FINANCIAL IMPLICATIONS

40. Fiscal implications will be outlined in the Fiscal Implication Workstream's paper.

LEGISLATIVE IMPLICATIONS

41. The legislation required for NZBS and PHARMAC will form part of the New Zealand Public Health Service Bill. Officials will report on the requirement of the new Health Sector legislation to incorporate share transfer provisions for HBL in the event of its continuation as a Crown Company following HFA disestablishment.

HUMAN RIGHTS ACT 1993

42. The proposals do not have Human Rights Act 1993 implications.

REGULATORY IMPACT STATEMENT

43. A regulatory impact statement is attached in accordance with the requirements set out in CO(98)5.

PUBLICITY

44. Any publicity on matters related to this paper is being managed as part of the Communications Strategy that forms part of the wider work on health and disability change.

CABINET

NEW ZEALAND BLOOD SERVICE (NZBS)

1. agreed that the current role and functions of the NZBS remain unchanged;
2. noted that either the Crown company (status quo) or statutory corporation organisational form could apply to the NZBS and that the Ministry of Health, Treasury and SSC are of the view that either the Crown company or statutory corporation model could apply to managing its functions;
3. noted that Treasury has a preference for the status quo (company model) to minimise the risks and costs arising from changes to the current organisational model;
4. agreed that the NZBS be established as a statutory corporation;
5. noted that the Minister of Health asked Health officials to report to her by 30 April 2000 on the specific constitution and rules that would be required for inclusion in legislation, in the event of the statutory corporation model being agreed to for the NZBS;

HEALTH BENEFITS LIMITED (HBL)

6. agreed that HBL retain its current status as a Crown entity, remaining as a limited liability company until completion and implementation of the review referred to in paragraph (g) below;
7. agreed that the Ministry of Health (MoH), the HFA (during the life of the HFA) and the Treasury review HBL and Shared Services Support Group functions and report to the Ministers of Health and Finance by 30 September 2000 on: a considered position on the payment and information requirements of DHBs (as the end customer); the Crown's strategic approach to funding primary health care in the medium term, including capitation arrangements, and the implications for HBL; the suitability of co-joining this activity with a full menu of common services that DHBs will require (i.e. those that extend beyond payment and information requirements); the appropriate form, structure and functions of any preferred organisation;
8. agreed that if the timing for implementation of the review extends beyond the date of HFA disestablishment, and in the event that the organisational form of a common service agency of DHBs has not been concluded, then pending any decision to the contrary, the review team be mandated to transfer the operations of HBL to the MoH;
9. agreed that if the review identifies, on or before 30 September 2000, that HBL should not provide the form and platform to provide for the payment and information requirements of DHBs, then HBL will be wound up and its residual business operations transferred to the MoH for management;

PHARMAC

10. agreed that PHARMAC's current role and functions remain unchanged;
11. noted that PHARMAC is currently a subsidiary company of the HFA and that either Crown company or statutory corporation organisational forms could apply to PHARMAC;
12. noted that the Ministry of Health and SSC are of the view that either the company or statutory corporation model could apply to managing PHARMAC's functions;
13. noted that Treasury has a preference for the status quo (company model) to minimise the risks and costs that could arise from changes to the current organisational model;
14. agreed that PHARMAC be established as a statutory corporation;
15. noted that the Minister of Health asked Health officials to report to her by 30 April 2000 on the specific constitution and rules that would be required for inclusion in legislation, in the event of the statutory corporation model being agreed to for PHARMAC;
16. noted that advice on which agency holds the pharmaceutical budget will be provided as part of the "role of DHBs" report back to the Ad Hoc Committee by 8 May 2000;
17. noted that further legislative changes will be necessary to preserve PHARMAC's partial exemption from the Commerce Act;

RESIDUAL HEALTH MANAGEMENT UNIT (RHMU)

18. agreed that RHMU's current role and functions remain unchanged;
19. agreed that the placement of HFA residual liabilities be considered as part of the MoH/HFA change management process, in consultation with Treasury;
20. agreed that the 30 June 2000 report back on the process for finalising DHB establishment identify: management of any residual HHS asset and liability issues; placement and management of HFA residual liabilities as determined as part of the MoH/HFA change management process; issues regarding severance paid to those affected by changes in the sector, who then re-engage in the sector;
21. agreed that the role and responsibilities of RHMU be reviewed by MoH, with input from CCMAU and Treasury, reporting to the Ministers of Health and Finance by 30 April 2001, following decisions on HHS and HFA residual liabilities and advice on the establishment of, and investment policy for, DHBs;

NATIONAL HEALTH COMMITTEE (NHC)

22. agreed that the current role and functions of NHC remain unchanged;
23. agreed that NHC continue to be an independent advisory committee to the Minister of Health;
24. agreed that NHC functions not be specified in legislation.

APPENDIX 1: DETAILED DISCUSSION ON EACH OF THE AGENCIES

NEW ZEALAND BLOOD SERVICE

Objectives

1. A national blood service was established in 1998 as a Hospital & Health Service (HHS) under the Health and Disability Services Act 1993. The primary objective in establishing the NZBS was to establish a sole national provider of safe and adequate supplies of blood services at least cost.

   Roles and Responsibilities

2. NZBS undertakes the following responsibilities:
   1. Set operational policy for the provision of blood and blood services.
   2. Be responsive to situations such as emergencies, potential infection risks that threaten the safety of blood, and fluctuations in the supply of, or demand for, blood and blood products.
   3. Minimise and manage the risks to recipients of blood and blood products and to the Crown.
   4. Through supply contracts with HHSs and other providers, impose safety standards for provision and collection of blood, and send appropriate cost signals to hospitals and their decision-makers.
   5. Manufacture a range of blood components and plasma products, and manage the fractionation of plasma by contract.
   6. Address a variety of issue-based risks including widely varying standards, poor national inventory management, inefficiencies, difficult communication, limited customer focus, scarcity of key skills, and lack of sector-wide planning.
   7. Protect the gift status of blood through a stewardship role.

   Inter-Agency Relationships

3. The following diagram and discussion outline how the NZBS and other health sector agencies relate to each other.

Contractual and Funding Arrangements

4. NZBS contracts with each of the 22 HHSs to allow for the reasonable cost of blood services to hospitals to be recovered. The HFA's contracts with HHSs are inclusive of the cost of blood services.

5. A funding arrangement between the NZBS and the HFA exists for the provision of services to private hospitals, GPs and midwives. This avoids any risk that the cost of the blood itself is passed onto the recipients.

   Monitoring and Audit Arrangements

6. Current monitoring arrangements have an ownership perspective and a quality/safety perspective:
   1. Ownership: CCMAU monitors NZBS' performance in meeting the Crown's ownership objectives. It also provides advice to shareholding Ministers on investments in the NZBS and on appointments to the NZBS Board.
   2. Ownership/Safety: MedSafe, Ministry of Health, is responsible for auditing sites to ensure compliance with minimum standards (developed by MedSafe) and good manufacturing practice. Medsafe is also responsible for licensing products under the Medicines Act.

   Progress towards achieving an integrated national blood service

7. The NZBS is currently in the second year of a three-year plan to establish an integrated national blood service. Current work underway includes:
   1. the ongoing integration of the 22 HHS based transfusion services into the NZBS (to be completed 30 June 2000);
   2. reconfiguring service delivery;
   3. implementing a national information management system that will record all events and processes from "vein to vein".

Potential Future Model:

Relevant Organisational Option Forms Considered

8. The key question for officials was whether the current company status remains applicable in the current health environment. Consideration was given to Crown Company or Statutory Corporation status. Officials concluded that both organisational forms were feasible (see Appendix 2(b) for further details).

9. An important issue is the relationship the Minister of Health wishes to have with the NZBS. It is important that the NZBS:
   1. is a stand-alone organisation with clear responsibilities, focus and accountabilities;
   2. has autonomy for operational management, thus enabling it to respond rapidly in emergencies and be held accountable for such operational performance.

10. The Ministry of Health's view is that the experience associated with managing blood services argues for a relatively open relationship between the NZBS and the Minister of Health. This is necessary for the Minister of Health to obtain the reassurance that the NZBS is managing the services and associated risks appropriately, and that it is also reflecting the wider interests of the health sector.

11. This "assurance" can be achieved under both organisational models, that is the Crown Company model and the Statutory Corporation model, so long as the nature of the relationship between the NZBS and the Minister of Health is clearly defined.

12. The Treasury's view supports continuing with the existing company form of NZBS. The rationale is as follows:
    1. A Crown Company form may be more attractive to individuals with business skills because it conveys similar status and responsibilities as a director of a private company.

    2. A Crown Company potentially offers more flexibility in changing the future functions or direction of both entities.

    3. There is greater common understanding about how companies will behave, and vigorous bargaining for the best price or services is more likely to be acceptable.

13. Treasury considers that a key disadvantage of setting up NZBS as a Statutory Corporation is that most of the features of Statutory Corporations will need to be set out in legislation. This includes replicating desirable features of a Crown Company (e.g. the duties of the members of the Board). This runs risks of error and delays in the legislation.

14. As the existing organisational form appears to operate effectively, Treasury recommend continuing with the company form (status quo) for NZBS.