New Zealand Budget


Budget 2018: Health

Making the most of new capital investment crucial

By Thorsten Engel

Health is a tricky portfolio, and the previous Government did well to keep health mostly out of the spotlight. However, this came at a cost. Treasury estimates a backlog of $14 billion of capital asset replacement and refurbishment is required over the next ten years. District Health Boards have been unable to accrue sufficient funds for on-going building maintenance and asset replenishment and they all struggle to make ends meet.

Adding insult to injury, many of the large buildings in the sector appear to be plagued by poor construction quality – whether it be copper pipes turning to mush in Wellington or sewage leaks in South Auckland.

In that context, the health portfolio is a big winner in Budget 2018. There is an extra $750 million in additional capital spending allocated in Budget 2018. An additional $100 million in capital will be available if necessary in 2018/19 to strengthen DHB balance sheets. It is unlikely to be enough to clear up projected deficits overnight, but will certainly help if the money is well targeted.

More importantly, this signals a strong up-lift to capital intentions. Many building-related projects have been queuing up for additional capital funding. However, officials would be well advised to heed lessons learnt from how poorly past hospital design and construction projects have fared, and hopefully ensure that we get better value for money this time round. Deloitte research indicates that Digital Hospitals and Hospitals without Walls can be serious game changers around how healthcare is delivered, so let’s make the most of these investments. With regard to digital hospitals, government may also want to look at how ICT and digital technology projects could make better use of money across the sector.

Of course, extra capital spend is only part of the equation. We have nurses signaling industrial action and many other registered and allied health professionals clamoring for higher wages. To deal with rising demand and an increasing population, the government has allocated an additional $3.2 billion in operational funding into the health budget over the next four years.

Again, we hope this money will be spent differently from how it’s been spent in the past. The government wants to lift New Zealand’s productivity, and it is about time we did so in healthcare. Sadly, Ministry of Business, Innovation and Employment (MBIE) estimates that our workforce of around 210,000 health and social workers is less productive than the national average across all industries, generating only $39 GDP per hour worked (compared to a national average of $48). Even worse, MBIE figures show a steadily declining average in health sector productivity over a number of years.

What international benchmarks such as the Mirror report[1] quoted by Treasury show us, is that healthcare in New Zealand is cheap for what we get. It is easy to be ‘efficient’ when you underpay your staff. Digging deeper into the Mirror report, we do well on aggregate cost and administrative efficiency, but poorly in the specific areas that count:

  • 18% of our population reports that the cost of healthcare creates access issues for them, only the US and Switzerland have higher barriers to access
  • We are the worst ranked country with regard to access to after-hours care
  • We have the second highest mortality rate amenable to healthcare (i.e. avoidable deaths) among the studied countries

Treasury also notes that we have significant equity challenges. Our ambulatory sensitive hospitalisations (ASH), meaning people being admitted to hospital when they should have been taken care of better in primary care, are far too high. And Māori children are 1.3 times, and Pasifika children 2.3 times, more likely to fall through the cracks in primary care and end up in hospital.

So at a system level, we are clearly not operating as we should. By recognising the value of the professionals who make an invaluable contribution to our society, we will hopefully draw health system planners’ attentions to the fact that we need to reengineer the way our system works. When squeezing salary and wage bills has run its course, one is forced to contemplate more difficult and fundamental change in any health system.

We need to ensure our workforce operates at the peak of their professional capacity. Why should health professionals lose countless hours of patient contact time to tasks like manually completing paperwork, chasing up diagnostic results or dealing with appointment bookings and care coordination? Why should they work in hospitals that are designed like rabbit warrens with poor patient flow, stove-pipe clinical service departments and disconnected systems and processes?

It is high time New Zealand paid its health workforce what our professional and allied health workers are worth and made fundamental revisions to our healthcare infrastructure. However, it is also high time that we looked at how we deploy these highly skilled professionals and reengineer the way we operate and how we ensure that our capital investments are fit for the future of healthcare.






Find out more:

Deloitte NZ Budget Hub

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