Beverley Sibthorpe
Dr Beverley Sibthorpe is Fellow, National Centre for Epidemiology and Population Health, The Australian National University.

(This article is based on a paper presented to the 2000 National Conference of the Doctors Reform Society in Melbourne, 21 October 2000.)

I am going to begin by briefly outlining current arrangements for the organisation and financing of primary care in New Zealand, and the social and political context within which it is being reformed. Next, I will examine key elements of that reform and some of the problems facing their implementation. I will finish by summarising what I see as having relevance for us here in Australia.

Primary care in New Zealand is dominated by private for-profit general medical practice, with services provided on a user-pays basis. Fees are set by individual GPs, and range from around $30 per consultation in poor areas to $45 in affluent areas.

They are off-set by a range of government subsidies for children, high users (people having more than 12 consultations per year are entitled to a High User Card), and those in need - the latter being defined as those who fall below a certain income threshold and are entitled to a Community Services Card.

The subsidies are set regardless of the type, length, place or time of the consultations. They are paid through lodgement by the GP of General Medical Services (GMS) claims.

The GP is expected to reduce his or her user charge by at least the amount of the relevant subsidy. In practice, however, GPs often impose a user part charge because they are not prepared to accept the GMS payment as the full fee. The result is that the amount of the government subsidy may influence, but does not control, user part charges. Both part and full user charges are seen as a significant barrier to accessing primary medical care.

The dual income streams mean that around 60% of GP income is obtained from patients and only 40% from the public purse. This is seen as a major impediment to the government being able to use its liability to leverage from general practice a more population based approach, better services, and improved outcomes.

Around 80% of GPs are members of 32 Independent Practitioner Associations (IPAs) - the equivalent of our Divisions of General Practice. IPAs have been successful at attracting resources from the Health Funding Authority for infrastructure, on top of substantial amounts for service provision, in much the same way as Divisions of General Practice have in Australia.

According to one government source, the main reason why infrastructure payments were made was to get IPAs to take on budgets for prescriptions and laboratory tests, seen as an important part of controlling growth in expenditure in these areas. IPAs were able to retain a share of any savings made from these budgets, but were mostly required to use these funds for improvements in services or access, agreed between the IPA and the Health Funding Authority.

Criticisms of IPAs include that they are GP vehicles that have never bought properly into primary care and do not take a population health approach; that they do not adequately address issues of access; and that their members are still fiercely independent and competitive in an environment in which co-operation is increasingly seen as essential.

However, some IPAs have moved quickly to come to grips with population health, and to address issues of access. They have entered into collaborative arrangements with other providers to offer packages of services well beyond the bounds of conventional general practice, and they have negotiated with Maori and other minority groups to try to meet their needs better.

In addition to IPAs, New Zealand has a strong "third sector". This is a term used internationally to describe non-government and non-profit organisations that provide services otherwise neglected by both the government and private for-profit sectors in market economies.

Third sector providers, who tend to adopt broad public health definitions of primary health care, began to have an influence in New Zealand in the late 1980s and there are now over 200 of them operating in parallel to conventional general practice, serving Maori, Pacific Islanders, migrants, and those who are unemployed or on low incomes.

Third sector providers are characterised by community management, employment of salaried providers including general practitioners, multidisciplinarity in their provider mix, and community outreach. They compete with general practices and IPAs to provide government funded services, including population health activities such as immunisation, and well-child care.

Many are also involved in what they see as pre-primary care and community development. Examples of innovative public health interventions by third sector providers are the purchase of laser equipment to offer free tattoo removals to over 2300 people in a region currently on waiting lists for this service to enhance their employment prospects; and installing insulation in local public housing using unemployed local people to help reduce the incidence of respiratory disease in winter.

There are clearly significant tensions between the third sector and IPAs, including lack of trust; concerns about the ability of the other to provide appropriate care; competition for patients; criticism of their differing philosophical approaches to primary care; and competition for funds.

In addition to private general practice and third sector providers, there are a range of other players in primary care service delivery including independent midwives, nurse practitioners (who are generally unhappy with their current role in the health care system) and the Plunket Society which provides well-child care in the community. In the third sector, community health workers, equivalent to our Aboriginal health workers, are also active.

I will now move to the social and policy context within which primary care reforms are being considered. In the last decade New Zealanders have introduced a GST and subjected themselves to a very rapid transition to a more free market economy, with all its associated social impacts. During the 1990s there were major changes to the organisation and financing of health care, with a move to purchaser-provider arrangements and widespread competition, which has been found, not surprisingly, to undermine co-operation within and between sectors. Reversal of this was a key element of the current Labor government’s election platform.

The government is also taking a very visible stand on social inequalities. There is a great deal of academic and policy activity on this issue. This is most explicitly reflected in the "Closing the Gaps" committee which is chaired by the Prime Minister, Helen Clarke, and has representation from a number of different portfolios including the Department of Prime Minister and Cabinet, and Treasury.

Within this context, the draft New Zealand Health Strategy was released earlier this year for public consultation. It identifies seven principles, nine goals and fifty objectives. A central component is devolution of the health care purchasing role currently held centrally by the Health Funding Authority to soon to be established District Health Boards (DHBs). DHBs will be required to work within allocated resources to:

• improve, promote and protect the health of a geographically defined population

• promote the health, well-being and independence of people with disabilities within that population

• reduce disparities in health and independence

DHBs will eventually have a majority elected membership through local government election processes. They will be funded by the government on a population based formula or formulae, and will have responsibility for purchasing a wide range of services, including hospital services and primary care.

Primary health care is one of the Health Strategy’s six "service priority areas" and is the subject of its own reform process, laid out in a discussion document entitled The Future Shape of Primary Health Care. This was also put out for public consultation, with the revision soon to be released by the Minister. In future, primary care will include the following elements:

• It will be based on a population approach with client enrolment or registration.

• It will be funded through the DHBs using a capitation formula that will include some weighting for social deprivation, and possibly an additional weighting for ethnicity.

• It will involve the establishment of Primary Health Organisations (PHOs) to provide a range of primary care services including general practice, nursing and community services, purchased at least in part by the District Health Board; PHOs are likely to be the primary enrolling or registering bodies.

• There will be some flexibility in terms of how and among whom PHOs will be constituted, but they will certainly include and build on IPAs.

• There will be an emphasis on community involvement and participation in PHOs, possibly including some community representation in governance.

• There will be support for an active third sector including Maori and Pacific Providers.

• There will be a major emphasis, within a broader political agenda, on reducing health inequalities.

There is general support for the broad thrust of this reform. This is important to keep in mind, because I am now going to talk about some of the formidable threats to its implementation, and it is important not to lose sight of the fact that people also see many great opportunities as well.

First, responses to the Future Shape document indicate that while most providers seem willing to accept enrolment or registration, many consumers are less positive about it, especially when it is to be associated with capitation. However, providers, and obviously the government, believe that you simply cannot achieve population health outcomes unless you know who your population is.

Second, while population-based capitation payments are seen as having the potential to result in more equitable distribution of resources and a more comprehensive approach to health care, there is little evidence to support this.

Further, capitation payments are high risk, particularly in disadvantaged areas because of the large amount of unmet need in these populations. They have the potential to reduce over-servicing but can also result in under-servicing and in cream-skimming.

And what about the PHOs? Previously called Primary Care Organisations, they have been described by the government as needing to:

• be not-for-profit

• have meaningful representation of patients and/or their communities in governance processes

• have representation from the range of health providers in the organisation

• be fully and openly accountable for public funds and ensure that any surpluses are used to improve health status or increase access to agreed services

IPAs have responded to this in different ways. Some have opened up their membership to non-GPs, reissued their shares, and thrown open their Board positions to re-election, including community representation for the first time. Others have responded much more defensively and may not be well positioned to capitalise on the opportunities afforded by the new arrangements.

There are also concerns about the new DHBs. Until the election processes are established they will be transformations of the Boards and administrations of the old Crown Enterprises - the public hospitals. Insofar as the participants remain the same, people who until now had control only over hospital in-patient expenditure will now also have control over community care expenditure.

Many in the community care sector do not believe they will have sufficient understanding or interest in community care to make wise allocative decisions. This is of particular concern since there is to be no new money injected into the system, just distribution of resources which have in the past gone predominantly to in-patient care, in spite of years of rhetoric about the need to strengthen and tip the balance in favour of community care.

Particular concern has been expressed about the pre-primary care and community development aspects of what many third sector providers are doing. They see little prospect of such activities being viewed as worthy of funding. Furthermore, unless there is more money for primary care, it is unclear how the reforms will reduce the widely acknowledged cost barriers to access.

Some feel that it makes no sense to establish over 20 District Health Boards in such a small country. In order to maintain some degree of national uniformity in the amount and quality of care, the Ministry of Health will have to maintain such strong regulatory powers that it will effectively be the single, central purchaser. There are also going to be huge transaction costs associated with the new arrangements.

Another problem with the proposed system is that purchaser-provider arrangements can lead to wasteful duplication unless they are carefully managed. There are also numerous examples of services which could more effectively and cheaply be provided in the community being purchased from hospitals, with no commitment from the purchaser to move the funds around.

Purchaser provider arrangements also tend to foster competition whether it is intended or not. In recent years there have been often intense struggles over contracts to provide services between hospitals and community care and between general practice and third sector providers.

While it is obviously still early days there is little to suggest that the new arrangements are going to minimise opportunities for such struggles. Indeed, they may create new ones, especially if there is a movement of dollars into community care.

It will be a requirement of the government that DHB expenditure is based on need, so there is huge growth and some exciting developments in the collation and interpretation of regional health data. Riding in on the back of this are struggles over ownership and use of data, and problems resulting from the proliferation of IT systems.

Other concerns raised about the reforms are the ability of the government to administer the system and ensure accountability. Outcome monitoring is going to become enormously important, with all its associated theoretical, methodological, information management and privacy problems. And there are many large and unresolved issues around budget holding, including risk carrying and viable sizes for budget holding entities.

So, which elements of the system are worth watching and learning from? There is going to be regional responsibility for health, not just health care, through the establishment of DHBs. They will be funded on a capitation basis using a formula or formulae that adjust for deprivation and possibly ethnicity. Purchaser provider arrangements will remain, and there will be potential for significant movement of funds between sectors. Providers will enter into contracts and hold budgets, some calculated on a capitation basis, for a wide range of community care services, including outreach services.

There will be reduced reliance on fee-for-service general practice, and much greater leveraging of government objectives both from general practice and others in the community care sector.

In perhaps the majority of cases, general practitioners will open up their organisations to non-GP members and add community representatives to their boards of management. The third sector will remain, and in all likelihood will be strengthened because of government emphasis on reducing health inequalities. Citizens will enrol with PHOs which will become major fund holders and providers of community based care. Multidisciplinarity will likely underpin membership of the PHO’s.

Transparency, accountability and community involvement in governance are firmly on the agenda. The collection, transfer, linkage, collation, analysis and reporting of health data will explode, helped by the existence of a unique health identifier. Time will tell whether these and other changes will contribute to improved health and well-being among New Zealanders, and at what cost.

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