Infometrics
Infometrics
PUBLIC ACCESS:
Big spending health sector over governed
Fri 30 May 2008 by Infometrics Ltd in Government

Obesity is seen as a looming health problem.  That may or may not turn out to be the case, but what is more certain is that the health service has been gorging itself on fiscal surpluses for almost a decade, and one area where the flab seems most obvious is governance – 21 district health boards and their entourages. Before we go there let’s just take a quick look at the trend in health spending.

Over the past decade (to June 2007) the government has doubled the amount it spends on public health. (Another $750m was allocated in this month’s budget.) The general level of prices in the economy rose by roughly 25% over the same period implying a 75% increase in real health spending.   Let’s be generous and accept that health costs (as measured by the health component of the CPI) have risen by 1%pa faster than prices generally.   That would still leave an impressive 65% real increase in health funding.

A big chunk of the increase in health costs relates to the near doubling in the wage bill since 1997.   That reflects, in roughly equal portions, wage increases and additional staff.   The wage increases, in some cases, were required to retain and attract staff.   Given the impressive increase in staff numbers one would have to conclude that the higher wages have done the trick.

There are all sorts of ramifications of putting health services on such a sustained and rich funding diet.   The most welcome one would have to be more and better health services.   No doubt some improvements have been achieved and unfortunately such gains tend to get fewer headlines than the disasters and disappointments.

One of the more disappointing outcomes, and one that has attracted considerable political and media attention over the past few years, has been the failure or dysfunction of a number of district hospital boards (DHBs).

Labour decided in 1999 that the health service needed another restructure and that the centralised model favoured by National in the 1990s was broken and should be replaced by 21 DHBs.   The cost of setting up these DHBs and properly resourcing them – logos, websites, directors, communications departments, accounts systems, etc – was seen as the cost of keeping a political promise.   This extravagance was quickly disguised by the substantial increase in funding for health services generally.

Nearly ten years later the DHBs are an accepted part of the health landscape.   At the risk of encouraging yet another restructure, but with the government’s earnest desire to lift productivity in mind, why not shrink the number of DHBs to ten or possibly even four.

At the moment we have 21 DHBs, each with their own board of directors.   Each board has up to 11 directors – seven elected and up to four appointed by the government.   Say there are on average ten directors per board; that’s 210 directors with sufficient expertise to govern a multi-million dollar turnover activity.   To put that number in perspective, the Institute of Directors has fewer than 200 accredited and provisionally accredited directors on its website.

It is unlikely that all the DHB directors are up to the task. That’s highlighted by the problems the government has had to deal with at several DHBs over the past few years.   The demands the DHBs have put on the relatively shallow pool of suitably skilled directors and senior executives have siphoned off talent required in other areas of the economy.

Twenty-one full blown administrative structures to manage health services for four million people looks excessive.   It seems an extraordinary waste in a country with such anaemic productivity growth. Treasury noted in a 2005 report that hospital expenditure (adjusted for CPI inflation) increased by 13.4% over the three years to 2003/04, yet measured outputs increased by just 4.7%!

The extensive governance and management structure has not only absorbed at least some of the doubling in health funding over the past decade, it has also hindered the efficient allocation of the additional funding.   Fragmented governance and administration leads to excessive duplication of decision making, absorbing time and resulting in multiple outcomes, many of which are not well aligned to the government’s intentions when providing the additional funding.

Four regional health boards looking after one million people each would seem a more efficient way to manage the billions of dollars being spent on trying to provide more and better health services. It seems cavalier to keep pouring so much of our taxes into the health sector without ensuring the most effective and efficient governance and administrative structure.

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