This is Going to Hurt

Gareth MorganHealth, Tax and Welfare

Joanne Black, NZ Listener, 14 November 2009

New Zealand does not earn enough to pay for the health system it wants, so it is time for some harsh decisions, says economist Gareth Morgan.

In a recent visit to the US, economist Gareth Morgan visited a hospital in Billings, Montana, and says it was “like walking into the Hilton”.

“I talked to the surgeon there and he said, ‘We have 180,000 people in this town, we have four MRI scanners and two CAT scanners, it’s absolute gold-plated health care, it’s fantastic’, and then he added, ‘so long as you’re in the system’.”

It is no surprise, says Morgan, that when rich New Zealanders get sick, some of them head for the US.

But what most captivates Morgan when comparing the New Zealand and American healthcare systems is the correlation of expectations. Americans, or at least those with health insurance, and New Zealanders both expect to be treated in a timely fashion, whatever their ailments, using the most up-to-date procedures. What New Zealanders do not take into account, he says, is that we have First World expectations but only a Second World capacity to pay for them.

Morgan and economist Geoff Simmons have just co-authored Health Cheque, a book about New Zealand’s public health system. Their conclusion is that the system does remarkably well on the resources it has, but there is a desperate need for an honest discussion about some hard choices that need to be made. In particular, Morgan sees part of that discussion focusing on the cost of end-of-life care for older people and closing some small public hospitals.

In the book, the pair say that one of the enduring achievements of the health system established by Michael Joseph Savage in the 1930s was to create an expectation that every treatment for every person would be fully funded. “A sacred cow had been born and it’s this expectation that has dogged all subsequent attempts both to fund and to reform the health system.”

According to 2006 figures, New Zealand spends about $15 billion on health every year, with $12 billion of that coming from taxes and ACC levies.

More importantly, health expenditure is “growing at a rate that far outstrips our national income, or our population growth”.

“Over the last decade, the average increase in total health expenditure has been 6% per annum, at a time when economic growth has barely managed half of that,” the book says. While health costs have been increasing at that rate, per-capita income has been growing at about 2.4% per annum.
























“Nor is the prognosis very good. It’s projected that at the current rate of increase, the percentage of national income gobbled up by health expenditure will double to 12% by 2050.”

New Zealand ranks 20th “on the list of big spenders”, forking out the equivalent of US$2211 per capita in 2006, compared with the US, top of the list at US$6000. However, at 9.6% of GDP, New Zealand’s health expenditure is right on the Organisation for Economic Co-operation and Development (OECD) average.

But again, the point that Morgan and Simmons labour is that although our expenditure might be comparable to the countries against which we like to measure ourselves, our income is not.

“If you’ve decided you’re going to spend 10% of your annual salary on a new car, and you earn $70,000 a year, you’re not going to be driving anything quite as snazzy as the bloke on $700,000 per annum who makes the same proportional commitment.

“It’s the same in healthcare. Because we’re shopping in a global market, 9.6% of New Zealand’s GDP of US$115 billion isn’t going to get us a Rolls-Royce healthcare system when we’re competing with, say, Australia, with a GDP of US$795 billion.

“Compared with other rich countries, such as our transtasman rival, New Zealand runs its health system on the smell of an oily rag. The simple truth is that we can’t afford to spend much more than we do because we’re a poorer nation. If we want First World healthcare, then first and foremost we have to make sure we maintain a First World income.”

The book suggests that “something, somewhere” has gone wrong with the logic of health spending and that the pendulum may have swung too far towards investment in the elderly, while our low immunisation rates and high accident rates mean the state of young people’s health has begun ringing alarm bells in the OECD.

In particular, the book suggests the most effective use of spending now would be on improving Maori and Pacific Island health. “Rather than throwing ever more money at old white people – where the marginal returns swiftly diminish – the numbers of Maori who would benefit from relatively simple investments in public health would be greater per dollar spent. Focusing on issues like vaccinations, infant mortality, smoking, obesity and lower injury rates tends to have very big pay-offs in terms of health improvements.”

The authors are critical of the lack of prioritisation that occurs in the health system, saying it reflects the “wilful ignorance of the public and the acute aversion of politicians for anything that might resemble unpopularity”. They call for a much more dispassionate approach to establish which procedures get funded and who among us should have priority for them. The lack of such a system contributes to poorer Maori and Pacific Island health because they are likely to be the very patients least able to promote themselves up the queues, the authors say.

“It’s a mess,” says Morgan. “All sorts of inequities arise across regions, across socio-economic groups, and across age groups where some people get overtreated and some people get undertreated.

“If you’re jammed in the queues you have to know how to trick the system to get ahead. But every time someone makes one of those jumps, someone else misses out. I would argue that the system is very inequitable and we can see it in the statistics.”

But in particular, it is end-of-life care for older people that needs to be discussed in order to maintain an affordable health system in the coming years, and to secure a better return from the money spent, the book says. Accepting the idea of reduced treatment at the end of someone’s life would take a sustained cultural change for families to have a mature conversation about their expectations for treatment and care, it says. “The media can help here: not every decision to withdraw or withhold treatment is evidence of scandalous, callous penny-pinching by health authorities.

“People can’t be cured of old age but by the time they get there they or their families understand how the system works. And families will put inordinate pressure on the system.”

Simmons says he and Morgan spoke to a surgeon who told of being called to a retirement home, finding someone with a cracked hip and then advising they might be better off with bed rest than risking an operation, “but then Grey Power is wading in on his case so he’s doing the op”.

Morgan says surgeons “two-timing” in the private and public system also introduce unfairness; seeing patients privately then slotting them into the public system, “which they’re not allowed to do but it happens a lot. It’s a system that’s made for gaining and it’s very unfair.”

the book says New Zealand should be discussing, but about which we have a collective blind spot.

Morgan and Simmons are very critical of the District Health Boards (DHB) system, and say evidence suggests we should have 12 A&E units, whereas we have 35. Travel times alone cannot justify having three times the required number.

“Most of those units aren’t what we think they are. They are called A&E departments but they are nowhere near comparable between each other and some do not have the resources to offer the full suite of A&E services.

“It’s called A&E but some of them are one step up from butchers’ shops.” Harsh? “Well, that’s the sort of reality the public needs in order to make some hard decisions. It’s a big con job, all because of this political pressure that there must be one [A&E] down on my corner.

“You get the politicisation of the process all the time. Like John Key, when in Opposition, making the decision to fund Herceptin which cut straight across Pharmac, and every health professional we came across was furious about that decision. It completely corrupts the process of getting the best bang for bucks. You couldn’t find any rationale for it other than vote-grabbing.”

The authors suggest that closing 
unviable provincial hospitals would leave a void that would most likely be filled by more sophisticated primary care, and a flight service for more serious cases.

They argue that having fewer but better hospitals would save money and improve care and without that happening “our health services face a long, slow decline of the kind we are starting to see now”. They also argue that health professionals prefer working in bigger teams.

“What would we really lose by pruning the 21 DHBs and 80-plus primary health organisations? It would hardly be a blow to democracy. Right now, local accountability really just means keeping the local hospital open.”

Simmons says that in one interview he and Morgan did, a DHB said it was struggling so hard to keep its hospital open it could not afford neonatal care.

“Neonatal care is up there with vaccination as the most cost-effective thing to do of any health intervention but they can’t afford to do it in the small towns because they are struggling to keep their hospital open. And people don’t hear about that.”

When it comes to what we get for our money, the picture is mixed.

Through the success of Pharmac, New Zealand has managed to slow down the growth of its pharmaceutical bill – now at 12% of health spending, down from 15% in 1996. Other findings show New Zealand far below the OECD average for the number of doctors per head of population, and significantly fewer specialists.

Further concerns show up in the health workforce, with analysis showing that of the 3435 GPs practising in 2008, more than half were themselves baby boomers so would be expected to retire just as their patients of a similar age are increasing their demands on the health system.

Every country is competing for health professionals and about 35% of doctors practising in New Zealand were trained overseas. Although there is no suggestion there is anything wrong with foreign-trained doctors, other than the possibility of them having lower cultural awareness, they tend not to stay in the country as long as those who were trained here. About three quarters of foreign-trained doctors will have left New Zealand within six years of being hired.

This is Going to Hurt was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

Facebook Twitter

Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.