New Zealand's new health sector reforms: back to the future?

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Abstract
New Zealand's “experiment with competition” Throughout the 1980s and early 1990s, dissatisfaction with New Zealand's health system—comprising 14 locally elected area health boards, which both “funded” and provided hospital and some other services in their regions, was rife. Reports pointed to inefficiencies, poor management, budget overruns, and badly eroded assets in public hospitals.2 Waiting lists were increasing, and falling public confidence in the system was associated with a growth in private insurance.3 Area health boards were criticised for facing no clear incentives to be efficient or responsive to patients and for weak accountability.4 The promarket philosophy of the prevailing governnment led, in 1993, to an attempt to introduce the perceived advantages of a competitive market into the publicly funded healthcare sector. At the heart of this model was the full separation of purchasing and providing. It was hoped to increase efficiency, contain expenditure, and reduce waiting lists.4 Purchasing was undertaken by four ministerially appointed regional health authorities. Hospitals became publicly owned companies called Crown health enterprises subject to normal company law and required to earn a rate of return on capital comparable to that of a business in the private sector. The original scheme (unlike the NHS model) had been to develop competition not only among providers but also between publicly funded “health plans” for patient enrolments, but this was never implemented.5 The disappointing outcomes of this “experiment with competition” provide a sharp contrast with the overoptimistic expectations of its proponents6 and are partly a product of difficulties in measurement and substantial lags between cause and effect. Little competition occurred between providers, especially hospitals. 3 5 Many Crown health enterprises inherited and continued to report deficits. 3 5 Barriers to entry limited contestability,7 purchasers were conservative and dominated by providers, and barriers to exit (financial support of deficit ridden Crown health enterprises) arguably weakened economic incentives.3 Purchasers and providers struggled to establish contractual relation, transition and transactions costs were high,5 and the expected savings were not made. 5 8 Thus evidence suggests that the quasimarket model did not achieve obviously greater efficiency. In 1996 a briefing to the incoming minister of Crown health enterprises stated “the health reforms have yet to yield the original expectations. By a range of measures … the pace of performance seems, if anything, to have weakened since the advent of the reforms.”5 There were further concerns. The model emphasised the production of service outputs, with too little attention to the quality of services and their effects on health outcomes. Major inquiries into quality of care and patient safety argued (whether justifiably or not) that the quasimarket model contributed directly to specific instances of poor care.9 Further, there was a crucial lack of “buy-in” among both health professionals and the general public. The demoralisation and disempowerment of the health workforce have been attributed to tensions arising from the clash of managerial and clinical cultures. 10 11 Some gains did follow the reforms: activity rates continued to increase and average length of stay and unit costs to fall—although whether this was because of, or despite, the changes is a moot point.3 Better information systems facilitated greater accountability and better management of capital.5 Mäori copurchasers and providers were better able to attract funding to provide more culturally appropriate services. In 1996, New Zealand's first proportionally elected coalition government compromised by renaming Crown health enterprises more neutrally as “hospital and health services” and removed their “for profit” status. “Cooperation” replaced “competition” as the new political catch-cry and the regional health authorities were replaced by a single purchaser, the Health Funding Authority.12 Thus key parts of the market model had already been discarded. The system inherited by the current government bore relatively little resemblance to that originally planned.