Note written for circulation January 2024

In 2023 the New Zealand Health System was further centralised. As usual, the reasons given for the redisorganisation were unclear, thin and unconvincing. There have been no immediate benefits evident from the new structure; experience suggests that if there are any, they will take time to manifest themselves. Downsides of the transition are already apparent.

Centralisation was a common theme of the Ardern-Hipkins Government. It centralised the polytechnic system is a similar manner while, until it backed down, the proposals to merge public broadcasting and the management of water had strong centralisation elements. It largely left together the vast clumsy Ministry of Business, Innovation and Employment created by the National Government.

The Evolution of a Centralised System

Some centralisation may have been necessary. Historically, there has been an ongoing process of consolidation of secondary care. Whereas in the nineteenth century there were cottage hospitals scattered throughout the country, the hospital system has slowly turned into a nationwide one as New Zealand has become more geographically integrated. Even so, there is a hierarchy of what the hospitals can supply. Today a person with a serious heart condition in Nelson – which has as good a provincial hospital as there is – is likely to be flown to Wellington.

That means that Aucklanders are going to be offered better secondary care than those in Kurow, where the notion of the modern health system was formulated by Dr Gervois McMillan in the 1930s (according to standard histories).

Underpinning the hospital system there is the primary healthcare system, which covers general practice, services provided by other medical professions and residential care. Here Kurow residents might reasonably expect much the same quality and range of care as those in Auckland City.

Medicine has become more specialised and is evolving rapidly. That suggests that hospital care needs to be built around advanced medical centres (with medical schools) attached to a base hospital. There is sufficient scale in New Zealand for only five such centres at best – Dunedin, Christchurch, Wellington, Hamilton and Auckland. The five centres would be ‘tertiary’ medical centres offering specialised levels of care which provincial hospitals are unable to provide; ideally these hospitals will be linked to tertiary ones, while also being better integrated with primary and preventive care.

Perhaps the Auckland Hospital is in a separate (quaternary) class. Apparently, an effective neurosurgery service requires at least a dozen surgeons. There are only twenty-odd neurosurgeons in New Zealand with twelve in Auckland. Such figures suggest that New Zealand has room for only one neurosurgery unit, with its staff in tertiary hospitals, coordinated and integrated with the team in Auckland. Some collegial networks already exist. We need a health system which strengthens such co-operative arrangements.

Another issue is the fragmentation of medical records, with different configurations in each DHB. There has been progress towards IT compatibility in the South Island DHBs but it has been slow.

Health New Zealand

However, medical cases for a degree of centralisation were not prominent in the case for the 2023 redisorganisation, which was a consolidation of the health system’s bureaucracy into Health New Zealand (HNZ, Te Whatu Ora) with a promise of some offsetting reductions in the local bureaucracies. Any reductions are usually exaggerated.

So it is a mystery why this particular redisorganisation occurred. It was not proposed by the 2021 Health and Disability System Review (the Simpson report). The choice was neither that of the Ministry of Health nor of the consultants. The reasons given (below) were not compelling.

A possibility is that the Ministry of Health was judged to be failing and it was thought better to set up a new agency rather than redisorganise the Ministry. That might explain the strange decision to locate the new bureaucracy in Hamilton, which is a smaller urban centre than Auckland, Christchurch or Wellington with poor transport connections to its south, avoiding capture by the Wellington-based ministry and out of the immediate reach of the bigger ex-DHB areas.

One might wonder whether the shift to national pay and condition scales was a consideration in favour of centralisation. The redisorganisation of the early 1990s left industrial relations in the hands of individual CHEs/DHBs. Over time that decentralisation has been undermined in a uniform national award system.

Surely one factor was that the population-based funding model was failing. It was first introduced in the early 1980s and was, at the time, a progressive attempt to move away from a funding system based on rigid historic proportions to one which reflected the changing regional population. There were later refinements, such as adjusting for health need according to different age and socioeconomic balances (including ethnic ones). The formula appears never to have been properly adjusted for the cross-border flows which occur in a hierarchical system, nor for differences in population density and concentration or for economies of scale.

Crucially, to be equitable, the funding formula required that each DHB had a capital structure which generated a similar level of productivity and, also, that the shocks that each DHB experiences are small. This wrongness of this assumption was vividly illustrated at the Canterbury DHB in 2021, which had an unusually large deficit. The locals claim that it arose because of inadequacies in the funding formulae coupled with the Canterbury earthquakes of a decade earlier which destroyed a lot of its buildings, while the Mosque Massacres of 2019 imposed heavily on the CDHB. (Additionally, the CDHB’s new acute services block opened two years late and its construction costs were over-budget, with added costs of healthcare in the interim. The Wellington centre was responsible for the building phase and therefore – in principle – for the substantial cost overruns. However, the additional costs are not charged to the centre but to the Canterbury DHB.)

The widely admired Canterbury DHB senior leadership team (its members had professional medical backgrounds) said they had a plan to pull back the deficit. However, central government had appointed powerful advocates to the DHB board above them to implement its agenda. Ultimately, the tension resulted in the dismantling of the SLT, which had been a champion of its region’s communities and clinicians. The centre retained its board.

The locals’ account points to central government failures with the agenda of generic mangerialism overriding medical professionalism and population needs. Presumably, Wellington has an alternative story but it has never been publicly articulated. Perhaps the failure of the Ministry of Health to handle this case well led to a decision to transfer responsibilities to a new agency. That certainly has been the effect of the establishment of HNZ.

Here lies an explanation of why the redisorganisation was so poorly thought through. In effect HNZ has been charged with the design of the new system.

The Post-Code Lottery

The most widely used justification for the redisorganisation was the ‘post-code lottery’, the image for access to treatment varying by region. The response has been typical of so much policy in New Zealand. An identified correlation was treated as causation and policy proceeded on the basis that if we abolish the regions there will be no post-code lottery. No attempt was made to consider alternative explanations for the disparity, although it does not take a lot of imagination to think of ones over which centralisation would have little impact.

The policy did not recall that while the health redisorganisation of the early 1990s was focused on competition and privatisation, there was also a concern that some areas suffered from a lack of attention from the central hospital. A positive reason for separating Middlemore Hospital from the rest of the Auckland hospital system was that South Aucklanders’ health had been neglected. This time the problem was the centre neglecting the periphery (although in this case at the regional, rather than national, level). The intention then was local accountability restraining neglect.

Additionally there has been the establishment of Te Aka Whai Ora (The Māori Health Authority). Yes, there is a correlation between health attainment and ethnicity, with Māori (and Pasifika) doing worse. Again there has been no careful evaluation of the reasons; just a leap of faith that a new agency will resolve the deficit. Curiously, the establishment of Te Aka Whai Ora is a decentralisation relative to HNZ. I leave others to explain the paradox, but observe that given the casual way we change policy, such inconsistencies can be expected.

We do not know whether the new institutions will reduce health disparities. It will take time to see any change – both were established only eighteen months ago – and systematic investigation.

Local Accountability

Undoubtedly a major purpose of the establishment of HNZ was to abolish the local input into what were once the DHBs. As we saw in the Canterbury fracas, the Ministry has difficulty dealing with local unrest. In the new system, opportunities for its expression have been reduced by the elimination of locally elected representatives in hospital management.

My guess is that local lobbying will eventually be taken up by local councils. How HNZ will handle this is uncertain. Will the councillors be well informed? Will they be able to understand the centre’s perspective? Will they be able to negotiate with local management or have to fly to Hamilton?

The centralisation has probably intensified the potential for confrontation. Given the usual lack of forward thinking in New Zealand, it may typically take an ugly confrontation – uglier even than in Canterbury in 2021 – to have the matter of local input addressed.

The issue of management of the entity has to be separated from patient grievances. There is a Health and Disability Commissioner who becomes involved when there has been a system failure so catastrophic that there is a death or substantial injury. It operates an ambulance at the bottom of the cliff. There needs to more attention at the top of the cliff.

Once hospitals had ‘visitors’ to whom one could take one’s grievances. Today’s visitors would be best locally elected rather than appointed, so that the community trusted them. They would not be involved in the management of the hospitals but would deal with the quality of the service. Patterns of systemic failure would become evident and improvements would be triggered. A modern visitor system should not antagonise medical providers. It is an integral part of a no-fault continuous-improvement regime.

The Quality of Management

Generic managers do not like such visitors for it makes they accountable downward. Simon Sinek underlines the issue:

‘One of the problems is that … hospital administrators don’t know what their job is. When you ask them ‘what is their priority’, they say ‘patients’. It’s not. It is to take care of the people who work in the hospital – of the people who take care of the patients. Every administrator, every senior doctor, every senior nurse should be preoccupied with one thing and one thing only: are my doctors OK, are my nurses OK, is my staff OK? And if you get that right, they will devote their time and energy taking care of each other and the patients. We have a broken system in which [management] think money is more important …’

Instead this centralisation ends up with the top of management further isolated from the medical providers and, presumably, even more focused on finances. Management in the localities will also have to look towards Hamilton than towards its medical professionals.

The common justification of the centralisation assumes that the quality of New Zealand management is high. It is not in much management of the health service nor in many other public and private institutions. A senior staffer in the State Services Commission told me that he thought only 60 percent of its appointments to chief executive were successes. That does not mean that all of the remaining 40 percent have been duds. Many have just been mediocre. One of the rules of the mediocre is that they appoint mediocrities, thereby reinforcing poor management performance.

The situation is exacerbated by politicians appointing cronies and the politically correct to management boards; it is a miracle if a new agency functions well. (Full disclosure requires mention that there are similar quality limitations among those involved in policy design and implementation.)

The more decentralised system of DHBs offered opportunities of managerial improvement. A major advantage of localisation is that it may is encourage innovation at the local level. For instance a couple of DHBs – Canterbury and Manukau – were widely admired for their innovations. The rational strategy would have been to encourage other DHBs to follow their successes. Instead, local initiatives have been further discouraged.

Conclusion

This is a pessimistic review of the latest redisorganisation of the health system. More optimistically, the changes may address some of the weaknesses in the previous system including an acceleration of the merger of IT systems, a better targeted funding system (although total funding will remain inadequate) and an attempt to plan the medium-term labour supply (a major failure by the Ministry of Health). Hopefully, some of the innovations the DHBs have been exploring – such as better integration of primary and secondary care – will continue. However, the isolated top-heavy bureaucracy may not address the most of other issues, is unlikely to be innovative and in likely to ignore medical needs (and the staff who meet them) in favour of bureaucratic ones.

The structure of the New Zealand health system is far from settled. We cannot rule out that there will be another redisorganisation soon. May it be better designed than this one.