How to design and fund a sucacessful health system: an expert’s view

A top health expert is calling for changes in the way public healthcare is funded in New Zealand, saying the current taxpayer-funded pay-as-you-go system is unsustainable, despite the government’s upcoming health reforms.

Tuesday, April 5th 2022, 7:51AM 1 Comment

by Jenni McManus

Des Gorman, a University of Auckland Emeritus Professor of Medicine, says public health funding needs to move to a pay-it-forward, insurance-based model if it is to become sustainable, affordable and fair.

Gorman, a former director of ACC, cites the ACC model as an example, where the organisation was at one point staring at a $30 billion liability under the pay-as-you-go system. Moving to a fully forward-funded model has enabled ACC to record a $10b surplus in the 2020/21 year, with $50.3b in net investment assets.

“So, it is possible to make the shift where we contribute over our lifetime,” he says. “We need to make a basic shift in revenue generation for health. That’s what sophisticate western countries [Germany, Switzerland and the Netherlands] are doing.”

Gorman was speaking as part of a panel discussion about the future of our health system, hosted by the Financial Services Council.

In his view, the government’s health reforms are unlikely to fix the three major problems confronting New Zealand’s health system: it is unsustainable, unaffordable and unfair. Every incoming government since 1938 has tried to fix healthcare and none has succeeded in resolving the anomaly between a universal hospital system and privilege-based primary or community care.

“Most New Zealanders are unaware of how dependent we are on a large population of taxpayers who don’t consume healthcare,” Gorman says. “The problem happens when the demographic changes and you end up with a large population of non-taxpaying health consumers. The pay-as-you-go system falls over and that’s what’s happening here and in the UK.

“Universalism requires rationing and that occurs by way of entitlements and access – in other words, queuing. Most New Zealanders aren’t aware of this rationing until they end up in a queue and they want to know what’s happened to their universal access.”

Another panellist, Nick Astwick, CEO of Southern Cross Health Society, says 80% of future health costs will be incurred by 20% of the population. “A large part of that demand is driven by social determinants – housing, lifestyle and financial wellbeing.” These people will not necessarily be taxpayers.

“The system cuts in when you are sick,” Astwick says, “but I think health investment needs to be a lot more upstream. This cuts across political control and [requires] behavioral change.”

Gorman says he teaches a health leadership program delivered jointly by Monash University and Harvard. Part of the course is about how to go about health reforms. “If someone submitted a project that looked something like the [current] New Zealand health reforms, we’d tell them to go and do it again because it is the antithesis of change by design.”

Change by design, Gorman says, requires that you know who your customers are, and in health that is a very diverse group. It includes the sick and injured, healthcare providers and funders, educators and regulators. What are their needs, wants and expectations?

You then look at different operating models that might address all those diverse wants, needs and expectations, he says. Then you identify the sort of workforce, capital and IT you require “to make those operating models come to life”. Only then do you consider structure.
The government has it back-to-front, Gorman says. Rather than focusing on customer outcomes – the most basic requirement for a service provider – the government is prioritising structure.

What would Gorman do instead? Focus first on the lever that will give the biggest boost to productivity – primary care. This very diverse sector includes concierge (retainer) medicine, virtual medicine, capitated medicine, fee-for-service medicine and nurse-led health programs. There is huge opportunity here for reform and a substantial lift in productivity, he says.

Then tackle funding as the operating model will follow this. Finally, get clarity about the customer experience. “How will their access to healthcare or treatment or ownership of their own health change because of the reform? The current reforms have no clarity around what the change in customer experience is likely to be,” he says.

Gorman also questions why the government has chosen to “blow up” the health system while it is still grappling with the pandemic. He likens it to attempting to re-engineer an A380 while it’s in full flight.

The pandemic, he says, has been characterised by poor governance and management by the government. “I think the outstanding feature of our response to covid is that we were ill-prepared for every phase. Whether it was the phase of the wild pandemic, whether it was the intervention phase, like immunisation or boosters, we were simply unprepared for every single step.”

Tags: health insurance