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The New Zealand Health Care System

by Robin Gauld, University of Otago, New Zealand

What is the role of government?

Beginning with passage of the Social Security Act in 1938, a consensus has developed in New Zealand that government has a fundamental role in providing for the population’s health care needs. At the same time, there is continued public support for a private sector role as well. Through the New Zealand Health Strategy, government plays a central role in setting the policy agenda and service requirements and in determining the publicly funded annual health budget.

Responsibility for planning, purchasing, and providing health services, as well as disability support for those over age 65, lies with 20 geographically defined district health boards (DHBs), each of which comprises seven locally elected members and up to four members appointed by the Minister of Health.1 These boards pursue government objectives, targets, and service requirements while operating government-owned hospitals and health centers, providing community services, and purchasing services from nongovernment and private providers.

Who is covered and how is insurance financed?

Publicly financed health care: All permanent residents have access to a broad range of services, which are largely publicly financed through general taxes. Nonresidents, including tourists, are charged the full cost of services by public health care providers, unless treatment is related to an accident, in which case they are covered by a no-fault accident compensation scheme.

Total health spending was 9.4 percent of GDP in 2015.2 Public spending, generated through general taxes, accounted for 79.8 percent of total spending.

Privately financed health care: Private health insurance is offered by a variety of organizations, from nonprofits and “Friendly Societies” to for-profit companies, and accounts for about 5 percent of total health expenditure. It is used mostly to cover cost-sharing requirements, elective surgery in private hospitals, and private outpatient specialist consultations; private coverage also can ensure faster access to nonurgent treatment. About one-third of the population has some form of private insurance, purchased predominantly by individuals.

What is covered?

Services: The publicly funded system covers preventive care; inpatient and outpatient hospital services; primary care via private providers (excluding services such as optometry, adult dental services, orthodontics, and physiotherapy); inpatient and outpatient prescription drugs included in the national formulary (see below); mental health care; dental care for schoolchildren; long-term care; home help; hospice care; and disability support services. Government sets an annual overall budget and benefit package, based largely on political priorities and health need. It also sets national requirements for publicly funded services, to be implemented by the 20 DHBs. Rationing and prioritization are applied largely to nonurgent services and vary by DHB.

Cost-sharing and out-of-pocket spending: Out-of-pocket payments, including both cost-sharing and other costs paid directly by private households, accounted for approximately 12.6 percent of total health expenditures in 2014, with the largest portion going to outpatient services.3 There are no deductibles in the public sector, although copayments are required for general practitioner (GP) services and many nursing services provided in GP clinics. The average adult copayment for a GP consultation ranges from NZD15 to NZD45 (USD10–USD31), but GP copayments vary significantly, as they have no limits. An exception applies to the one-third of New Zealanders residing in low-income areas, where a higher annual per-patient capitation rate is paid and, in return, patient copayments are capped at NZD17.50 (USD12.00) per visit.4 GP copayments fell during the period 2002–2008, when there were significant increases in government funding for primary care, but copayments have been increasing since then.

For drugs prescribed by GPs and private specialists, copayments are required for the first 20 prescriptions per family per year (NZD5.00, or USD3.40, per item), after which there are none. Residents receive treatment free of charge in public hospitals, although there are some user charges, such as for crutches and other aids supplied upon discharge. There are various means-tested subsidies, resulting in some copayments for long-term care (discussed below).

Safety net: Primary care is mostly free for children age 13 and under and is subsidized for the 98 percent of the population enrolled in the networks of self-employed providers known as primary health organizations (PHOs). PHOs include general practitioners, practice nurses, and allied practitioners. Additional PHO funding and services are available for treating people with chronic conditions and for improving access to care for groups with greater health needs. A “high-use health card” is also available, upon application, to patients who have had more than 12 GP visits in a year. Subsequent capitation payments for those patients are set at a higher level to reflect this high-utilization pattern, although patients continue to make copayments.

How is the delivery system organized and financed?

Primary care: The ratio of GPs to specialists is about 2:3. GPs, who act as gatekeepers to specialist care, are usually independent and self-employed. Accounting for about half their income is a capitated government-determined subsidy, paid through PHOs; patient copayments, set by individual GPs, account for their remaining compensation. An average of 3.48 GPs work together in each practice, assisted by practice nurses. Nurses are salaried and paid by GPs and have a significant role in the management of long-term conditions (e.g., diabetes), incentivized by specific government funding for chronic care management. Patient registration is not mandatory, but GPs and PHOs must have a formally registered patient list to be eligible for government subsidies. Patients enroll with a GP of their choice; in smaller communities, choice is often limited.

PHOs receive additional per-capita funding to improve access, especially for those who can least afford primary care, and to aid in promoting health, coordinating care, and providing additional services for people with chronic conditions. In some cases, this support has led to the development of multidisciplinary care teams that may include specialists, such as nutritionists or podiatrists. PHOs also receive up to 3 percent additional funding, which is handed on to GPs who reach targets for cancer, diabetes, and cardiovascular disease screening and follow-up, as well as for vaccinations. Most GPs belong to an organized network that provides management and other clinical support services. The larger networks represent several hundred GPs each.

Outpatient specialist care: Most specialists are employed by DHBs and salaried for working in a public hospital. However, they are also able to work privately in their own clinics or treat patients in private hospitals, where they are paid on a fee-for-service basis. The impact of this “dual practice” on the public sector remains under-researched.5 Many specialists are based in multispecialty clinics but work independently, renting their office from the clinic. Private specialists are concentrated in larger urban centers and set their own fees, which vary considerably; insurance companies have little, if any, control over those fees, although insurers will pay only up to a maximum amount, meaning that patients pay any difference. In public hospitals, patients generally have limited choice of a specialist.

Administrative mechanisms for paying primary care doctors and specialists: As noted above, GPs’ income is derived from government subsidies, which include payments from the Accident Compensation Corporation and copayments from patients. Some patients subscribing to private insurance may be eligible to claim for a copayment. Patients pay the full cost of private specialist visits up front, unless the service is funded by the Accident Compensation Corporation or by private insurance. In the latter case, patients may seek reimbursement from their insurer, or there may be no direct patient charge if a specialist or private hospital holds a contract with the insurer.

After-hours care: GPs are required in their funding contracts to provide after-hours care or to arrange for its provision, and they receive a separate government subsidy for doing so, which is higher per patient than the general capitation rate. In rural areas and small towns, GPs work on call; in some of these areas, a nurse practitioner with prescribing rights may provide first-contact care. In cities, GPs tend to provide after-hours service on a roster at purpose-built, privately owned clinics in which they are shareholders. These facilities employ their own support staff, such as nurses, but patients usually see a GP in the first instance. Patient charges at these clinics are higher than those for services during the day (although 95% of children under age 13 can have access to free after-hours GP services; the remainder are charged for services). Consequently, some patients will visit a hospital emergency department instead or avoid after-hours service altogether. A patient’s usual GP routinely receives information on after-hours encounters. The public also has access to the 24-hour, seven-day-a-week phone-based “Healthline,” staffed by nurses who provide advice in response to general health questions. “Plunketline” provides a similar service for child and parenting problems.

Hospitals: New Zealand has a mix of public and private hospitals, but public hospitals constitute the majority, providing all emergency and intensive care. Public hospitals receive a budget from their owners, the DHBs, based on historic utilization patterns, population needs projections, and government goals in areas such as elective surgery. The budget includes the costs of health professionals and other staff, all of whom are salaried. Within a DHB hospital, the budget tends to be allocated to the various inpatient services using a case-mix funding system. A proportion of DHB funding for elective surgery is held by the Ministry of Health, and payments are made upon delivery of surgery. Certain areas of funding, such as mental health, are “ring-fenced”—the DHB must spend the money on a specified range of services.

Private-hospital patients with complications are often admitted to public hospitals, in which case the costs are absorbed by the public sector. Public-hospital services are provided largely by consultant specialists, specialist registrars, and house surgeons.

Mental health care: Most people get access to mental health care through primary mental health services in the community, often through their GP, who will then coordinate any referred services, but also through school-based health services and community services provided by nongovernmental agencies, which are all publicly funded. DHBs deliver a range of mental health services (including secondary services), such as forensic, acute inpatient, and community-based services, and provide support to primary care providers; they also fund nongovernment providers of community-based services. Private provision is limited.

Long-term care and social supports: DHBs fund long-term care for patients based on needs assessment, age, and means-testing. They fund services for those over age 65 and those “close in age and interest” (e.g., people with early-onset dementia or a severe age-related physical disability). Those eligible receive comprehensive services including medical care; many older or disabled people receive home care. Respite care is available for informal or family caregivers, and in some circumstances ongoing financial support is provided. Residential facilities, mostly private, provide long-term care. DHBs also provide hospital- and community-based palliative care.

Disability support services for those under age 65 are purchased directly by the Ministry of Health. Some disabled people opt for individualized funding, which enables disabled people to directly manage their disability supports.

End-of-life care in New Zealand is provided in a range of settings, including hospitals, a network of hospices, aged residential care, and the individual’s home. DHBs either fully fund or contribute to these settings, according to population needs. Hospices also rely on fundraising for support.

Long-term care subsidies for older people are means-tested. Individuals with assets over a given national threshold pay the cost of their care up to a maximum contribution. Those with assets under the allowable threshold contribute all their income, except for a small personal allowance. DHBs cover the difference between a person’s payments and the contract price for residential care. For people in their own homes, household management (e.g., cleaning), which accounts for less than one-third of home support funding, is income-tested. Personal care (e.g., showering) is provided free of charge. Home care services are all provided by nongovernment agencies.

diagram of health care system

What are the key entities for health system governance?

As the health system is primarily public, government-funded and government-appointed entities dominate governance structures. Some, like the Health and Disability Commissioner (whose function is to champion consumers’ rights in the health sector), operate at arm’s length from the central government. Others are “crown agents,” with their own boards, and are required to follow government policy. Key national arrangements are:

  • The Ministry of Health, which has overall responsibility for the health and disability system, acts as the Minister of Health’s principal adviser on health policy and maintains a role as funder, monitor, purchaser, and regulator of health and disability services. While it sets capitation rates paid to GPs, it has no role in regulating patients’ copayments.
  • The ministry has two subcommittees: the Capital Investment Committee, which advises on matters relating to capital investment in the public health sector, in line with the government’s service plans; and the National Health IT Board, which advises on the implementation and use of information technology systems.
  • Health Workforce New Zealand leads and supports health and disability workforce training and development.
  • NZ Health Partnerships, supported and owned by New Zealand’s 20 DHBs, is tasked with enabling those DHBs to collectively maximize shared services opportunities.
  • The Pharmaceutical Management Agency of New Zealand, PHARMAC, assesses the effectiveness of drugs, distributes prescribing guidelines, and determines inclusion of drugs on the national formulary (with relative cost-effectiveness being one of nine criteria for inclusion). In addition, certain medical devices have been added to its schedule.6 Since late 2015, a new set of “factors for consideration” has been used to underpin decisions: need; health benefit; costs and savings; and suitability.
  • The Health Quality and Safety Commission is working toward what is known as the New Zealand “triple aim”—improved quality, safety, and experience of care; improved health and equity for all populations; and better value for public health system resources.
  • The Health Promotion Agency develops and enables health-promoting policy, initiatives, and environments.
  • The Health Research Council invests in a broad range of research on issues important to New Zealand.

What are the major strategies to ensure quality of care?

The health and disability commissioner investigates patients’ complaints, reports directly to Parliament, and has been active in promoting quality and patient safety.

DHBs are held formally accountable to government for delivering efficient, high-quality care in hospitals, as measured by the achievement of targets across a range of indicators. These include six “health targets,” published quarterly, that aim to stimulate competition among DHBs. In addition, DHB performance on waiting times, access to primary care, and mental health outcomes is publicly disclosed. Also publicly reported are performance data on PHOs, including screening rates for chronic disease. Data on individual doctors’ performance, however, are not routinely made available. As noted above, PHOs and GPs receive performance payments for achieving various targets.

DHBs and individual GP clinics and networks run various chronic disease management programs. There are national registries for some diseases, including diabetes, cardiovascular disease, and cancers. Since 2014, public hospitals have been required to conduct “Patient Experience” surveys of randomly selected patients. The Health Quality and Safety Commission publishes the findings.

Certification by the Ministry of Health is mandatory for hospitals, nursing homes, and assisted-living facilities. All practicing health professionals must be certified annually by the relevant registration authority (e.g., for doctors, the Medical Council of New Zealand), which has ongoing responsibility for ensuring professional standards and providing accreditation. Registration authorities supervise individual professionals where appropriate.

The Ministry of Health is also working on quality improvement in DHBs. “Clinical governance” has been implemented in most DHBs, meaning that management and health professionals are assuming joint accountability for quality, patient safety, and financial performance.7

The Health Quality and Safety Commission aims to increase the focus on quality and coordinate DHB activities, such as those aimed at improving the patient journey, safer medication management, reducing rates of health care–associated infection, and standardizing national incident reporting. Other initiatives include the ongoing development of the “Atlas of Healthcare Variation” (an online tool aimed at highlighting variations in the provision and use of services by geographic area); a series of standard quality and safety indicators for DHBs based on routinely collected data; a program for consumer involvement in service design; and advice for DHBs on how to prepare annual “Quality Accounts,” required since 2012–2013. These Quality Accounts report on how a DHB approaches quality improvement, including descriptions of key initiatives and their results. In 2013, the commission launched a national patient safety campaign, “Open for Better Care,” focused on reducing harm associated with falls, surgery, health care–associated infections, and medications. Since 2015, it has collated routine data in an annual report aimed at providing a “window” on the quality of New Zealand health care.8

What is being done to reduce disparities?

Health disparities are a concern in New Zealand. Maori and Pacific Island people have shorter life expectancies than other New Zealanders (by seven and five years, respectively) and experience greater difficulty in gaining access to health services. Reducing disparities is a policy priority, with data describing disparities routinely collected and publicly reported.9

Through much of the 2000s, a multisector policy approach saw investments in housing, education, and health, as DHBs and primary health organizations were required to develop strategies for reducing disparities. Many PHOs were created especially for Maori or Pacific populations.

The post-2008 government has focused on specific initiatives such as “Wh?nau Ora,” a policy designed to integrate health and social services. The aim has been to develop coordinated, multiagency approaches to service provision and to foster joint responsibility for outcomes.

What is being done to promote delivery system integration and care coordination?

District-level alliances (partnerships between DHBs and PHOs) are driving stronger system integration by changing service models. While alliance performance varies, the leaders have multiple members, including, but not limited to, DHB, PHO, pharmacy, ambulance, district nursing, allied health, local government, and Maori providers. District alliances are developing services based on locality-specific needs. Some alliances have begun to form partnerships with local social agencies.

The primary care sector has begun exploring for the most appropriate model of general practice and enhanced primary care that will meet future demand. The “health care home” model is being implemented in several districts, with support and resourcing shared between DHBs and PHOs.

While DHBs are held accountable for driving integration through their annual plans, variability still exists. There is an ongoing effort to drive improvement by other means, including new funding models and contracting for outcomes.

Four system-level performance measures were implemented in 2016. These assess performance at the system level, and success is dependent on the contributions of individual providers or organizations. This reliance on multiple contributions drives the integration of services and providers and requires an effective alliance.

What is the status of electronic health records?

The ability to access and share accurate clinical information is central to the New Zealand Health Strategy, with increasing emphasis on investing in regional hospital systems that support and enable integrated care.

In 2015, the Ministry of Health announced the Digital Health Work Programme 2020. The program aims to ensure appropriate access to health and wellness information facilitated by a single electronic health record. The electronic record will collect and present existing core health information in a single view, accessible by consumers and clinicians. Data will also be able to be shared with social-sector professionals.

Current levels of interoperability between health information systems are limited. However, the ability to provide services such as structured electronic transfer of information is increasing. Primary care providers can transfer patients’ records securely between practices, send electronic referrals, and receive electronic hospital discharge summaries.

Well over a third of primary care practices have implemented a patient portal, and more than 140,000 patients have registered to access their information through the portal. This advancement supports the Health Strategy’s goal of enabling health care consumers to have an active role in managing their own health, to engage more conveniently with the system, and to move services closer to home.

A recent survey found that 359 of 992 general practices have implemented provider portals, giving after-hours facilities and some hospital emergency departments access to primary care information.10 Providers in community, hospital, and specialist settings in one of New Zealand’s four regions can now access a shared view of clinical information, and the other three regions are reviewing their information systems to enable information-sharing. Implementation of electronic prescribing is under way in primary care and in hospitals. The use of telehealth to deliver services remotely is also increasing.

The Health Information Standards Organisation promotes the development and use of standards to ensure interoperability between systems, and SNOMED CT (Systematized Nomenclature of Medicine—Clinical Terms) has been endorsed as a national standard for clinical terminology in New Zealand. Every person who uses health and disability support services has a unique national health number, facilitating the process of building interoperable systems.

How are costs contained?

The financial sustainability of publicly funded health care is a top government priority. To support this goal, government has implemented a range of measures, including four-year planning to align expenditure with priorities over a longer period and improving regional collaboration to drive efficiencies. All new proposals must be integral to a four-year plan and demonstrate their fit with the strategic direction of the health sector.

Cost control in DHBs has been closely monitored by the Ministry of Health, with a significant reduction in deficits over the last six years, from NZD154.8 million (USD105.3 million) in 2008–2009 to NZD65.8 million (USD44.8 million) in 2014–2015.11 These reductions are achieved largely through efficiency gains and cuts in spending on staff, services, and equipment. As public hospitals are essentially free of charge, there is no mechanism to shift costs to patients.

The Ministry of Health has recently taken on the functions of the former National Health Committee. To assist with implementing the New Zealand Health Strategy, it is developing an integrated approach to prioritizing health technologies.

The Pharmaceutical Management Agency uses mechanisms such as reference pricing and tendering to set prices for publicly subsidized drugs dispensed through community pharmacies and hospitals.12 If a patient prefers an unsubsidized drug, they must pay the full cost. Such strategies have helped to drive down pharmaceutical costs and to keep drug expenditure per capita the fourth-lowest in the Organisation for Economic Co-Operation and Development (OECD) in 2012.13

What major innovations and reforms have been introduced?

The updated New Zealand Health Strategy, launched in 2016, consists of two parts: the Future Direction, and the Roadmap of Actions 2016.14 The former lays out some of the challenges and opportunities the system faces and describes the desired future, including the underpinning culture and values. In addition, it identifies five strategic themes for driving change: 1) improving patient literacy and empowerment; 2) emphasizing prevention, early intervention, and community care; 3) improving system performance; 4) integrated and collaborative health care delivery; and 5) technological innovation.

The Roadmap of Actions 2016 identifies 27 areas for action over five years to implement the Health Strategy. These actions, organized under the five themes listed above, will ultimately contribute to the stated goal that “all New Zealanders live well, stay well, get well, in a system that is people-powered, provides services closer to home, is designed for value and high performance, and works as one team.”15

Acknowledgements

The author would like to acknowledge the New Zealand Ministry of Health for its comments and for providing updated information for this profile.

References

1The government replaced the governing board in one DHB with an appointed commissioner in mid-2015 owing to ongoing concerns about its financial situation.

2Organisation for Economic Co-operation and Development (OECD), OECD Health Statistics, 2015.

3Ibid.

4Please note that, throughout this profile, all figures in USD were converted from NZD at a rate of about NZD1.47 per USD, the purchasing power parity conversion rate for GDP in 2015 reported by OECD (2016) for New Zealand.

5R. Gauld, “Questions About New Zealand’s Health System in 2013, Its 75th Anniversary Year,” New Zealand Medical Journal, Aug. 16, 2013 126(1380):1–7.

6R. Gauld, “Ahead of Its Time? Reflecting on New Zealand’s PHARMAC Following Its 20th Anniversary,” Pharmacoeconomics, Oct. 2014 32(10):937–42.

7R. Gauld and S. Horsburgh, Clinical Governance Assessment Project: Final Report on a National Health Professional Survey and Site Visits to 19 New Zealand DHBs (Centre for Health Systems, University of Otago, 2012).

8Health Quality and Safety Commission, A Window on the Quality of New Zealand’s Health Care 2016. (Health Quality and Safety Commission, 2016).

9Ministry of Health, Annual Report for the Year Ended 30 June 2015 (Ministry of Health, 2016).

10Ministry of Health, personal communication.

11Ibid.

12R. Gauld, “Ahead of Its Time? Reflecting on New Zealand’s PHARMAC Following Its 20th Anniversary,” Pharmacoeconomics, Oct. 2014 32:937–42.

13Organisation for Economic Co-operation and Development (OECD), OECD Health Statistics, 2014.

14Minister of Health, New Zealand Health Strategy: Future Direction (Ministry of Health, 2016).

15Minister of Health, New Zealand Health Strategy: Roadmap of Actions 2016 (Ministry of Health, 2016).