John Armstrong: Private help gives public win

Creeping privatisation? Or a case of simply doing what is practical?

The Cabinet's loosening of rules on district health boards farming out non-urgent surgical operations to private hospitals is the logical step to take for a Government trying to get more from less.

National wants more convenient healthcare, less bureaucracy, shorter waiting times for surgery and a motivated medical workforce, while at the same time cutting the size of the annual cash injections which have largely failed to produce any of those things.

The solution? The market. But not yet, thank you. Monday's decision is a step towards public and private providers eventually competing for the health dollar, thereby (in theory at least) providing more operations more cheaply through increased efficiency and higher productivity.

But so far, National has taken only a step in that direction - a step writ large in its election manifesto. So, no shocks. For that and other reasons, the Prime Minister's announcement attracted little attention despite its significance.

For some time, health boards have been contracting out non-urgent procedures when they have needed to meet targets for elective surgery, mop up unspent cash at the end of the financial year, or have been given extra money for operations but lack the capacity to do them.

Giving the boards more flexibility to contract out non-urgent surgery rather than having to resort to "spot purchasing" - so the argument goes - will save money. This is because private hospitals will have plenty of notice to ready operating theatres and staff rather than operations being done on an ad hoc basis.

If that is cheaper and shortens waiting times, then who is going to complain about publicly-funded operations being done by private hospitals.

It all fits John Key's prescription that his Government is interested in things which work - not what party ideology decrees. It all looks like a win for everyone - a perception that Health Minister Tony Ryall is keen to see gain widespread currency.

The few plaintive cries from the likes of the senior doctors' union focused on the likelihood of already-scarce medical staff drifting away from public hospitals to better pay and conditions in private ones.

In Parliament, Green MP Kevin Hague slammed the policy as ideologically driven. It would undermine the public hospital system, while satisfying its private counterpart which has been lobbying for a greater share of state-funded electives.

The comments of an Opposition backbencher normally count for little. But Hague is a former chief executive of the West Coast District Health Board. He went on to accuse Ryall of deliberately ignoring existing capacity in the public hospital system. That capacity could be used if DHBs were required to collaborate more with one another - something within the minister's powers.

Ryall, so far, has restricted his missive on that score to demanding "increased regional co-operation" between DHBs.

How much National is listening to the private hospital lobby may be ascertained by whether National takes the further step of allowing competitive tendering for a certain percentage of publicly-funded electives, rather than leaving it for individual health boards to determine how much they dish out to private hospitals.

Supporters of the public system see this as the thin end of a free-market-for-health wedge, with private hospitals creaming profits from undertaking simple procedures - and possibly shutting public hospitals out of doing all but the most complex operations.

Likewise, private hospitals' longstanding push for tax rebates as an incentive to take out private health insurance. As a way of easing pressure on the public system, this has definite attractions to Governments in cash-strapped times and who are facing an explosion in the health bill from an ageing population.

Critics have long argued that the net result of people taking out health insurance is to set up a vicious circle by which the more people opt out of the public system, the less inclined governments are to finance it properly. Waiting lists lengthen. So more people opt out. And so on.

This has not happened in New Zealand. The public system has survived assaults from the right because the public simply expects it to be there.

National is conscious of this consensus. It has sought to show it is committed to public hospitals by building 20 operating theatres which will be devoted solely to non-urgent operations.

Ryall has been at pains to stress contracting out more operations will not weaken the public system. Under new protocols covering contracting out, DHBs will have to ensure arrangements do not cross-subsidise a private provider.

Any "significant" proposal to shift services from a public provider to a non-government one must result in demonstrable benefits that outweigh any costs, such as reduced certainty of provision in the long term. In other words, a DHB can strike a deal with a private hospital - but it will have to be financially beneficial to the board and lasting.

The person who will approve or reject "significant" proposals is the minster, thus enabling Ryall to keep a watching brief on how health boards respond or don't respond to having greater flexibility.

Ryall has a lot riding on all this. Waiting lists are the drivers of the politics of health. He has nailed his colours to the mast in highlighting elective services and knows he will be judged on the scale of any increase in non-urgent operations.

He also needs bigger numbers of operations - 4000 extra a year on current levels - to stop retiring baby boomers from clogging up the system.

All that has to be achieved within far tighter fiscal constraints than has been the case for the past decade.

The Clark Government effectively doubled the money going into health services during its nine-year tenure. Labour delivered in terms of primary care for the young and the old, but it struggled to cut waiting times for operations.

While the health vote was bolstered by a further $750 million in the May Budget, Ryall knows he can wave goodbye to that kind of increase in the two budgets before the 2011 election.

That means finding savings within the system if services are to be maintained at current levels. In Treasury's view, that will require a culture change in the health sector - and quickly. Budget-related reports issued by the Treasury last week reveal the department's intense frustration with the "modest" savings delivered by the Ministry of Health in the last Budget. Treasury officials griped that "special arrangements" for health - extra funding - isolated the sector from "the rigour of analysis and disciplines" being applied to other areas of Government spending. Those at the health coalface, no doubt, take a different view. But they don't call the shots.

Those who do are Ryall, Finance Minister Bill English and the Treasury.

Health boards may not be obliged to take advantage of their new flexibility. But if they don't, they will need to have some solid reasons for not doing so.