Big spending health sector over governed

Big spending health sector over governed

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 thatthe health service has been gorging itself on fiscal surpluses for almost adecade, and one area where the flab seems most obvious is governance – 21 districthealth boards and their entourages. Before we go there let’s just take a quick lookat the trend in health spending.

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

A big chunk of the increase in health costsrelates to the near doubling in the wage bill since 1997.   That reflects, inroughly equal portions, wage increases and additional staff.   The wageincreases, in some cases, were required to retain and attract staff.   Given theimpressive increase in staff numbers one would have to conclude that the higherwages have done the trick.

There are all sorts of ramifications ofputting health services on such a sustained and rich funding diet.   The mostwelcome one would have to be more and better health services.   No doubt someimprovements have been achieved and unfortunately such gains tend to get fewerheadlines than the disasters and disappointments.

One of the more disappointing outcomes, andone that has attracted considerable political and media attention over the pastfew years, has been the failure or dysfunction of a number of district hospitalboards (DHBs).

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

Nearly ten years later the DHBs are anaccepted part of the health landscape.   At the risk of encouraging yet anotherrestructure, but with the government’s earnest desire to lift productivity inmind, why not shrink the number of DHBs to ten or possibly even four.

At the moment we have 21 DHBs, each withtheir own board of directors.   Each board has up to 11 directors – sevenelected and up to four appointed by the government.   Say there are on averageten directors per board; that’s 210 directors with sufficient expertise togovern a multi-million dollar turnover activity.   To put that number inperspective, the Institute of Directors has fewer than 200 accredited andprovisionally accredited directors on its website.

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

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

The extensive governance and managementstructure has not only absorbed at least some of the doubling in health fundingover the past decade, it has also hindered the efficient allocation of theadditional funding.   Fragmented governance and administration leads toexcessive duplication of decision making, absorbing time and resulting inmultiple outcomes, many of which are not well aligned to the government’sintentions when providing the additional funding.

Four regional health boards looking afterone million people each would seem a more efficient way to manage the billions ofdollars being spent on trying to provide more and better health services. Itseems cavalier to keep pouring so much of our taxes into the health sectorwithout ensuring the most effective and efficient governance and administrativestructure.



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