HEALTH BENEFITS LTD

18. Health Benefits Limited (HBL) was set up in 1993 by the four Regional Health Authorities to process subsidy payments to primary health care providers. HBL is a wholly owned subsidiary of the HFA and has limited liability company status.

19. In light of the establishment of DHBs, HBL, or its successor(s) need to be able to:
    1. provide DHBs with ongoing claims processing and payment mechanisms for funding purposes;

    2. appropriately arm DHBs with current, inclusive information for the purposes of their information requirements;

    3. develop an appropriate relationship with DHBs.

20. There are currently a number of information collections, claims processing and payment operations across the health sector in addition to those run by HBL, namely SSSG (HFA) , NZHIS and ACC. Consideration needs to be given to the relationship between these functions. In particular work should be undertaken, both as support for a generic claims payment system (and information requirements generated for same) and consistency of payment activity across the health sector, to consolidate the activities of HBL and the SSSG.

21. It is the view of the Officials that the future form, structure and functionality of HBL should not be determined until the platform for provision of payment and information requirements of DHBs has been determined ("the review process"). It is proposed that the review process by completed by 30th September 2000.

PHARMAC

22. PHARMAC is a subsidiary of the HFA, operating as a limited liability company. Its mission is to improve the value (considered in terms of health gain) of the Government's expenditure on pharmaceuticals.

23. It is considered that PHARMAC's current functions should remain unchanged and that it is important that these functions should be managed centrally. Scope for PHARMAC undertaking further functions will need to be considered in light of developments in arrangements relating to District Health Boards.

24. There are a number of important arrangements which should apply to PHARMAC:
    1. The main outputs of PHARMAC will continue to be decisions about the subsidisation of pharmaceuticals. These decisions are best made by a Board, so that there is a measure of separation between officials and decision-makers.
    2. Primary responsibility of PHARMAC should be to assist in managing the budget for pharmaceuticals. However the national budget for pharmaceuticals could be held separately by the Ministry of Health, DHBs or another agency. Advice on which agency holds the pharmaceutical budget will be provided as part of the "role of DHBs" report back on 30 April.
    3. Board representation will be one way of maintaining linkages with both the Ministry of Health and the DHBs. Board representation could be a mix of health bureaucrats, representation from DHBs and independent non-executive appointees with an independent Chair.
    4. Board members will need to evaluate the trade-offs between pharmaceuticals and other forms of healthcare.
    5. The Minister will want the ability to direct PHARMAC.
    6. The environment will continue to be litigious, and this requires PHARMAC to retain a degree of separation from the Minister of Health.
    7. Fiscal and legal (litigation) risks would increase following any significant change to PHARMAC's role and functions, or to its structure.
    8. PHARMAC will also need to maintain close linkages with the HFA (and its successor), HBL and NZHIS, because functions undertaken by these organisations (such as PCO and pharmacy contracting, pharmaceutical claims processing and data storage) have a significant impact on PHARMAC's operations.

25. The PHARMAC Board and Treasury support the continuation of PHARMAC's existing company form.

26. The Ministry of Health and SSC consider that either the Crown Owned Company Model or the State Corporation models would be appropriate organsational structure to manage PHARMAC's objectives.

RESIDUAL HEALTH MANAGEMENT UNIT (RHMU)

27. RHMU was established as a Crown Entity (Statutory Corporation) in 1993 to manage assets and liabilities of former Area Health Boards that for various reasons were not, at the time, assigned to Crown Health Enterprises. When established, it was considered that the RHMU functions would all be of relatively short duration. In fact, the issues involved were more complicated than anticipated and RHMU continues to discharge some of its original functions as well as some additional functions.

28. Current RHMU functions required in the short term are:
    1. Managing AHB residual assets.
    2. Managing AHB historical debt.

29. Current RHMU functions likely to be required in the medium/long term are:
    1. Managing AHB residual liabilities.
    2. Disposal of surplus HHS property.
    3. Transitional banking and bankability.

30. Officials consider that it is beneficial for RHMU to continue to undertake the functions outlined above. A review of RHMU's role and function will be necessary once DHBs are established and the full extent of RHMU's ongoing role is clear. Officials therefore propose that a review of RHMU roles and responsibilities be undertaken before 30 April 2001.

31. Officials recommend that:
    1. The location of specific HHS liabilities is considered as part of the 30 June report back on the process for establishing DHBs. (NB The process for establishing DHBs is not yet finalised.)
    2. HFA's contingent liabilities are considered as part of the Ministry of Health and HFA change management process.
    3. Consideration should be given to whether there should be a time limited severance recovery function, to recover severance paid to those affected by changes in the sector, who then re-engage in the sector, as there was following the last round of sector changes. Officials propose that this issue is also considered as part of the 30 June report back on DHB establishment.

32. It is proposed that RHMU remain a Crown Entity at this time because:
    1. the management of contingent liabilities must be seen to be carried out free of political interference;
    2. there is merit in signaling independence of the Crown in terms of the bankability function so that the private banking sector maintains confidence with investing in DHBs;
    3. RHMU has an established track record as a high performing organisation that has competently managed down residual activities and fiscal risk to the Crown.

NATIONAL HEALTH COMMITTEE (NHC)

33. The NHC has evolved from the Core Service Committee that was established as part of the health reforms in 1993. Originally, the Committee was commonly known as the "Core Health Committee". This reflected the original idea that the Committee would come up with the "core list" of services that would be publicly funded and anything that fell outside the core would not receive public funding. The Committee rejected the list approach fairly early on, and instead focused on building public consensus on specific services.

34. The current NHC functions are deemed necessary under the new health arrangements because:
    1. there will be continued debate about the appropriate mix and coverage of health and disability services. Indeed, establishing DHBs may increase the tension between providing services that are responsive to local populations and ensuring that there is some equity concerning national minimum service coverage; and

    2. Government remains concerned over ensuring the greatest benefit within available resources to the health and independence of the population, and particularly to groups at risk or disadvantage.

35. Should Ministers agree that the NHC continue to provide its current function, the further question is whether this function needs to be included in legislation. The benefit of having the NHC function in legislation is that it clearly established the NHC as an independent, ongoing function.

36. The NHC consider that the current legislative provisions have been flexible enough to allow their role to evolve in response to changes in the sector. The NHC consider that its statutory status has helped them get the co-operation of health providers and the public to undertake their role.

37. There are, however, risks associated with having the role of the NHC specified in legislation. These include:
    1. Legislation is always inherently constraining which means that the Minister would not have the flexibility to alter the functions of the committee.

    2. There could be a potential conflict between the role of the NHC as specified in the legislation and the evolving nature of roles and relationships within the health sector, in particular the emerging responsibilities of DHBs.

38. The original role of the Committee - to specify core services that should attract public funding - had a stronger need for legislative based functions. This was because their advice could potentially have been the basis for decisions on what services, under what conditions would receive public funding. On balance, Officials consider that it is not necessary to have NHC functions specified in legislation.