Two-and-a-half years on, the Government’s merged mega-polytechnic, the New Zealand Institute of Skills and Technology – Te Pūkenga, is facing a deficit which is double the planned one. Will Health New Zealand – Te Whatu Ora (HNZ) be facing similar troubles in December 2024?
Why did the Government centralise the 20 DHBs? It told us what it hopes to achieve by doing so, but not how this particular administrative structure will contribute to achieving those objectives. As far as I can see, they could have been pursued by redirecting the existing DHB structure, rather than disestablishing it. I have not been able to identify any official explanation of the centralisation – as distinct from the promises.
The closest I can find is a confused statement by the Minister of Finance who said in a 2022 pre-Budget speech that he thought the current health system was ‘incredibly inefficient’. Of course there are some inefficiencies in healthcare delivery, just as there are in private enterprise: mistakes happen, some treatments could have been managed, some are unnecessary (although they are more likely to happen when the patient pays the bill). But to say that health professionals are ‘incredibly’ inefficient is not just rhetoric but insulting.
In the next sentence, the minister explained that ‘over the past two decades, DHBs have learned to run annual deficit after annual deficit because they know the annual Budget process allows them to do this’. So what he is saying is that the ‘incredible inefficiency’ is not ‘inefficient’ at all (not in the normal meaning of the word anyway), but that the public health system is badly designed because it does not meet the fiscal requirements of staying within the funds provided. Presumably, this is a reason for the redesign. But will the new system stay within the funding constraint, any more than the mega-polytechnic? Yeah, right.
I have seen no explanation as to why DHBs (and all) continually failed to stay within budget. To provide one we need to go back to the neoliberal redisorganisations of thirty years ago (just as to explain the run up to them we needed to go back to 1938). We need to avoid the Bourbon habit of forgetting nothing and learning nothing.
Controlling public spending in the 1970s had been an utter misery because of a combination of politics and inflation. The 1989 Public Finance Act led to a reasonable degree of control of central government agencies. Of course there were glitches, but the incentive for a Chief Executive was to stay within budget even though that meant cutting back on services. Excessive overspending can end a Chief Executive’s career in the public service; I know of one example; he went into local government.
The health spending agencies were treated differently. Under the 1991 redisorganisation they were treated as businesses. Businesses try to stay within the budget constraint set by their revenues. If they do not, they go bankrupt and are shut down or taken over. What is the discipline on a public health agency to stay within budget?
(Note to the designers of the HNZ system imagine, shutting down the public hospital system in a region or trying to find someone else to take it over. The public grumble over closing a polytechnic, or a division of it, would be minor in comparison to doing something similar to a hospital.)
The difficulty is compounded by the culture of a healthcare agency. Whatever the approach of the management and the board which supervises it – let’s assume their aim is to stay within the budget constraint – the culture of the vast majority of healthcare workers is completely different. They are there to provide healthcare – whatever their budget says.
When the Mosque Massacres happened, the healthcare workers did not consider whether the care could be provided within budget. They provided the care, often also making personal sacrifices such as voluntarily being called back or working longer hours. This is an extreme instance but such commitments happen all the time among healthcare workers. Bugger the bottom line; bugger even their immediate selfish interests. Their culture is ‘just do it’. (Remember the 2017 Labour Party election slogan?)
Meshing operating within the budget constraint with your healthcare workers’ commitment to patient wellbeing is not easy, if not impossible.
It came to a nasty head in 2021 at the Canterbury DHB, which had an unusually large deficit. The locals claim that the overspend arose because of inadequacies in the funding formulae among DHBs, coupled with the Canterbury earthquakes of a decade earlier, which destroyed a lot of its capital works, while the Mosque Massacres of 2019 imposed heavily on the DHB. Additionally, the Canterbury DHB's new acute-services block opened two years late and its construction costs were over budget. (The Wellington centre was responsible for the building phase and therefore – in principle – for the substantial cost overruns. However, the additional costs are not charged to the centre but to the Canterbury DHB, which had already been paying for more costly service provision before the building was commissioned.)
We can attribute the financial problem to the inflexibility of the central government’s funding regime, which did not allow enough for local idiosyncrasies. (Some of Wellington's appointments to the board also seem to have been unsatisfactory.)
Presumably HNZ may be more flexible (although whether it will have enough funding is another matter, especially as all the government outcome promises involve more resources). Whatever, the outcome of the tensions at the Canterbury DHB was the termination of what was considered to be a very able senior leadership team of healthcare professionals.
I do not see how the HNZ is going to resolve this tension. Its interim board is worthy but unlikely to be deep-thinking. I add that I have the greatest respect for its chair, Rob Campbell, whose insights I greatly valued when I worked with him when he was in the union movement in the 1980s. He has since spent more than three decades in the business sector and it is precisely its culture and thinking which limits the health system’s ability to grapple with endemic failure to perform within budget.
Is there an alternative to the models of businesses and pure public agencies? A possibility may come from the theory of ‘soft budget constraints’ pioneered by my teacher, Janos Kornai (at one time he chaired the Harvard Economics Department). It has been mainly applied to ‘enterprises’ unable to keep to a fixed budget and having to be continually bailed out by government. Most of the work on the theory has been about businesses, but the parallel with DHBs and the HNZ is obvious. Unless we use an alternative to the business model of healthcare provision, with which we have been obsessed with for the last three decades, we are going to repeat the ‘inefficiency' the Minister of Finance was criticising.