ArrowArrow IconLightbulbLightbulb IconLightbulbLarge Lightbulb IconBriefcaseBriefcase IconBriefcaseLarge Briefcase IconSurveySurvey IconStroke 1ClipboardClipboard IconClipboardLarge Clipboard IconConvergeConverge IconConvergeLarge Converge IconExpandExpand IconFacebookFacebook IconFeaturesFeatures IconCountryCountry IconFlowchartFlowchart IconFlowchartLarge Flowchart IconStrategyStrategy IconStrategyLarge Strategy IconGovernmentGovernment IconGovernmentGovernment IconInfoInfo IconIntegrationIntegration IconIntegrationLarge Integration IconArrow Pagination LeftPeoplePeople IconPeoplePeople IconStatsStats IconPhonePhone IconPhoneLarge Phone IconFeaturesFeatures IconTagTag IconTagLarge Tag IconTwitterTwitter Icon

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. Government plays a central role in setting the policy agenda and service requirements for the health system and in setting the annual publicly funded health budget.

Responsibility for planning, purchasing, and providing health services and 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. 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, such as tourists and illegal immigrants, 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 9.5 percent of GDP in 2013 (OECD, 2015). 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 often affords 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 benefits package, based largely on political priorities. 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 (OECD, 2015), with the largest portion going to outpatient services. 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 copayment for a GP consultation for an adult ranges from NZD15 to NZD45 (USD10–USD31), but copayments vary significantly, as there are no limits to these set by GPs. 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.

(Please note that, throughout this profile, all figures in USD were converted from NZD at a rate of about 1.47 NZD per USD, the purchasing power parity conversion rate for GDP in 2014 reported by OECD, 2015b for New Zealand.)

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.

Copayments are also required for drugs prescribed by GPs and private specialists (NZD5.00 [USD3.40] per item); after copayments are made for 20 prescriptions per family per year, they are free. There are no charges for residents treated in public hospitals, although there are some user charges, such as those for crutches and other aids supplied upon discharge. There are various means-tested subsidies, resulting in some copayments for long-term care, as discussed in the relevant section 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 (GPs), 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 act as gatekeepers to specialist care. They are usually independent, self-employed providers compensated by a capitated government-determined subsidy, paid through PHOs and accounting for about half their income; patient copayments, set by individual GPs, provide the rest. 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 people 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; this trend is being further driven by new alliance arrangements (outlined below). PHOs also receive up to 3 percent additional funding that is handed on to GPs if they reach targets for cancer, diabetes, and cardiovascular disease screening and follow-up, and also goes toward 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 and under-debated (Gauld, 2013). 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 specialists.

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 (ACC), and from patient copayments. Some patients subscribing to private insurance may be eligible to claim for the copayment. Patients pay the full cost of private specialist visits up front, unless the service is funded by ACC 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 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 GP after-hours 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, who are all 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 inputs.

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 nongovernment 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 on the basis of needs assessment, age, and a means test. 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. Some younger disabled recipients opt for individual budgets to arrange their own home care. Respite care is available to relieve informal or family caregivers, and in some circumstances there is ongoing financial support. Residential facilities, mostly private, provide long-term care. DHBs also provide hospital- and community-based palliative care. A network of hospices provides end-of-life care, with approximately 70 percent of funding coming from DHBs and the remainder through fundraising. Palliative care is also provided in the community.

Long-term care subsidies for older people are means-tested. Residents with assets over a given national threshold pay the cost of their care up to a maximum contribution. Residents with assets under the allowable threshold contribute all their income, except for a small personal allowance. DHBs cover the difference between the resident’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.

What are the key entities for health system governance?

As the health system is primarily public, government-funded and -appointed entities dominate governance structures. Some, like the health and disability commissioner (whose function is to champion consumers’ rights in the health sector), sit at arm’s length from the central government. Others are “crown entities,” with their own boards, and are required to follow government policy through letters of expectation. Key national arrangements, all of which have a role in providing information to, and engaging with, the public, are:

  • the Ministry of Health, which has overall responsibility for the health and disability system. The ministry acts as the Minister of Health’s principal advisor 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 patient copayments.
  • the National Health Board (NHB), which aims to improve the quality, safety, and sustainability of health care by actively engaging with clinicians and the wider health sector. The NHB provides advice to the health minister and the director-general of health on all of the aforementioned matters. It has two subcommittees: the Capital Investment Committee, which provides advice on matters relating to capital investment and infrastructure in the public health sector, in line with the government's service planning direction; and the National Health IT Board, which provides advice on the implementation and use of IT systems across the sector.
  • NZ Health Partnerships, established in July 2015 to support DHBs in delivering shared services and reduce costs by identifying opportunities for savings in administrative, support, and procurement.
  • the Pharmaceutical Management Agency of New Zealand, which 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 (Gauld, 2014). As of late 2015, a new set of “factors for consideration” will be used to underpin decisions: need; health benefit; costs and savings; and suitability.
  • the Health Quality and Safety Commission, which ensures that New Zealanders receive the best health and disability care possible given available resources. It is also 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 National Health Committee (NHC), which advises government on priorities for new and existing health technologies. All new diagnostic and nonpharmaceutical treatment services and significant expansions of existing services are referred to the NHC for evaluation and advice. The committee also provides advice on what technologies are obsolete or no longer provide value for money.

What are the major strategies to ensure quality of care?

The aforementioned health and disability commissioner investigates patient 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 and are enforced by financial sanctions if not met. In addition, DHB performance with regard to waiting times, access to primary care, and mental health outcomes is publicly disclosed. Also publicly reported are data comparing the performance of PHOs, including such information as screening rates for chronic diseases. 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 a nationally standardized survey of a random sample of patients and to submit data to the Health Quality and Safety Commission, which publicizes the findings.

Certification by the Ministry of Health is mandatory for hospitals, nursing homes, and assisted-living facilities, which must meet published and defined health and disability standards. 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 Health Quality and Safety Commission is intended to increase the focus on quality and coordinate the varied approaches to quality improvement across DHBs, such as those aimed at improving the patient journey, ensuring 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. Much like a financial account, Quality Accounts report on how the DHB has approached 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 the negative consequences associated with falls, surgery, health care–associated infections, and medications.

The National Health Board is also working on quality improvement in DHBs, with particular emphasis on management systems, clinical services, and patient pathways. “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.

What is being done to reduce disparities?

Disparities in health are a central concern in New Zealand, as Maori and people of Pacific Island origin have shorter life expectancies than other New Zealanders (by seven and six years, respectively), and reducing disparities is a policy priority (Ministry of Health, 2013). Maori and Pacific people are also known to experience greater difficulty in gaining access to health services, and data describing disparities are routinely collected and publicly reported.

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 to serve Maori or Pacific populations.

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

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

Larger Integrated Family Health Centers (IFHCs) are developed in line with the “Better, Sooner, More Convenient” government policy, which aims to improve access to integrated care provided by DHBs and PHOs by establishing more convenient locations for patients (outside of hospital settings) and by emphasizing chronic disease management (Ryall, 2008; Ministerial Review Group, 2009). These centers provide comprehensive primary care and care coordination, after-hours services, and some minor elective procedures for an enrolled population. New facilities will see services and providers colocated, or coordination of services improved, with funding from both primary care budgets and DHBs.

Patients enrolled in PHOs have a medical home, but PHOs vary widely in size, performance, and activities. The highest-performing among them provide a model that, if nationally emulated, would result in all enrollees having a fully functional, multidisciplinary medical home, although institutional barriers to integrating primary and hospital care would remain.

The New Zealand government is accelerating the drive for clinical integration to create a more patient-centered health system. It is also ensuring that all DHBs’ annual plans include proposals for integration. These directions have been propelled by a new PHO contract in place since mid-2013 that requires PHO–DHB alliances modeled after Integrated Family Health Center pilot programs. There is considerable scope for these alliances to integrate health and social services (see below), and there is a gradual move toward pooled funding streams. Some specialized providers contracted by the government that focus on vulnerable populations, such as Maori and Pacific people, work to coordinate health and social services (e.g., Whanau Ora, described above).

What is the status of electronic health records?

New Zealand has one of the world’s highest rates of information technology (IT) use among primary care physicians, with almost 100 percent uptake (Schoen, et al., 2012). The government’s goal is universal electronic access to a core set of residents’ personal health information by 2014. However, despite some progress, that goal is unlikely to be met, owing to the complexity of implementing a national patient portal. Clinicians and vendors are working together on numerous projects: there is a larger emphasis on supporting and enabling integrated care, and a shift toward regional investment decisions and solutions. However, challenges with legacy systems remain.

Increasingly, primary care IT systems provide services such as structured electronic transfer of patient records, electronic referrals, decision support tools with patient safety features, and patient access to health information in a secure environment. In the near future, there will be more emphasis on facilitating secure sharing of patient information among community, hospital, and specialist settings, including common clinical information; providing all consumers with an online view of their information; and supporting the development of shared-care plans (in which a number of health professionals are involved in a person’s care). However, current levels of interoperability are limited.

The National Health IT Board works with a number of sector groups and receives advice from, among others, clinicians, consumers, and vendors. The Health Information Standards Organisation supports and promotes the development and use of standards to ensure interoperability between systems. 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 five years, from NZD154.8 million (USD105.4 million) in 2008–2009 to NZD7.4 million (USD5.0 million) in 2013–2014 (personal communication, Ministry of Health). 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. There have been experiments with shared-savings arrangements in the past, with contracted providers such as GP networks.

The National Health Committee prioritizes health technologies and provides advice as to which technologies no longer offer value for money, increasingly using comparative-effectiveness research in evaluation.

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 (Gauld, 2014). If patients prefer unsubsidized medicines (and if there are no clinical indications that these would be more effective), they 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 OECD in 2012 (OECD, 2014).

What major innovations and reforms have been introduced?

Reforms over the past two years have been mostly adjustments to existing arrangements, with one standout. In mid-2013, a new national Primary Health Organisation contract was issued, with new minimum PHO standards and a requirement that DHBs and PHOs enter into alliances. The rationale for the requirement was to link together the parts of the health system—GPs and public hospitals in particular—that operate largely separately but with common populations in a region. The impetus for forming these alliances is the government’s increasing concern over chronic disease and care for complex patients, and its desire to better support patients and their providers in primary care settings.

These alliances reflect an important shift in the governance model and structures for designing and delivering health services in New Zealand. Each alliance must take a whole-system approach, bringing together clinical leaders, managers, and community representatives from across the local health system to consider health services from a patient perspective. An alliance’s focus is primarily integration, with the alliance setting service priorities, generating consensus on how those priorities will be met, and then sharing financial and other resources to facilitate implementation. Many alliances are creating further clinically led “service level alliances” targeting different areas of care design; many also govern health pathway development, which is rapidly expanding across New Zealand (Gauld, 2014b).

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

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

Gauld, R. (2014). “Ahead of Its Time? Reflecting on New Zealand’s PHARMAC Following Its 20th Anniversary,” Pharmacoeconomics 32:937–942.

Gauld, R. (2014b). “What Should Governance for Integrated Care Look Like? New Zealand’s Alliances Provide Some Pointers,” Medical Journal of Australia 201(3):s67–68.

Ministerial Review Group (2009). “Meeting the Challenge: Enhancing Sustainability and the Patient and Consumer Experience within the Current Legislative Framework for Health and Disability Services in New Zealand” (Wellington: Ministry of Health).

Ministry of Health (2013). Annual Report for the Year Ended 30 June 2013, Including the Director-General of Health’s Annual Report on the State of Public Health (Wellington: Ministry of Health).

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

Organisation for Economic Co-operation and Development (2015b). OECD.Stat. DOI: 10.1787/data-00285-en. Accessed July 2, 2015.

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

Ryall, T. (2008). “Better, Sooner, More Convenient: Health Discussion Paper by Hon. Tony Ryall MP” (Wellington: National Party).

Schoen, C., et al. (2012). “A survey of primary care doctors in ten countries shows progress in use of health information technology, less in other areas.” Health Affairs 31(12):2805–2816.