OTHER AGENCIES
   

MEMORANDUM TO CABINET SOCIAL POLICY AND HEALTH COMMITTEE

OTHER AGENCIES: APPROPRIATE CORPORATE FORM AND FUNCTIONS OF: NZ BLOOD SERVICE; PHARMAC; HEALTH BENEFITS LTD; NATIONAL HEALTH COMMITTEE; RESIDUAL HEALTH MANAGEMENT UNIT

HEALTH BENEFITS LTD

    Objectives

  1. 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.

    Current Role of HBL

  2. HBL undertakes the following responsibilities:

    1. Processes Government subsidy payments to Primary Care providers on receipt of valid claims.

    2. Provides information including raw data, along with analysed and consolidated data to the HFA, providers and third party agencies about patterns of spending on health, prescription costs, medicine usage, health trends and claiming patterns.

    3. Monitors the accuracy of payments through a best business approach to Audit and Compliance.

    Inter-Agency Relationships

  3. The following diagram provides an outline of how HBL and other Health Sector agencies relate to each other

an outline of how HBL and other Health Sector agencies relate to each other

    Contractual and Funding Arrangements

  1. HBL services are defined via a negotiated Services Agreement with the HFA and comprise claims processing and non-claims processing services.

    Monitoring and Audit Arrangements

  2. HBL is audited externally by Audit New Zealand. The Services Agreement with the HFA has been established with a strong customer focus on monitoring performance of HBL as a service provider.

    Future Information Management and Claims Processing Structure

  3. A number of internal projects are underway to move HBL towards an electronic commerce environment and away from paper based claiming collections, specifically:

    1. managing the transition to electronic claiming for Pharmacy and Primary Care payments; and
    2. the development and introduction of a generic claims processing system.

  4. Both developments will facilitate the move to online processing by permitting real time, efficient and low cost processing to occur in conjunction with the provision of accurate and timely information. It will also produce cost reductions for processing organisations, particularly reductions in manual processing and the costs of operating stand-alone systems. It will confer significant financial, administrative and strategic advantages when collating health information and processing claims.

  5. 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. necessitate the development of an appropriate relationship between HBL and DHBs.

  6. There are currently a number of information collections, claims processing and payment operations across the health sector in addition to those employed by HBL, namely SSSG (HFA) , NZHIS and ACC. Consideration needs to be given to the relationship between these functions. The processes and systems employed by HBL provide a platform for undertaking this development work. 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.

  7. A suggested future model might look like:

A suggested future model might look like:

  1. Any reconfiguration of HBL should continue to support its contractual requirements with providers. Instability will weaken its contractual obligations with providers (ability to process and pay) and financial management (budgetary control).

  2. Any preferred model and supporting organisational option should ultimately ensure the separation of the policy/regulatory obligations from the most appropriate information and infrastructure functionality. Information management - and related issues such as privacy, intellectual property ownership, the advent of e-commerce solutions and the impact of information standards - needs at least, from the outset, to be very carefully managed by a central approach.

  3. The long term needs of the health sector, not only in terms of efficient payment processing models but information and its management generally, can be considered. This will emerge in conjunction with the development of the DHBs and the definition of their requirements once their operational activity has been turned into experience. The Officials recommend that HBL retain its current status as a Crown Entity until the disestablishment of the HFA. It is proposed that a review of HBL and SSSG functions is undertaken by 30th September 2000.

  4. The view of the Officials is that continued operation and development of HBL functions will require governance by individuals with business skills similar to that sought by private companies. Such individuals have a focus on vigorous bargaining for best price and service and elimination of duplication of bureaucracy and administration.

  5. It is the substantive view of the Officials that the determination of 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

    Objectives

  6. 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.

    Current Role of PHARMAC

  7. PHARMAC undertakes the following responsibilities:

    1. Manages the growth rates of Government expenditure and patient access to pharmaceuticals. Growth has been reduced from an unsustainable 8-14% per annum to an acceptable 3-4%, while patient access to drugs has been expanded, both through a growing number of subsidised prescriptions and access to an increasing number of drugs.

    2. Manages the fiscal risks via innovative supply contracting. Maintain robust internal processes to minimise legal risk in a contentious and litigious environment. (PHARMAC has a partial exemption from the Commerce Act that is valuable in terms of avoiding costly litigation.)

    3. Develops the techniques for prioritising pharmaceutical expenditure to ensure correct balance of expenditure within pharmaceuticals and between pharmaceuticals and other forms of healthcare.

    4. Develops the demand side programmes encouraging cost-effective use of pharmaceuticals.

    Contractual and Funding Arrangements

  8. At present PHARMAC's funding occurs through the HFA's operational budget.

    Monitoring and Audit Arrangements

  9. PHARMAC is audited externally by Audit New Zealand.

    Future Functions of PHARMAC

  10. 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.

    Relevant Design Features

  11. 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 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. Equity, efficiency and effectiveness arguments all point to this function being better handled on a centralised, national basis than being devolved to DHBs.
    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. Any significant change to PHARMAC's role and functions, or to its structure could result in increased Fiscal and legal (litigation) risks.
    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.

    Organisational Options Considered

  12. Workstream participants considered that the most appropriate options for organisational form were as follows:

    1. Crown Owned Company; or
    2. Statutory Corporation.

    Evaluation of the Options

  13. It should be noted that PHARMAC is at present a subsidiary company of the HFA.

  14. In considering the relevant merit of retaining PHARMAC as a company versus eliminating this status and establishing it as a Statutory Corporation, Officials would make the following comments;

    1. Each of the organisational options is feasible.

    2. The advantage of both models is that they establish the management of pharmaceutical subsidies as a centrally and nationally managed function. This will minimise fiscal and litigation risks and also ensure equity of outcomes for patients.

    3. Each model incorporates an appropriate balance between accountability to the Minister (and ability to be directed by the Minister) and separation from the Ministry that, in turn, will shield the Minister from direct involvement in litigation.

    4. The different models may have an impact on the skills of people attracted to being directors, but it is not obvious which model is necessarily superior, in that Board members are required to make subsidy decisions in addition to the normal board functions of corporate governance.

    5. The Statutory Corporation model may require additional legislation to the Crown Company model (as the Crown Company can rely on Companies Act legislation). However, this is unlikely to be significant since legislation will be required in any case, given that PHARMAC's current owner the HFA is to be disestablished. Further legislative changes will be necessary to preserve PHARMAC's partial exemption from the Commerce Act.

  15. Treasury's view supports the benefits of continuing with the existing company form for PHARMAC:

    1. as 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. as a Crown Company potentially offers more flexibility in changing the future functions or direction of both entities; and

    3. as 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. Pharmaceutical companies in particular may perceive a change in PHARMAC's status to signal less resolve by the Crown to constrain the costs of pharmaceuticals, and they may therefore see more opportunity for litigious action.

  16. The PHARMAC Board supports the continuation of PHARMAC's existing company form.

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



 
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