11/1
17 September 2009
The Hon Tony Ryall
Minister of Health
Parliament Buildings
WELLINGTON
Dear Minister
MINISTERIAL REVIEW GROUP REPORT
I am writing to outline the Association's overall assessment of the advice provided to you by the Ministerial Review Group report, Meeting the Challenge: Enhancing Sustainability and the Patient and Consumer Experience within the Current Legislative Framework for Health and Disability Services in New Zealand (the Report).  The purpose of this letter is to provide an overview of our assessment of the Report which will be followed up by a more specific letter including deliberations and recommendations from our National Executive meeting on 24 September.
The Association of Salaried Medical Specialists represents salaried senior doctors and dentists.  The Association was formed in April 1989 to advocate and promote the common industrial and professional interests of our members.  The Association seeks to actively promote the right of equal access for all New Zealanders to high quality public health services.  We have nearly 3,500 members, the large majority of whom are employed by District Health Boards.  About 90% of senior doctors and dentists employed by DHBs are members of the Association.  While most of our members work in secondary and tertiary care in the public sector, a number work in primary care outside DHBs, including in the 'access' PHOs.

Since you took office the Association has welcomed many of your actions.  We appreciated your quick action to reinstitute elected positions on the Medical Council; we have welcomed your action on your pre-election commitment to clinical networks, and we have been working hard to ensure that your commitment to In Good Hands is reinforced by promoting transformation to clinical leadership in the DHBs.  Also welcome was the refocusing of the Ministry of Health which has taken place since the appointment of the current Director-General and has started to produce discernible improvement.

Clearly these initiatives have yet to produce all the expected results of better health care for the public and other initiatives may need to be considered to make this happen.  However what is not needed is the disruption and distraction of another restructuring which preoccupies the system but does not address the fundamental issues.  The recycling of restructuring obstructs senior doctors and dentists who make long-term careers in the health system, generally outlasting repeated iterations of management fashions and successive governments.

Risks of proposed major restructuring
The Report identifies two issues as fundamental.  The first is that the costs of funding the health system are growing and will continue to grow and, despite substantial growth in funding for health, DHBs are still struggling to provide services.  The second is that having 21 DHBs involved in doing the same thing involves duplication with attempts to coordinate service delivery nationally and regionally, or make long-term investment decisions, failing (when initiated from the DHBs) because local interests trump wider interests and failing (when originating from the Ministry) because they cut across local autonomy and local needs and are felt to impose excessive bureaucratic reporting.

No substantive solutions are proposed in the Report for constraining increasing costs. The proposal to resolve the tension between the national good and local needs is to change the national structures.  But these recommendations will not solve the problems they are meant to address.
The government, in its election policy, committed not to restructure health.  This was a welcome commitment to our membership.  However, despite protestations to the contrary, there is absolutely no doubt that what is proposed by the Report is a restructuring and a profound one which will impact on clinicians and patients, risking paralysis in the sector for two or three years.

International quality expert Professor Don Berwick has recently suggested to the United Kingdom National Health Service 10 points for a better health service, one of which is:
Stop restructuring. In good faith and with sound logic, the leaders of the NHS and government have sorted and resorted local, regional, and national structures into a continual parade of new aggregates and agencies.  Each change made sense, but the parade doesn't make sense.  It drains energy and confidence from the workforce and middle managers, who learn not to take risks, but rather to hold their breaths and wait for the next change.  It is, I think, time to stop.  No structure in a complex management system is ever perfect.  There comes a time, and the time has come, for stability, on the basis of which, paradoxically, productive change becomes easier and faster.

The Report's recommendations suggest at least three new bodies: the National Health Board, the new independent quality agency and the new shared services agency.  The Report also suggests an agency 'Procuremac' which appears to mirror Pharmac for supplies.  Pharmac is a separate crown agency set up under the New Zealand Public Health and Disability Act.  Although the Report suggests 'Procuremac' be part of the shared service agency, some independence and therefore infrastructure appears necessary to mirror the effectiveness of Pharmac.  A separate stand-alone science agency comprising some of ESR is also suggested.

These new agencies will generate bureaucracy.  Each separate agency will require a governing board, a Statement of Intent, an annual plan, a strategic plan, a Chief Executive, policies, a staff (including at least some human resources and recruitment function), performance agreements, financial accounting and auditing functions, accountability mechanisms and a series of instruments defining its relationship with the other structures, with the Ministry of Health, with each DHB and with the other agencies.  Instead of decreasing bureaucracy the Report's recommendations on structure will increase bureaucratic processes and risk increasing the number of those working in the new bureaucratic regime (which is the opposite of what is intended).  The Report greatly underestimates the scale of restructuring involved in its recommendations, particularly in respect of the proposal National Health Board, and overestimates staffing reductions that restructuring will generate.  The benefits it assumes are more aspirational than empirical.

Proposed National Health Board
The tasks proposed for the National Health Board (NHB) are significant:
• strategically planning and funding of future capacity such as information technology, workforce, capital and facilities;
• funding national services presently funded by the Ministry of Health and services deemed to be national.  The first by taking control of the $2.5 billion non-departmental funding administered by the Ministry and the second by taking money out of funding allocated to DHBs;
• monitoring DHBs partly by requiring them to develop the top three or four productivity measures that are important to them; and
• arbitrating any dispute as to whether services are to be national, regional or local.
The NHB would also include subsidiary bodies responsible for workforce development and planning, capital investment, and national health information technology.

The Report provides four reasons for reducing the role of the Ministry of Health and creating the National Health Board.  However, they do not stand up to scrutiny.  The given reasons are:
1. The Ministry has too many diverse responsibilities.  Separation would allow the Ministry to focus on its core tasks of "policy and regulation" leaving the NHB to focus on "improving performance".  This neglects the increased monitoring and advisory role the Ministry will have in reference to the NHB (and any other new structures).  Further, in a country of around four million people two central bureaucracies is excessive.  The experience of the former Health Funding Authority was that duplication and competitive tensions between two national structures proved frustrating for the rest of the sector.

2. The Ministry's performance should be independently reviewed but it can't be if it does it itself.  Separation is supposed to overcome this.  However, current structures give the Auditor-General auditing functions for government departments and agencies while the State Services Commission can also monitor performance.  Further, there have also been independent university reviews.

3. "Separation forces greater clarity around the objectives for, and operational requirements of, the implementation functions that will now be carried out by the NHB."  This is debatable, especially in a small country such as New Zealand, with no evidence provided to sustain it.
4. As a crown entity the NHB would be "more distant from the Minister" which "should provide greater confidence about how the NHB would behave."  This "reduces both the reliance on subjective factors and the scope for lobbying and special pleading."  These are a mix of unsubstantiated assertions and reasons.  The reference to lobbying and special pleading could reasonably be expected to include the ASMS, other medical organisations such as NZMA and the Colleges, and other health professional bodies who, consistent with your commitment to clinical engagement and clinical leadership, have much to offer.

Avoidance of legislative process
The Report proposes that the small Crown Health Funding Agency be changed without legislation and without parliamentary scrutiny into the National Health Board which may be larger (certainly more powerful) than the current Ministry of Health.  This proposal could be interpreted as an attempt to bypass parliamentary (and public) scrutiny.  Should the government proceed to act as suggested by the Report we believe it would be a misuse of power and against the intent of both the New Zealand Public Health and Disability Act and the Crown Entities Act.  It also creates the risk of legal challenge through judicial review.

The Crown Health Funding Agency was originally set up in 1993 as the Residual Management Unit for a previous restructuring and is listed as such in the Crown Entities Act 2004.  Because of its limited role and, initially, the limited time it was expected to exist, its functions are listed as any functions it has under statute and any function that the Minister chooses to give it to do provided that the function is reported in the Gazette and presented in Parliament.  Under our system of government a department or ministry in the core public service is set up to follow the direction of its Minister.  The Minister is accountable for its actions.  In contradistinction, a crown agent is a crown entity set up to fulfil a function set out in statute that must give effect to government policy.  The peculiarity of the CHFA is that although it is a crown agent, its functions are set by ministerial instruction without direct oversight by Parliament.

Privatisation risks
The Report shifts medium to long term incentives toward privatisation.  It advocates mechanisms that would make privatisation easier when the review of progress after three years inevitably finds that the changes made have not produced the necessary benefits.

Two areas where the Report suggests that privatisation should be on the short term agenda are in diagnostic services and in shifting services to primary care where the terminology of 'level playing fields' between public and private provision mirrors the recent change in the protocols for provision of public funded services.

In the 1990s business era one mantra was neutrality in government support for private and public health providers.  A consequence was the lack of commitment to building public hospital capacity.  Returning to this ideology is hinted in a section on using PHOs to "develop new models of care".  Specifically it states that DHBs should be responsible for dealing with new models of care, including by devolution to PHOs, and "in dealing with the full range of providers, DHBs will need to adopt a neutral position with respect to their own provider arm."
The Report criticises current arrangements that leave it to DHBs to contract with private hospitals to supplement public elective throughput.  It states "this is unlikely to make the best use of total public plus private capacity or provide the private hospitals with sufficient certainty to encourage additional investment."  It then promotes a "more neutral approach to funding public and private hospitals."  Later it promotes trialling the "allocation of some of the elective budget to a PHO that was willing to work with either private or public hospital specialists to deliver more elective services."

Our opinion is that the playing field is not level, and never has been.  Public hospitals are required to function day and night with capacity to accept and manage any serious illness or trauma.  They also have to manage multi-system co-morbidities with high complication rates from even simple procedures.  They are expected to provide the intensive care back-up which permits private hospitals to take on cases knowing the "safety-net" of the public hospital is available.  This combination of expensive requirements drives the staffing, facility, equipment and other costs.

Private hospitals have the luxury of choosing and booking what they look after.  This permits them to plan care which may seem cheaper when viewed on its own, even while paying premium remuneration to staff.  Removing capacity from public hospitals risks shifting staff and resources into private, thereby making it more expensive and more difficult to staff the public services for serious illness, trauma, and chronic multi-system conditions.

A "neutral" approach to public and private provision of diagnostic services (laboratories and radiology) is also promoted raising potential threats to the future stability of current DHB hospital laboratories.  The Report has learnt nothing from the destabilisation of a number of hospital laboratories when Labour's Pete Hodgson was Health Minister.
The Report is contrary to your requirement, with which the Association concurs, that the use of the private sector by DHBs should be for work that DHBs themselves are unable to provide because of capacity.

Access PHOs
The proposal is to cut management fees to PHOs with fewer than 40,000 enrolled patients.  There has been a dichotomy between large efficient PHOs and small PHOs with community involvement.  ASMS GP members are largely in the small 'Access' PHOs providing services to very high needs populations at a very low cost.  Their already marginal operations are likely to be dealt a death blow if the management fees are cut.
There are suggestions of budget-holding by primary care for purchase of secondary services.  The Report also promotes shifting hospital services to primary care settings, which echoes your Letter of Expectations to DHBs.  The Report is, however, ambiguous on what is actually meant by this phrase "shifting services to primary care".  In some parts it is about improved GP access to hospital laboratory services (which may have significant merit) and in other parts much more about control over a wider range of services.  The focus of the Report seems to be on devolution (taking control and funding from one place and giving to another) compared with integration (requiring all services to work more collaboratively together).

Lack of detail and over-promising
The Report also suffers from a lack of detail about how its recommendations might be implemented.  One example is that the National Shared Services Agency should assume the DHBs human resources functions.  However, it is ambiguous as to what this might mean because the functions of human resource management are broad.  Many functions can only practically be provided at and close to the workplace particularly as DHBs are large organisations (usually the largest employer in each city or town) and compared with many other sectors, heavily labour intensive.  On the other hand, there are some recruitment functions that might better be handled nationally.  The point is that the Report does not clarify what human resource functions it means, leaving open wide interpretation.
By lack of detail and failing to qualify expectations, the Report also appears to over-promise.  An example is payroll which it sees as part of the National Shared Services Agency.  A long-term project examining the viability of a national payroll system (not actually recommended in the Report) might be useful but care over expectations is important.  The considerable difficulties and serious implementation problems of the closely aligned Counties Manukau and Waitemata DHBs in developing a shared payroll system provides valuable lessons which are not considered in the Report.

There are several positive features of the Report (despite the lack of detail at times) including many that the Association has been advocating for some time.  These include the emphasis on national and regional services, clinician led networks, clinical leadership, aspects of shared 'back room' services, and clinician engagement in capital investment decision-making and the development of information technology systems.
As a generalisation many of the functions proposed in the Report are laudable and deserve further work towards implementation.  But the structures proposed to provide these functions do not always make good sense, under-estimate the extent of bureaucratic size and transaction processes that will arise as a consequence, and under-estimate the extent of the major restructuring required.  The Report also fails to address the distraction, disruption and paralysis the suggested restructuring will generate for the system.
Alternative approaches we support involve:
 refocusing the Ministry and clarifying its responsibilities,
 centralising processes such as procurement, capital funding, workforce development, clinical training, and clinical network development,
 removing current confusion residing in DHBNZ by abolishing DHBNZ as an organisation and strengthening individual, regional and national DHB relationships with the Ministry,
 strengthening a national quality and safety agency to promote consistent standards and access to health services.
Our Association is keen to discuss with you our recommendations and shared visions for the improvement of the New Zealand health system and its agencies.

Yours sincerely
Ian Powell
EXECUTIVE DIRECTOR
cc  Director-General of Health