Submission to the Tax Working Group on health and super funding

Treasury has published its 40-year look into the future as a discussion document. Yes, education, innovation, productivity, and added value to our commodity-based economy will make all the difference, but Treasury’s main focus as always is state expenditure not the underlying drivers of prosperity.

Health and superannuation are a strategic focus because these are not discretionary but mandatory expenditures. Unless something radical changes in our value system, New Zealanders will not accept old people living in poverty or low-income people unable to gain necessary health care. Same in Australia where the government has mandated private versions of health insurance (which requires a large taxpayer subsidy) and superannuation (which gifts large fees to fund managers and unnecessarily subsidies to the better off). These are mandatory schemes, but do not qualify as tax.

I made a submission on the matter of funding health and superannuation without incurring public debt to the Tax Working Group. Suffice to say my suggestions were not taken up! I argued that we should prefund these two areas with contributory social insurance schemes, thus avoiding future debt and tax increases (indeed we would envisage matching tax reductions as superannuation was progressively funded, while retaining the redistributive character of our system).

Pensions (superannuation) and health are two very large components of any developed country’s budget. Historically, these were introduced in response to clear “market failures” in a pragmatic fashion alongside other budgetary items in the tax take. Yet, these can be characterised as inter-generational transfers that have a strong insurable element about them. Thus, in a number of countries pensions and health are dealt with as predicable items of social insurance rather than subject to the vagaries of budgetary determinations through the standard tax system.

In New Zealand we have not done this. In consequence we have massive unfunded future liabilities associated with our state superannuation scheme and an annual wrangling exercise with the health sector with the potential either for unfunded future liabilities or socially unacceptable service cuts. Yet, at the same time, we also have the rudiments of social insurance schemes for both sectors  – KiwiSaver and ACC respectively – which we could be in a position to formalise and develop.

And we also have the example over the Tasman, where the Australians have a levy-based superannuation scheme and a universal Medicare based on an income levy, together with the National Disability Insurance Scheme (NDIS). I propose that we progressively take superannuation and health out of the usual tax take, carry out actuarial estimates of their rates on a regular basis, set them up at some arm’s length from short-term electoral politics (a bit like ACC, but better), and underpin them with regulations and structures that will ensure their efficiency and flexibility. 

  1. We should build on KiwiiSaver and ACC to establish twin social insurance schemes for future superannuation and health costs respectively. This would permit income and company tax rates to be lower, but in part be replaced by actuarial levies on employees and employers.
  • KiwiSaver and the Superannuation fund should be considered together so that we can progressively transition our state pension scheme from a Defined Benefit to a contributory scheme with a guaranteed benefit (to match the current level of provision). For example, when Sweden made a similar transition, individuals were given notional accounts in their equivalent to the Superannuation Fund as a token and promise.

Individuals would be free to save more than required for the basic superannuation, but the role of KiwiSaver and the Superannuation fund would in the first instance be to ensure that no citizen of New Zealand with the requisite residential qualifications would fail to gain the current “National Superannuation” pay-out.

  • ACC should be extended to cover illness (as originally envisaged), but with the income support element taken out of it and placed in an entity equivalent to the Australian NDIS. ACC rates vary by industry risk. This could be extended to other harm-inducing industries such as alcohol, tobacco and sugar, which could be levied in proportion to their estimated impact on the health budget. It would be important to reduce the transaction costs of service payments, with the use of salaries, capitation and bulk-billing (as in Medicare).

This proposal builds on two current New Zealand schemes- KiwiSaver and ACC – that provide the rudiments of social insurance but that have failed to fulfil that potential. These schemes would provide budgetary certainty for their respective sectors and communities, they would improve the national rate of saving, and they would allow income and company taxes to reduce accordingly for superannuation as the system fully funded itself.

Peter Davis

Emeritus Professor in Population Health and Social Science

University of Auckland

https://www.nzherald.co.nz/business/peter-davis-how-to-stop-the-under-funding-of-healthcare-and-superannuation/V2APCWGGDCCQ3MJTUYNMZYA7RY/

From the Social Welfare state to the Social Insurance State?

An intriguing suggestion in the recent Budget was the proposal to explore moving to an ACC-style unemployment scheme which would be self-funded and contributory. A social insurance scheme along these lines has been proposed by both Labour and ACT parties, has been outlined in a research paper by the Productivity Commission, and was further brought into sharp relief by the impact of COVID which showed that the standard income replacement level in New Zealand for those losing employment under conditions of the pandemic was among the lowest in the OECD (being about half that of Demark).

Along with the United Kingdom, Australia and some other countries, New Zealand has followed the welfare state tradition of tax-payer-based funding for means-tested benefits, along with near-universal health and superannuation support. An alternative tradition characteristic more of European countries has been that of social insurance, with contributory, self-funding schemes of social protection, including health and superannuation.

The only aspect of the social welfare architecture in New Zealand following social insurance principles is the Accident Compensation scheme established in 1973, initially restricted to those in the workforce, but in parts extended to non-employees for treatment, rehabilitation and some compensation for injury caused in circumstances unrelated to employment status. Aside from this extension to cover injury among non-employees, ACC has remained a niche innovation and the only example of social insurance in the New Zealand welfare architecture. Treasury, as the guardian of fiscal probity, has generally remained opposed to extending the social insurance principle elsewhere in our social protection system.

In case anybody might think that a Denmark-style unemployment insurance system might be a bit of a “soft touch”, since, like ACC, it guarantees 80% income replacement for those displaced from the workforce, it needs to be noted that in Denmark this system is part of a comprehensive active labour market policy. So, yes, a displaced worked might gain 80% of their previous income, but they are expected to prepare for and gain further employment with a combination of enabling and, to some extent, “punitive” measures. Tutoring for workforce re-entry, upskilling and training requirements, time limits, subsidized child care and so on are all instituted to encourage a return to active employment. Thus, Denmark has one of the lowest levels of unemployment, and highest levels of workforce participation, in the OECD. This goes along with a high standard of living and low levels of poverty.

But what of those who, to an extent, are for various reasons unable to enter the active workforce because of long-term conditions such as physical disability, mental health issues, or substance addiction? ACC does provide long-term support for those unable to re-enter the workforce, or even enter the workforce in the first place (for example, birth injuries). We only have to look over the Tasman to see how such a scheme could be extended. The Gillard government instituted a National Disability Insurance Scheme (NDIS) to support those with long-term conditions, and this has been retained by the subsequent Liberal-National coalition governments. Such a scheme would extend the certainty and effectiveness of ACC coverage for the long-term impact of catastrophic work-related injury to other long-term conditions and remove the poverty and stigma currently suffered by these groups in New Zealand. The Australian NDIS is a work-in-progress and provides a potential model.

What about the ACC “trifecta”; in other words, not just insurance coverage for income interruption and long-term disability, but treatment and rehabilitation beyond injury as well? Here again Australia has pioneered with their universal public health insurance for non-hospital care instituted in the 1970s. We could follow the ACC principle of internalizing external costs not just for workplace injury, but for harmful consumption products such as tobacco, alcohol, sugar, saturated fats, and so on. Levies on these products could not only fund non-hospital care but also reduce consumption and health effects.

There are potential disadvantages to a social insurance system. Strictly enforced it might only provide coverage for those with a full insurance record. In such circumstances the tax-payer would need to step in. Furthermore, as we have seen with ACC, there are constant demands for its extension. However, these have been largely resisted, and the scheme remains fully-funded, efficient, and well-targetted. And it also contributes, like the Super fund, to New Zealand’s balance of payments and general economic viability through its investment portfolio. Finally, as we saw in 1999 when ACC was opened up to private insurers by the National government, the social insurance principle can provide an entry-point for privatization with a decline in service levels and an increase in costs.

ACC has been a niche and undeveloped innovation in our social protection architecture. In 2023 it will be half a century since its inception. That might be a fitting time to move core features of New Zealand’s welfare system to a more efficient, sustainably-funded social insurance basis drawing on both international and local models of performance.

Peter Davis

Emeritus Professor in Population Health and Social Science

University of Auckland

https://www.newsroom.co.nz/ideasroom/peter-davis-from-the-social-welfare-state-to-the-social-insurance-state

Are prescription medicines particularly expensive in New Zealand?

The short answer is that they are not! Unlike many other countries, hospital patients receive their medicines for free and most prescriptions from the family doctor are filled at the pharmacy for a small ($5) charge. So, for most people, prescription medicines cost little or nothing.

However, for people who do not want or need a medicine approved for funding by New Zealand’s taxpayer-funded health system, this has to be paid for at a (generally unsubsidized) price set by the manufacturer. These prices can be very high and in some instances they can be drugs that are potentially life-saving, so they gain media attention. It is hard to say how many people fall into this category, but it is probably well under one per cent of all medicines users.

Before returning to these issues, the following sections will give some historical and policy background.

A Short History  

Ever since the earliest times health providers have used pills and potions as important elements in their practice. The earliest pharmacopoeia – guides to drugs and how to prepare them – were recorded at different times by Greek, Egyptian, Arab, Persian and Chinese apothecaries or pharmacists, mostly outlining herbal remedies.

To get something closer to the modern era of medicines one has to advance to the last nineteenth and early twentieth centuries. In 1897 aspirin was developed by the Bayer company from existing formulations (originally based on willow extract) and it is now one of the most widely used drugs across a range of applications. Another important development in modern medication was the discovery by Alexander Fleming of penicillin in 1928 from the natural product of a mould, paving the way for the widespread introduction of antibiotics.

Fast forward to 2021, and we see an effective vaccine developed within a year and mass-produced for dosing populations of millions within months. This is a staggering achievement and demonstrates the power and trajectory of the modern pharmaceutical industry with an impressive combination of world-beating basic science – much of it funded by public agencies – rapid field-testing to determine efficacy, and then manufacture and distribution around the world to many millions.

The New Zealand Scene

Where does New Zealand fit in the world picture? Like most other developed countries prescription medicines are available to New Zealanders within a publicly-funded health system. However, we are unusual – if not unique – in having a public agency with a fixed budget that negotiates with pharmaceutical companies over the pricing of their products.

This agency is called PHARMAC and was founded in 1993 by the four regional health authorities at the time. From the late 1980s, with the arrival of some particularly high-price medicines on the New Zealand market, the government established a more commercial approach to pricing, rather than just accepting the price that companies nominated. In effect, PHARMAC runs what is known technically as a National Formulary (more colloquially, a drug list); that is, certain medicines – the great majority – will be available under the taxpayer-funded health system, while others will not. This is a point of some controversy since drugs that are not funded by PHARMAC are likely to be expensive (see case studies below).

In some cases, patients may meet so-called part-charges for drugs that are not fully subsidized. Where a grouping of equivalent medicines (technically, a therapeutic group) has been accepted onto the formulary – say, antibiotics – PHARMAC sets the price it is prepared to pay at the cheapest equivalent version of these medicines. In the case of this “best buy”, the patient pays just the standard charge of NZ$5. However, for all other versions of equivalent drugs the patient may need to pay the (usually quite small) difference between the price PHARMAC will reimburse and the price the company charges.

Dollars and Cents

PHARMAC’s budget for medicines is just over NZ$1 billion a year, approximately five per cent of the taxpayer-funded annual health budget. At the same time, it has made substantial savings over the years in its negotiations with drug companies such that it is estimated that, if PHARMAC had not been doing its job of negotiating to get “the best price” with pharmaceutical companies, the cost to the New Zealand taxpayer of the current formulary would be about three times what it is now (i.e. $3 billion, not $1 billion).

Across the OECD, countries spend about 9% of GDP on health, ranging from 17% in the United States to under 5% in Turkey. New Zealand stands just above that average figure at about 9.5%. Of this expenditure, about 80% is publicly funded (70% across the OECD). Expenditure on pharmaceuticals is about 10-15% of the health budget across the OECD (versus about 5% in New Zealand), with about 25% of that in hospitals, 65% in the community, and 10% over-the-counter (not PHARMAC funded) at the pharmacy.

This gets to the nub of the question – at just five per cent of health expenditure (versus an OECD average of over 10%), how can New Zealand fund all the medicines that its population needs? Yes, when you take into account the savings made, in effect PHARMAC is being criticized for negotiating good prices because, were it not for those negotiations, its budget would be trebled in size and above the OECD average. Nevertheless, it is apparent from media stories that there are a good number of dissatisfied customers who feel they are not able to get the drugs they need, except by paying exorbitant prices, or moving to Australia where they might be able to get those drugs on the tariff.

Some Case Studies*

There are three areas where cost might be a consideration for patients. Desperate patients are still willing to sell up and move to Australia or fund-raise, and these gain media interest.

Firstly, there is a considerable flow of very expensive cancer drugs, many of which have been given abbreviated review by drug regulators because they are seen as particularly innovative and important. Some of these are funded in Australia, but not in New Zealand. A recent review of such drugs found that they may have added a few months to life expectancy, but at very great expense. One example of this would be Pembrolizumab (branded as Keytruda) for urothelial cancer. The experts on PHARMAC’s Cancer Treatments Subcommittee recommended that PHARMAC decline the application for funding.

Secondly, there are drugs for rare disorders that might make a big difference to sufferers’ lives, but that are so expensive that they would take a disproportionate share of PHARMAC’s budget. A triple modulator therapy treatment for cystic fibrosis, which is estimated would cost around a quarter of the current PHARMAC budget, has been in the media on multiple occasions over the past few months, with criticism aimed at PHARMAC for not funding the medicine.  PHARMAC has not yet received an application for this medicine. 

Finally, there are drugs that clinicians may champion because they are judged to be an advance on current, acceptable treatment. Again, these may be very expensive if fully implemented. A recent example in the media was an inflammatory bowel disease (IBD) treatment,  Ustekinumab, where many clinicians who treat IBD saw the need for an additional treatment, and held a protest outside PHARMAC and at Parliament to raise awareness of the need for this additional medicine. Ustekinumab remains an option for funding with PHARMAC.

Conclusion

Access to medicines is in many ways a litmus test of a decent society, particularly if a medication can make a difference between life and death. With the modern welfare state citizens can expect to access medicines at minimal cost. It is a modern “gift relationship” between the citizen and the state. At the same time, medicines can be very expensive and come with conflicting therapeutic claims. New Zealand has developed a system that tries to bring the cost of medicines down to a manageable level, while at the same time assessing therapeutic efficacy in a stringent manner. In making these trade-offs there may be some element of personal distress and even tragedy, but overall the system serves us well.

*These case study details were supplied by PHARMAC on request. For further information, see

Peter Davis

The Case for a Non-Commercial Public Broadcaster

The Government recently established a working group to look at the possibility of establishing a new public broadcasting entity. At present Radio New Zealand (RNZ) is almost the only agency that adheres to a public broadcasting mandate largely free of commercial imperatives. Television New Zealand (TVNZ) is in public ownership, but in all but name it runs like a standard private television station, with slightly less of the brashness of its commercial counterparts.

So, why go to all the trouble of even considering a public broadcaster when the proposed melding of the disparate cultures of RNZ and TVNZ is running into opposition, the last attempt to graft public broadcasting values on TVNZ in the 2000s failed, other experiments such as TVNZ 6 and 7 were closed down with a change of government, and there is likely to be little new money for a venture of this kind?

There is a strong case for a free-to-air, non-commercial public broadcaster and online media outlet. This case needs to be renewed in the light of the dramatic technological developments of our era, the strengthening of cultural and commercial globalization, and the hints of a deepening political polarization anchored by social and mainstream media, all of which have occurred since “state broadcasting” was first initiated a century ago. This case rests on three arguments.

First, we need to re-establish and protect a free-to-air-and-online “commons” that is non-commercial and inclusive and that can nurture searching and even-handed journalism alongside opinion, controversy, and cultural exploration. What we are seeing in social (and increasingly in mainstream) media is an algorithm-driven business model where companies establish and feed increasingly distinct and separable market segments with content that builds the loyalty and activity of those targeted audiences.

The social media companies have gone the furthest with algorithms that develop and deliver market segments of opinion and related buyer and audience habits. This is a commercial imperative in a competitive environment, and no amount of handwringing about its unfortunate consequences – antagonistic opinion bubbles, the purveying of “fake news”, the fanning of conspiracy theories – can alter this direction of travel. The best that can be hoped for is to mitigate the worst consequences. The Helen Clark Foundation has contributed to public discussion about how this can be achieved both domestically and internationally. Public interest media was flagged as a key measure through which governments can counteract polarisation.

Mainstream media is not immune to this in New Zealand and elsewhere as loudly-expressed opinion increasingly comes to crowd out even-handed journalism, and journalism itself is tending to be dominated by hyperbole, stridency, and emotive impact.

Second, we need to protect New Zealand’s “cultural sovereignty” against an onslaught of brilliantly-crafted films and shows produced by the overseas streaming giants such as Netflix, YouTube and Discovery. Increasingly the sheer technical and cultural virtuosity of these behemoths threatens to overwhelm our puny resources. Aside from a continuing and brave series of documentaries on RNZ, the likes of Country Calendar on TV1, and Māori TV’s coverage of ANZAC day, it is a long time since I have seen a broadcaster help New Zealand to tells its own stories in a compelling way that could compete with the overseas tech, film and media giants, despite the efforts of New Zealand On Air.

Finally, there is the consideration of “soft power”. This might seem pretentious for a small country in the South Pacific, but “Brand New Zealand” and our distinct cultural and political mix are points of difference and interest internationally that play to our advantage. New Zealand should not be apologetic about telling its story and projecting its image in its immediate neighbourhood.

How, then, could we structure and fund a multi-platform but unified non-commercial public broadcaster and online media outlet from our current ingredients? TVNZ 2 should remain a commercial SOE and generate an income stream for the public broadcasting and online entity. New Zealand On Air needs a boost in funding from a digital advertising tax on the tech giants that have sucked much of the advertising base out of the New Zealand media. With that, it could take the ABC across the Tasman as a possible model of a combined radio and TV entity and expand its public broadcasting brief from RNZ to progressively incorporate the main components of TVNZ 1.

We might find that a TV-enhanced and suitably modified multi-platform mix RNZ has developed works well across the entire merged organization as it helps New Zealand to establish an inclusive commons where we can tell our own stories, conduct a national conversation, and hold a mirror up to our increasingly diverse and vibrant society, leaving plenty of room for the domestic private sector as well as the overseas streaming, broadcast and social media giants that otherwise threaten to overwhelm us.

Peter Davis

Chair, The Helen Clark Foundation

https://www.stuff.co.nz/opinion/125446414/the-case-for-a-noncommercial-public-broadcaster

Social Democracy and the Healthcare System in New Zealand

The New Zealand Labour Party (NZLP) was formed in 1916 by a coming together of various socialist parties and trade unions. It did not achieve power until 1935, and held office for its longest term at that time through to the late 1940s. It has always been strongest in the urban areas and its early leaders were of migrant stock (Australian, Scottish, English).

While the party had its roots in the labour movement and even to this day has affiliated blue-collar unions, it forged an alliance with the indigenous, Maori, people of New Zealand in 1936 (an alliance that has mostly lasted the test of time), and it has increasingly become a social democratic rather than a specifically “labour” or “democratic socialist” party as it came to rely on women, the young, liberal urban professionals, and public sector workers for electoral success.

This trend was reinforced by the introduction of proportional representation in 1996 modelled on the German system of Mixed-Member Proportional (the biggest electoral change since universal suffrage was provided to women in 1893 and seats set aside for Maori in 1867). This electoral innovation completed the movement of the NZLP from a broad-spectrum left-of-centre party to one closer to the centre with the Greens to its left and the conservative National party mirroring it to the right-of-centre.

The First Labour Government entered office in 1935 headed by Michael Joseph Savage, a miner, labourer and trade unionist of Australian stock. He and his colleagues are seen as architects of the foundations of the modern welfare state, including the healthcare system. The party campaigned on the introduction of the Social Security Act in 1938 which provided, for the first time in New Zealand and possibly the world, comprehensive social security support, including unemployment, pensions, child benefits – along with university health care which provided free hospital care, doctors’ visits, medications, and other health benefits. This was paid for by an increase in income tax.

The key features of the New Zealand healthcare system are free care in public hospitals, subsidized care for access to family doctors who deal with 90% of medical encounters and control referral to hospital, and subsidized care for access to specialists. There is also a universal school dental service staffed by non-graduate dental therapists founded in the 1920s, and a comprehensive injury care, rehabilitation and compensation system that grew out of workers’ compensation in the 1970s and is funded by a levy on workers and employers. Finally, New Zealand established a drug subsidy agency in 1993 that negotiates with pharmaceutical companies and has managed to reduce prices to half their normal market level. Most New Zealanders pay a nominal sum for medications dispensed by the pharmacist.

It should be noted that many of these innovations were introduced “across party lines”. Thus, the school dental service was introduced in the 1920s by conservative parties, but has stood the test of time under different partisan governments. The injury system – called Accident Compensation – was founded following a commission of inquiry under a conservative government, but founded in 1974 under the Third Labour Government, led by Norman Kirk (the first New Zealand-born NZLP leader). Finally, the drug subsidy agency (PHARMAC) was introduced under a conservative government, but maintains support from “both sides” of politics, in part because of the enormous savings it makes.

There are two areas where a social democratic government makes a real difference – maintaining the funding base for the healthcare system so that it remains universal in coverage rather than being privatised by degrees, and instituting preventive, public health initiatives that are opposed by the relevant industries that produce harmful outcomes and products (tobacco, alcohol, food, beverage, and also environmental effects, for example from farming and other activities).

For example, in 1999 the National government opened up the injury system to private insurers, a move that was reversed when the Fifth Labour government came to power that year. While superficially an attractive prospect, private insurance was going to cost much more and the criteria they applied to avoid payments was going to lead to a steady decline in benefits. Similarly, the National government of 2008-2017 steadily, but subtly, ran down the health system such that the incoming Labour/New Zealand First coalition government in 2017 had to inject large amounts of funds into the system to prevent its erosion. The NZLP has also opposed tax write-offs for private insurance cover. Again, a superficially attractive initiative; however, it benefits the more affluent and requires subsidization from the taxpayer to maintain its viability (this has been the Australian experience).

The picture on preventive, public health policy is more mixed. In 1990, the last year of the Fourth Labour government, the Minister of Health, Helen Clark, introduced the Smoke-free Environment Act which protected employees and public spaces from smoking. This was not repealed or weakened by the incoming conservative government. All tobacco sponsorship was also bought out and banned. The Fifth Labour government led by Helen Clark from 1999 to 2008 introduced nutrition and other initiatives in schools, but not much has been done to tackle the issue of obesity, against industry opposition and possibly a lack of public support. Similarly, with environmental hazards and climate change, the current NZLP government led by Jacinda Ardern, has moved slowly as it tries to bring public opinion with it against opposition from industrial interests and the National party.

What are the lessons? Some factors are specific to the New Zealand experience. For example, the Great Depression of the 1930s provided the radical fuel for a major initiative such as the Social Security Act of 1938. That said, many of these features of the welfare state are now advocated by technocratic organisations such as the World Bank. No developed country can now do without a version of unemployment insurance and pension schemes, and the concept of universal health coverage is accepted around the world. Thus, initiatives that were seen as radical in the 1930s have become basic building blocks of modern, well-governed societies, although they can still meet major opposition.

More important is establishing the long-term sustainability of these systems, with funding that has wide public support and that is seen to be efficient, fair, and sufficient. The fundamental fairness of the universal principle in health care can be accepted by almost all social groups, regardless of cultural background. However, maintaining these systems against tax-cutting conservative governments is harder. For example, the incoming NZLP/New Zealand First government of 2017 had to commit to reversing the tax cuts promised by the previous National government in order to protect basic public services, particularly health.

In New Zealand healthcare has proved to be part of the menu of policies that the public expects of a social democratic government, along with education, jobs, and other public services. Conservative governments also pay lip service to these features of a modern, civilized society, but actually work to erode and undermine them in subtle ways. Harder to advance has been the public health agenda, since here one can come up against public opinion as well as major industrial vested interests.

It has been estimated that 80% of health status advance comes, not form healthcare, but from the broader policy mix one expects of a social democratic government; namely, good education, a higher standard of living, urban sanitation, housing access, and public health. So, yes, progressives should advance the cause of universal healthcare, but they should also see it as part of a broader social democratic agenda that one comes to expect of a modern, civilized, and caring society.

Peter Davis

Chair, The Helen Clark Foundation

and Emeritus Professor, University of Auckland, New Zealand

This article was published in May 2021 in the Social Democracy Asia Journal. You can access the entire May issue of the journal.

Will the proposed health changes make a difference in Auckland?

Will the proposed health changes make a difference in Auckland? The short answer is – no; unless, the proposed commissioning (contracting and funding) powers get to be located at the level of the region rather than the centre, and unless those same powers stretch right across the funding spectrum to include not just hospital services but all those services delivered in the community by health providers and NGOs, many of which – such as Plunket and midwives – operate autonomously.

 Auckland is host to competently-run public hospital services that, partly as a result of COVID, are increasingly working, with Northland, as a regional network – as envisaged in the proposed health changes. Auckland is also host to two of the most significant networks of providers of general practice services, with ProCare run on professional lines with 200 practices and Tamaki Healthcare a corporate with nearly 50 clinics. Again, these are consistent with the proposed health changes.

With the abolition of the District Health Boards (DHBs), the centre of gravity in Auckland and Northland inevitably moves to the regional level. Furthermore, as the management of COVID in Auckland shows, organizing a regional system from Wellington can produce unforced errors and shortcomings that, with media amplification, very easily become an embarrassment to central government.

The argument for a regional presence in Auckland, advised by local stakeholders including Maori and Pacifika, is therefore a strong one. But it would be a missed opportunity if it were left to the current regional actors in hospital and primary care services, competent and well-tested as they might be.

If we had a properly-resourced regional commissioning agency, it could make quite a difference to the shape of hospital services. We might use hospital facilities more efficiently (including at weekends), such as expensive theatre time, equipment and beds, instead of building and buying new capacity. The trend towards fewer in-person outpatient and other visits in favour of contacts conducted virtually would hasten. There could be a greater blurring of some technical roles and a determined attempt to work with the educational sector on more flexible personnel. Much more “hospital work” could be done at home and with family doctors. These is the potential.

But by far the greatest possibility comes with non-hospital services. Under the existing model, rather than the “health” in the DHB moniker leading to a liberation and empowerment of non-hospital services, it instead disguised the fact that these services were overshadowed by the almost exclusive focus of management on effectively running their resource-intensive hospital services. By putting hospital services exclusively back under management control as they were in the 1990s, the non-hospital sector has “got out from under” and has a better chance of flourishing.

There are three challenges that primary and community care need to meet: integration of care between the current multiplicity of providers and funders; “levelling up”, so that we can bring up levels of service provided to lower socio-economic and other disadvantaged groups to match those currently enjoyed by more affluent suburbs; and keeping people out of hospital with sound after-hours cover, prevention of treatable hospital admissions, and early intervention for a range of conditions like diabetes that threaten to get out of hand. A regional commissioning agency prepared to add payment-for-performance criteria to standard methods could, over a period of years and with central government support, make a difference in these areas.

There will still be an important role for the new central health agency, Health New Zealand. For example, we might finally get a seamless IT and digital infrastructure that can replace our current patchwork with a national system that serves in real time anybody, anywhere, regardless of condition and provider. We will also, with Health New Zealand, have a coordinated national programme of capital investment, workforce development, specialist networks, and screening services across the spectrum.

There is a good chance these regional and national initiatives could draw bipartisan support.

What will we not get with the proposed health changes? We are unlikely to get marked improvements in life and health expectancy, particularly for the most disadvantaged. That requires vigorous public policy on housing, income maintenance, education, job safety and security, and public hygiene and environmental standards. It also requires a public health response that goes well beyond the proposed public health agency to tackling the drivers of disease from the food and beverage industries in the consumption of tobacco, alcohol, sugar, saturated fats, salt, fast foods and so on.

Also, with the proposed health changes, we will not get an end to shortage of service and unmet need. The demand for health care is hard to satisfy, and we will never have the supply to meet it fully. That is something that will not change, no matter who is in charge.

Peter Davis

Emeritus Professor in Population Health and Social Science, University of Auckland.

https://www.stuff.co.nz/opinion/300301345/health-system-overhaul-wont-make-a-difference-in-auckland

Maori leadership needed on health equity for all

John Tamihere reminds us of the ways in which Maori are disadvantaged in our current health care system. Each one of his examples in his Herald article strikes home as a real failure. They resonate with me, both as an academic who has studied health services and health policy for a long time, and as a current elected member of the Auckland District Health Board (ADHB).

The argument John makes is a powerful and persuasive one, but, from my experience of the ADHB, one could largely have substituted Pasifika for Maori and come up with a similar story of failure and disadvantage in the health care system. That is why the senior management and planning staff at the ADHB, with the support of the Board, have developed an equity agenda that encompasses both Maori and Pasifika, on the reasoning that these two groups share not dissimilar circumstances of disadvantage.

Then, to draw a fuller picture, one should also include those in the bottom two quintiles of our socio-economic structure, regardless of ethnicity. Those in that demographic are severely disadvantaged in similar ways, regardless of ethnicity. That is why DHBs have a special loading in their allocation from the Population-based Funding Formula that takes account of the proportion of their population that is in that demographic, alongside Maori and Pasifika. Overall, then, this is a story about people with limited voice and power trying to get a system to respond to their needs, and with the system trying through a number of mechanisms to respond.

Our welfare state system, inclusive of health and social policy, designed in the 1930s, operates on the principle that people in need, regardless of ethnicity and socio-economic status, should be served according to their requirements, whether that need be housing, income, education, or, in this case, health care.

The problem is that the system continues to fail in many of these respects, and Maori, among others, have borne the brunt of that. Let us remember that we are just emerging from the aftermath of a decade in which more state houses were sold than were built, benefit levels remained mostly unadjusted, low-decile schools didn’t get the support they needed, and the funding of the health care system was steadily eroded.

In other words, while the concerns of Maori are long-standing, they have also been exacerbated in the period since the Global Financial Crisis by a failure to maintain key features of the pre-existing social contract between the State and citizens.,

The Treaty of Waitangi governs the relationship between Maori and other New Zealanders. In the design and delivery of and access to health services, it must be taken into account. The Government’s proposed health changes are a chance to rectify the failures in health care, for Maori and or others who are disadvantaged.  Maori will be the vanguard of the change through the Maori Health Authority, but let the kaupapa be one of “leave no one behind”, “levelling up”, and “lifting all boats”.

The coalition of those who support the public health system can at times be fragile. Removing Maori from that coalition weakens it. For example, Ngati Whatua appear to have given up on the failings of the current system by signing up for comprehensive private insurance cover. That is understandable in the circumstances, but Maori leadership on the wider equity agenda across our health and social services is vital. That way we support not ‘separatism’, but solidarity and unity. We are all in this together.

Peter Davis,

Elected Member, Auckland District Health Board 

and Emeritus Professor of Population Health and Social Science,

University of Auckland   

https://www.nzherald.co.nz/nz/politics/peter-davis-maori-leadership-needed-on-health-equity-for-all/IWTIKHJY2A5IGDAG7EKBSLIYI4/ 

Everything to play for in health reform announcement

There is everything to play for in the announcement of the long-waited health reform package by the Minister of Health, Andrew Little.

The announced structural outline is best seen as an enabling framework that, with good will, political and operational acumen, and sufficient funding, will in time flesh out a reconstructed health system that, while it builds on existing elements, is also a bold, new departure.

There are elements here that echo past reform initiatives.

  • A national health system. This was the centre piece of the Third Labour Government’s proposals in 1975 but never implemented. We will have it now, but in a less bureaucratic form. Its peak body in the current structure will be Health New Zealand.
  • Hospitals separated out to operate efficiently as large-scale health enterprises. This was implemented by the National government in the 1990s. We will have them again now, but working as cooperating networks of providers rather than as competitors in a health market.
  • Commissioning powers. We had this in the 1990s and before with the “purchase-provider” split. This function returns, and the key will be whether these commissioning powers can be used not just to extract efficiencies, but also to improve the distribution of services and enhance equity.
  • A public health agency. This was implemented and disestablished by National in the 1990s as it got too activist and upset industry interests. We will have something similar again, but within the Ministry, and quite possibly a more technocratic, less activist beast. There is a gap here.  
  • Localism. The DHBs established in the 2000s were a tribute to local community interests, as reflected in the continuation of the elective principle and the 20 (previously 21) different health boards. It looks as though the suggested reforms, while dispensing with the elective principle and removing the overarching board function, will retain an element of local responsiveness.
  • Primary and community health care. There is a renewed attempt to put the “health” of the District Health Board concept back on the agenda. It was a brave concept, but the non-hospital agenda of the DHBs has been overwhelmed by a hospital focus, and largely absent. This will be one of the hardest features of the proposed reforms to implement effectively. A lot will depend on leadership in the relevant professions and a willingness to work In the proposed networks at the locality level.
  • Digital infrastructure. This is a perennial. The Minister summed up the goal of these reforms as making our health system “fairer and smarter”. A key element in making our system smarter has to be a wholesale shift towards a comprehensive, interoperable and self-managing digital infrastructure. The necessity to establish an entirely new IT system for our COVID vaccination programme is indicative of how far a key feature of our health infrastructure has fallen behind.

What is entirely new and can find no precedent in previous health reform initiatives is the establishment of a Maori Health Authority (MHA) that will have commissioning, oversight, planning and joint-decision making powers. How this works out may make or break these reforms and is the sort of area that may well draw partisan interest in future. There is a constituency that relies on and supports the public health system. At its base are those for whom a private market can never work – lower socio-economic groups, the low-income elderly, and those with catastrophic or long-term and/or disabling health conditions. Gaining increasing recognition as distinct groups within this constituency of those who rely on the public health system are been Maori and Pacifika.

The MHA builds on this insight and adds an equity lens to the system, in part informed by a Treaty of Waitangi imperative, a focus that has not had organizational expression to date. Thus, the MHA has to be a major enhancement to the equity features of the system. It will be interesting to see whether it can work to the advantage not just of Maori, but other elements of the coalition of those who are almost totally reliant on the public health system and whose electoral and social support maintains it.

And then there is the broad middle class; they may take out private insurance, but they know that in the end the public system is there in time of need and, anyway, is part of the ethos of New Zealand as an inclusive and caring society. How the MHA rubs along with these and other groups may be one of the key elements that will be crucial to the long-term political future of these health reforms.

Peter Davis

Elected member, Auckland District Health Board and

Emeritus Professor in Population Health and Social Science, University of Auckland.

https://www.newsroom.co.nz/ideasroom/everything-to-play-for-in-new-health-reforms

Dealing with the health effects of our harmful consumption patterns

New Zealand, like other affluent societies, is suffering the health consequences of our harmful consumption patterns. Thus, a recent report from Diabetes New Zealand shows that nearly 5% of the population suffers from diabetes and close to 20% are at a pre-diabetic stage. These numbers are likely to double over the next 20 years, with associated heath costs rising to nearly 10% of GDP and a quarter of Pacifika people suffering from the condition. The rising level of obesity, and our consumption patterns particularly sugar, lie behind these trends.

On the face of it, our system is not well geared to dealing effectively with this emerging health scenario; not only are we failing to make a sufficiently determined attempt to arrest or slow down this apparently inexorable rise in illness and disability associated with our harmful consumption patterns, but also, as the request for funding from the Diabetes New Zealand report shows, we are up for some major costs, and these will have to compete with many other demands on the taxpayer’s dollar. We see this every day at the Auckland District Health Board.

However, there is one feature of our system that is ripe for development and adaptation in dealing with these issues, and that is the Accident Compensation Corporation (ACC).

ACC is coming up to its 50th. anniversary. It is a social insurance scheme built on the insight that injury sustained at work – later extended to other areas of life – was a cost of employment inflicted on workers in industries such as forestry, farming, manufacturing, and construction, the burden of which they had to bear, rather than the industries that employed them. This was seen as unjust. It also provided no incentive for industries to improve their injury track record. Out of these key insights was born our current ACC levy and compensation system which attempts to cover the costs associated with injury, whether suffered at work or elsewhere.

Since the time of ACC’s founding the great change in the health profile of developed (and even developing) countries has been the shift from infectious diseases to conditions largely associated with our way of life, such as cancer, heart disease and stroke, and diabetes. These are in major part associated with our lifestyle, which includes the consumption of a range of potentially harmful products such as alcohol and tobacco and items containing sugar, salt, and saturated fat.

While these consumption patterns are obviously enjoyable and to an extent willingly engaged in, they are also encouraged and promoted by the industries that profit from them. In other words, as with ACC 50 years ago, the food and beverage industries are, through the promotion of consumption lifestyles, laying a major burden of harm on the community by way of illness, disability and premature death, a burden that is not internalized into the cost structure of these industries but is instead carried by the taxpayer through the health system.

It would be perfectly possible to extend the ACC levy system from industry-specific injury risk profiles to risk profiles for different illnesses like diabetes, both to fund the treatment arising from these consumption patterns, and to help modify them by incorporating the real costs of community harm in the prices of these products. As with the current ACC system, this would perform a double duty: it would cover treatment costs for illness, and also help reduce the health impacts of these harmful features in our consumption patterns.

But there are possible downsides. For example, the most disadvantaged sections of the population, as represented in the bottom 20-40 percent of the socio-economic distributions, are likely to be consuming more harmful products, and those products are likely to be a higher proportion of their disposable income than for higher-income people. Thus, any levy on these products could be seen as regressive in its impact. However, there are alternative less harmful products, and lower-income people are more likely to switch because they would be more susceptible to the income effects of levies on these products; in other words, they would be less able to afford these products and would in time switch to cheaper equivalents that escaped the impost.

And levies on harmful products do not necessarily rebound to the disadvantage of manufacturers either. The British government imposed a sugar tax on beverages in the United Kingdom. A recent review of this initiative in the British Medical Journal shows that, while sugar consumption declined by ten per cent, volumes of sales did not, since manufacturers reduced the sugar content of their products rather than suffer a downturn in sales.

As with ACC in its current format, this extension could work for all stakeholders. Above all, we might at last deal with a feature of our lifestyle that, on its present trajectory, could in future generations roll back many of the great gains in health we have achieved over the last century.

Peter Davis

Elected member, Auckland District Health Board, and Emeritus Professor of Population Health and Social Science, University of Auckland

Another Review of PHARMAC

With each major change of government in recent years, PHARMAC has been required either to list a particular drug (Herceptin under National), or undergo a review (the current government), or both a new listing (Interferon) and a review (in the early 2000s).

This degree of scrutiny speaks to the sensitive and contested area the agency occupies. As an agent of government it makes inherently controversial decisions (with life-and-death consequences in some instances), but at arm’s length from the political process.

This time, however, the debate around PHARMAC seems to be different. In thirty years of observing this area, I have never seen such a concerted assault on PHARMAC, with barely a week going by without a petition or a media story about the alleged baleful influence of PHARMAC on access to medications. There could be several reasons for this. Is more expected from a government of “compassion and kindness” after a decade of “soft austerity”? Is there a hungrier media and a pharmaceutical industry that is more energetic and savvier? Is it that PHARMAC taking over the procurement of cancer drugs from the DHBs presents a single target? Are social media platforms fuelling more populist, anti-establishment groups across a range of issues?

Whatever the reason, we now have a review headed by Sue Chetwin, former CEO of Consumer New Zealand, with a panel including Heather Simpson, Chair of the Health and Disability System Review, and with terms of reference focused on performance, transparency and accessibility, timeliness of decision-making, equity, new and emerging drugs, criteria for prioritisation, and safety.

On performance, PHARMAC has done well, making savings each year equivalent to its entire budget and sufficient in size to fund a major DHB. It has also taken on an ever-expanding menu of tasks (most recently medical devices) with both quality gains and cost savings.

On transparency and accessibility, it is surprising to the layperson to find that, while financially sensitive information is not open to scrutiny, the records of the key decision-making committee (PTAC) are available on the website. It is also the case that PHARMAC is subject to the Freedom of Information Act, and has a whole section of its website devoted to responding to a large number of requests.

Timeliness of consideration of a drug can be an issue, but often full information is not available to PHARMAC on the entry of a drug to the New Zealand market. This also relates to the government’s interest in new and emerging drugs. Over half of recently listed drugs internationally have been “expedited”, often under circumstances where information on key indicators such as longevity and performance relative to existing drugs is not immediately available.

Equity and prioritization are hard to judge. New Zealand has a low patient co-payment for prescription drugs. Ninety per cent of pharmaceutical use is accounted for by just twenty per cent of medication users, suggesting that those most in need are being targetted, including for multiple conditions requiring complex treatments.

Finally, safety. This is probably prompted by the concerns over PHARMAC’s attempts to substitute cheaper but equivalent generic drugs for more expensive brands. In research with which I have been associated on those with epilepsy, we have found this not to be a problem, although there can be a perception of harm (the nocebo effect) that is not discouraged by the industry.  

Apart from a major funding boost (which is outside the terms of reference for the review), where could PHARMAC raise its game? The industry, and the advocacy groups it fosters, are winning the public relations battle hands down. PHARMAC is in danger of becoming so demonised that it will lose the current tenuous political traction and social license it currently enjoys – because media can always find a human-interest story, with an associated morality tale, on issues of medication access.

But there is another side to this story. Almost all the drugs in question are very expensive, and many of them add limited clinical advantage to existing treatments. Looking through the records of the meetings of PTAC, one can see the careful way in which committee members weigh different sources of information as they become available. Unfortunately, that does not make headlines.

PHARMAC is a remarkable and, to date, unique New Zealand innovation. t is equally remarkable that the agency has survived since 1993 under sustained attack from the pharmaceutical industry. It has had the good fortune to occupy an ideological and pragmatic common ground between governments of very different pollical persuasion for over 25 years, in part because of the billion dollars a year in drug purchasing costs it saves.

Maybe that will see it through this review, as it has through previous challenges to its existence.

Peter Davis

Emeritus Professor of Population Health and Social Science

University of Auckland

https://www.stuff.co.nz/national/health/124432208/pharmac-does-a-great-job-but-its-losing-the-pr-battle-hands-down