Health Sector Reforms Driven By Private Consultants’ Business Interests [1]

This week the government announced the health sector will be reformed by abolishing 20 DHBs replacing them with four entities which are fully controlled by a new bureaucracy, “Health NZ”, based in Wellington. There will not be an elected membership as there currently is for the DHB system. The idea has received at best a mixed response; people recognise the issues with current DHBs but in fact the Government has from the outset held firm control over the district health boards as members of these boards (including the chair) are in fact appointed by the Minister of Health. Most of the well publicised failings of DHBs have occurred because of insufficient funding from central government to provide all the desired services, especially in smaller populated areas, such as the West Coast, Gisborne, Northland, Southland etc. Whilst people living in these areas should be able to access services from the nearest main centre’s well equipped hospital, their DHB still has to fund these, so just the fact that these smaller centres do not have their own specialised services is irrelevant.

Our contention is that this restructuring does not actually have as its focus the ability to offer better health services to NZ citizens. Instead it is a key example of an inexperienced Government minister being captured by a group of bureaucrats (the Ministry of Health) and a private sector management consultancy (Ernst & Young) who have recruited key former Ministry officials to join their business thereby giving them the knowledge and experience of the New Zealand health system to be able to pitch a strong case for leading this restructuring process. Whilst the Government did get a report from one of its own supporters, Heather Simpson (former chief of staff for Helen Clark), this recommended keeping the DHB system with a reduced number of them. The National Party also supports keeping the DHB system, which means the proposed reorganisation is already running into significant dissention / opposition, including from within Labour.

Let’s start this conversation by having a look at the history of health sector reforms. The NZ Parliament website has a research paper from 2009 that documents this history.

  • 1938-1971: The real first level of organisation of health started with the First Labour Government by the Social Security Act.
    • At that point the Government started to subsidise medical practices, but it was unable to fully nationalise GPs services due to political backlash. So our equivalent of NHS was never fully realised.
    • Instead we got a dual public/private system, funded by the GMS benefits established in 1941.
    • Over time this evolved to include a Board of Health, Hospital Boards, and Hospitals Advisory Council alongside the Department of Health with 18 district health offices.
    • Each Hospital Board had 8 to 14 members elected locally every three years for each hospital district. There were 29 Hospital Boards.
  • 1972-1990: This is a period in which governments looked at ways of improving the health system as well as capping further funding increases.
    • The Kirk/Rowling Labour government of 1972-1975 became concerned about unequal access to health services and made some reform proposals in a white paper.
    • This was taken further by the 1975-1984 Muldoon National government whose consultation committee recommended the introduction of 14 locally elected Area Health Boards to integrate the functions of the Hospital Boards and Department of Health’s District offices.
    • AHBs were then piloted in a couple of areas and an AHB Act was passed in 1983. However the introduction of this new system was slow as it was not made compulsory at the time.
    • The Lange/Palmer Labour government of 1984-1990 implemented most of the AHB scheme by 1989 when it abolished Hospital Boards as part of local government reorganisation.
    • AHBs were a forerunner of DHBs: they were given significant management and organisational powers, and the Department of Health then looked much like the Ministry does today. AHBs had a percentage of their members appointed by the Minister and were funded through a population based allocation.
  • 1991-1999: The Bolger/Shipley National government sought to eliminate the democratic control over local health and centralise provision under a Wellington based bureaucracy, alleging efficiencies in service provision and financial management could be achieved through restructuring and limiting services offered in the public health system. The plan for this work was created by a Ministeral Taskforce chaired by Dr Rod Carr, and was heavily influenced by a report called “Unshackling the hospitals” produced by economic libertarian Alan Gibbs. This was part of the prevailing extreme right wing economic ideology of the time enthusiastically peddled by the incoming Minister of Finance, Ruth Richardson. Implementation proceeded through a number of stages:
    • In 1991, Elected Area Health Board members were dismissed and replaced by Commissioners appointed by the Minister.
    • Four Regional Health Authorities (RHAs) were established to purchase services from a competitive health market.
    • AHBs were transformed into 23 Crown Health Enterprises (CHEs) to be run on a commercial bases with appointed boards (generally business people without health backgrounds) as for-profit entities.
    • CHEs were expected to compete fully with private sector providers and health consumers were to be given vouchers so they could choose any provider (this option was never established).
    • In 1992, public hospitals began to charge users for their services. This was dropped a year later.
    • The Ministry of Health replaced the old Department.
    • Public Health Commission established to advise Minister and contract with CHEs for public health service provision.
    • Following the 1993 national election, Ruth Richardson was sacked from the Finance portfolio but her health reform plans continued.
    • In 1995, the Public Health Commission was disestablished.
    • Following the first MMP election in 1996 the NZ First/National coalition government saw the CHEs integrated into the Ministry of Health and the four RHAs into the Health Funding Authority. CHE functions were put into new bodies called HHS (Hospital and Health Services).
    • Disagreements in the coalition over the policy changes saw the NZ First associate minister of health sacked from Cabinet. National attempted to slow and stymy significant changes that NZ First wanted in health.
    • In 1998, the NZ First / National government coalition collapsed after Prime Minister Bolger was replaced by Jenny Shipley.
    • Waiting lists were replaced by booking systems for hospital procedures, a scheme for eliminating the political fallout from waiting lists without actually improving the availability of procedures.
  • 1999-2008: The Clark Labour Government came to power and announced its intentions to return democratic accountability into the health system.
    • The new system was implemented from 2001 by an Act of Parliament.
    • 21 District Health Boards were established.
    • HFA functions were merged into the Ministry of Health.
    • DHBs are largely focused on the public health system but may outsource work to private health providers. They have an eleven member committee with seven elected and four ministerial appointees, including the chair. Each board must have at least two Maori members. A population based funding system operates.

And so that brings us to the end of the research paper. It is is relevant to note the widespread shift in the provision of hospital beds listed in the paper over the period from 1980 to 2002.

  • In 1980 there were:
    • Total 31,484 hospital beds
    • 26,345 beds in 186 public hospitals
    • 5,139 beds in 163 private hospitals
  • In 1987 there were:
    • Total 30,645 hospital beds
    • 24,488 beds in 171 public hospitals
    • 6,157 beds in 173 private hospitals
  • In 1994 there were:
    • Total 24,120 hospital beds
    • 16,468 beds in 126 public hospitals
    • 7,652 beds in 204 private hospitals
  • In 1998 there were:
    • Total 30,282 hospital beds
    • 14,298 beds in 109 public hospitals
    • 15,984 beds in 278 private hospitals
  • In 2002 there were:
    • Total 23,825 hospital beds
    • 12,484 beds in 85 public hospitals
    • 11,341 beds in 360 private hospitals

What we can clearly see is a huge drop in absolute numbers of publicly funded hospital beds despite the increasing population of the era. Private provision of hospital beds increased markedly, especially during the period of the Bolger/Shipley National government with its privatisation focus, but these numbers have fallen since. Nevertheless, there has been a notable shift in favour of private hospitals overall. The major factor affecting public hospital bed provision has been the reduction in disability and mental health services with many hospitals specific to these areas closed down and replaced by much smaller facilities, or non-residential services.

Now to add our own timeline for the period since the end of this document.

  • 2009-2018: There were relatively few changes implemented in the health system during this period by the Key/English National administration.
    • The Otago and Southland DHBs were merged together in 2010, reducing the number of DHBs to 20.
    • One of the major issues that dominated health during this period of governance was driven by the 2010/2011 Canterbury earthquakes and the Government’s response to the Canterbury District Health Board’s restoration programme.
    • Other major issues included several DHB boards sacked by the government and replaced by commissioners. This reflected the financial pressures and demands from central government. Crown monitors were also put into several boards.
    • Between 2011 and 2018 as a result of the Government’s failure to properly fund both the reconstruction of hospital buildings and increased service demand particularly in mental health directly caused by the quakes, the relationship between CDHB and Government became significantly strained. Strenuous efforts were made by the Ministry of Health to influence the Board to dismiss senior management at CDHB but the Board held firm against pressures.

So that now sets the background for actions undertaken by the Ardern Labour administration since 2018. That will be looked into more detail in Part 2 of this series of articles.