reviewed more thoroughly than ever before [2]. As part of the new funding system, the Minister of Health required hospital
boards to prepare a Z-year strategic operational plan based on the kinds of services provided (e.g. geriatrics care, child care, specialty services). The plans should state objectives and establish priorities. They will not be officially evaluated by the government, but it is hoped they will be useful in helping the boards to manage their limited resources better and take a broader view of their responsibilities. With the change of hospital board funding to a capitation rather than a utilization basis, hospital boards will have a vested interest in the overall health of their area rather than just hospital care. Until recently hospital boards did little formal planning and tended to make ad hoc decisions in response to crises [3]. Any planning that was done related to buildings and equipment. A plan which is based on the types of services provided will, it is felt, facilitate making the inevitable choices among alternate health options. No real increases in health funding are planned so new programs or any growth of old ones will have to be managed by shifting resources from another area. This ‘service development planning’ requirement is an administrative reform that seeks to remedy the inequities in the distribution of care and resources, the imbalance between institutional and community care, the imbalance between curative and preventive care, and fragmented services, the absence of planning mechanisms and increased costs [4]. Now that hospital board funding is based on objective criteria, much of the politics should be removed. Boards will know ahead of time how much funding they will receive and can get on with the job of planning. The Health Department is developing a series of planning guidelines for different services to assist boards.
Improving coordination Health Boards
of the health services through
Area
After more than a decade of study and discussion, Parliament passed legislation which became effective in 1984 to improve the integration and coordination of health services by allowing the establishment of Area Health Boards as a mechanism for the provision of comprehensive health services for the same or less amount of money, to better balance the perceived changing needs between curative and preventive medicine, and to provide a mechanism for making wiser chaises when services must be limited. Under Area Health Boards, hospital boards and the district offices of the Health Department (the curative and the preventive aspects of the health services) would be combined. Coordination would be further improved by involving the private and voluntary sectors in the planning of services. Planning would be done through Service Development Groups which would bring the public, private and voluntary sectors together to plan how each specific kind of health service would be delivered. In this way areas of duplication and deficiencies in existing services provided by the various sectors could be identified and resolved together. There would be one authority responsible for planning all health services in their area thus simplifying the complex problems of priority setting and decision making that are required as services compete with each other for limited resources [5].
175
Area Health Boards would receive an annual block grant based on population and appropriately weighted for other factors. However, under no circumstances can they cost more than current health expenditures. An essential feature of the legislation is that the formation of Area Health Boards is entirely voluntary. They can be established only at the request of hospital boards and there is no way to force the private or voluntary sector to participate. The voluntary aspect of the legislation may well be its Achilles’ heel. Despite the enthusiasm of the Health Department, there is a widespread feeling among those interviewed that few Area Health Boards will be created as long as they remain voluntary. Some hospital boards are studying the possibility, and in 1985 three hospital boards were replaced by Area Health Boards.
Wider participation of Health
in policy development
through
the Board
The Board of Health was reestablished in 1982 to provide an additional mechanism for advising the Minister of Health and the Government on the full range of health issues. Previously, advice to the Minister had come almost exclusively from the Department of Health. The Board was strengthened by legislation to include the right to conduct studies and make recommendations to the Minister on its own initiative. Members of the Board are appointed by the Minister. The 11 standing committees of the Board which study various aspects of health services organization and delivery are selected from nominations of voluntary organizations and from the public at large. The Board of Health and its committees provide a broader base for decision making and is expected to help facilitate development of bipartisan health policies that would be less influenced by changes in Government. Much will depend upon its leadership, its funding, its relationships with the Department of Health and professional organizations, and its credibility with the public.
Delaying or thwarting partment of Health
expensive
new technology
by the De-
High technology equipment is limited by the Health Department which provides special funding for such items. New Zealand has 1.5 CT scanners per million population compared with 2.4 per million in Denmark, 2.8 per million in the Netherlands, 0.71 per million in the U.K. and 9.1 per million in the U.S. [6]. The Health Department approved funds for three CT scanners which were placed in large population centers. Dunedin, a city with a medical school, but a decreasing population, was not awarded one. In this case the local people raised enough money to purchase their own CT scanner with the Health Department’s reluctant approval. Waiting time for patients to have scans is from 14 weeks to 2 years depending upon location and urgency. Recently two physicians in a large metropol-
176
itan area purchased a CT scanner and located it in a private hospital. They charge the hospital board for service to its patients and they carry on a large private practice. Although many European countries and Australia have acquired nuclear magnetic resonance (NMR) imagers New Zealand has no plans to purchase one in the near future (Table 1). The introduction of new procedures is sometimes delayed by the Health Department by not allocating the special funds needed to begin the service. For example, funding for bone marrow transplants was delayed 4 years until they could be done at hospitals within their existing budgets. Cardiac transplants are not done in New Zealand. The Health Department pays the expenses for selected patients to be sent to Australia for the operation. Up to early 1985 about 4 cases had been approved for funding. If the Health Department does not finance patients, some people raise the necessary money through service organizations and appeals to the public.
Effect of cost controls on hospitals boards Hospital boards were required to accept a 1% reduction in their allocation of funds in 197S80, 1980-81 and 1981-82. In 1983-84 a general restraint of 0.5% was applied to all but the 8 most disadvantaged boards. In 1984-85 the total allocation for distribution to hospital boards was increased 0.6% to maintain services in the face of an increasing population [7]. Hospital boards reacted by first eliminating the ‘fat’ and then reducing non-clinical services. Administrative personnel were reduced. Maintenance became less frequent and limited by contracting out the services for the amount of money available for that purpose. Costs of hospital meals were reduced; clinical laboratory and diagnostic services were decreased. Lack of funds was a major factor in the shortage of support staff, especially nurses. The nursing shortage has been aggravated by the transition of the nurse training programs from hospitals to technical institutes (i.e. community colleges). This change resulted in student nurses spending less time attending patients. Nursing workloads in hospitals increased significantly because of the decrease in personnel and because of hospitalized patients who were sicker and needed more care. The nursing shortage, especially in surgical units, has been a major cause of services operating at less than capacity, causing waiting times for hospital admission to increase. Public hospital waiting lists are increasing steadily and in the 3-year period from March 1982 to March 1985; the waiting list nationwide increased almost 17% - from 39,848 to 46,502 [8]. The large majority are waiting for surgical procedures. Urgent cases do not have to wait and it is possible for a patient to ‘jump the queue’ if their condition worsens. Hospitals from time to time have a ‘blitz’ on certain conditions to reduce that specific aspect of the waiting list (e.g. tonsil and adenoids in children and varicose veins). Hospital waiting lists are not useful for comparisons among boards, much less internationally, because of the many country-specific factors influencing them. However, they are of significant concern to the pub-
lit and the medical profession because they underscore a lack of resources to meet community needs. Cardiac surgery waiting lists appear to be in a class of their own and only those cases requiring coronary bypass of some urgency are placed on the waiting list [9]. In the 4 cardiac surgical units in New Zealand operations were performed at a rate of 43.6 per 100000 population in 1983. At the end of 1983,485 people were waiting for cardiac surgery. Of those almost half had waited less than a month, but 54 persons had been waiting one year and 28 for over two years [lo]. In one center about 250 persons were waiting for coronary bypass operations in 1985. Some had been waiting more than a year and some had died while waiting. The number of operations performed each week was below capacity largely because of a lack of support staff. Renal dialysis, formerly funded by the Health Department but now a hospital board responsibility, is an example of a program that is affected by cost considerations. In 1983 about 35 persons per million were accepted into renal dialysis programs in New Zealand [ll]. This is less than most European countries and the United States (Table 1). The present level of service has been able to be $maintained because the cost of equipment has decreased and the number of patients on home dialysis has increased. The goal is to have as many patients as possible on home dialysis. In 1984 at one center all of the patients were dialysing at home and in the other 3 centers 80-90% were on home dialysis [12]. Some use hemodialysis at home, but most use the continuous ambulatory peritoneal dialysis (CAPD) method. Even so, resources are severely strained. If the current acceptance rate of 35 per million is maintained along with the current transplantation rate, and the survival rate of those in the program continues to improve, the cost of the treatment program would more than double in 20 years. An increase to 45 per million which is common in many European countries would treble the cost during the same period [13]. Informal guidelines have been developed to aid doctors in determining the acceptance of patients into dialysis programs. Some who do not meet the guidelines are ‘kindly turned away’; others are treated if they insist even after the doctor has discussed their probable low quality of life on dialysis. Relative contraindications to dialysis are malignant disease of a clearly life-limiting nature, severe vascular insufficiency, serious multisystem disease, or a major psychiatric illness of a chronic nature or a major personality disorder which makes a patient’s response and attitudes unpredictable and inhibits potential rehabilitation into the community [ 141. Very few alcoholics were accepted. Patients are accepted for dialysis within the age range of 7-70 years, but in practice few patients over 60 years are accepted. Only 12% of those admitted to the dialysis program in New Zealand were over age 60 in 1983 compared with 22% in Australia [15].
Private hospitals Private hospitals have played an increasingly important role in the health care
178
system, especially since government spending on health services has slowed. Successive governments have encouraged private hospital care as an alternative to public hospitals for the treatment of relatively simple conditions. Private hospitals have flourished in the large population centers aided by government subsidies and the introduction of private health insurance in 1961 which has made their use relatively inexpensive for part of the population. Private hospital use increased significantly during the late 1970s when hospital board funding stagnated and the waiting time for non-urgent cases increased greatly. The government subsidizes about 20% of the cost of a private hospital bed; the patient is responsible for the remaining amount. However, almost 40% of the population is now covered by private health insurance which typically pays 80% of the patient’s costs. In the last 10 years the percent of the population that is covered by private health insurance has increased dramatically - up from 18% in 1975. Health insurance membership fees are usually paid by the individual’s employer and are tax deductible. However, the services of public and private hospitals are not parallel. With some exceptions, only relatively simple procedures are done at private hospitals while the more complicated, expensive procedures are done at public hospitals. For example, between 25% and 30% of hip replacements and the large majority of hernia operations are done at private hospitals but neurological and more than 90% of all cardiac surgery are done in public hospitals. Complex laboratory work and blood for transfusions needed by private hospitals are provided by the public hospitals. The same specialists practice in both the private and public hospitals. Licenses which are required to build and operate private hospitals have been frozen by the Health Department for the past 2 years to bring the uncontrolled growth of the past decade under control. Also, hospital board funding is affected by the expansion of private hospitals in their area under the new population-based funding formula. These and other factors are bringing hospital boards and private hospitals together to plan. Private hospitals comprise about 23% of the total number of hospital beds in New Zealand. More than half of these private beds are in small geriatric hospitals which are filled to capacity. However, most of the concern and debate about private hospitals focuses on those that are predominately surgical. Shifting the burden of hospital care to the private sector to help alleviate the fiscal strain on the government is an attractive strategy for policy makers. Although there is concern about the extent to which the increasing private sector is expediting a dual system of care based on ability to pay and is draining resources from the public sector, all agree that the public hospitals cannot meet the present demand for hospital care. In short, the present level of health services cannot be maintained without private hospitals.
Doctors Doctors
in New Zealand
are confronted
with many of the same difficulties
that
179
doctors in other industrialized countries face - government seeking ways to contain the costs of the doctors’ services, health care decisions increasingly influenced by non-medical people, questions about the balance between curative and preventive health care, and a surplus of doctors. They are apprehensive in a climate of change which threatens both their power and their pocketbook. Nearly all physicians in New Zealand are in private practice or hold salaried appointments in public hospitals. Many specialists combine a hospital appointment with private practice and see patients referred to them by general practitioners. General practitioners, the cornerstone of primary care, typically are in private practice and paid a fee for service which is subsidized by the government. Over the years the patient has assumed more and more of the cost so that currently the government reimburses only 10% of the average adult office visit and the patient or private insurance pays the rest. The government assumes the entire cost of maternity care, but at a rate so low that maternity cases are unattractive to general practitioners. The Health Department, concerned that a cost barrier was developing for children needing a doctor’s services, presented a new scheme in 1986 that would double the government’s subsidy for a child’s office visit. The subsidy would increase from 38% to 76% of the total cost of the visit on the condition that the doctor would not charge more than an established amount for a routine office visit. If the visit was more than routine, any additional charges would be paid by the patient. The established rate was about 10% above the current average charge and would be renegotiated at regular intervals. The doctors objected, not because the proposed amount established was unreasonable, but because a limitation was placed on the amount that could be charged [16]. The powerful New Zealand Medical Association was fundamentally opposed to any subsidy increase that was associated with a restriction on doctors [17]. When the scheme was introduced, doctors were slow to join it. Those who did not were reimbursed at the former rate so the charge to the patient would be greater than for patients of those who did join. This creates patient pressure on doctors to join. The increased funds needed to finance the increased reimbursement was largely offset by introducing a small charge for most prescriptions which was opposed by unions and other sectors of the population. This particular scheme to increase the government subsidy for a child’s office visit was successfully challenged in the High Court by the doctors. A variation of the scheme was then introduced which made no provision for fee guidelines and no guarantee that the increased benefits would be passed on to patients. However, the New Zealand Medical Association agreed to a new complaint procedure for patients if they were not satisfied .
The morale of specialists working at public hospitals is very low reflecting the pressures of cost containment - staff shortages, deteriorating equipment, restraint on the introduction of new procedures, competition among the specialities for available resources and their diminishing control over resources. They are reluctant to move from what they perceive to be a highly successful system of utilization of health resources to a new scheme involving cooperation with other groups, some of whom they inherently distrust [18].
180
Conclusion In addition to budget reductions, the New Zealand government responded to several years of cost containment in health expenditures by redistributing available funds on the basis of population to allow for more equitable and efficient use, advocating a health services reorganization to increase integration and coordination of services and broadening the base for policy development and support. At the same time it encouraged more primary health care and less hospitalization. Although expensive medical procedures and high technology have been limited, established clinical services (other than those with reduced patient loads, e.g. obstetrics) have not been reduced significantly. Many health professionals believe significant cuts in clinical services are inevitable in the next few years. However, no group is prepared to make these kinds of decision. Generally speaking, government believes hospital boards or Area Health Boards are in the best position to determine which clinical services should be reduced and by how much. Hospital boards are not willing to make those decisions, believing it to be more of a political decision than a medical one. Doctors say they should be the ones to determine clinical services, but that the services should be improved, not cut. The present level of health services is being maintained because of an increasing private sector that relieves the public sector of the full fiscal responsibility for many routine procedures and provides an outlet for those who are able to escape prolonged waiting for treatment and the deteriorating accommodations in public hospitals. The private sector also diffuses some of the financial pressure on the government for long-term care of the disabled elderly. Virtually no government in the world is able to provide totally for the care of its disabled elderly. New Zealand is no exception and relies on those who can to pay their share. Cost containment in public expenditures for health is expediting a two-tier type of health service based on ability to pay. The poor and the elderly are likely to be the major users of public facilities while those who are privately insured or financially well-off will enjoy the comforts of private care for treatments that are available there. New Zealanders are a pragmatic people and much of the public debate focuses on what is practically possible and what they, as a country, can afford. Few approve heroic measures to prolong death. They know that not enough high technology will be available for everyone and decisions must be made about which people will have access to it. By whom and when the hard decisions will be made is another question.
Acknowledgements The thoughtful cooperation of a large number of New Zealanders made this study possible during a two-month visit in 1985, and during the recent conference on health policy formulation in Australia and New Zealand held at the Pennsylvania State University in May 1986 under the auspices of the University’s Australian
181
Studies Center. Their willingness to talk candidly about their problems, dilemmas, and opportunities proved invaluable to the authors. Particular mention, during our visit to New Zealand, should, however, be made of Dr. George Salmond (Director-General of Health), Professor L.A. Malcolm at the Wellington Clinical School of Medicine, and Dr. B. Joan Mackay, each of whom in their own way provided continuing assistance throughout our stay.
References 1 New Zealand Department of Health, Equitable Funding of Hospital Boards - An Outline, Government Printer, Wellington, 1984, p. 4. 2 Smith, A.G. and Sutton, F.M., The Hospital board Funding Formula, Blue Book Series 19, Department of Health, Wellington, 1984, p. 43. 3 The Otago Hospital Board, The Otago Hospital Board Strategic Plan, Dunedin, 198.5, p. 2. 4 Barnett, Pauline, Evalutation of Service Development Groups in North Canterbury (1975-1980), Health Planning and Research Unit, Christchurch, 1984. 5 New Zealand Department of Health, Health Services Reorganization: A Discussion Document, Wellington, 1982. 6 Assessing Medical Technology - 1985, National Academy Press, Washington, Table 6.4 p 233, 1986. These are 1981 rates except the U.S. and New Zealand which are 1983. The New Zealand rate was obtained from the New Zealand Health Department. 7 Department of Statistics, New Zealand Offical Yearbook 1986-87, Wellington, 1986, p. 167. 8 Department of Statistics, New Zealand Official Yearbook 198687, Wellington, 1986, p. 184. 9 Lawrie, T., Review of Waiting List Management Processes, unpublished, 1984, p. 5. 10 National Health Statistics Centre, Cardiac Surgery 1983 Registrations, Department of Health, Wellington, n.d. 11 New Zealand Department of Health, Hospital Board Service Planning Guidelines, Renal Dialysis and Transplantation (draft), Wellington, 1984, Appendix 3. 12 Ibid., p. 14. 13 Ibid., Appendix 3. 14 Ibid., pp. 19-20. 15 Disney, A.P.S. (ed.), Seventh Report of the Australian and New Zealand Dialysis and Transport Registry (ANZDATA), The Queen Elizabeth Hospital, Woodville, S. Australia, July 1984, table 10, p. 8. 16 The Dominion, Wellington, January 26, 1985. 17 Ibid., January 30, 1985. 18 Scott, John, ‘A Clinician’s Perspective on the Use of Resources for Health’. In Salter, D.M. (Ed.), Health Planning and Resources Allocation, Wellington, 1981.
8 (1987)
171
171-181
HPE 00164
The effect of economic constraints on the health care system in New Zealand Marschall
W. Raffel and Norma K. Raffel
College of Human Development, The Pennsylvania University Park, Pennsylvania, U.S.A. Accepted
16 May
State University,
1987
Summary The New Zealand government, in addition to budget restrictions, has introduced population-based hospital funding to contain hospital costs. Moreover, a health services reorganization to increase area-wide integration and coordination of services on a voluntary basis has been advocated. Diffusion and use of expensive medical technologies have been delayed or thwarted. Private hospitals have increased and provide an outlet for those who are able to escape prolonged waiting for treatment and the deteriorating accomodations in public hospitals. Cost containment;
Population-based
funding;
Privatization;
New Zealand
While many countries have been dealing with cost containment in health care primarily by ‘across the board’ cuts, New Zealand has introduced significant administrative changes including a new funding mechanism for health services and a reorganization of its health system to use the available funds more equitably and more efficiently. New Zealand is an economically developed, relatively affluent country with a democratic parliamentary system of government. It is composed of two main islands located in the south-west Pacific Ocean about 1000 miles south-east of Australia and is similar in size to the British Isles. The population is approximately 3.3 million of which 73% is located on the North Island. The majority of the population is of English or Scottish ancestry. About nine percent of the population is Maori (the original settlers from Polynesia) and about 3% are Pacific Island Polynesians.
for correspondence: Professor Marschall W. Raffel, Ph.D. Health Planning and Administration, College of Human Development, The Pennsylvania State University, 115 Henderson Human Development Building, University Park, PA 16802, U.S.A.
Address
172 Table 1 Health care expenditure, Total medical care expenditure share in G.D.P. (%)
Country
Australia Denmark France Germany Italy Netherlands New Zealand Norway Spain U.K. U.S.
7.7 6.3 9.0 8.1 7.2 8.5 5.8 6.8 5.9 6.0 10.4
utilization and rank in selected treatments Infant mortality rank
6 2 3 7 10 4 10 5 1 7 8
No. of days institution care per person/year”
3.2 2.1 3.1 3.5 2.2 4.0 2.7 1.9 1.3 2.3 1.7
No. of persons per hospital bed
91 130 90 90 127 83 100 148 185 124 169
in selected countries - 1994
No. of persons per physicianh
509 416 480 422 798 497 603 477 362 775 498
Patients on treatment for end stage renal failureimillion population Rank
Magnetic resonance imagers/million population
7 6 4 2 8 3 11 9 5 10 1
6
Rank
a Most based on 1983 estimates h 1982 figures Sources:
Poullier, Jean-Pierre, From Risk Aversion to Risk Rating: Trends in OECD Health Care Systems, international Journal of Health Planning and Management, Vol. 2, Special, Table 8, p. 24 (1987). Organization for Economic Co-operation 1960-1983, Table 4, p. 15, Paris (1985).
and Development
(OECD),
Measuring Health Care
New Zealand health care is a combination of public, private, and voluntary services where the government totally finances the costs of public hospital care (80% of the total number of hospital beds) and subsidizes private hospitals, primary care services, and residential homes for the elderly. Public spending on health care was a very high priority until the middle 1970s when its national economic performance declined. Since then determined efforts have been made to constrain public expenditures on health and other social services. The total national medical care expenditure for New Zealand was 5.8% of its Gross Domestic Product (GDP) in 1984, considerably less than most European countries and the U.S. (Table 1). The data in Table 1 suggests that New Zealand is behind many European countries not only in the percent of the GDP spent on medical care, but also in its infant mortality ranking and the use of advanced technology. As concern for the cost of health care increased, the central government, in addition to reducing allocations, took several steps to see that available resources were used as effectively and efficiently as possible. It changed the method of funding hospital boards (which manage the public hospitals) to distribute the resources more equitably and efficiently, reorganized the health services to improve coordination, and involved a wider range of interested people in policy development at the cen-
173
tral government level. Also the government delayed or thwarted the introduction of expensive new technology. These actions and the impact of cost containment on hospital boards, the private hospitals and doctors will be described.
Redistribution of funds hospital boards
using population-based
funding
for
Concern about increasing health costs prompted the central government to examine hospital expenditures which made up close to 75% of the total health budget to see if its allocation to the hospital boards was as equitable and efficient as possible. The 29 locally elected hospital boards dominate the public system of health care in New Zealand, operating the public hospitals including psychiatric hospitals and hospitals for the intellectually handicapped in their area, and providing some community services. Before 1982 the method for distributing funds to them was a ‘block grant, history plus’ system whereby hospital boards received the same amount as the previous year, adjusted for inflation plus money to cover new services and increases in patient admissions. Over the years the population had shifted from the South to the North Island and from rural to city areas and hospital boards developed different needs. Moreover, it was realized that using hospital admissions as a measure of increased need was not satisfactory because the availability of facilities appeared to stimulate the need for them resulting in a cycle of more beds, more patients, more funds [l]. When the method of allocating funds to hospital boards was reviewed, it was decided that a population-based funding system similar in principle to those adopted in England and Scotland would be more appropriate. In 1983 a population-based method of funding was introduced by the central government based on the principle that the need for hospital services is mainly related to the size of the population. Under this system about 93% of the government’s allocation to boards is directly related to the size, age and sex of its population. Adjustments are made to allow for variations in the birth rate in different parts of the country, different levels of sickness based on social, environmental and ethnic factors, patients who travel to other boards for specialist treatment and the number of patients treated in private hospitals. Under this funding formula some boards have been identified as ‘over funded’ and other boards ‘under funded’. Board funding is being gradually decreased or increased each year until each receives the proper amount under the formula. Population-based funding, although strongly resisted in parts of the country with a decreasing population, is generally accepted. It has produced new data that has enabled hospital boards to compare their expenditures and made the value judgements involved more apparent and more open to debate than before. In short, population-based funding has led to significant changes in thinking at the local and national levels, and the use of resources by public hospitals is being reviewed more thoroughly than ever before [2]. As part of the new funding system, the Minister of Health required hospital
boards to prepare a Z-year strategic operational plan based on the kinds of services provided (e.g. geriatrics care, child care, specialty services). The plans should state objectives and establish priorities. They will not be officially evaluated by the government, but it is hoped they will be useful in helping the boards to manage their limited resources better and take a broader view of their responsibilities. With the change of hospital board funding to a capitation rather than a utilization basis, hospital boards will have a vested interest in the overall health of their area rather than just hospital care. Until recently hospital boards did little formal planning and tended to make ad hoc decisions in response to crises [3]. Any planning that was done related to buildings and equipment. A plan which is based on the types of services provided will, it is felt, facilitate making the inevitable choices among alternate health options. No real increases in health funding are planned so new programs or any growth of old ones will have to be managed by shifting resources from another area. This ‘service development planning’ requirement is an administrative reform that seeks to remedy the inequities in the distribution of care and resources, the imbalance between institutional and community care, the imbalance between curative and preventive care, and fragmented services, the absence of planning mechanisms and increased costs [4]. Now that hospital board funding is based on objective criteria, much of the politics should be removed. Boards will know ahead of time how much funding they will receive and can get on with the job of planning. The Health Department is developing a series of planning guidelines for different services to assist boards.
Improving coordination Health Boards
of the health services through
Area
After more than a decade of study and discussion, Parliament passed legislation which became effective in 1984 to improve the integration and coordination of health services by allowing the establishment of Area Health Boards as a mechanism for the provision of comprehensive health services for the same or less amount of money, to better balance the perceived changing needs between curative and preventive medicine, and to provide a mechanism for making wiser chaises when services must be limited. Under Area Health Boards, hospital boards and the district offices of the Health Department (the curative and the preventive aspects of the health services) would be combined. Coordination would be further improved by involving the private and voluntary sectors in the planning of services. Planning would be done through Service Development Groups which would bring the public, private and voluntary sectors together to plan how each specific kind of health service would be delivered. In this way areas of duplication and deficiencies in existing services provided by the various sectors could be identified and resolved together. There would be one authority responsible for planning all health services in their area thus simplifying the complex problems of priority setting and decision making that are required as services compete with each other for limited resources [5].
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Area Health Boards would receive an annual block grant based on population and appropriately weighted for other factors. However, under no circumstances can they cost more than current health expenditures. An essential feature of the legislation is that the formation of Area Health Boards is entirely voluntary. They can be established only at the request of hospital boards and there is no way to force the private or voluntary sector to participate. The voluntary aspect of the legislation may well be its Achilles’ heel. Despite the enthusiasm of the Health Department, there is a widespread feeling among those interviewed that few Area Health Boards will be created as long as they remain voluntary. Some hospital boards are studying the possibility, and in 1985 three hospital boards were replaced by Area Health Boards.
Wider participation of Health
in policy development
through
the Board
The Board of Health was reestablished in 1982 to provide an additional mechanism for advising the Minister of Health and the Government on the full range of health issues. Previously, advice to the Minister had come almost exclusively from the Department of Health. The Board was strengthened by legislation to include the right to conduct studies and make recommendations to the Minister on its own initiative. Members of the Board are appointed by the Minister. The 11 standing committees of the Board which study various aspects of health services organization and delivery are selected from nominations of voluntary organizations and from the public at large. The Board of Health and its committees provide a broader base for decision making and is expected to help facilitate development of bipartisan health policies that would be less influenced by changes in Government. Much will depend upon its leadership, its funding, its relationships with the Department of Health and professional organizations, and its credibility with the public.
Delaying or thwarting partment of Health
expensive
new technology
by the De-
High technology equipment is limited by the Health Department which provides special funding for such items. New Zealand has 1.5 CT scanners per million population compared with 2.4 per million in Denmark, 2.8 per million in the Netherlands, 0.71 per million in the U.K. and 9.1 per million in the U.S. [6]. The Health Department approved funds for three CT scanners which were placed in large population centers. Dunedin, a city with a medical school, but a decreasing population, was not awarded one. In this case the local people raised enough money to purchase their own CT scanner with the Health Department’s reluctant approval. Waiting time for patients to have scans is from 14 weeks to 2 years depending upon location and urgency. Recently two physicians in a large metropol-
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itan area purchased a CT scanner and located it in a private hospital. They charge the hospital board for service to its patients and they carry on a large private practice. Although many European countries and Australia have acquired nuclear magnetic resonance (NMR) imagers New Zealand has no plans to purchase one in the near future (Table 1). The introduction of new procedures is sometimes delayed by the Health Department by not allocating the special funds needed to begin the service. For example, funding for bone marrow transplants was delayed 4 years until they could be done at hospitals within their existing budgets. Cardiac transplants are not done in New Zealand. The Health Department pays the expenses for selected patients to be sent to Australia for the operation. Up to early 1985 about 4 cases had been approved for funding. If the Health Department does not finance patients, some people raise the necessary money through service organizations and appeals to the public.
Effect of cost controls on hospitals boards Hospital boards were required to accept a 1% reduction in their allocation of funds in 197S80, 1980-81 and 1981-82. In 1983-84 a general restraint of 0.5% was applied to all but the 8 most disadvantaged boards. In 1984-85 the total allocation for distribution to hospital boards was increased 0.6% to maintain services in the face of an increasing population [7]. Hospital boards reacted by first eliminating the ‘fat’ and then reducing non-clinical services. Administrative personnel were reduced. Maintenance became less frequent and limited by contracting out the services for the amount of money available for that purpose. Costs of hospital meals were reduced; clinical laboratory and diagnostic services were decreased. Lack of funds was a major factor in the shortage of support staff, especially nurses. The nursing shortage has been aggravated by the transition of the nurse training programs from hospitals to technical institutes (i.e. community colleges). This change resulted in student nurses spending less time attending patients. Nursing workloads in hospitals increased significantly because of the decrease in personnel and because of hospitalized patients who were sicker and needed more care. The nursing shortage, especially in surgical units, has been a major cause of services operating at less than capacity, causing waiting times for hospital admission to increase. Public hospital waiting lists are increasing steadily and in the 3-year period from March 1982 to March 1985; the waiting list nationwide increased almost 17% - from 39,848 to 46,502 [8]. The large majority are waiting for surgical procedures. Urgent cases do not have to wait and it is possible for a patient to ‘jump the queue’ if their condition worsens. Hospitals from time to time have a ‘blitz’ on certain conditions to reduce that specific aspect of the waiting list (e.g. tonsil and adenoids in children and varicose veins). Hospital waiting lists are not useful for comparisons among boards, much less internationally, because of the many country-specific factors influencing them. However, they are of significant concern to the pub-
lit and the medical profession because they underscore a lack of resources to meet community needs. Cardiac surgery waiting lists appear to be in a class of their own and only those cases requiring coronary bypass of some urgency are placed on the waiting list [9]. In the 4 cardiac surgical units in New Zealand operations were performed at a rate of 43.6 per 100000 population in 1983. At the end of 1983,485 people were waiting for cardiac surgery. Of those almost half had waited less than a month, but 54 persons had been waiting one year and 28 for over two years [lo]. In one center about 250 persons were waiting for coronary bypass operations in 1985. Some had been waiting more than a year and some had died while waiting. The number of operations performed each week was below capacity largely because of a lack of support staff. Renal dialysis, formerly funded by the Health Department but now a hospital board responsibility, is an example of a program that is affected by cost considerations. In 1983 about 35 persons per million were accepted into renal dialysis programs in New Zealand [ll]. This is less than most European countries and the United States (Table 1). The present level of service has been able to be $maintained because the cost of equipment has decreased and the number of patients on home dialysis has increased. The goal is to have as many patients as possible on home dialysis. In 1984 at one center all of the patients were dialysing at home and in the other 3 centers 80-90% were on home dialysis [12]. Some use hemodialysis at home, but most use the continuous ambulatory peritoneal dialysis (CAPD) method. Even so, resources are severely strained. If the current acceptance rate of 35 per million is maintained along with the current transplantation rate, and the survival rate of those in the program continues to improve, the cost of the treatment program would more than double in 20 years. An increase to 45 per million which is common in many European countries would treble the cost during the same period [13]. Informal guidelines have been developed to aid doctors in determining the acceptance of patients into dialysis programs. Some who do not meet the guidelines are ‘kindly turned away’; others are treated if they insist even after the doctor has discussed their probable low quality of life on dialysis. Relative contraindications to dialysis are malignant disease of a clearly life-limiting nature, severe vascular insufficiency, serious multisystem disease, or a major psychiatric illness of a chronic nature or a major personality disorder which makes a patient’s response and attitudes unpredictable and inhibits potential rehabilitation into the community [ 141. Very few alcoholics were accepted. Patients are accepted for dialysis within the age range of 7-70 years, but in practice few patients over 60 years are accepted. Only 12% of those admitted to the dialysis program in New Zealand were over age 60 in 1983 compared with 22% in Australia [15].
Private hospitals Private hospitals have played an increasingly important role in the health care
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system, especially since government spending on health services has slowed. Successive governments have encouraged private hospital care as an alternative to public hospitals for the treatment of relatively simple conditions. Private hospitals have flourished in the large population centers aided by government subsidies and the introduction of private health insurance in 1961 which has made their use relatively inexpensive for part of the population. Private hospital use increased significantly during the late 1970s when hospital board funding stagnated and the waiting time for non-urgent cases increased greatly. The government subsidizes about 20% of the cost of a private hospital bed; the patient is responsible for the remaining amount. However, almost 40% of the population is now covered by private health insurance which typically pays 80% of the patient’s costs. In the last 10 years the percent of the population that is covered by private health insurance has increased dramatically - up from 18% in 1975. Health insurance membership fees are usually paid by the individual’s employer and are tax deductible. However, the services of public and private hospitals are not parallel. With some exceptions, only relatively simple procedures are done at private hospitals while the more complicated, expensive procedures are done at public hospitals. For example, between 25% and 30% of hip replacements and the large majority of hernia operations are done at private hospitals but neurological and more than 90% of all cardiac surgery are done in public hospitals. Complex laboratory work and blood for transfusions needed by private hospitals are provided by the public hospitals. The same specialists practice in both the private and public hospitals. Licenses which are required to build and operate private hospitals have been frozen by the Health Department for the past 2 years to bring the uncontrolled growth of the past decade under control. Also, hospital board funding is affected by the expansion of private hospitals in their area under the new population-based funding formula. These and other factors are bringing hospital boards and private hospitals together to plan. Private hospitals comprise about 23% of the total number of hospital beds in New Zealand. More than half of these private beds are in small geriatric hospitals which are filled to capacity. However, most of the concern and debate about private hospitals focuses on those that are predominately surgical. Shifting the burden of hospital care to the private sector to help alleviate the fiscal strain on the government is an attractive strategy for policy makers. Although there is concern about the extent to which the increasing private sector is expediting a dual system of care based on ability to pay and is draining resources from the public sector, all agree that the public hospitals cannot meet the present demand for hospital care. In short, the present level of health services cannot be maintained without private hospitals.
Doctors Doctors
in New Zealand
are confronted
with many of the same difficulties
that
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doctors in other industrialized countries face - government seeking ways to contain the costs of the doctors’ services, health care decisions increasingly influenced by non-medical people, questions about the balance between curative and preventive health care, and a surplus of doctors. They are apprehensive in a climate of change which threatens both their power and their pocketbook. Nearly all physicians in New Zealand are in private practice or hold salaried appointments in public hospitals. Many specialists combine a hospital appointment with private practice and see patients referred to them by general practitioners. General practitioners, the cornerstone of primary care, typically are in private practice and paid a fee for service which is subsidized by the government. Over the years the patient has assumed more and more of the cost so that currently the government reimburses only 10% of the average adult office visit and the patient or private insurance pays the rest. The government assumes the entire cost of maternity care, but at a rate so low that maternity cases are unattractive to general practitioners. The Health Department, concerned that a cost barrier was developing for children needing a doctor’s services, presented a new scheme in 1986 that would double the government’s subsidy for a child’s office visit. The subsidy would increase from 38% to 76% of the total cost of the visit on the condition that the doctor would not charge more than an established amount for a routine office visit. If the visit was more than routine, any additional charges would be paid by the patient. The established rate was about 10% above the current average charge and would be renegotiated at regular intervals. The doctors objected, not because the proposed amount established was unreasonable, but because a limitation was placed on the amount that could be charged [16]. The powerful New Zealand Medical Association was fundamentally opposed to any subsidy increase that was associated with a restriction on doctors [17]. When the scheme was introduced, doctors were slow to join it. Those who did not were reimbursed at the former rate so the charge to the patient would be greater than for patients of those who did join. This creates patient pressure on doctors to join. The increased funds needed to finance the increased reimbursement was largely offset by introducing a small charge for most prescriptions which was opposed by unions and other sectors of the population. This particular scheme to increase the government subsidy for a child’s office visit was successfully challenged in the High Court by the doctors. A variation of the scheme was then introduced which made no provision for fee guidelines and no guarantee that the increased benefits would be passed on to patients. However, the New Zealand Medical Association agreed to a new complaint procedure for patients if they were not satisfied .
The morale of specialists working at public hospitals is very low reflecting the pressures of cost containment - staff shortages, deteriorating equipment, restraint on the introduction of new procedures, competition among the specialities for available resources and their diminishing control over resources. They are reluctant to move from what they perceive to be a highly successful system of utilization of health resources to a new scheme involving cooperation with other groups, some of whom they inherently distrust [18].
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Conclusion In addition to budget reductions, the New Zealand government responded to several years of cost containment in health expenditures by redistributing available funds on the basis of population to allow for more equitable and efficient use, advocating a health services reorganization to increase integration and coordination of services and broadening the base for policy development and support. At the same time it encouraged more primary health care and less hospitalization. Although expensive medical procedures and high technology have been limited, established clinical services (other than those with reduced patient loads, e.g. obstetrics) have not been reduced significantly. Many health professionals believe significant cuts in clinical services are inevitable in the next few years. However, no group is prepared to make these kinds of decision. Generally speaking, government believes hospital boards or Area Health Boards are in the best position to determine which clinical services should be reduced and by how much. Hospital boards are not willing to make those decisions, believing it to be more of a political decision than a medical one. Doctors say they should be the ones to determine clinical services, but that the services should be improved, not cut. The present level of health services is being maintained because of an increasing private sector that relieves the public sector of the full fiscal responsibility for many routine procedures and provides an outlet for those who are able to escape prolonged waiting for treatment and the deteriorating accommodations in public hospitals. The private sector also diffuses some of the financial pressure on the government for long-term care of the disabled elderly. Virtually no government in the world is able to provide totally for the care of its disabled elderly. New Zealand is no exception and relies on those who can to pay their share. Cost containment in public expenditures for health is expediting a two-tier type of health service based on ability to pay. The poor and the elderly are likely to be the major users of public facilities while those who are privately insured or financially well-off will enjoy the comforts of private care for treatments that are available there. New Zealanders are a pragmatic people and much of the public debate focuses on what is practically possible and what they, as a country, can afford. Few approve heroic measures to prolong death. They know that not enough high technology will be available for everyone and decisions must be made about which people will have access to it. By whom and when the hard decisions will be made is another question.
Acknowledgements The thoughtful cooperation of a large number of New Zealanders made this study possible during a two-month visit in 1985, and during the recent conference on health policy formulation in Australia and New Zealand held at the Pennsylvania State University in May 1986 under the auspices of the University’s Australian
181
Studies Center. Their willingness to talk candidly about their problems, dilemmas, and opportunities proved invaluable to the authors. Particular mention, during our visit to New Zealand, should, however, be made of Dr. George Salmond (Director-General of Health), Professor L.A. Malcolm at the Wellington Clinical School of Medicine, and Dr. B. Joan Mackay, each of whom in their own way provided continuing assistance throughout our stay.
References 1 New Zealand Department of Health, Equitable Funding of Hospital Boards - An Outline, Government Printer, Wellington, 1984, p. 4. 2 Smith, A.G. and Sutton, F.M., The Hospital board Funding Formula, Blue Book Series 19, Department of Health, Wellington, 1984, p. 43. 3 The Otago Hospital Board, The Otago Hospital Board Strategic Plan, Dunedin, 198.5, p. 2. 4 Barnett, Pauline, Evalutation of Service Development Groups in North Canterbury (1975-1980), Health Planning and Research Unit, Christchurch, 1984. 5 New Zealand Department of Health, Health Services Reorganization: A Discussion Document, Wellington, 1982. 6 Assessing Medical Technology - 1985, National Academy Press, Washington, Table 6.4 p 233, 1986. These are 1981 rates except the U.S. and New Zealand which are 1983. The New Zealand rate was obtained from the New Zealand Health Department. 7 Department of Statistics, New Zealand Offical Yearbook 1986-87, Wellington, 1986, p. 167. 8 Department of Statistics, New Zealand Official Yearbook 198687, Wellington, 1986, p. 184. 9 Lawrie, T., Review of Waiting List Management Processes, unpublished, 1984, p. 5. 10 National Health Statistics Centre, Cardiac Surgery 1983 Registrations, Department of Health, Wellington, n.d. 11 New Zealand Department of Health, Hospital Board Service Planning Guidelines, Renal Dialysis and Transplantation (draft), Wellington, 1984, Appendix 3. 12 Ibid., p. 14. 13 Ibid., Appendix 3. 14 Ibid., pp. 19-20. 15 Disney, A.P.S. (ed.), Seventh Report of the Australian and New Zealand Dialysis and Transport Registry (ANZDATA), The Queen Elizabeth Hospital, Woodville, S. Australia, July 1984, table 10, p. 8. 16 The Dominion, Wellington, January 26, 1985. 17 Ibid., January 30, 1985. 18 Scott, John, ‘A Clinician’s Perspective on the Use of Resources for Health’. In Salter, D.M. (Ed.), Health Planning and Resources Allocation, Wellington, 1981.