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- Introduction
- Managed Care in New Zealand
- Practical Experience of Managed Care in New Zealand : Budget-holding Progressing to Managed Care
- Managed Care from the Perspective of Other Interested Parties
Introduction
Managed care and its place in the delivery of health care in New Zealand was the focus of an AIC conference in Auckland, New Zealand, held on 22 and 23 February 1996 by AIC Conferences Ltd, entitled "Managed Care for Preferred Health Outcomes".Reforms to the health care system have started in New Zealand somewhat later than in other countries, notably USA and UK but, by adopting experience gained elsewhere, are now moving forwards at a great pace.
As in other countries the growth in health related expenditure exceeds the available resources. A variety of supply-side and demand-side interventions are being used to better manage this situation.
Primary care has traditionally been provided on a fee-for-service basis. Regional Health Authorities (RHAs), the purchasers of publicly funded services, have been encouraging general practitioners to take greater responsibility for the resources available, and the health outcomes achieved, through the movement towards capitated funding arrangements.
Both RHAs and capitated practices have an interest in extending the range of services for which they hold a budget. Attempting to manage the related issues has lead to an exploration of managed care concepts. Discussion of the implications has increased recently, particularly with the introduction of some managed care principles.
The recent conference was organised to present a number of the key issues under debate, and in particular to learn from those who have practical experience of managed care within the New Zealand environment.
Discussion surrounded such concepts as the applicability of international managed care models in New Zealand, the merits of a competitive versus a collaborative approach, and developing better integration of primary and secondary care. Issues surrounding the roles of Independent Practitioner Associations (IPAs), the Accident Rehabilitation and Compensation Insurance Corporation (ACC), and the pharmaceutical industry in managed care were also raised.
Attempting to introduce a new concept into health care, such as managed care, creates many issues and concerns. A number of these, relating to the application of managed care principles in New Zealand, were raised over the two days of the conference.
Managed Care in New Zealand
- The Issues for New Zealand
- A Definition of Managed Care
- What does Managed Care Mean for New Zealand?
- A Parliamentary View
- Models of Managed Care in New Zealand
- The Issues in Managed Care
- The Way Ahead
The Issues for New Zealand
Managed care in New Zealand is not an "American model being grafted onto New Zealand’s health system," stated Ian McPherson, Executive Director of Managed Care New Zealand (MCNZ). To be succcessful locally, the managed care model being developed must reflect the unique aspects of New Zealand’s reformed health sector and be a response to the needs of health professionals and their patients.
Successful implementation of managed care will require that a number of key policy issues be addressed and implemented. There is a need for a policy framework for managed care both nationally and regionally. Regional Health Authorities (RHAs) need to plan for the opportunities offered by managed care.
These include the need for common goals and collaboration. Competition does not fit with common goals. Managed care demands risk sharing versus risk transfer for success. The RHAs need to focus on developing collaborative working relationships with providers to achieve integration rather than overt contestability and competition. RHAs must also shift their focus from operational issues, such as the details of purchasing, to a more strategic view of how health care is delivered.
The need for capital investment to support the change process and enhanced infrastructure required in a managed care environment is increasingly recognised, however, the source of such capital is an issue which is yet to be resolved.
Other important issues are those of equity and funding. Managed care will not in itself address equity issues although certain methods of resource allocation can assist in achieving equitable health care delivery.
Finally, population size will always be an issue in managed care in New Zealand. New Zealand’s small population means that the role of residual funders will always apply; some services, usually tertiary services, will always be excluded from the managed care principle. Their management will need to be considered as the managed care structure develops.
[These issues are considered in detail under Models of Managed Care in New Zealand - The issues in managed care].
A Definition of Managed Care
At present there is a lack of agreement regarding an accepted definition of managed care as applied to New Zealand. Managed care has been described in numerous ways, many of which only describe a component part of the process, and include general practitioner budget-holding, protocols, dollars following the patient.
A more extensive definition has been offered by Professor Lawrence Malcolm who defines managed care as a process by which, within an agreed budget for a registered population, comprehensive primary and secondary care services are provided and co-ordinated from a primary care level.
This definition is sometimes expanded to include reference to equitable financing of the services and a focus on outcomes. Others propose that managed care should involve decision making as close as possible to the consumer and seamless delivery of health care at reasonable cost driven by public needs.
There are some who dispute the assumption that the process be co-ordinated from a primary care level, but more importantly, so long as a generally accepted definition is lacking, progress will remain difficult as managed care will continue to mean different things to different people.
What does Managed Care Mean for New Zealand?
Dr Tom Marshall, Chairman of Northern Health Care Services, who spoke on behalf of ProCare, a consortium of three IPAs in Auckland involving 332 general practitioners, believes that managed care will expand in New Zealand, though the role of the residual funder will continue to apply.
Due to the size of the population, certain services may be too difficult to include in managed care, eg tertiary services, which will remain the responsibility of the RHAs.
Managed care is recognised to be a wider concept than budget-holding, involving provision of comprehensive services to a registered population starting at the primary health care level. This view was expressed by both Emeritus Professor Laurence Malcolm and Tony Mansfield representing the South Auckland IPA, South-Med.
It demands a team approach to care provision with various providers seen as part of a comprehensive integrated primary health care service.
A Parliamentary View
Bill English, then Parliamentary Under-secretary to the Minister of Health and the Minister for Crown Health Enterprises and currently Minister for Crown Health Enterprises, reviewed the role of the New Zealand Government in managed care.
The Government has yet to form a policy on managed care but has shown support for resource constraints including budget-holding general practitioners or other groups holding public funds for a registered population.
Government rules are limited as managed care models are still in their infancy. Official rules have been limited to those aimed at maintenance of consumer choice, and freedom of movement, in a system likely to require patient registration.
Progress with registration will be driven by market requirements. While at the present there is no real incentive to register, the desire to access a better deal will change this situation. Managed care will need to demonstrate that it is able to deliver greater benefits.
It is recognised that there will be a continuing need for investment to fund the changes required, however, it is unlikely that the Government, which already has a large and vulnerable investment in the health sector, will provide this capital. At the same time rules to restrict excessive personal gain from budget-holding savings are also possible but may limit the interest of private investors providing the capital required.
English sees a minor role for government in further structural reform, though the Government will become involved in certain situations, eg if lack of registration leads to increased fiscal risk.
The role of RHAs is seen as one of gathering as much information as possible about their population and using that information to plan the use of resources to improve health.
English cast some doubt over a future for managed care under a change of government, but also noted that political discussion would contribute little to the debate on managed care during election year.
Models of Managed Care in New Zealand
As New Zealand moves toward managed care an array of different arrangements is evolving depending on varying expectations as to how managed care should be established.
Risk sharing - the IPAs
Despite the general agreement that managed care is a broader concept than simple budget-holding, it is budget-holding at the IPA level which has been a real starting point for managed care in New Zealand.
Budget-holding at primary services level is recognised as one step on the way to managed care despite concerns from some groups that it does not represent managed care [see Models of managed care in New Zealand - Risk taking - the commercial approach].
Dr Tom Marshall, Chairman of Northern Health Care Services, spoke on behalf of ProCare, an organisation providing joint management services for three Auckland IPAs.
ProCare was formed in early 1995 when protracted periods of negotiation, which took place independently between the three IPAs and North Health, resulted in identical agreements for each IPA, and identified the opportunity for efficiency through joint management.
ProCare operates as a management company with the three IPAs as shareholders. Two advisory committees, appointed by the Board and reporting to that Board, focus on issues of pharmacy and quality. Principal activities for ProCare are budget-holding for pharmaceutical supplies and administering pharmaceutical budget-holding contracts between IPAs and the RHA.
Efficient information systems are seen as essential to ProCare, to facilitate management, particularly of pharmaceutical budgets, however, budget-holding for secondary care services is seen as both feasible and inevitable. Continued pharmaceutical and laboratory budget-holding are not expected to sustain the company in the long-term.
[See The way ahead - Secondary care budget holding and integrated care for more detail].
Another important activity for ProCare has been the development of prescription guidelines. The group’s 332 GPs have been divided into 22 cells, which have assisted in the development of these guidelines.
Each group, along with a pharmacy facilitator, considers a separate diagnosis and decides optimum therapy. A consensus draft is created by the pharmacy committee, then returned to the general practitioner group for ratification. Drafts are also forwarded to other interested parties, including the pharmaceutical industry.
The process is regarded to be a robust approach to the development of guidelines which are both acceptable to, and used by, general practitioners.
[See Practical experience - Pharmaceutical Budget-holding for more detail of guideline preparation].
As for the future, East Health is keen to expand from pharmaceutical budget-holding to full contracts, but has some reservations over the RHA’s approach, according to Paul Cressey, Manager of East Health Services Limited. A conflict between the purchaser’s role as funder versus provider appears to exist, and privacy issues are not fully resolved.
While East Health does not see that the health reforms guarantee an income, it would prefer to see increased emphasis on quality and efficiency, which will ensure long-term survival, rather than cost containment.
Risk taking - the commercial approach
Dr Ian McPherson, Executive Director of MCNZ, described his own view of the development of managed care in the New Zealand environment and the role of MCNZ. Unlike some of the IPAs, McPherson does not view budget-holding as an interim step to managed care, which contrasts with Marshall’s view.
He sees that the model which MCNZ is developing is a reflection of unique aspects of the reformed health sector in New Zealand versus an imported US-based model.
MCNZ, through its flagship managed care organisation PrimeHealth Ltd, facilitates the establishment of managed care organisations based on provider networks and buys the risk for providing an explicit range of services for a defined population from the RHAs.
PrimeHealth aims to ’provide comprehensive, high quality health care to a defined population delivered by a team of health professionals in a way that respects patient autonomy, choices and cultural dimensions.’ Achievements include substantial savings through capitation management, allowing efficiencies to be used elsewhere.
In contrast to others, McPherson does not see that IPAs fit into New Zealand’s managed care model. Not least because of their approach to managing risk. He argues that IPAs leave substantial levels of risk with RHAs, limiting the incentive to make careful use of health funding. In comparison, MCNZ takes on extensive risk for both the downside and upside which will assist RHAs achieve their objectives.
McPherson also outlined threats to managed care in New Zealand. These include lack of appreciation of risk by RHAs because of government support, government interference or policy change, commercial inexperience in RHAs, and fragmentation of risk by vertical slicing, e.g. selling risk to specialists.
More importantly, the patient will always exercise a huge influence on the success of managed care. Dissatisfaction with service quality or a view of the general practitioner as ’gatekeeper’ will encourage a move to an alternative health care provider.
Community trusts
Community trusts have been an important starting point for managed care in rural New Zealand. A good example is in the Hokianga region in Northland.
Here the focus of care is focussed at the primary level with a health centre, a range of clinics and a small hospital offering acute care services, care for the elderly etc. Patients enrolled with the Hokianga Health Enterprise Trust get most services through the Trust and the balance of services are contracted through the CHE.
Bridget Allan, Chief Executive Officer of the Hokianga Health Enterprise Trust, emphasised the need to focus on rural communities who represent 15% to 24% of the New Zealand population and have:This situation is often further compounded low socio-economic status and issues of ethnicity.
- difficulties with access to health care services;
- lower utilisation of health care services, often from limited choice;
- poor health status.
Yet rural communities offer advantages including:The Trust is aiming for budget-holding for laboratory services and eventually for secondary care.
- local level co-operation;
- community support;
- recognition of interdependence of services.
In this environment, the health reforms have improved the so-called ’Cinderella’ services: mental health, wheelchair and home support services. In other areas, the contracting process and pressure of capped budgets have led to fragmentation of services.
More importantly, inequity in resource allocation remains and there is reduced accountability to consumers which can result in a sense of powerlessness and a lack of motivation.
Allan sees a role for managed care when certain conditions are met. There needs to be a commitment to equitable funding and agreement as to an acceptable level of risk taking. It must be clear who a managed care organisation is accountable to and who decides on the services it offers. Agreement on the use of profits and the ability to manage risk is important. To achieve these, management and information systems must be in place.
Under these conditions, managed care would begin to address the current problems with fragmentation of services and improve accountability to consumers. Managed care organisations would need to take on an advocacy role, for example, in dealing with secondary care organisations.
However, we should not expect that managed care is the answer to the problems of inequitable resource allocation and lack of shared ethos.
Improving efficiency and outcomes - cost containment or cost-effectiveness?
To date many have regarded managed care as a strategy which will achieve better health outcomes at lower cost. This explains the widescale interest, though objectives may vary. The increasing interest from IPAs and Maori groups see managed care as an opportunity to achieve the former, whilst the Ministry of Health and RHAs are more interested in the latter.
Importantly managed care, as applied outside New Zealand, has not resulted in a reduction in expenditure according to Dr Martin Entwistle, Director of Enigma Consulting, who addressed the issue of cost-effectiveness of managed care.
Experience of managed care in two very different models, the UK and the USA, has, however, shown that managed care results in increased accountability for resources. It is argued that it can also lead to improved outcomes, services, equity, and efficiency of delivery through integration, although hard evidence of this is lacking.
It is worth reflecting on the health care delivery objectives declared in each of these countries, and compare them with New Zealand.
For the USA cost containment is the main issue. The country continues to face rapid growth in health expenditure for which employers pick up a significant level, provided as an employee benefit through insurance. As a result, there was until recently little incentive to control the growth in expenditure.
In this environment managed care is attractive as it offers the possibility of gaining control over expenditure, through defining the services and funds which are available, and the manner in which they will be provided.
In the UK the government wished to promote better ’value for money’ and improve consumer choice. While fund-holding was introduced to provide some alignment of clinical and financial responsibilities, the initial approach used indicative budgets and risk sharing to manage the funding, an approach which was required because of the negative response to fund-holding initially received from the medical profession.
The objectives for New Zealand appear closer to the UK than the USA, being to achieve the best health gain for every dollar, to enable consumer choice, to focus on services, and encourage partnerships.
While savings have been achieved in the USA they do not necessarily reflect efficiencies and are unlikely to be sustainable into the medium term, being derived from supplier discounts resulting from increased buying power.
Some providers have been accused of making savings through providing reduced benefits. Selective recruitment and cost-shifting to Medicare is another source of inefficient savings through disadvantaging certain risk groups, e.g. the elderly and chronically ill.
There is increasing evidence that overheads are higher under managed care. Estimates suggest a shift from overheads of 2% under Medicare (fee-for-service) to overheads in the region of 18% to 30% under managed care. The high overheads appear to be roughly matched by savings in treatment costs outlined above so that the overall level of health spending is the same.
It is felt, in the UK, that managed care has delivered efficiency for a defined level of quality but certain issues remain. Investigation indicates that as in the USA transaction costs have increased possibly due to market fragmentation. Overheads too have increased, though the precise level is unknown as the level of investment by the government to achieve the changes is still unclear.
Cream skimming is also a potential problem, leaving the chronically ill and elderly at risk. Staff motivation and availability of information for planning and patient choice are issues still under discussion.
From the evidence available it is reasonable to expect that managed care will achieve an alignment of clinical and financial responsibilities, which leads to a focus on the use of resources and the results achieved.
As this clearly impacts on the way individuals practice, itself the main determinant of both the quality of care delivered and the resources used, this is a powerful reason to pursue a managed care path.
On the other hand there are concerns that while short term savings are achievable they will not be sustainable, and are likely to be balanced out by an increase in transaction costs and overheads.
The probability, therefore, is that although there may be no overall reduction in health care expenditure the component costs are different and allow the development of a more flexible, accountable system better able to respond to changing health needs.
Some critical questions remain to be answered, particularly hard evidence for the health outcomes achieved as evidenced by changes in health status, along with the impact on the quality of service delivery, access to care, patient satisfaction, availability of information as a basis for choice and staff motivation.
While in principle a managed care system should be more efficient, notably through the integration of care, there is yet little supporting evidence. Capital investment and reapplication of savings
Capital investment and reapplication of savings
Appropriate application of savings from managed care was an issue raised repeatedly, and addressed by many speakers.
While initially budget-holding may be seen as an opportunity to increase savings or profits, the issue of who should control the savings quickly arises.
The general agreement was that savings should be directed to the patient and this approach is applied widely. An example of such reinvestment is in East Health Services Limited. Savings to date have been assigned to bone density scanning equipment, a tender for ultrasounds which allows patients to bypass the long CHE waiting list, pharmacy facilitators and development of the information system seen as an essential tool for business. Similarly, savings made in South-Med Limited are used for improved public services rather than profit sharing for IPA members.
Further discussion is required to decide who is responsible for determining how savings should be reallocated. East Health takes decisions after consultation with all IPA members. PrimeHealth is considering setting up a community trust to co-ordinate decisions about the use of future savings to benefit patients. There are also the issues of equity in reapplication and the holding of funds for reapplication; in the case of South-Med all savings from budget-holding arrangements are held in trust and administered by the RHA.
Managed care will require a large injection of capital to get off the ground in New Zealand, according to Professor Laurence Malcolm. He suggested that the Government could fund organisations through loans which would be repaid once organisations were profitable.
But the response to this suggestion from Bill English, then Parliamentary Under-secretary to the Minister of Health and the Minister for Crown Health Enterprises and currently Minister for Crown Health Enterprises, was that it would be unlikely for the Government to provide capital for managed care organisations as start-up funds or on an ongoing basis, not least of all because it already has a large and vulnerable investment in the health sector.
[See Managed care in New Zealand - A Parliamentary View for more detail of the New Zealand Government view of managed care].
While there are other organisations willing to invest in managed care, they will demand an acceptable return on this investment. This requirement needs to be balanced against the reapplication of funds as discussed above.
