Journal of the New Zealand Medical Association, 14-May-2010, Vol 123 No 1314
Building on myths: an economist’s response to the Ministerial Review Group Report on the Health System
The (2009) Report of the Ministerial Review Group (MRG) recommends a number of useful measures to enhance the New Zealand health system. For example, there are far too many primary health organisations (PHOs)—and indeed far too many district health boards (DHBs), an issue that the report somewhat skirts around. Moreover, asking PHARMAC to extend its role to evaluating medical devises seems sensible.
However, in my experience both detractors and friends of publicly funded health systems indulge in myths and fallacies about the health system to serve their ends. For example, those on the left argue strongly against increasing the use of private providers ignoring the fact that the bulk of health care is indeed provided privately (GP services, laboratory, pharmaceuticals, most of aged care, medical devices, etc).
On the other hand, detractors of the public health system argue that expenditure is unsustainable, and that unless something is done immediately, expenditure will balloon until every tax dollar is being devoted to health care. This is clearly nonsense. The same could be said about the trend in other expenditures which have seen phenomenal rise in the last 10 years, such as household services.
No-one is warning the country that unless something is done immediately, in 50 years we shall be spending every last dollar on nannies. I fear that the MRG does fall into the trap of overstating the economic imperatives for reform.
The biggest loser from perpetrating these myths about a national health system is the system itself. The evidence suggests that New Zealand has a good health system. For example, the Commonwealth Fund international comparison of six countries (US, UK, Australia, Germany, Canada, and New Zealand)2 found that New Zealand spent the least of all these countries but performed in the top half for quality, efficiency and access. New Zealand performed worst on indicators of equity and healthy lives—a measure of our poor performance in preventative health rather than the overall health system.
The purpose of this article is to highlight some of the fallacies that I believe the Ministerial Review Group (2009) has fallen into.
Table 1 provides a ranked list of the latest healthcare spending as a proportion of gross domestic product (GDP). New Zealand ranks 12th out of 25 countries for which data is available.
Table 1. Healthcare expenditure (% GDP, 2007)
Source: OECD, 2009.
This comparison suggests that New Zealand does not spend an exceptional amount of its GDP on health care. Certainly not enough to warrant the panic and demands for urgent action that are suggested in the paper.
The growth in health expenditure as a percentage of GDP is also not excessive. While in the top half of the OECD, it is hardly the dramatic growth seen in the US (see Table 2).
Moreover, the claim that we need to do something about this growth now to avert a crisis in future, is in my opinion, incorrect. In particular, the idea that we have a dramatic challenge that needs urgent action is not borne out by the data—we are one of the lowest spending healthcare systems in the OECD in per capita terms. Yet our increase in life expectancy over the 2000–2004 period was reasonably good. For males it was 2.1 (compared with 1.8 for the OECD as a whole). For females it was 1.4, which is equal to the OECD average.
The performance of New Zealand’s health system does not stand out as being overly generous in terms of expenditure, nor under-performing in terms of outcomes; the need for radical changes based on financial constraints are simply not present.
Table 2. Percentage growth in healthcare expenditure as a proportion of GDP
Health expenditure in all countries follow an upward trend (Table 2). New Zealand is no exception. This is not a bad thing. As the work of Harvard Professor David Cutler has demonstrated, healthcare spending saves lives. He estimated that almost half the increase in life expectancy from 1960 to 2000 in the US was due to medical care.1 Cutler’s findings suggest that the best value was to be had by increasing life expectancy at younger ages, whereas the improvement in life expectancy through spending on those over 65 years came at a very high cost.
The paper falls into the trap—which is often a risk when the problem is not clearly articulated—of arguing that “reports should be written and agencies established”. Reports themselves are never a solution. Change in behaviour requires change in incentives.
For example, requiring a formal Regional Service Plan is not the solution to the fact that DHBs which could currently benefit from such a plan are not doing it. The question that needs to be asked is why are they not doing it?
If the answer is a lack of incentives—then surely the solution is to re-consider the incentive structures under which the DHBs work. Micro-process requirements such as these are the worst ways to elicit changes in activity. The fact is that we want regional planning only when it is cost effective. A requirement that such plans be done means that even when it is not valuable they would need to be undertaken. Such requirements make the system less flexible.
I do not think the logic for the creation of the new agencies and the break-up of the functions of the Ministry of Health have been clearly articulated. Restructuring is an extremely expensive exercise—with huge downside risk especially in terms of reducing staff morale and possibly increasing turnover. It should be done with a great deal of precision and with a clear articulation of why it is restructuring that is the solution (as opposed to say a change in the payment mechanism, change in responsibilities amongst existing agencies, or monitoring regimes).
While it is certainly desirable for clinicians to be engaged in management roles, the call for greater engagement and leadership flies in the face of claims made elsewhere in the paper that there is a shortage of clinicians.
In this case, taking them out of leadership roles and into clinical roles would enhance the available workforce. Given the scarcity of clinical staff, it would seem that a sustainable solution needs to be found for leadership which is effective in changing clinical behaviour but not actually by clinicians.
The report suggests that the main benefit of prevention is in reducing costs of care. This is clearly not the case. Prevention also generates significant improvement in health. As Cutler et al1 found, the best benefits of healthcare spending is on the young because of the increased life over which the benefits are gained. Since the young rarely interact with the personal health system, changes to health in this age group have to be mediated through public health strategies.
Clearly New Zealand does need some changes. My personal priority would be the following:
Overall I found the report needed a more structured analysis of the current systems. The report presents a hotch-potch of good ideas, rhetoric and micro-management issues best left to the Ministry of Health.
Competing interests: None known.
Author information: Rhema Vaithianathan, Health Economist and Associate Professor in Economics, University of Auckland (previously Harkness Fellow at Harvard in 2007–2008; and a Health Economist at the Health Funding Agency, the Transition Agency, and Waitemata District Health Board).
Correspondence: Associate Professor Rhema Vaithianathan, Department of Economics, University of Auckland, PBN 92019, Auckland, New Zealand. Email: firstname.lastname@example.org
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