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It may be helpful to look at the history of New ZealandHealthcare to evaluate the position New Zealand is now in.

The District HealthBoards 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 NewZealand.Hospital boards were first formally legislated for under theHospital and Charitable Institutions Act 1885.These boards were body corporates and had the ability to purchase and maintainproperty. The Act ran on three principles:·        Theboard of hospital managers should be elected locally·        Hospitalexpenditure should be localised·        Governmenthad a responsibility to meet a proportion of hospital expenditure, but not tobe the funder of last resort.By 1935, there were 45 elected health boards. The FirstLabour Government (1935-1949) had hoped for a completely government fundedhealth 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 thatyear, which brought in a range of social welfare benefits.In 1939, some core health benefits were introduced.

Freetreatment in all public hospitals, including mental hospitals, as well as paymentof a portion of the fees charged for treatment in a private hospital. Maternitybenefits were also introduced and included payment for services of a medicalpractitioner during pregnancy and the period after.The General Medical Service of 1941 brought in a greaterrange of subsidies for healthcare services.

The crux of package offered generalpractitioners a public payment on a fee-for-service basis, as well as financialincentives for general practitioners to service low-population areas.  A Pharmaceutical Supplies Benefit was alsointroduced, which provided for a wide range of drugs to be supplied free on theprescription of a registered medical practitioner. X-rays were offered free atpublic hospitals, or with a subsidy as a private radiologist.Other benefits were added throughout the rest of Labour’sterm. In 1942, a Physiotherapy Benefit was introduced. Massage treatment at apublic hospital became free, or with a subsidy when provided by a registeredphysiotherapist, if a medical practitioner recommended the treatment.In 1944, free district nursing services were introduced ifafforded by a nurse, midwife, or maternity nurse employed by the State, ahospital board, or any subsidised association. Alongside with this, DomesticAssistance Benefits were introduced, allowing approved organisations to help duringa mother’s incapacity, or in cases of hardship.

In 1946, free laboratory diagnostic services could beprovided by any hospital laboratory, or by a pathologist in private practice.The last of the First Labour Government’s health reforms camein 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 ofHealth, and a subsidy was provided towards the cost of the more expensivehearing aids. The government would pay the full cost and repair of artificiallimbs.Simultaneously, free dental treatment became available tohospital outpatients, and dental treatment was provided for adolescents up tothe age of 16, provided they previously had enrolled with the School DentalService.By the time Labour was voted out in 1949, healthcare hadmoved 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 futuregovernment would be brave enough to fully reform. In 1974, the Third Labour Government (1972-1975) introducedthe Accident Compensation Corporation (ACC) scheme to supply ‘no fault’accident insurance coverage, which would compensate people for medical billsand loss of wages.

ACC was to be self-funding through mandatory levies.In the 70s, there was general agreement between the ThirdLabour Government and the Third National Government (1975-1984) that problemswere amassing in the health system and that some reform of the boards would beneeded. There were inconsistencies in health care quality and unequal access tohealth care between hospital boards. Waiting lists were becoming longer andpolitical satisfaction with the health system was declining. The Third Labour Government did some of the ground work toreform, in publishing a white paper suggesting the creation of locally-electedhealth boards. Muldoon’s Third National Government tinkered with some of theproposals, but the Fourth Labour Government (1984-1990) did the bulk of thereforms. By 1989, New Zealand’s 27 Hospital Boards were replaced with 14 AreaHealth Boards with a combination of locally-elected and government-appointedboard members.

Population-based funding was introduced, along with an emphasison management and accountability structures. National health goals and targetswere also set, with the Department of Health devolving some of itsresponsibilities to the health boards, and a move by health boards to considerboth curative and preventative health services. In 1988, the Gibbs Reportwas released.

It raised significant concern with the lack of costing andperformance data that was available. Up until the early 90s, the amount it costfor a patient to receive treatment was often not known, and it was seen as awaste to spend money collecting cost data when it could be spent in otherplaces. Lack of performance data meant that doctors and nurses had no way to beevaluated in terms of productiveness. The report recommended the separation of the purchaser and providerroles of health services, meaning that the purchaser could secure the best dealfor the patient and for the state wallet. As the purchase of services had to becombined with the provision of the services, performance would become measurableby the outcomes of the services.Six Regional Health Authorities would be established, four inthe North Island and two in the South Island. Funds would be provided to theRegional Health Authorities on a population-basis.

These Health Authoritieswould be the purchaser of the health services, and would search for the mostefficient provider of the health service, whether that be a private hospital, anon-profit provider, or an area health board. The Fourth Labour Government did not end up implementing theGibbs plan, but the incoming Fourth National Government (1990-1999) was muchmore open to it. In 1991, National organised their own Ministerial Taskforce,which borrowed heavily from the Gibbs Report. By July 1993, the changes tookplace. Four Regional Health Authorities were designed to purchase services froma range of providers in a competitive market. These had populations of between750,000 and 1,000,000, and grouped Northern, Midland, Central, and Southernareas. Regional Health Authorities were funded on a population-basis, and theirfunding was capped to promote efficient purchasing.The 14 Area Health Boards were reformed into 23 Crown HealthEnterprises.

These were effectively State-owned Enterprises that were requiredto run hospitals as profitable businesses. The Regional Health Authoritieswould only fund Crown Health Enterprises on a contractual price-volume basis,meaning that the Enterprises had to actually provide services to patients to bepaid. 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 thewelfare state.In 1993, PHARMAC (Pharmaceutical Management Agency) wascreated by the four Regional Health Authorities as a way of keeping medicinecosts down.PHARMAC functioned by bulk purchasing all publicly-funded medicines and medicaldevices to ensure the best deal for the public purse and patients. Its firsttender in 1996 for generic paracetamol led to a 44% price reduction, and byJune 1996, PHARMAC had cumulatively saved the taxpayer $48 million.

In 1997 to1998, the use of reference pricing, a practice where the subsidy paid for apharmaceutical is matched to the price of similar pharmaceuticals, led to anexpected $150 million saving on anti-hypertension drugs over six years. By1999, PHARMAC’s cumulative savings surpassed $650 million.Under the 1996 NZ First-National Coalition Agreement, thefour Regional Health Authorities would be merged into a single Health FundingAuthority. Extra funding would be provided to attempt to help alleviate thewaiting 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 hastoday.

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