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Budget 2022: Plugging holes versus building back better

Rationale for health reform

Nobody doubts that the health system requires reform and is in crisis. Unfortunately, it has taken a long time between the Health & Disability Systems Review and taking action. This Budget is about getting things underway and in the words of the Honourable Minister of Finance:

”The quality of healthcare and the availability of specialists differs from region to region. The system is fragmented and inefficient, with management structures too often getting in the way of the best approach to care. Prioritising issues at a national level, as we had to do with COVID-19, is extremely difficult while working across numerous DHBs. Long-term planning in our system is inadequate and we continue to see large inequities in health outcomes for Māori and Pacific peoples.

New Zealand has also underinvested in its healthcare system, with predictable outcomes. Part of this is due to the lack of financial control and mixed levels of financial capability that is characteristic of the DHB system. But we also have to acknowledge the fact the culture of DHB deficits is a direct result of the chronic underfunding of the Health budget1

Taking stock against Deloitte’s State of the State report, reforms are typically driven by a culmination of:

  • Failure to deliver outcomes: From lack of modern cancer medicines2, to youth suicide rates and growing waiting lists, the health system is not meeting its expected outcomes.
  • Declining system performance: From deteriorating real estate with leaky buildings, to a burnt-out workforce suffering from bullying and harassment. Dedicated professionals struggle to work in a system riddled with inefficient processes and systems.
  • A change in purpose: The postcode lotteries about where you live and who you are, has been tolerated for too long. Deep inequalities and inequities around access to treatments for Māori and Pacific people must be addressed.3
  • A change in context: COVID-19 has shaken the health system to the core. Yet, the rapid deployment of digital tools has re-set public expectations around velocity, speed and convenience. Deloitte’s work in Australia around Reimagining the health system of tomorrow, shows that consumers are ready to embrace a ‘new normal’ 4.

The case is clear: embarking on health reform is well overdue. Will this Budget help us pick up the pace?

The Government’s reset of debt levels allows increased investments to be funded by more borrowing. However, all loans eventually need to be paid back. You can mortgage yourself to build a new home, but whilst doing so, you may have to fix critical issues in your current abode since the new construction will not yet be ready to move into. This is the balancing act we need to get right:


Our current state requires spending money on things which will never create a dividend or return on investment that might help with future mortgage obligations. These are simple past debts and legacy issues to be addressed.

Here is what we know about these budget items:

  • As of the mid-year (December 2021) check-in on District Health Boards (DHBs) we were heading for a $575 million deficit for the year.5 The accumulated debt must be paid. Budget 2022 seeks to “clear the financial debt” with a $1.8 billion funding boost so Health New Zealand and the Māori Health Authority can have a “clean start”.
  • This boost is followed by a $1.3 billion funding boost in year two and in line with the signalled move towards a two-year funding cycle. This should be enough to get the ball rolling for operating expenditures, the Māori Health Authority and national planning, but is unlikely to be enough for outstanding Holiday Act liabilities and coming sector award settlements.
  • Estimates for refreshing the $24 billion healthcare infrastructure portfolio vary but range from $14-$22 billion. Today’s announcement of $1.3 billion for health infrastructure is focused on the most urgent and critical needs – shovel ready or near ready projects, which may or may not shift the future performance needle. Nelson, Whangārei and Hillmorton hospitals are top of the list for development.
  • The announcement of $100 million for specialist mental health and addiction services seems paltry in comparison to the previously committed $1.9 billion over four years for integrated primary mental health and addiction services – also referred to as Access & Choice. It’s unclear how much of the previously announced package has actually been implemented and made a difference. New Zealand has the highest youth suicide rates in the OECD6 yet the wait times for youth mental health services (non-urgent) are almost triple that of other age categories7 . There is no mention of digital mental health tools, telemedicine infrastructure or etherapy to improve availability and reach of specialist services and interventions. Without commensurate investment in digital infrastructure, this announcement is unlikely to shift the needle on mental health.
  • $166.1 million over four years to secure the future of ambulance services and $90.7 million over four years for air ambulance services. Ambulance services have been hammered by rising demand in the face of increased cost and workforce shortages, so this should help re-balance the books.

Some of the infrastructure costs will be sunk costs, but much of the costs could also be used to build back better, focusing on environmental sustainability and climate change. A top priority for smart investments would be to construct hospitals without walls (as seen in Deloitte’s report on the Digital Hospital of the Future) in conjunction with modern commissioning and integrated delivery models.

We know that the clinical staffing ratios per bed are significantly higher in Aotearoa New Zealand hospitals than OECD averages8 and that out of our total DHB workforce of 76,230, roughly 17% are in management and administrative positions. This ratio rose further from the additional 2,768 workers required to support the COVID-19 response with 35% in administrative or management positions9.

Our border and immigration policy makes it hard to attract healthcare professionals (despite medical professionals being on the new immigration Green List) and our salaries and working conditions make it even harder to retain them. Critical workforce issues are rife across many professional groups and we are facing significant industrial actions by health workers.

Aotearoa New Zealand’s ability to deliver a viable – and sustainable – health system lives and dies by the availability and productivity of our health workforce. Therefore, investments which foster productivity, changes in service model and allow people to work at the peak of their professional capacity are vital. Unless we ‘bend the cost curve’ we cannot turn around the system’s performance.

The other side of the equation is bending our demand curve. For New Zealand children, avoidable hospital admissions account for approximately 30% of all paediatric admissions nationally, and for 20-25% of admissions for adults 65 and older10. Clearly improving access to simple, lower cost and early interventions trumps the use of reactive and more expensive hospital care.

Here’s what we know about these investments from the Budget announcements:

  • $76 million over four years to develop the health workforce, including $37 million to cover 1,500 more training places for primary care workers.
  • $39 million invested over four years to provide the Māori workforce with additional access to training and development. Both of these workforce investments will help in an environment where it is difficult to import additional health workers.
  • Pharmac gets its biggest ever increase to baselines, investing an extra $191 million over the next two years. This will hopefully help with access to new medicines.
  • Joined up information technology (IT) systems will be part of the digitally enabled health system. This investment will allow access to specialist care regardless of where an individual lives. Health New Zealand is expected to develop centres of excellence for specialist care.
  • Perhaps most significantly, $580 million in funding over four years to support hauora Māori health services, and support for Whānau Ora Commissioning Agencies.

For these investments, clarity of thought and purpose will be paramount to ensure that money does actually shift the needle and deliver a successful outcome and lasting change.

The theory of change or intervention framework from our State of the State report outlines the need during reforms to be very clear about who does what and how – this is akin to the role of an architect framing up the construction of a new building.

Without clarity of thought and making smart choices for the challenges ahead, reforms are likely to disappoint. Political ideology versus health sector experience will be one of the tensions the Government needs to navigate. How do you balance the rhetoric around a post-code lottery and abolition of 20 DHBs with hundreds of locality-based networks?

Irrespective of how these tensions play out, three fundamental things must be in place to keep us honest about progress with the health reform – and our ability to benefit from additional investments being made into healthcare today – namely:

  • Tracking how initiatives are progressing with execution is crucial. It’s easy to announce budgets, but much more difficult to ensure that money is actually being spent and gaining traction. Are our programmes of work delivering what was promised, are they running to time and is there accountability for execution?
  • When initiatives actually get delivered, we need to provide ourselves with assurance that they are yielding the intended outcomes and results. Are benefits materialising, are we shifting the needle and are we improving our health services?
  • At a macro-level, we need to ensure that the health reform agenda is creating a better health system for all. Are we shifting the needle with regard to equity, access, our cost curve and our demand curve? Is our overall health system becoming a better place?

Only time will tell. But judging by today’s announcements, the focus is still on plugging holes and the story for how we will build back a better future health system is still waiting to unfold.

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