Options for managing spending growth

The government, as the dominant payer, has the ability to set the budget for health spending - an essential part of a strategy for managing spending growth. But living with a lower rate of spending growth would require improvements in system performance, including ongoing productivity gains. It would also mean managing demand for services. This need not mean poorer health outcomes, since international comparisons indicate that using resources well can be just as important for the effectiveness of health care as the overall level of spending.[17]

System performance improvements

An important part of securing more health care from the limited resources available involves the allocation of those resources. Funding decisions need to be consistently based on evidence of the relative cost-effectiveness of an intervention. The government may choose to make greater use of agents to weigh up difficult choices about which treatments to fund - in the same way that Pharmac is charged with maximising health outcomes within the pharmaceutical budget. This would require improvements in information, analytical capability and clinician engagement.

Contractual arrangements should incentivise service providers to develop and implement more cost-effective ways of delivering care, and thereby secure productivity gains. The OECD has identified scope to improve the contractual relationships that DHBs have with their hospitals and their primary care providers.[18] That the health system has secured significant productivity gains in the past also suggests this is possible – for example, technological developments and administrative practices in hospitals enabled the average length of stay to be halved between 1989 and 2001.[19] Cross-country comparisons also show the sorts of improvements that are possible and how we might do things better, as do the differences in performance between districts within New Zealand.[20][21]

Work force constraints mean that the skill mix used to deliver services will have to change, as will the location of some services. The increasing specialisation of hospital services means that some DHBs struggle to afford to maintain certain skills. Uncertainty about the financial and clinical sustainability of some specialist areas will require hospital services to be increasingly planned on a regional and national basis. This raises questions about the best way to coordinate regional and national service planning, and about where such decisions should be made. A recent report by a Ministerial Review Group has advocated some of these planning responsibilities being centralised. It also identified opportunities to secure efficiency gains through increased joint procurement among DHBs, including clinical supplies and back office services.[22]

Getting more for the health dollar and using resources more wisely is also linked to improvements in the quality of care that patients receive. For example, a greater focus on safety initiatives would benefit patients, while potentially saving the resources used to treat adverse medical events.[23] Similarly, minimising the wasteful use of resources will involve addressing inefficient processes, which could mean, for example, that patients are less likely to find that their medical records or test results are not available at the time of appointment.[24]

Managing demand

The government can also actively manage the demand for public health services. To begin with, it can encourage better use of community-based primary care - through contractual arrangements with providers - with the aim of reducing unnecessary, and relatively expensive, hospital admissions.

Dealing with future demand pressures will also require the government to manage public expectations as to what the publicly-funded health system can do for people. This will involve a debate around the range of care that the public system provides, versus areas where individuals will need to finance their own health care. A greater role for the private financing of health care could mean higher patient copayments for some services, with public funding being increasingly targeted on the basis of need and ability to pay. Greater private financing could lead to greater use of private insurance. However, subsidies to private insurance have not been associated with lower costs or fiscal savings in other OECD countries, and are unlikely to help manage the growth in health spending in New Zealand.[25]

Spending more on the prevention of illness can improve individual and societal health outcomes, but evidence suggests that it does not help restrain demand or overall spending. This is because preventive measures tend to be delivered to more people than would ever develop the targeted condition, and because people living longer generally develop other ailments that increase lifetime health care costs. Some forms of prevention, such as childhood immunisations, can provide good value for money. But the cost-effectiveness of prevention depends on how interventions are designed, in particular whether the focus is on people with the greatest potential to benefit. Preventive measures still need to be assessed alongside other possible interventions, so that the benefits and costs can be compared within the context of budget constaints.[26]