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By Infometrics economist Geoff Simmons

As the great New Zealand public prepared to go to the polling booths just under a year ago, one concern lingered in the minds of many. While National had worked hard to exorcise many of the demons of its 90s era of Government, the ghost of its healthcare experiment was still wandering the corridors of power, rattling its chains.

National tried to bury this ghost once and for all by promising no change to the District Health Board structure. The only trouble is that a few of the 90’s reforms were useful and could benefit our healthcare system. Now National faces the challenge of resurrecting some of those ideas without them looking like the mummified corpse of discredited past policies.

In the 1990s the National Government of the time took New Zealand on the most ambitious reform of healthcare delivery in the Western World. The central thrust was setting up hospitals as businesses and getting them to compete for the right to cut you up. This would surely improve efficiency, as all hospitals would up their game to become as slick as the best.

But the public balked at the idea of closing poor performing hospitals, so the competitive approach fell at the first hurdle. More recently we have seen the difficulties of operating arms-length competitive approaches in healthcare with the diagnostics contract in Auckland.

The problem is that a purist competitive model doesn’t sit easily with the massive specialised investments in healthcare, particularly in a small dispersed country. Such big investments require long term contracts and good relationships to work. Specialised investments are one reason why some private sector businesses find it useful to form close relationships with preferred suppliers, rather than getting suppliers to constantly compete. In these industries there is still pressure to improve, but it is underpinned by a symbiotic long-term partnership.

However, there were some elements of the 1990s reforms which did work. National created Pharmac, which prioritises and bulk purchases our drugs and is recognised around the world as best practice. We are one of the few countries in the world that is keeping a lid on our pharmaceutical spending. Pharmac is so successful the US Government (on behalf of drug companies) repeatedly asks the New Zealand Government to disband it as part of any prospective free trade deal.

Pharmac prioritises drugs by the increase in a person’s illness-free lifespan for each dollar spent. Decisions are understandably controversial because they are dealing with life and death, however there is no more objective method available. Naturally, these decisions need to be tempered at the edges by common sense and clinical opinion, but generally the approach seems to work.

Pharmac didn’t fund Herceptin quite simply because it is not value for money. With the same amount of money as spent to keep one person alive for a year on Herceptin, around five other people could be kept alive for a year with other drugs. This didn’t stop the incoming National Government overturning Pharmac’s Herceptin decision, which undermined the most successful healthcare reform of its previous period in Government.

For many years there have been calls to apply the Pharmac approach to medical treatments more generally. We would only fund those new treatments that generate the greatest amount of additional illness-free years of life. National’s latest review of the health sector, the Horn Report, sets out plans to strengthen the National Health Committee to take forward this role. If set up right, with a focus on evidence but room for the input of common sense and clinical views, this group should do some useful work.

The hitch is that, unlike Pharmac, this Committee will report directly to the Minister of Health and will not have any direct powers. Politicians have an atrocious record of meddling in healthcare priorities. As we saw with Herceptin, they tend to bow to well-orchestrated campaigns from minority groups. Once the placards start waving and the media latch onto the issue, the Minister of Health will inevitably get the quiet word from the Prime Minister to cave in and get healthcare off the front pages. This focuses health spending on oiling squeaky wheels, rather than on the long term good of New Zealanders health.

It takes a bold politician to keep their sticky paws off decisions that might be unpopular with vocal minorities. Yet without this change we will continue to be at the mercy of pressure groups and throw money where it doesn’t have the greatest benefit. The lesson learned from the 90s reforms should be that competition is of limited value in healthcare, but that apolitical, evidence based prioritisation works. The reforms of the 90s are certainly dead, but perhaps National buried the wrong body.

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* Geoff Simmons is releasing a new book with Gareth Morgan on the New Zealand public healthcare system in November.

* Infometrics is an economic information and forecasting company based in Wellington. To find out more, see its website here. This piece first appeared in the Dominion Post on October 17, 2009.

Tags: Gareth Morgan, Geoff Simmons, Healthcare, Infometrics

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