1. I propose that:
   • DHBs will be responsible for deciding on the mix, level, and quality of health and disability services, within the parameters of the New Zealand Health Strategy, NZ Disability Strategy and nationwide minimum service coverage and minimum quality standards (such as the Health and Disability Code of Rights)
   • DHBs will evolve towards maximum autonomy as they become capable.

2. This paper clarifies the roles of DHBs and the Minister and Ministry of Health, in particular how much autonomy fully capable DHBs would be expected to have when they perform well.

3. DHBs will be accountable to the Minister, but elected members will also be answerable to their local community. This contributes to Government's objective that local communities have greater say over health and disability services, but is also likely to reduce the degree to which the Minister has control over DHBs.

4. I propose that, to achieve Government's objectives of improving health and independence of the population and increasing community say over health and disability services, DHBs should have responsibility for making decisions on the mix, level, and quality of health and disability services. DHBs would work within the parameters of the New Zealand Health Strategy, NZ Disability Strategy, and a nationwide minimum service coverage and minimum quality standards. This degree of autonomy of DHBs has implications for the organisational form, governance and accountability arrangements.

5. The recommended degree of autonomy also has implications for the role of the Minister of Health. That is, Ministers would generally not intervene in the operations and decisions of DHBs, focusing instead on setting the broader direction and outcomes sought (for example, through the New Zealand Health Strategy and the Disability Strategy), and use reserve powers to intervene sparingly. If, instead, the Minister of Health is to have greater influence on the day-to-day decisions of DHBs, then the sector would be more centralised and DHBs would have correspondingly less responsibility for the health and independence of their populations.

6. Regardless of the envisaged degree of DHB autonomy, a key issue is whether DHBs evolve to that state of autonomy, or whether all DHBs will start with the maximum level of autonomy anticipated. I propose that the sector will evolve from an initially fairly regulated and prescribed environment to a state where DHBs have the maximum degree of autonomy envisaged. Officials will design a framework that sets out how fast, how far and under what circumstances DHBs get to the envisaged degree of autonomy. This framework would be part of the operating environment, and not defined in legislation.

7. Decisions flowing from this paper will inform the work on the more detailed division of roles between DHBs and the Ministry of Health recommended for report back by the end of April 2000.

BACKGROUND

8. This paper provides further advice on the role of District Health Boards (DHBs) and the division of functions between DHBs and the Ministry of Health [CAB (00) M 2/4 refers].

9. Cabinet has already decided on the objectives and functions of DHBs [CAB (00) M 2/4 refers]. The key issue, however, is how much decision-making authority DHBs should have, and what decisions are to be made by the Minister of Health.

10. Decision-making authority for each of the following tasks could be placed with the Minister, devolved to DHBs, or shared:
    • setting strategic directions and objectives for DHBs
    • deciding the level, mix and quality of services
    • deciding which providers to use
    • monitoring service performance and health outcomes
    • managing hospital and related services' assets.

11. Decisions will have implications for organisational form and governance of DHBs, and accountability arrangements (content and process) for DHBs. They will also determine what roles the Ministry of Health would have in addition to its current policy advice, performance management, safety and regulation, and ministerial servicing functions.

DEGREE OF DHB AUTONOMY IN MAKING DECISIONS ON SERVICES

12. Cabinet has already decided that DHBs will be accountable to the Minister of Health for carrying out their functions within allocated funding. Through their elected members, however, District Health Boards will feel answerable to their local community. This gives the community greater involvement in decision-making about health and disability services, but it also transfers some decision-making power to DHBs away from the centre.

13. Within decisions made by Cabinet to date, there are many models for the decision-making role of DHBs between the extremes of a very centralised and a fully autonomous health and disability sector (see Figure One). At any point in time, the relationship between the Minister and DHBs on each of the dimensions or tasks may vary. My intention is to define the maximum level of autonomy desired for DHBs which perform well.

14. In this scenario, DHBs' prime role would be to consult with the community, and then provide input into the New Zealand Health Strategy and funding decisions. The Minister sets out the detailed mix, level and standard of services DHBs will fund or provide. DHBs implement these detailed decisions. The more capable DHBs would have a role in deciding how to do this: that is, whether to 'make or buy' services. There would be a strong emphasis on national service frameworks, protocols and guidelines. Overall, the Minister of Health would have a significant role in what DHBs do from day-to-day (see Table One below).

15. The role of the Minister of Health, assisted by the Ministry and in consultation with the DHBs, would be to:
    • define strategic directions (for example, the NZ Health Strategy with health goals and targets and sector performance standards, and the Disability Strategy)
    • define the detailed mix, level and quality of services DHBs will fund or provide
    • define the operating environment (the administrative rules for DHBs, such as user-charges regime, rules around raising private finance, and any limits on entering into arrangements with private providers)
    • define national service frameworks, protocols and guidelines
    • enter into funding agreements with DHBs
    • exercise reserve powers (such as the ability to direct DHBs, or appoint a commissioner in case of repeated performance failures).

    DHBs are likely to be small organisations, in comparison to the scenario that follows, but with a larger Ministry of Health.

Scenario 2. High DHB autonomy (local decision-making within central parameters)

16. In this scenario, DHBs would have as much responsibility for making decisions on the mix, level, and quality of services as they are capable of carrying out effectively and efficiently. DHBs would decide - based on local needs analysis and strategic planning and in consultation with the Minister and the community - on the mix and level of services and the quality of those services to achieve the NZ Health Strategy and local priorities. The Minister would fund DHBs to deliver on agreed service intentions and performance measures including minimum quality standards, such as the Health and Disability Code of Rights and existing minimum quality standards, but DHBs would have considerable flexibility about the use of funds. Accountability documentation would eventually tend to focus on outcomes, but is likely to contain agreed output and process targets/goals (See Table One below).

17. Under this scenario, decision-making power is placed as close to the community as is effective and efficient, and the Minister (or Ministry) of Health only carries out functions on behalf of, or instead of, DHBs if the centre can do things better than DHBs could. For example, the Ministry could facilitate DHBs with standardisation of processes and there may be some health and disability services that are better co-ordinated or funded from the centre or regionally, such as some tertiary services, specialised mental health services, services provided by single national providers, and some public health services.

18. The role of the Minister of Health, assisted by the Ministry and in consultation with the DHBs, would be to:
    • define strategic directions (for example, the NZ Health Strategy with health goals and sector performance standards, and the NZ Disability Strategy)
    • define a nationwide minimum service coverage and minimum quality standards (the scope and detail of this service coverage will influence the degree of DHB freedom)
    • define the operating environment (the administrative rules for DHBs, such as the extent of user-charges, rules around raising private finance, and any limits on entering into arrangements with private providers)
    • enter into funding agreements with DHBs
    • exercise reserve powers (such as the ability to direct DHBs, or appoint a commissioner in case of poor performance).
    DHBs are likely to be larger organisations, in comparison to the first scenario, but with a smaller Ministry of Health.

19. A single set of criteria has been applied in assessing the advantages and disadvantages of the options. The criteria are:
    • clarity of accountability to the Crown and to the community
    • transparency of decision-making
    • consistency with the Treaty /relationship with Maori
    • efficiency (including transactions and administration costs)
    • equity of access (including nationwide consistency)
    • management of fiscal risk to the Crown
    • public confidence.

20. The comparison of the main advantages and disadvantages of the options shows that, as decision-making authority is shifted along the spectrum from the centre to the DHBs, it:
    • decreases the Minister's role in detailed decisions if DHBs perform well, and increasingly emphasises the Minister's role as strategic direction setter
    • decreases the leverage of the Minister of Health, but increases the role and responsibility of the Board and the ability of the community to be involved in decisions about local services
    • increases DHB staff and infrastructure (and reduces the size of the Ministry of Health) and the need for co-ordination across districts which may increase the costs over a system where activities are carried out centrally, but also increases the likelihood that services are tailored to local needs and preferences and are better co-ordinated within districts
    • decreases the likelihood that there is nationwide consistency in who gets what for all health and disability services, but increases the likelihood that the service mix reflects local values and is targeted at local needs
    • reduces central control over detailed fiscal management but increases local awareness of, and responsibility for, making trade-offs within a budget.

21. In each case, governance and accountability tools can be used to mitigate the identified risks:
    • the risk that there is unchecked variation in the health and disability services which people could expect by DHB can be mitigated by continued development and publication of a nationwide minimum service coverage and minimum quality standards, in consultation with all DHBs, and so identifying where DHBs can or cannot vary the range and level of services they fund or provide
    • the risk of increased administrative and transactions costs can be mitigated by setting up common services agencies (for example, information technology or property maintenance), or having the Ministry carry out some analytical and contracting tasks on behalf or instead of DHBs.

22. Under both scenarios, the Minister is likely to face tensions with the local representatives on the Boards of DHBs. The governance report back covers some means to mitigate that political risk.

Table 1 Low DHB autonomy High DHB autonomy

Table 1	Low DHB autonomy	High DHB autonomy
Strategy	The Minister sets the strategic direction and very detailed priorities for the sector DHBs consult with community and provide input to the NZ Health Strategy DHB strategic planning is focused on implementation of detailed national priorities The Ministry develops national service strategies, frameworks, protocols and guidelines for implementation by DHBs	Minister decides on NZ Health Strategy contents, following close consultation with DHBs DHBs consult community on local priorities DHB strategic planning is focused on meeting high-level NZHS outcomes and balancing national and local priorities Ministry leads joint development of national service strategies
Mix, level, and quality of services	The Minister decides on the detailed mix, level, and standard of services DHB funds are tied to specific outputs Capable DHBs may decide on whether to buy services or provide these themselves Ministry administers regulation, national quality standards and protocols	Minister decides on a minimum service coverage and quality standards (in consultation with DHBs) DHBs draft a service plan (mix, level, and standard of services) based on NZHS, service coverage and local priorities for Minister to approve Minister funds DHBs to deliver on agreed service intentions and performance expectations Ministry administers regulation DHBs set local quality guidelines and service protocols
Choose providers	Ministry runs a significant central purchasing role for a range of services, capable DHBs have discretion in deciding which local providers to fund	DHBs enter into arrangements with providers for some services, such as selected national services, the Ministry chooses and funds providers directly (when this is more efficient) DHBs contribute to national and regional service decisions
Outcome and Service monitoring	The Ministry monitors the performance of DHBs, including DHB provided services The Ministry monitors providers it has a service agreement with DHBs monitor providers’ delivery on service agreements Ministry monitors progress against national targets DHBs monitor local progress and reports to Ministry	The Ministry monitors the performance of DHBs Ministry has minimum service agreements to monitor DHBs monitor providers against service agreements, including own provision arms Ministry has an oversight (audit) role of DHB provided services Ministry monitors progress against national targets DHBs monitor local progress and reports to Ministry

23. I recommend that DHBs should have responsibility for making decisions on the mix, level, and quality of health and disability services, within the parameters of the New Zealand Health Strategy, Disability Strategy and nationwide minimum service coverage requirements. This means that, once DHBs are fully established, the Minister of Health would focus on the strategic direction and the health outcomes that the DHBs are to achieve, rather than the decisions over how to achieve those (see Figure Two).