Dr/Prof. Victor Luca
Little is more important in this life than good health. In this regard, the wonders of modern medical science have made available remedies for diseases and ailments that not long ago would have quickly ended a person’s life. In 1951 the life expectancy of the average non-Maori male and female in New Zealand was about 68 and 72 years of age respectively. Since 1951 those values have been lifted to about 80 and 85 years. The average life expectancy of a Maori male and female in 1951 were between 54 and 56 years of age, representing a significant 25 year gap with respect to non-Maori. Today that gap has closed substantially to about 5 years. Some of that improvement in life expectancy may be due to improvements in sanitation and hygiene but much is also a result of advances in medical science.
Readers of this magazine will appreciate that for obvious reasons our reliance on the health system increases with age.
The questions we seek answers to in this article include what is a ‘health system’, how has ours evolved over time and is the current system really serving us well?
New Zealand/Aotearoa became a nation in 1840 following the signing of the Treaty of Waitangi which happened to coincide with the first smallpox outbreak. One year later followed the appointment of the first colonial surgeon and six years later, the first public hospital was built. Healthcare in the mid 19th century was a relatively primitive affair. Although basic germ theory of disease was first proposed in the late middle ages it wasn’t until about the late 18th century that much at all was understood about what germs were and how to combat them. It took until the early 19th century for the first smallpox vaccine to be developed, although doctors in Europe were unaware of how it actually worked. A surgeon’s toolkit of mid 19th century could be entirely contained in a Gladstone bag and comprised tools that would be more familiar in a carpenter’s workshop today (Figure 1).
Not surprisingly, our fledgling public health care system was strongly influenced by Britain but it was the Social Security Act of 1938 (SSA) that laid the foundations for New Zealand’s public health system. The SSA was supposed to ensure the following [1,2]:
- Universal availability and healthcare as a fundamental right without barriers to access;
- Equal access to the same standard of treatment;
- Preventive rather than curative focus;
- Integrated not fragmented services between primary and hospital-based care;
From the time the SSA came into force there have been many reforms aimed at improving economic efficiency and patient outcomes.
From 1983 to 1993 fourteen Area Health Boards (AHBs) were established and these were funded by apopulation-based formula. It was envisaged that these boards would be essentially centrally funded.
Cost pressures saw the re-introduction of private health insurance in 1961 with the establishment of the Southern Cross Medical Care Society. By 1987 Southern Cross had an 80% share of the health insurance market with a membership of about one million members, or about 30% of New Zealand’s population. Prescription charges, however, remained fully government-funded until about 1985.
The Neoliberal ‘Rogernomics’ reforms of the Lange Labor government (1984-1990) had as a central plank a persistent ‘user pays’ ethos that was all pervasive and the health system did not escape.
In 1991 the (right-of-center) National government published a Green and White Paper authored by Simon Upton. The paper identified the following significant problems with the health system of the day:
1. Public hospital waiting times too long.
2. Funding of system fragmented.
3. Problems with access to services.
4. Lack of assistance for doctors making decisions.
5. Lack of consumer control.
6. Constraints on Area Health Boards to change services.
7. Conflict in dual roles of purchasers and providers.
8. Lack of equity.
Subsequent reforms designed to address these problems included replacement of the members of the 14 democratically elected AHBs by appointed commissioners, although the Upton reform agenda continued to espouse a centrally-funded universal public health care system. Due to vehement opposition from doctors, the profession retained a fee-for-service structure in general practice.
In 1993 four regional health authorities (RHA) were established (Health and Disability Services Act 1993) and the fourteen AHBs were reconfigured into 23 Crown Health Enterprises (CHEs) structured as for-profit organizations subject to ordinary company law.
These market-oriented reforms were largely unsuccessful because of community and professional skepticism. Introduction of ‘user pays’ for hospital stays in the early 1990s drew public ridicule and had to be abandoned.
The corporate model, along with encouragement of private insurance models, ultimately also failed to improve hospital financial performance and as early 1996 the government’s own monitoring agency reported that “the pace of performance improvement seems to have weakened since the reforms” .
Nevertheless, by the mid-nineties about 50% of New Zealanders had private health insurance. Interestingly private insurance only ever funded 5 - 6% of total health expenditure [4,5].
Any notion I may have had when I first started my health system research that the New Zealand health system was essentially a public system that had the ethos of equal health care access for everyone regardless of means was clearly misplaced. Maybe that is how the SSA had intended it be, but that idea went by the wayside almost as soon as the law came into force.
A modern healthcare system is a complex technological machine with many moving parts the full description of which is far beyond the scope of this article. However, it could be regarded as comprising the three main elements of disease prevention, diagnosis and therapy. Each of these elements has to be backed by trained medical professionals including doctors, surgeons, technicians and myriad healthcare staff. Without these underpinning skills nothing would work. Our present system also relies on the participation of NGO’s and charity organizations. Think of our wonderful St John Ambulance service that has to rely on donations to stay afloat.
The government is the central player that governs all aspects of health care as the primary funder and supplier of health care. It also sets regulations and monitors compliance. So where are we positioned today?
The data in Figure 2 shows that from 2007 to the present about 35% of New Zealanders have private health insurance. This probably represents something of a reduction compared to the mid-nineties. The main value proposition for holding health insurance is the ability to shorten the queue and perhaps get a better service.
Figure 2. Percentage of New Zealand males and females with private health insurance. Source: NZ Ministry of Health.
This division into those that have and those that do not have health insurance makes it impossible to argue that we don’t have a two tier system; the haves and the have nots.
It is absolutely unequivocal that those with the money get the prompt and premium service and the remainder get the waiting list, or should it be called the wish list. Some say that the system offers choice. However, if you are at the bottom of the socio-economic ladder, then you don’t have much choice. You are most certainly significantly disadvantaged by a system in which, for many, out-of-pocket expenses to see a general practitioner represent a significant obstacle. Your color, religion and culture are irrelevant, the bottom is the bottom. We should also not lose sight of the fact that NZ generally has a low wage economy. We have become a country of relatively high wealth disparity and the gap is turning into a chasm.
Aside from these private entities making a relatively small contribution to the costs of health services, recent evidence shows that private health care actually results in significant costs to the public system .
The introduction of a private insurance industry and private health service providers including hospitals, and ancillary services including pathology, radiology, urology, cardiology and so forth may all have been introduced with the clear aim of reducing the cost burden on government. So let’s look at the costs.
In Figure 3 is shown the cost of health as a percentage of GDP for four selected countries. It can be observed that from 1970 to the present New Zealand health costs have risen in relatively linear fashion as is the case for Denmark, Germany, Australia and many other OECD countries. We clearly spend less on health than Germany or Denmark and are more comparable to Australia.
New Zealand health costs increased from about 5 % of GDP to about 9.5% of GDP from 1970 to the present, representing almost a doubling. Barring a few peaks and troughs such as around 1985 there has been a relatively constant linear upward trend. It is important to note that no matter what market-oriented reforms have been undertaken over the years, the rate of cost increases has not changed. In other words the straight line simply refuses to bend over to any significant degree. Privatization is simply not having any significant effect on costs over time.
Driving this upward trend in costs are probably the developments in medical science and the fact that as a result we live longer lives. Whilst back in mid 19th century the primary medical tools could be contained in a Gladstone bag, today we have available a vast array of advanced medical technologies. These did not come from out of the blue, they had to be developed through scientific research and development. Much of this R&D is conducted at Universities and government research laboratories and is paid for out of the public purse.
Figure 3. Health expenditure in terms of % GDP over time for New Zealand, Australia, Germany and Denmark. Source: OECD.
To give some context, it is worth checking how we compare with the rest of the OECD in terms of costs versus outcome as measured through the crude metric of average life expectancy. In Figure 4 we see that New Zealand plots near the middle of the road on this graph of cost versus life expectancy at birth. We have inferior performance in terms of life expectancy to Australia but we also spend less.
The outlier in this plot is the United States of America which is represented by the solitary point over to the right. The United States has a more-or-less fully privatized health system in which the costs are more than double ours but whose performance in terms of life expectancy is among the worst in the OECD group.
The basic features of the 2010 data in Figure 4 has been corroborated many times. For instance, in 2021 by the Commonwealth Fund.
The data suggests that there simply can be no rational argument in favor of a fully privatized health system.
Figure 4. Life expectancy at birth as a function of total per capita expenditure on health in terms of US$ PPP. Source: OECD 2010, “Health care systems: Getting more value for money”, OECD Economics Department Policy Notes, No. 2. https://www.oecd.org/eco/growth/46508904.pdf
The COVID-19 pandemic has been an indictment of the US medical system that has garnered scathing reviews from medical professionals . You get the best care if you have money and nothing at all if you have none. I doubt this is what New Zealanders want.
Quality of Care
Measuring the quality of healthcare and comparing healthcare systems is not an easy business. In recent decades many international comparisons have been attempted. These health system performance comparisons go beyond simply measuring life expectancy at birth and include factors such as availability of hospital beds per 100,000 of population, number of doctors per capita, average time to see a GP and especially times on waiting lists for elective surgery.
Figure 5. Hospital beds per 100,000 of population in New Zealand over time.
In terms of hospital beds per capita, it can be seen (Figure 5) that in New Zealand over time the number of beds has fallen precipitously from the 60s and 70s and that we now rank near the bottom of the OECD range for this metric. The main decline coincided with the neoliberal reforms of the Lange Labor government in about 1984 and have continued until the present day. We currently have about 2.6 hospital beds per 1,000 of population while Japan, which is often ranked top in many international comparisons of healthcare performance, has one of the highest bed availabilities at about 12 per 1,000 of population.
Figure 6. Median elective surgery (hip replacement) waiting times in days for selected countries expressed as waiting times from specialist assessment to treatment. Source: OECD.
Another important metric for assessing the performance of a health system is the length of waiting lists. In Figure 6 it can be seen that from 2002 to about 2008 our waiting times for hip replacement surgery initially increased, then reached a plateau, and then dipped again around 2013. From 2017 to the present, waiting times again increased reaching a median of 100 days. Clearly, whatever measures we have taken to try to reduce waiting times for hip replacements have not worked. Relative to our peers we are presently at the top end of the range with both Italy and Denmark having waiting times about half of ours. I provide these sorts of data to give the reader an idea of where we are tracking. Waiting times for coronary bypass surgery have also been rising.
Given that comparing health system performance is extremely complex, it is fortunate that various institutions and agencies conduct such analyses continuously and in considerable depth. For instance ID Medical, a UK leading multidisciplinary healthcare recruiter, ranked the NZ health system in 19th position in a shoot-out among 24 OECD countries. Japan with the most hospital beds per capita ranked number one.
The Legatum Institute Prosperity index also produces international health system rankings and in 2020, Singapore and Japan were ranked one and two respectively by this institution while New Zealand was at number 23. The Commonwealth Fund also produces a set of rankings in which we rank outside the top 10. This organization uses access to care, care process, administrative efficiency, equity and health care outcomes as metrics.
Privatization by Stealth
I would contend that health is not a marketplace, and that in a civilized society, decent health care should be an inalienable right! It is worth repeating that the underlying ethos of the SSA was equal access to the same standard of treatment and that this has clearly not been valid since almost the time the act came into force.
It is entirely reasonable to expect however that the system should function efficiently both economically and in terms of delivering high quality care since this is what neoliberalism continuously promises.
It would in the author’s opinion be a tragedy if we ended up with a health care system resembling anything like that of the United States which has an almost totally privatized system. To examine if we are heading in this direction, it is necessary to determine if overall the level of privatization has been increasing over time. One could start by looking at the hospital component of the health system.
The first license for a private hospital in NZ was issued in 1903 under a section of the Hospitals Act. By 1938 when the SSA came into force, there were already 288 licensed private hospitals providing 2,639 beds. By 1943 private hospital bed numbers had burgeoned to almost 3,000. Around 1949 a shortage of trained staff resulted in a contraction in private hospital numbers to 205 and a reduction in private bed numbers to 2,488.
A trend towards larger hospitals developed over time, and by 1973 there were just 154 licensed private hospitals, providing almost 4,000 beds.
According to the up-to-date database maintained by the Ministry of Health (MoH), New Zealand today has 84 public hospitals with a total of 15,583 beds and 75 Non-Governmental Organization hospitals having a total of 1,855 beds (a total of 17,438 beds). Today we have significantly less public and private hospitals and lower bed numbers per capita of population compared to the 1940-1960 era (Figure 5). We have done a truly excellent job of rationalization of both public and private hospitals and beds. I speculate that perhaps there is not a lot of money to be made in running a hospital.
However, as previously stated, a health system comprises many moving parts. Primary health care is provided by privately owned GPs with partial public funding. Public hospitals provide the bulk of medical and surgical care and are fully state funded. However, ancillary specialist health care services including the likes of pathology, radiology, urology, cardiology, radiation and medical oncology and so forth represent a significant component of a modern health system.
In New Zealand, 75% of pathology services are in the hands of the private provider Lab Tests NZ Ltd, which is itself owned by the ASX-listed company Healthscope. Therefore, a virtual monopoly has been allowed to develop. In June of 2019, the private equity company Brookfield Capital Partners and ANZ Hospitals were permitted by the Overseas Investments Office to buy Healthscope’s New Zealand assets as part of a A$4.4 billion takeover. Lack of genuine competition in this space is hardly a recipe for keeping costs down.
As regards radiology, I have compiled a comprehensive list of radiology services including X-ray, X-ray CT, MRI, PET-CT, SPECT and ultrasound and have found that, so far, about 40% of provision is by private providers.
It is relatively clear that private enterprise is increasingly tapping into the lucrative ancillary health service market, especially diagnostic services. Private equity companies are driven by profit rather than by altruism or compassion. Hence the need for regulation and oversight. For oversight we have to rely on entities such as International Accreditation New Zealand and I would question the job they are doing.
According to Ashton , as at 1996 the New Zealand health care system was predominantly (77%) publicly funded, with around 91 per cent of this public funding raised through general taxation. According to the Medical Technology Association of New Zealand, in 2007 publicly-funded healthcare represented a 79.2% share of total expenditure, with private healthcare holding a share of 20.8 percent.
It is clear therefore that although there are many private actors in the so-called ‘market’ the brunt of the costs are born by the state (we the people).
Despite the best efforts of government to reduce expenditure on health by encouraging citizens into private health insurance plans, and attempting to utilize market forces and fostering competition, health costs as a percentage of GDP continue their upward trend (Figure 3). The question remains whether increasing levels of privatization have even resulted in the economic efficiency gains claimed by market proponents? I have requested such proof of economic efficiency from both the DHB and the MoH and so far neither entity has been able to provide this proof. Multiple requests for business cases to both entities have without fail met with responses such as “Pursuant to clause 18(e) of the Official Information Act the DHB/MoH cannot provide this information on the grounds that the information you have requested does not exist at the DHB/MoH”.
A search of academic literature reveals that evidence for enhanced economic efficiency through privatization is relatively scant or non-existent even at international level. Tynkkynen & Vrangbæk  recently found in their review of 17 studies representing more than 5,500 hospitals across Europe that public hospitals (PUB) are most frequently reported as having the best economic performance compared to private not-for-profit (PNFP) and private for profit (PFP) hospitals.
This is consistent with comprehensive surveys, that conclude that ‘at both the theoretical and empirical levels the net benefits of privatization in general are not clear cut’ . According to the Nobel prize-winning economist Joseph Stiglitz (2008, p. xii) ‘the theoretical case for privatization is, at best, weak or non-existent’ .
It is my contention that while neoliberal ideology has resulted in significant rationalization of all health system services such that scant health services need to be rationed out, this has happened without proof of the benefits, either economic of in terms of patient outcomes.
It is beyond dispute that inequity is innately built into the system by maintaining a private insurance system that favors those with the means to pay.
Today as we battle the greatest public health crisis of a generation it is more important than ever that we maintain a robust public health system that is able to respond to sudden increases in demand. In other words a system with sufficient fat that when things get tough we can tough it out. This is not where we are at the moment. In my view, we have as system stripped down to the bare bones because of ideology and a lack of transparency and accountability. Perhaps it is time that we concerned ourselves as much with the health of nations as the wealth of nations.
NOTE: Author contact details and additional information can be sourced from: www.votevictorluca.com
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