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It may be helpful to look at the history of New Zealand
Healthcare to evaluate the position New Zealand is now in. The District Health
Boards are a recent invention of New Zealand’s universal health care system,
but there has always been a local element to health service delivery in New

Hospital boards were first formally legislated for under the
Hospital and Charitable Institutions Act 1885.
These boards were body corporates and had the ability to purchase and maintain
property. The Act ran on three principles:

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board of hospital managers should be elected locally

expenditure should be localised

had a responsibility to meet a proportion of hospital expenditure, but not to
be the funder of last resort.

By 1935, there were 45 elected health boards. The First
Labour Government (1935-1949) had hoped for a completely government funded
health system as part of the welfare state that they formed in the late 30s.
However, by 1938, fights between doctors and the government ensured that free,
universal healthcare would not be part of the Social Security Act passed that
year, which brought in a range of social welfare benefits.

In 1939, some core health benefits were introduced. Free
treatment in all public hospitals, including mental hospitals, as well as payment
of a portion of the fees charged for treatment in a private hospital. Maternity
benefits were also introduced and included payment for services of a medical
practitioner during pregnancy and the period after.

The General Medical Service of 1941 brought in a greater
range of subsidies for healthcare services. The crux of package offered general
practitioners a public payment on a fee-for-service basis, as well as financial
incentives for general practitioners to service low-population areas.  A Pharmaceutical Supplies Benefit was also
introduced, which provided for a wide range of drugs to be supplied free on the
prescription of a registered medical practitioner. X-rays were offered free at
public hospitals, or with a subsidy as a private radiologist.

Other benefits were added throughout the rest of Labour’s
term. In 1942, a Physiotherapy Benefit was introduced. Massage treatment at a
public hospital became free, or with a subsidy when provided by a registered
physiotherapist, if a medical practitioner recommended the treatment.

In 1944, free district nursing services were introduced if
afforded by a nurse, midwife, or maternity nurse employed by the State, a
hospital board, or any subsidised association. Alongside with this, Domestic
Assistance Benefits were introduced, allowing approved organisations to help during
a mother’s incapacity, or in cases of hardship.

In 1946, free laboratory diagnostic services could be
provided by any hospital laboratory, or by a pathologist in private practice.

The last of the First Labour Government’s health reforms came
in 1947, with the extension of outpatient benefits and dental benefits.
Provision was made to pay the whole cost of contact lenses in certain cases.
Some types of hearing aids were to be provided at the cost of the Department of
Health, and a subsidy was provided towards the cost of the more expensive
hearing aids. The government would pay the full cost and repair of artificial

Simultaneously, free dental treatment became available to
hospital outpatients, and dental treatment was provided for adolescents up to
the age of 16, provided they previously had enrolled with the School Dental

By the time Labour was voted out in 1949, healthcare had
moved from a mostly free-market industry to an industry with high-state involvement,
forming the basis of New Zealand’s universal healthcare system that no future
government would be brave enough to fully reform.

In 1974, the Third Labour Government (1972-1975) introduced
the Accident Compensation Corporation (ACC) scheme to supply ‘no fault’
accident insurance coverage, which would compensate people for medical bills
and loss of wages. ACC was to be self-funding through mandatory levies.

In the 70s, there was general agreement between the Third
Labour Government and the Third National Government (1975-1984) that problems
were amassing in the health system and that some reform of the boards would be
needed. There were inconsistencies in health care quality and unequal access to
health care between hospital boards. Waiting lists were becoming longer and
political satisfaction with the health system was declining.

The Third Labour Government did some of the ground work to
reform, in publishing a white paper suggesting the creation of locally-elected
health boards. Muldoon’s Third National Government tinkered with some of the
proposals, but the Fourth Labour Government (1984-1990) did the bulk of the
reforms. By 1989, New Zealand’s 27 Hospital Boards were replaced with 14 Area
Health Boards with a combination of locally-elected and government-appointed
board members. Population-based funding was introduced, along with an emphasis
on management and accountability structures. National health goals and targets
were also set, with the Department of Health devolving some of its
responsibilities to the health boards, and a move by health boards to consider
both curative and preventative health services.

In 1988, the Gibbs Report
was released. It raised significant concern with the lack of costing and
performance data that was available. Up until the early 90s, the amount it cost
for a patient to receive treatment was often not known, and it was seen as a
waste to spend money collecting cost data when it could be spent in other
places. Lack of performance data meant that doctors and nurses had no way to be
evaluated in terms of productiveness.

The report recommended the separation of the purchaser and provider
roles of health services, meaning that the purchaser could secure the best deal
for the patient and for the state wallet. As the purchase of services had to be
combined with the provision of the services, performance would become measurable
by the outcomes of the services.

Six Regional Health Authorities would be established, four in
the North Island and two in the South Island. Funds would be provided to the
Regional Health Authorities on a population-basis. These Health Authorities
would be the purchaser of the health services, and would search for the most
efficient provider of the health service, whether that be a private hospital, a
non-profit provider, or an area health board.

The Fourth Labour Government did not end up implementing the
Gibbs plan, but the incoming Fourth National Government (1990-1999) was much
more open to it. In 1991, National organised their own Ministerial Taskforce,
which borrowed heavily from the Gibbs Report. By July 1993, the changes took
place. Four Regional Health Authorities were designed to purchase services from
a range of providers in a competitive market. These had populations of between
750,000 and 1,000,000, and grouped Northern, Midland, Central, and Southern
areas. Regional Health Authorities were funded on a population-basis, and their
funding was capped to promote efficient purchasing.

The 14 Area Health Boards were reformed into 23 Crown Health
Enterprises. These were effectively State-owned Enterprises that were required
to run hospitals as profitable businesses. The Regional Health Authorities
would only fund Crown Health Enterprises on a contractual price-volume basis,
meaning that the Enterprises had to actually provide services to patients to be
paid. In order to operate, hospitals had to work out what healthcare services cost,
which had been internally regarded as a waste of time since the expansion of the
welfare state.

In 1993, PHARMAC (Pharmaceutical Management Agency) was
created by the four Regional Health Authorities as a way of keeping medicine
costs down.
PHARMAC functioned by bulk purchasing all publicly-funded medicines and medical
devices to ensure the best deal for the public purse and patients. Its first
tender in 1996 for generic paracetamol led to a 44% price reduction, and by
June 1996, PHARMAC had cumulatively saved the taxpayer $48 million. In 1997 to
1998, the use of reference pricing, a practice where the subsidy paid for a
pharmaceutical is matched to the price of similar pharmaceuticals, led to an
expected $150 million saving on anti-hypertension drugs over six years. By
1999, PHARMAC’s cumulative savings surpassed $650 million.

Under the 1996 NZ First-National Coalition Agreement, the
four Regional Health Authorities would be merged into a single Health Funding
Authority. Extra funding would be provided to attempt to help alleviate the
waiting lists. Crown Health Enterprises became Hospital and Health Services,
but did not substantially change their role in the health system.

Then in 1999, Labour formed a government with the Alliance,
and by 2001, moved to the District Health Board system that New Zealand has

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