24. I propose that once Cabinet has made decisions about the desired degree of autonomy for DHBs, officials will complete the next phase of working through who will define services in more specific service areas, such as tertiary services, services delivered by nationwide providers, mental health, disability support and public health services. The exact division, however, of service funding roles between DHBs (individually or jointly) and the Ministry of Health is likely to emerge over time as DHBs become established.

25. I recommend that Cabinet direct officials to report back by the end of April 2000 with in-principle advice on a more detailed service-by-service division of responsibilities. This timetable will allow work to proceed on the report back on funding arrangements due on 30 June.

THE ROLE OF DHBs IN OWNING CROWN HEALTH ASSETS

26. There is always a tension between the Crown's interest as a funder of services and that as the owner of provider organisations. Managing within a defined budget means that spending more on services means less is available to spend on or invest in assets (and vice-versa).

27. Cabinet decided that "The current Hospital and Health Services, their assets, liabilities and services will be part of the District Health Boards" [CAB (00) M2/4 refers]. Concerns are that:
    • DHBs may be biased toward hospital-based services when they make decisions about the mix of primary care and community-based services and hospital-based services
    • DHBs may overinvest or inappropriately run down their assets. These concerns may materialise when a District Health Board does not face the full cost of using its own hospital facilities (for example, if there were no capital charge or it could defer maintenance).

28. Within the limits of Government's policy direction, there are a number of mechanisms which could be used to ensure transparency in how any tension between funding and ownership interests is managed. These are:
    1. accountability mechanisms that provide distinct reporting lines for funding and ownership responsibilities
    2. establishment of separate committees of the Board responsible for primary care and hospital governance (as agreed by Cabinet)
    3. structural arrangements that separate funding responsibilities and ownership responsibilities.

29. Mechanisms under (a) will be covered in the report-back on accountability arrangements, (b) will be the subject of a further report-back as recommended in the accompanying Governance paper, and (c) will be determined and approved as part of the DHB establishment process (see paragraph 32).

30. The degree of freedom a DHB may have in making decisions on their assets (for example, the extent to which they can borrow or sell assets) may not necessarily be the same as the degree of freedom a DHB would have on funding decisions.

EVOLUTION OF DHB AUTONOMY

District Health Boards are part of a complex, dynamic and evolving system

31. The design of the sector must take into account the dynamic nature of the health and disability sector where factors, such as evolving social preferences epidemiological trends and technological innovation, are likely to increase the demand for, and increase the efficiency and effectiveness of, local control.

DHB transition to the envisaged state of devolution

32. A distinction can be made between the degree of devolution to DHBs during the initial establishment and developmental stage and the prudent degree of devolution in relation to the performance of established DHBs. Given the evolutionary nature of the sector and the likely differences between DHBs, it may be difficult to distinguish between developmental and established DHBs. An important first step will be to define a formal process for establishment of DHBs which addresses issues such as internal structural arrangements (see paragraph 29) and the initial level of DHB autonomy. I propose that Cabinet directs officials to report back on this process.

33. Regardless of the degree of devolution that is envisaged for DHBs, there is a key issue whether DHBs evolve to a state of autonomy, or whether all DHBs will start from the envisaged degree of autonomy. The main arguments for starting from a point where DHBs have maximum autonomy are that it:
    • gives DHBs control over, and thus clear responsibility for, their performance
    • shows trust in DHBs and their staff
    • avoids the possibility that responsibility may not be devolved at all (which would lead to disillusion in DHBs and reduced community involvement).

34. I propose an evolutionary approach where the DHBs' environment is initially fairly regulated and prescribed and is then progressively relaxed to a state where DHBs have the desired degree of autonomy. Advantages are that it:
    • helps manage the substantial health outcome risks of under-performance by inexperienced Boards
    • avoids the potential that some DHBs have expectations placed on them which they will fail to meet (which would be demotivating)
    • allows for the inevitable variation among DHBs in developing their capability to carry out the full range of roles.

35. It is important that DHBs and the Minister share expectations about what is required to be successful, fully capable DHBs. The Ministry of Health, in consultation with officials, will develop and publish a detailed DHB development framework by November 2000, which sets out criteria and the process for moving toward autonomy. This will clarify how fast, how far and under what circumstances DHBs can expect to reach the maximum level of autonomy anticipated. The timeline allows the framework to be in place when the Transitional DHBs begin operations. The report-back on accountability arrangements will include an outline of this framework.

36. In addition, it will be important that the DHBs are resourced to be able to develop their organisations to a state of maximum devolution, and that the Ministry of Health (with the HFA and CCMAU) will support DHBs in doing so.

Varying DHB decision-making authority in response to performance concerns

37. Another fundamental issue is to what extent the Minister can vary the degree of decision-making authority, once DHBs are fully operational. The Minister of Health may, from time to time, wish to negotiate more detailed expectations. That is, the Minister would reduce a DHB's autonomy by being more specific about what services a DHB is expected to deliver and/or what processes to use). This may be the case if a DHB does not have the capability or if down the track its performance drops below an acceptable standard.

38. The Minister can do this by introducing far greater detail in funding agreements which the Minister would, from time to time, enter into with DHBs, and by providing the Minister reserve powers, such as the ability to direct DHBs and other means of influencing the Board (as set out in the report-backs on governance and accountability arrangements).

39. The ability to vary the degree of DHB autonomy has the following advantages:
    • it allows for differences in DHB roles and capability - some DHBs may develop a wider range of capabilities than others
    • it provides a reward to DHBs (in the form of increased autonomy) for good performance and a sanction (in the form of Ministerial intervention in DHB operations) where there are serious performance concerns.

40. The main disadvantages are that responsibility may not be devolved when DHBs have the capability (leading to disillusion in DHBs and reduced community involvement), and that it may give rise to missed opportunities for increasing responsiveness of services.

41. The performance management framework which form part of the DHB accountability arrangements being designed will seek to mitigate such risks.

THE CROWN'S RELATIONSHIP WITH MAORI

42. Maori expect that, in addition to requirements to consult, sector arrangements continue to increase Maori participation in health and disability services. This expectation reflects Government's commitment to self-determination for whanau, hapu and iwi and to fulfilling its obligations as a Treaty partner. Among the key objectives are to:
    • ensure a flexible environment that reflects the diversity of Maori
    • ensure Maori participation at all levels of the sector
    • improve the performance of mainstream health organisations in relation to Maori health gain and Maori preferences
    • improve Maori consumer confidence in (and therefore use of) health and disability services in the sector.

43. Increasing the degree of DHB autonomy increases the likelihood that health and disability services are responsive diverse Maori needs and that there can be local approaches and solutions. But it also puts greater distance between the Crown and Maori, which may be interpreted as weakening the Crown's Treaty of Waitangi obligations.

44. Risks associated with a greater degree of devolution will be addressed through governance and accountability arrangements. This includes ensuring equitable Maori representation on the Board and its committees as well as building from the partnership arrangements already in place at the HFA Board and operational levels: these structures and agreements (memoranda of understanding and deeds of partnership with local Maori leadership) can either be transferred to DHBs or form a model for new partnership arrangements.

45. Over time these arrangements have the potential to evolve into stronger governance and purchasing functions for Maori in relation to Maori health gain and services within the District Health Boards. The flexibility principle allows other solutions to emerge over time which may be more appropriate. None of these options should be precluded. The proposals in the accompanying paper on Maori partnership issues are capable of being adopted regardless of the degree of devolution the Government envisages for DHBs.