Journal of the New Zealand Medical Association, 18-April-2008, Vol 121 No 1272
Capitation funding of primary health organisations in New Zealand: are enrolled populations being funded according to need?
Jennifer Langton, Peter Crampton
The Primary Health Care Strategy was published in 2001. It articulated a vision for primary health care which the government believed would help to achieve the population health objectives identified in the New Zealand Health Strategy (2000).1 In particular, the government wanted to reduce health inequalities through the provision of primary health care services that are community centred and emphasise preventative and health promotion as well as curative services. A key component of the Primary Health Care Strategy was the development of Primary Health Organisations (PHOs).
Capitation funding formulas were developed as a ‘needs-based’ mechanism for delivering healthcare funds to PHOs in such a way that populations with the greatest need benefit most. The Primary Health Care Strategy described a primary health care system that is central to the whole health system and founded on the principles of the Alma Ata Declaration of 1978.2 The values inherent in this vision of primary health care include responsiveness, fairness, and comprehensive family and community-oriented services, including (but not limited to) restorative health care.
A needs-based method of funding PHOs is consistent with this vision, and is a necessary tool in an environment of escalating healthcare costs if real health gains for the most disadvantaged in New Zealand are to be realised.
Two different PHO types (Access and Interim) were developed so that initial increases in primary health care financing could be targeted to those groups in the population with greatest need.3 Access PHOs were those organisations that had an enrolled population with more than 50% identified as high need as determined by deprivation and ethnicity. All other PHOs were Interim.
The formulae for financing these organisations differentiated between the two PHO types so that Access PHOs saw their enrolees funded at a higher rate than their counterparts in Interim organisations. The funding mechanism is one of capitation, where the PHO is funded at a predetermined rate for each enrolee regardless of whether contact is made during the period.4–6
Several different funding tools have been established to finance PHOs, however three key funding formulas—First Contact, Services to Improve Access (SIA), and Health Promotion (HP)—are the major contributors to public financing of primary health care.
The First Contact formula provided the bulk of PHO funding and was intended as the major means of purchasing primary health care for the population. It funded PHOs to provide first contact services such as GP or practice nurse consultations. The SIA formula financed PHOs to develop mechanisms for making their services more accessible to the enrolled population they serviced and HP was paid for health promotion activities carried out by PHOs. To receive SIA and HP funding, the PHO needed to demonstrate how this money was to be spent.
This paper examines the three main funding formulae to determine how well and by how much they preferentially targeted primary health care funding to high needs groups for the 12-month period April 2004 to March 2005.
The data supplied by the Ministry of Health consisted of a Microsoft Access database containing the quarterly-reported demographic variables for all PHO enrolees over the 12-month period. Data were reported quarterly and are referred to in this article as quarter 2 2004 (April–June 2004), quarter 3 2004 (July–September 2004), quarter 4 2004 (October–December 2004), and quarter 1 of 2005 (January to March 2005).
The demographic table was linked with the quarterly funding rates for each of the funding streams (First-Contact, Services to Improve Access, and Health Promotion) to determine the income generated for Access and Interim funded practices.
Data were analysed at the practice level in order to accurately gauge the impact of the needs-based formulas. This was necessary because a number of PHOs had evolved as “Mixed” organisations where some practices within the PHO received Access funding for pockets of high-need. All analyses were carried out using Microsoft Access. Data were then transferred to Microsoft Excel for graphical presentation.
The outputs derived from the funding data were the total quarterly income for Access and Interim funded practices; quarterly per capita income for Maori, Pacific, and all other ethnicities combined; and the increase in per-capita income between quarter 2 2004 and quarter 3 2004 as a result of increased funding for ages 65+ in Interim PHOs. These outputs were examined for First Contact funding only and also combined First-Contact, Services to Improve Access, and Health Promotion.
Table 1 shows the demographic variables examined.
Table 1. Demographic variables considered in analyses
Enrolled population—Most growth in PHO enrolment between April 2004 and March 2005 occurred in the Interim population and the majority of new enrolees were non-Maori, non-Pacific (i.e. other); see Figure 1. It should be noted that a significant minority of enrolees did not have ethnicity coded, particularly in Interim practices, although ethnicity recording improved throughout the year. For example, in quarter 2 2004, 5% of Access and 18% of Interim enrolees did not have ethnicity recorded compared with 4% of Access and 12% of Interim enrolees in quarter 1 2005.
Age distribution—Figure 2 demonstrates that the non-Maori/non-Pacific population in both Access and Interim funded practices had an older age profile when compared with the Māori and Pacific populations.
Deprivation—Māori and Pacific peoples exhibited higher levels of deprivation in both Access and Interim PHOs compared with non-Maori/non-Pacific enrolees.
Table 2 shows the percentage of the enrolled population residing in NZDep2001 quintile 5 (most deprived) for Access and Interim funded practices.
Table 2. Percentage of population residing in NZDep2001 quintile 5 between April 2004 and March 2005
Gender—For all ethnicities there were slightly more female enrolees than male in both Access and Interim funded practices. Male enrolees made up 48% to 49% of the enrolled population.
First Contact funding—Between April and June of 2004, Access funded practices received a greater proportion of total funding from this stream compared with the proportion during the following two quarters (Figure 3).
The per-capita income each quarter (Table 3) shows that high-need groups did generate greater funding; although this comparative advantage was reduced at quarter 3 2004 when the Interim population, and in particular non-Maori/non-Pacific saw a marked increase in funding per person. The percentage increase observed between these two quarters is presented in Table 4.
Table 3. Quarterly income ($) per capita (First Contact services) for Interim and Access funded practices
Q2 2004 = April–June 2004; Q3 2004 = July–September 2004; Q4 2004 = October–December 2004;
Q1 2005 = January–March 2005.
Table 4. Increase in per capita First Contact funding between quarter two and quarter three 2004
Services to Improve Access (SIA) and Health Promotion (HP)—Both these funding streams carried a weighting for high-need as measured by ethnicity and deprivation. The data for these funding streams are not presented separately but their effect can be observed when combined with First Contact income.
Combined Services to Improve Access, Health Promotion and First Contact funding—Figure 4 shows the combined income for Access and Interim PHOs for quarter 2 2004 was very similar. There was a smaller difference between the two than when comparing First Contact funding alone (Figure 3). A substantial increase in funding for Interim PHOs in quarter three occurred, followed by only a slight rise in the following two quarters.
SIA and HP contributed noticeably to funding for high-need groups, however it is also apparent that in quarter 3 2004 the increase in income for the Interim population was still sizeable (Table 5). Table 6 highlights the increase in per capita income between quarter 2 2004 and quarter 3 2004.
Table 5. Combined First Contact, SIA, and HP per capita quarterly income ($)
Table 6. Increase in quarterly per capita income for combined First Contact, SIA, and HP funding between quarter 2 2004 and quarter 3 2004
Over the 12 months examined, the Access population fell by almost five percentage points (from 33.6% to 28.7% of the total population) while the proportion of the total income generated fell by almost twice that (from 49.4% of total funding to 40%). The shift to Access-level funding for enrolees 65 and over in Interim practices in July 2004 is the likely explanation for this.
Age is the primary demographic variable influencing funding. Although age distribution varies across ethnic groups, the First Contact formulas cost weights do not reflect the premature morbidity and mortality experience of Māori. Age distributions differ little between Access and Interim funded practices.
Figure 2 demonstrates that for Māori and Pacific peoples the population is young with a very small percentage aged 65 years and over. In comparison, non-Māori/non-Pacific people are older with a significant proportion aged 65 years and over and a much smaller percentage of the population in the two youngest age groups. In 2001, the median age for Māori was 22 and for Pacific it was 21, this is compared to a median age for the total New Zealand population of 35.8–10
The PHO funding formulas for First Contact and Services to Improve Access allocated different sums of money to enrolees’ depending on age. The original First Contact formula also preferentially funded Access enrolees over their Interim counterparts.
As time progressed this preferential funding was eroded as more age groups in Interim practices shifted to Access-level funding. The first shift occurred prior to the data analysed here and increased First Contact funding for all children and young people up to the age of 18. The second change saw all people 65 and over in Interim practices allocated increased funding (in July 2004) and is captured in the data analysed here.
Since then, funding has increased at yearly intervals for all other age groups so that by July 2007 all enrolees were funded at the Access rate for First Contact services. This has resulted in less redistribution of total primary health care funding to high-need groups (as defined by ethnicity and deprivation). This occurred while the inequities in health outcomes for these groups are yet to be addressed.
The reason the difference in per capita income between Access and Interim reduced in July 2004 was the increase in First Contact funding for those aged 65 and over enrolled in Interim PHOs. Interim organisations have a much smaller number of Māori and Pacific peoples than other ethnicities and a greater proportion of non-Māori/non-Pacific are people aged 65 and over. This means non-Māori/non-Pacific in Interim PHOs benefited most from this funding change (as indicated by the greater increase in their per-capita income).
The combined per-capita income in Access PHOs was appreciably higher than First Contact Services alone in all four quarters, by over $5. This differential was even more marked for Māori and Pacific peoples (approximately $10.00). In Interim PHOs the per-capita income did not grow as strongly with an overall increase of about $1.50. When the data are looked at by ethnicity however, there is a much more discernible rise for Māori and Pacific of around $8.00. This is primarily explained by the allocation of SIA funding for these populations.
SIA clearly redistributed money to high-need groups, which should serve as an incentive for providers to develop innovative services and for District Health Boards to require PHOs to have a clear plan for how SIA monies are to be used to increase access for high-need groups.5
The primary issue is that over the year observed in this study there was no growth in income generated per head of the Access population, whether examined as the total population or by ethnicity. At the same time, there was a strong rise for Interim enrolees.
As of July 2007, all people enrolled with a PHO were funded at the same rate according to their age for First Contact Services. While increased funding in these other age categories will benefit some high-need groups (such as Māori and Pacific enrolled in Interim PHOs), they make up a small percentage of the Interim population.
The most significant beneficiaries are non-Māori/non-Pacific in Interim PHOs who demonstrate low levels of deprivation (less than 10% reside in NZDep2001 quintile 5) and therefore have lower need from a population perspective. The rapid shift to Access-level funding for First Contact Services has seen a continued erosion of the redistributive effect of the original needs-based formula.
A significant point is that while SIA and HP do favour high-need groups, they are targeted funding streams, and need to be used for clearly defined purposes. Developing services that achieve greater access is a critical step toward improving the health status of high-need groups; SIA funding will help accomplish this but the money involved will be used for the actual service (e.g. staff salary, rental of premises, development of resources, etc) rather than directly for patient care. If access is improved and utilisation rates increase, health practitioners will need to be reimbursed at a level commensurate to the level of care demanded.
This research used an administrative dataset as its main source of data. As with all administrative datasets, issues related to data quality should be considered carefully. These data were collected from PHO reports made to HealthPAC as a requirement for payment. The accuracy of the data is therefore dependent upon consistent and complete recording of enrolee characteristics by all PHOs. It is also reliant on precise data inputting and is vulnerable to human error in transcription of information.
A limitation of this research lies in the fact that it has only examined the distribution of financing and is unable to provide answers regarding what happens with the money once it reaches PHOs. It is important to not only look at how funding for primary care is spread throughout the population but also the ways in which it is used to provide care in the community.
An evaluation of the Primary Health Care Strategy assessed the impact of funding changes on access to primary care services by measuring, over time, changes in user charges and changes in utilisation.11 However more research is needed in this area, particularly the associations between user charges and changes in utilisation, given that reducing financial barriers to access was a key objective of the Primary Health Care Strategy.
The Access and Interim capitation structure could be regarded as a crude tool for distribution of health dollars resulting in individuals benefiting to a greater or lesser degree depending on the areas in which they reside. More information is needed on the impact the Primary Health Care Strategy has made on individuals in Access and Interim areas.
Also of importance is the impact the shift to capitated funding for enrolled populations has had on GP income. Within the scope of this research this question was not addressed; no comparison was made between funding solely through the General Medical Subsidy and the PHO funding formulas. Further research is warranted to determine the extent to which GP incomes increased during this period.
It is imperative that New Zealand strives to eliminate the significant disparity in health outcomes for its populations to achieve equity in health for all. This may mean unequal access for unequal need, with funding allocated accordingly. Thus, fairness in financing does not necessarily mean universal low-cost care as a first priority but rather implies preferential funding for high-need communities, at least until significant reductions in inequality occur. With the rapid move toward universal low-cost access to primary health care it is possible that the original ambitions of the Primary Health Care Strategy are being diluted.
Further research is needed to evaluate the effects of the Primary Health Care Strategy on access to primary care for Maori, Pacific. and low-income groups as well as any effects on health status. A system cannot be considered equitable if some groups in society are not realising their health potential, and financing of primary care should remain redistributive until such a time as this objective is attained.
Competing interests: None known.
Author information: Peter Crampton, Dean and Head of Campus, University of Otago, Wellington; Jennifer Langton, Dispensary Manager, Pharmacy Department, Capital and Coast District Health Board, Wellington
Acknowledgements: We acknowledge the assistance of the Ministry of Health in providing data for this study, and the help of Jon Foley in providing technical advice. We are also grateful for the helpful comments made by the anonymous reviewers of this paper. (There were no external funding sources for this study.)
Correspondence: Professor Peter Crampton, Department of Public Health, University of Otago, PO Box 7343,Wellington, New Zealand. Fax: +64 (0)4 3895319; email: email@example.com
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