Hastening the demise of DHBs’ split personalities

In print

Hastening the demise of DHBs’ split personalities

Ian Powell

Ian Powell

Road signs, two directions, split
Many DHBs still operate with an artificial split between their two main jobs, says Ian Powell

Many DHBs still operate with an artificial split between their two main jobs – funding services and providing services. Ian Powell documents the rise, partial fall, partial rise and probable fall of the funder–provider split

The three Auckland DHBs, led by 1990s’ health-market enthusiast Lester Levy, fall in the contractual camp, while Canterbury DHB takes a relational approach.

Underlying it all is what is known as the “funder–provider split”.

This was the mechanism used to try to create a competitive market in our public health system in the 1990s. The funder would allocate funding to providers, who would all compete.

Initially, this was done through the formation in 1993 of four regional health authorities (RHAs) under new “free market” health legislation.

The RHAs would determine the funding of hospital services through contestable competition between the newly created crown health enterprises (state-owned companies responsible for running public hospitals), and between them and the private sector.

Our first MMP government, formed in 1996 by National and NZ First, tinkered with this regime, leading to the merging of the four RHAs into a single national Health Funding Authority (although it did have four regional branches).

This system failed because it was highly transactional. Those in the funder arms who made allocative decisions had less expertise, and were distant from practical reality, than those in the provider arms.

Consequently, poor allocative decisions were often made. The split undermined necessary collaboration between providers, and it was very disruptive.

The structures that provided this split disappeared with new, non-competitive legislation, passed in 2000. The Health Funding Authority was disestablished, with necessary functions absorbed into the Ministry of Health.

Split continued internally

But in many DHBs, the split continued internally with what were unhelpfully called funder and provider arms. These operated at some distance from each other, with limited collaboration due to misplaced notions of commercial sensitivity and conflict of interest.

So-called funder arms did not see themselves as an integrated part of their DHB. It did not lend itself to sensible, integrated decision-making; quite the reverse.

Fortunately, over time, in many DHBs (including Canterbury), the practical functions of funding were merged into the rest of the DHB rather than being a virtual, separate entity within it.

Hawke’s Bay is interesting under its current chief executive, who commenced employment in 2009. Previously the chief executive of a primary care trust in the NHS in England, he had experience of the funder part of the funder–provider split system. He was sufficiently disabused of its merits that, when he settled into his Hawke’s Bay role, he disbanded the funder arm by integrating its relevant core functions into the rest of the DHB.

Metro Auckland, in contrast, is highly contractual and, consequently, more bureaucratic and transactional.

Dr Levy was appointed chair of Waitemata DHB in early 2009. As it happened, that DHB was one of those still rooted in the old funder-arm system that many DHBs, including Auckland and Counties Manukau, had shifted away from.

When he subsequently became chair of Auckland DHB, its funding roles were merged with Waitemata’s and ran along the same line as Waitemata’s.

Now that Counties Manukau is also tucked under his armpit, all the indications are that this third DHB will be forced back into the outmoded funder–provider split under a new virtual structure. The obvious risk is the likelihood of poorer allocative decisions and higher transaction costs.

Repeated for England

In 2012, the funder–provider split was enshrined in legislation for England through the mechanism of clinical commissioning groups. In the short space of time since then, it is generally recognised that this has failed. NHS England is endeavouring to get around it through new, non-statutory formations, such as sustainable transformation plans and accountable care services.

In that most unusual election in which the Conservative Party both won and lost concurrently, the governing party indicated it was moving away from the split.

Those who cling to contractualism and its structural anachronism, the funder–provider split, are clinging to a bygone ideology, unnecessarily complicating and obstructing effectiveness and good decision-making.

We now have a new government with a substantially different policy base, including in health.

If it is to make a difference for the better, it will need to reorient backward-looking DHB leaderships towards focusing on integrating funding and planning decisions with the rest of the DHBs of which they are supposed to be part.

Failure to do this early in its first term will send confused signals to the sector, especially those at the operational and clinical front lines, and encourage the ideologues of the 1990s. It is time to bury this anachronistic ideology once and for all.

Ian Powell is executive director of the ASMS