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Around the world in 80 months: the health system in the 1990s. (Annex I).

Around 80 per cent of health-care costs are paid for from the public purse; the rest is a combination of insurance and out-of-pocket payments. The health system operated under four different structures in the 1990s. Until 1993, 14 elected area health boards supplied hospital services with funding based on population. A purchaser-provider split was introduced as part of market reform in 1993. Purchasing was put in the hands of four ministerially-appointed regional health authorities, while providers were required to earn commercial rates of return and were encouraged to compete with one another and with private providers. In practice, little competition took place. This system failed to live up to expectations largely because of faults in implementation. Monopoly problems were not adequately addressed, and the system became loaded with controls that, in effect, partly reversed the split. The myriad of accountability documents were often in conflict. In 1996, a single Health Funding Authority (HFA) replaced the four regional purchasers, and the profit motive was removed. Documentation was simplified to a strategic plan and a Statement of Intent, and became the model for many other Crown Entities. A formal purchase agreement was signed between the Ministry of Health and the HFA although, as in the rest of the public sector, the formal "contract" was not key: it was just a mechanism to get the needed improvements in governance, clarity, transparency and long-term planning. Deficits reduced over time as contracting methods improved. In 1999, the incoming government abolished the purchaser-provider split and re-introduced 21 district health boards to act as both buyers and sellers of health care. The health system had come full circle in less than a decade, although it has retained some of the more useful baggage accumulated over its travels such as aspects of the largely successful planning and account-ability documents.

The most interesting part of the experiment was separating purchase from provision. It had some positive outcomes: (1)

-- Improved information on the costs and use of services, enabling better allocative choices.

-- Better mechanisms to manage fiscal pressures.

-- More emphasis on primary and preventive care.

-- Improved access by Maori (2) and more equal access and quality of care across the country.

-- Emergence of new providers and innovations in service delivery, such as associations of primary-care providers and greater use of community organisations to deliver services. For example, the number of Maori service providers rose from 23 to 240 from 1993-98.

-- Greater reliance on evidence of effectiveness in purchase decisions.

-- Investment in public hospitals.

The main drawbacks have been:

- While productivity has improved in some areas -- for example, the average length of stay in acute care has fallen to one of the lowest levels in the OECD -- productivity gains have overall been disappointing.

- Limited competition among service providers.

- Worsening relationships among health groups.

- High transaction costs, at least initially.

- Reduced public confidence.

Perhaps the major problem was the bilateral monopoly between hospitals and purchasers. Public hospitals have an effective monopoly on acute secondary and tertiary services, and contestability for provision of services existed only at the margin, even in the cities where geographical monopoly was less of a problem. This was compounded by the government "owning" both the buyer and the sellers, with its implicit guarantee affecting negotiating positions and the incentives to finalise contracts. Significant productivity gains remain difficult to extract unless the problem of monopoly provision is tackled, although clear goals and accountability arrangements were found to be helpful.

Notes

(1.) See Ministry of Health (19991 and Report of the Health and Disability Steering Group (1997).

(2.) Ministry of Health (1999).
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Publication:OECD Economic Surveys - New Zealand
Date:Jun 1, 2002
Words:592
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