New Zealand Budget


New Zealand’s healthcare challenge: The elephant in the room

2016 New Zealand Budget

The Minister of Health has done well, to negotiate a $568 million budget increase (including $400 million for District Health Boards), with a $2.2 billion increase over four years – the biggest increase in seven years, and almost $170 million more than last year.  In uncertain economic times, this is laudable – however is it enough?

New Zealand has seen an influx of over 62,500 new migrants in the last 12 months.  Our salary inflation is about 1.5% and holiday-act driven compensation has increased around 1.6% across all sectors, and we know that medical cost inflation runs well above these figures. Many DHBs have started to run sizeable deficits again, because they cannot close the gap between funding and the increase in real costs.

The total Health budget is now a record $16.1 billion including the additional $568 million.  This may be enough to maintain the supply of quality healthcare services and address population growth and ageing for now.  However it is not sustainable long-term if we continue on this trajectory.

Unfortunately the new spend only addresses symptoms and is not tackling core problems.  

We are overly reliant on hospital care and compounding this challenge is the fact that our hospitals are not very efficient.  Our resource intensity per hospital bed is 1 doctor and 3.6 nurses per bed, compared to an OECD average of 0.7 doctors and just 1.9 nurses per bed. Our hospital costs are over USD$1.2 million per bed against an OECD average of just over USD$0.7 million (purchasing power parity adjusted).[1]  Our hospitals lack a digital blueprint, run moribund computer systems and are highly reliant on manual and labour intensive processes.

With the recently launched National Health Strategy, it is a shame to see the opportunity slipping away to drive transformative change into the health sector.  Yes, $39 million of the new money is allocated to Pharmac to combat obvious political pressures in the wake of the Keytruda funding saga, and $97 million is allocated to the Health Research Council (HRC).  But none of that will drive substantive change into the sector.

The strategy talks about people-powered care models but we need to fundamentally shift the emphasis for workforce development, resource deployment and funding towards primary care. This requires actual engagement with consumers and not just paying lip-service to people-power by having academics and clinicians claiming to speak on their behalf.

Ensuring that funding is made available to make the necessary transformative changes will be crucial to ensuring the successful delivery of the National Health Strategy; otherwise it will be little more than a paper-tiger.

If the government is not prepared to disrupt the status quo of each District Health Board or Primary Health Organisation inventing their own unique solutions to common problems, investing in their own stovepipe systems and having widely different care paths for common conditions, then we have little chance of making substantive change.  We need to remove the hardcoded inefficiencies in our system, to really make an impact.

Some OECD researchers have estimated that well over 2% of New Zealand’s GDP is wasted on administrative inefficiencies in our healthcare system.[2] With our healthcare expenditure already running around 10% of GDP, this would equate to a potential savings of 20-25% on a like-for-like basis. Now would that not be a prize worth aiming for with our Budget initiatives?

[1] OECD Health Statistics-2014-Frequently Requested Data -



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