117. The HFA is supportive of the broad thrust of the recommendations, and wishes to acknowledge the extensive effort the Ministry of Health has expended in incorporating the comments we have made on previous drafts.

118. It is likely that the New Zealand Health strategy will make recommendations that are not too dissimilar to the issues raised in the Labour party manifesto. Underlying this is an awareness that while the current structure and functioning of the health system may be improving overall health and reducing disability, it is also increasing the differences between the health and life chances of the wealthy when compared with the poor. In addition, it is likely to identify particular health disadvantage for Maori, due not only to poverty, but also due to other factors inherent in the existing structures and systems.

119. The current paper has two problems in meeting the likely recommendations of the New Zealand Health Strategy. The first, is the lack of development of a strategy for Maori. Given the importance of Maori health, and the Treaty, we feel that the absence of a defined strategy in this regard exposes the Minister to political risks in the short term. It also limits the capacity of the ensuing structures to effectively address Maori Health issues. We welcome the recommendation to develop this area, and feel it should be given a very high priority.

120. The second problem relates to the capacity of the new health service to shift resources from existing areas to those with high needs. In this regard, we have concerns with the possible dominant role the existing HHSs will play in the new DHBs, and the limitation this may place in effectively addressing the health needs of the community.

121. This latter point can be addressed as the changes evolve, through effective orientation and positioning of boards, and through judicious timing of the decentralised funding role. Boards would be required to demonstrate an ability to 'think outside the hospital' in order to receive decentralised funding. It will also be advisable to have a strong emphasis on training and orientation of board members, and clear and well understood accountability frameworks. The proposed design runs the risk of alienating primary, community, and DSS and mental health providers (currently 45% of the sector) if they perceive a hospital dominated DHB as controlling their funding.

The Treasury

122. The Treasury supports the overall direction indicated in the paper (e.g. establishment of DHBs and merger of the functions of the HFA into other agencies), but does not support decisions being taken now in a number of the areas set out in the recommendations. The analysis to underpin these decisions has not been undertaken and their costs have yet to be identified. They unnecessarily close off discussion of relevant options.

Financial risks

123. A particular structure is proposed without any indication of the likely costs of change and of running the new system. As a result, there are major financial risks. For example, the recommendations commit to 22 DHBs, but this precise number is not justified. It is recommended that DHBs be permitted to set up common services agencies, which should reduce costs, but no requirement that they do so. The objectives of the DHBs do not include them managing within budget.

Performance risks

124. In the proposed structure, the current HHSs will be part of the DHBs. There is no analysis of the potential adverse consequences for planning and delivering an effective public health service. There are significant risks that responsibility for the public hospitals will divert the attention of the DHBs away from population health towards hospital advocacy.

Accountability

125. It is recommended that the new DHBs become accountable solely to the Minister of Health. Without having determined the legal identity and organisational form of the DHBs and their relationship with the public hospitals, it is not possible to judge whether the proposed Ministerial accountability structure will adequately protect the Crown's ownership interest in the public hospitals.

Building from the 22 current HHSs

126. It would seem commonsense to build the DHB Boards and infrastructure on the 22 HHSs. However, this has cost implications and it may not be possible later to reduce the number of elected DHBs. It also risks HHS Boards and management being diverted from their prime function. It risks sending out a signal to the rest of the sector that the public hospitals will be dominant. Before committing to building on 22 HHSs, other options should be discussed, including making use of the HFA's 11 locality offices.

Separation of structural design from implementation (change management)

127. The two phases are separated in what is proposed and involve different sets of officials, with the Ministry of Health alone involved in the change management process. Experience with other public sector change processes indicates that continuity of input and oversight is required for successful policy implementation and that, in practice, it is a mistake to regard 'policy design' and 'implementation' as separable.

Timetable

128. The timetable is extremely ambitious, particularly for the structural design work (February-April 2000). This phase should be extended, particularly since it is recommended that the DHBs will not be companies, but that a specific form of Crown entity will have to be developed for the purpose. This is a major task and may not be possible in the time specified. It would be far preferable if this work were linked explicitly to the ongoing initiative to develop generic Crown entity legislation.

129. Treasury will be reporting separately to the Minister of Finance on these concerns and alternative recommendations to address them.

RECOMMENDATIONS

130. I recommend that Cabinet Business Committee:

ESTABLISHMENT OF AN AD HOC MINISTERIAL COMMITTEE

1. agreed that the Minister of Health convene an Ad Hoc Ministerial Committee to deal with the development of a New Zealand Health Strategy and the changes to the structure of the health and disability sector. The Ad Hoc Ministerial Committee would receive regular briefings on progress, and be consulted on sector design prior to papers proceeding to a Cabinet committee;

NEW ZEALAND HEALTH STRATEGY

2. agreed to establish the New Zealand Health Strategy which will provide the framework for the Government's overall direction of the sector in aiming to improve health and disability outcomes and will be used for sector involvement in, and communication of, sector changes;

3. agreed that the Ministry of Health will lead the work on the development of the New Zealand Health Strategy, in close consultation with the public, Maori, the health professions, and key central agencies;

4. agreed that the Minister of Health will appoint a Sector Reference Group to be chaired by the Director-General of Health to oversee the development of the New Zealand Health Strategy;

5. noted that, as part of the work towards the New Zealand Health Strategy, a discussion document on the future of primary care in New Zealand will be released in February 2000, following approval by the relevant Cabinet committee;

STRUCTURAL DESIGN

Role of District Health Boards

6. agreed that Government policy is to establish District Health Boards and that, working within allocated resources, their fundamental objectives will be to improve, promote, and protect the health of a defined population and to promote the independence of people with disabilities within a defined population;

7. agreed that to achieve their objectives, District Health Boards will:
   1. regularly assess and monitor the health and disability service needs of their populations;

   2. regularly produce strategic plans for their districts consistent with the New Zealand Health Strategy;

   3. fund, provide or ensure the provision of health care or disability support services for those in need of personal health services or disability services;

   4. fund, provide or ensure the provision of a range of services to improve health outcomes and to enhance the health status of the population they serve;

   5. consult and exhibit a sense of social responsibility by having regard to the interests of the communities they serve;

   6. exercise prudent management of Crown-owned assets;

   7. uphold ethical and quality standards generally expected of organisations in the health sector;

   8. be good employers;

8. agreed that the current Health and Hospital Services, their assets, liabilities and services will be part of the District Health Boards; I agreed that District Health Boards will be required to form, as a minimum:

9. agreed that District Health Boards will be accountable to the Minister of Health;
   1. a Hospital Governance Committee; and

   2. a Primary Care Advisory Committee;

District Health Board Governance

10. agreed that District Health Boards will be accountable to the Minister of Health;

11. agreed that District Health Boards will have a majority of locally elected members who will be complemented by members appointed by the Minister of Health;

12. agreed that there will be equitable Maori or tangata whenua representation on District Health Boards and their committees;

13. agreed that the legislation will provide for Ministerial powers to replace the members of District Health Boards and/or introduce a Commissioner in defined circumstances;

14. agreed that neither District Health Boards nor hospitals under their control will be established as companies and that officials will report back on the options for the preferred organisational form (paragraph (gg)(iv) below refers);

Crown's relationship with Maori

15. agreed that further analysis of the partnership between Maori and the District Health Boards is needed (paragraph (gg)(vi) below refers);

Regional and nation-wide collaboration and consistency

16. agreed that one or more District Health Boards will be able to set up, or be served by, subsidiaries or common service delivery agencies (such as regional mental health services, or common corporate services);

17. agreed that the Commerce Act 1986 will not apply to dealings between District Health Boards;

Nationwide, tertiary and quaternary services

18. agreed that there is a trade-off between access and safety/cost for some specialised services and that such services will not be delivered in every District Health Board area;

The number of District Health Boards

19. agreed that 22 District Health Boards be established, to serve populations based on the areas for which Hospital and Health Services currently provide services, but that mergers between boards on a voluntary basis will be permitted;

20. agreed that the existing membership of Hospital and Health Services Boards be reviewed and appropriate replacement and/or additional appointments made in line with the new and different responsibilities of District Health Boards;

21. agreed that in the transition, Hospital and Health Services Boards will continue to focus on their current roles and accountabilities;

Funding of District Health Boards

22. noted that District Health Boards will be funded using weighted population-based funding formulae;

Central Health Agencies

23. agreed that the Health Funding Authority (HFA) will be disestablished following the passage of legislation;

24. directed officials to report back on the appropriate corporate form(s) to establish PHARMAC, NZ Blood Service, and Health Benefits Ltd as independent entities (paragraph (gg)(viii) below refers);

25. agreed that the Mental Health Commission Act 1998 be amended to extend the life of the Mental Health Commission to a date to be negotiated;

Further policy work on sector design

26. noted that the Ministry of Health will chair a Health Sector Development Officials Group (to include Health Funding Authority, Crown Company Monitoring Advisory Unit, Department of the Prime Minister and Cabinet, Treasury, Te Puni Kokiri, the State Services Commission and the Minister of Health's office) to provide further policy advice on sector design;