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The role of medical managers in healthcare reform: a New Zealander's perspective Print E-mail
The Quarterly 2011


Over the last 30 years, the health sector in New Zealand has been through repeated reforms. Unfortunately none of these reforms seem to have restrained the rising cost of health care and there is little evidence that healthcare outcomes for New Zealanders have materially changed.

Health sector reform in New Zealand appears to be primarily fiscally driven (figure 1).
From 1950-2010, the cost of health services provision has risen by 417%, while GDP has only risen by 133%. As this trend continues, New Zealand will soon be unable to support its health service.


Figure 1: The cost of health care delivery in New Zealand between 1950
and 2010, and the effect of Health Sector Reform in the 1990s.

The graph demonstrates a significant dip in the 1990s. The dip was due to a major shake-up in the health sector – the funder/provider split, emergence of organised general practice, empowerment of primary care purchasing and the introduction of corporate style management. It is however apparent that these changes were not sustainable in the longer term. I believe it is useful to reflect on the impact of these changes and to try and understand why they were unsustainable.

History of Health Sector Reform

Prior to the 1980s, I suggest that New Zealand had a health system run by doctors for doctors (figure 2). Hospitals and primary care providers (general practitioners) were supervised by the Department of Health who reported directly to the Minister of Health. Hospitals were managed by the medical superintendant - usually a senior clinician, who also managed the director of nursing and the finance manager.

Figure 2: Health sector structure prior to 1980

Hospitals were run as autonomous entities, with a tendency to "empire building", and there was little or no national planning. Hospitals had a strong service focus rather than a population needs focus; there was little community involvement in strategy or service planning, and a degree of concern about the variable level of management competence of the medical superintendants.

Primary care consisted of independent practitioners, often operating in isolation with little accountability and few formal CPD opportunities.

During the 1980s, restructuring led to a health system characterised by central government oversight through the Minister of Health, the Department of Health and, for the first time, a non-medical Director General of Health (figure 3). There was an attempt at regional planning with the development of Area Health Boards and, for the first time, some attempt at professional management of the public hospitals where a triumvirate management service was established.

Figure 3: Health sector structure during the 1980s

A number of public hospitals saw significant conflict between the doctors, nurses and operational management over autonomy, clinical culture and the mandate to manage. This conflict tended to have a crippling effect on strategic planning and changes to service delivery. While there was some attempt at cost control, there was little “whole of sector” coordination, and the system proved to be politically fragile.

This new structure was only in place for a short time before the government changed.

The National government of the 1990s introduced radical reform based on strong political ideology founded on the US concept that competition would drive out inefficiency and service provision could be determined by market forces. Economists at the time indicated that up to 30% efficiency gains could be had in the health sector, provided medical management was improved.

The health sector was completely reorganised on the basis of purchaser/provider split (figure 4) with four Regional Health Boards responsible for purchasing health services and setting strategy and 26 Crown Health Enterprises (CHEs) competing aggressively with each other and the private sector for health service provision. This separation reached right up to the political level with the Minister of Health, responsible for policy, planning and funding, and the Minister of Crown Health Enterprises responsible for service delivery.

Figure 4: Health sector structure during the 1990s: purchaser/provider split

The private sector was recognised as a competitive provider, although there were concerns about their potential for "cherry picking" the most lucrative contracts, leading the public providers to manage the more complex and risky cases. The mandate for the Regional Health Authorities (RHAs) was that competition is good; competition should be aggressive and fostered wherever possible. RHAs were directed to purchase services from the most efficient, cheapest and most effective provider (public or private). These reforms were accompanied by a radical change in national health delivery culture, with a focus on population needs and autonomous regional planning. Health provision was overseen by commercial boards and executive management teams, often with little or no health experience. With such a small population and high number of providers this change in structure led to dysfunctional competition between RHAs and CHEs. This resulted in the fragmentation of services and loss of coordinated national planning and data collection practices.

Primary care were given budget-holding responsibility for laboratory and pharmaceutical purchases and formed independent practitioner associations (IPAs) to deliver the management structure required to effectively manage this responsibility. GPs were able to squeeze large efficiencies out of the system which resulted in the accumulation of major "profits". This also led to significant legal battles between the Regional Health Authorities and the IPAs over who was responsible for generating the surplus and who was entitled to retain the savings.

The executive management governance resulted in extreme disenfranchisement of clinicians in the CHEs, (doctors were seen as skilled labourers), while on the other hand the emergence of primary care medical leadership led to a significant threat to public policy.

One of the death knells for the purchaser/provider split occurred when a CHE announced a deficit of $30 million, while the local Independent Practitioners Association announced retained earnings of $34 million. This was considered untenable and the structure was rapidly and disruptively dismantled with the change of government in the mid-1990s. When we look at the health expenditure graph again (figure 1) we see that after the purchaser/provider split model was dismantled, health expenditure began to escalate once more. Nevertheless, the rabid competition and the empowerment of primary care in the purchasing and responsibility for pharmaceutical and laboratory budgets did have a dramatic fiscal impact on the delivery of health services in New Zealand.

The Current State

In 2011, we have a health sector with the Ministry of Health (reporting to the Minister of Health) responsible for policy and planning and 20 autonomous District Health Boards (DHBs) responsible for funding, planning and delivery of health services (figure 5). We have collaboration instead of competition and public hospitals are once more the dominant secondary care provider and the virtual monopoly providers of emergency, maternity, psychiatric and medical services.

Figure 5 Current state: District Health Board: for the people at lowest cost

DHBs are characterised by a strong focus on population needs, vigorous cost containment, and parochial district planning. Governance is provided through majority-elected Boards, whose members may not always have the skills or background to direct the delivery of health services.

The DHBs are responsible for funding the capitated protion of payments to primary health organisations (PHOs), which must now be community rather than professionally owned. Clinical involvement in the management of primary care has been largely neutralised. The original 84 PHOs have been rationalised to around 30 and are expected to be further reduced. The 20 DHBs are also expected to be rationalised from the present 20, though the current focus appears to be on the establishment of regional networks of DHBs. Private hospitals are excluded as providers, except where DHBs choose to subcontract usually minor surgical procedures. There is a dearth of experienced health managers.

Doctors who have sought a governance role have been frustrated – where they have been elected to DHBs they are often told that they have an inherent conflict of interest and thus have limited involvement or voice in planning.

The Future

A recent ministerial task force on the structure of the health sector resulted in the establishment of the National Health Board. This new body, with a CEO reporting to the Director General of Health, is tasked with bringing together public planning and funding, performance and accountability, workforce and IT. However, the National Health Board reports to its own board, with the chair reporting to the Minister. The actual role of this new body is still evolving with the Ministry of Health having a different perspective from the National Health Board itself.

In the Ministry of Health's view, the Director General of Health reports to the Minister of Health. The Ministry of Health sees its core responsibility as strategy, policy formulation and regulation, managing the National Health Board, and sector implementation, change management and setting priorities.

Figure 6: Future state (Ministry of Health view)

The National Health Board appears to have a different perspective. In their view, the Board reports directly to the Minister of Health, and is responsible for the DHBs and the Regional consortia, including overseeing district, regional and national health plans. The Director General of Health is not part of this direct accountability line, but interacts with the Minister of Health and the National Health Board.

Figure 7: The emerging future (National Health Board’s view)

This lack of clarity creates potential for a significant battle for control between the emerging National Health Board and the Director General. While the Ministry of Health is responsible for policy and planning, it does not control the strategic national health framework (the domain of the National Health Board), which is a core foundation of policy.

The Role of Medical Leadership within the Health Sector

Medical leadership within the health sector in New Zealand is currently primarily an advisory role. Within the Ministry of Health, the Director General is not a medical role and none of the executive team has a medical background (although an appointment has recently been made to the newly created position of Chief Medical Advisor) . There are 11 clinical directors and 4 chief advisors (all advisory roles only, with no direct accountability for service provision). Within DHBs, the Chief Medical Advisor has variable engagement at executive level, no standardised job description, and variable accountability for service.

Medical leadership is poorly represented at DHB management level (no CEO has a medical degree, although several DHB chairs are medical practitioners). There are a couple of doctors at the general manager level.

The need to develop clinical leadership is a consistent, current theme for the Minister of Health; however, as yet there is no national competency framework, no recognised/funded training programme (although there are various local initiatives), and there is ambivalence about a medical role in leadership (clinical leadership is also seen as the role of nurses and allied health professionals). The newly appointed Ministry of Health Chief Medical Advisor is also the head of the recently established Clinical Leadership, Protection and Regulation Business Unit.

Challenges Facing Medical Administrators

The question can be asked "Why should we have medical leaders in the health sector rather than professional executive managers?" The answer to this lies in the unique mix of medical and management skills that characterises the effective medical manager.

Unlike executive managers, medical managers can deliver on the following five key roles:

  • ensuring safe service delivery (clinical governance, credentialling, performance management);
  • optimising service configuration (multi-variant impact analysis);
  • championing best practice (identifying and championing positive change, working through clinician insecurity);
  • demand (referral) management (necessary, effective, efficient);
  • workforce development (demand, impact, recruitment, substitution)

To establish ourselves in medical leadership we need to professionalise our role. Medical management should be a clearly defined role with relevant key core competencies. It needs be a fulltime vocation, not something you can retire into, dabble in part time, or treat as a vacation. So that we have a strong cohort of competent medical managers who can bridge the gap between the focus of the clinician and manager (see figure 8) and fulfil the role of a medical leader, we also need to establish a training framework for medical management (content, delivery options, outcomes), tools to assess progress, and a credentialling process for certifying competency.

Figure 8: Key core competencies of a medical manager: bridging the gap between clinician and manager

Structural reforms fail when they do not engage the clinicians, but clinicians must be able to engage and their response must be credible. When we promote clinician leaders to the role of clinical managers without training them in the skills of negotiation, relationship development and political speak; they lack credibility and are not effective. Thus there is an enormous, emerging and critical role for the development of the medical leader in the New Zealand health system.

Over the past thirty years, the New Zealand health system has undergone radical structural reform. While some of the reforms in the 1990s engage the hearts and minds of primary care clinicians, most of the reforms have been implemented without clinical leadership or engagement.

New Zealand has a looming fiscal mandate to achieve significant savings in the way health dollars are spent. This can only be achieved when medical practitioners are trained, skilled and willing to take on a leadership role.

Dr David Rankin

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