Integrating Purchasing and Integrating Care

• Introduction
• Integrating Purchasing
  • The Transition from Regional Health Authorities
  • The Major Challenges
  • Financial Pressures
  • Rationing
• Integrating Care
  • Developing Integrated Care
  • Models of Integrated Care
  • The Challenge of Monopolies
  • Creating the Right Environment
  • Evaluating the Options
  • Criteria for Assessing Integrated Care Proposals
  • Objectives for the Criteria
• The Future
• Key Words/Concepts
• References

Introduction

Thank you for the opportunity to talk to you today about the transition to one health authority and the implications for service delivery, particularly integrated care. This speech is in three parts. First I want to talk about the new arrangements for integrated purchasing. Second I will cover in some detail the concept of integrated care and finally I will talk briefly about the future.

From 1 July this year the four regional health authorities (RHAs) became one legal entity known as the Transitional Health Authority.

The Transitional Health Authority’s job is to manage the transition through to the new entity to be established on 1 July 1998. Our goals over the coming months are to make tangible gains from the integration of the four RHAs and to establish the base for the purchaser in the future.

Integrating Purchasing

The Transition from Regional Health Authorities
Managing the transition is a challenge. Mergers are not easy. RHAs were to be part of a system where they would compete, not only with each other but also with independent health care plans. The model was only partially implemented and we were left with purchasers that were geared to compete but had no significant competitors, as they held regional monopolies.

There has been a lot of innovation by the RHAs but not enough migration of ideas. This is one obvious gain immediately available to us as a result of the merger and one we are treating with some urgency. The bringing together of experienced staff and ideas can help us realise this gain through the transitional year.

The Board of the Transitional Health Authority (the Board) was formally set up in mid April 1997 and had 10 weeks to undertake the work needed to effect the transition. During this time the RHAs continued to operate and the Board members held dual roles, as directors of the RHAs and directors of the Transitional Health Authority (THA). We set up a small office in Wellington with four people, and essentially began to develop a networked organisation. Links across the regions were formalised through projects and work streams in major areas such as services, finance, communications and strategy.

During this early part of the transition we maintained the stability needed to continue with our essential work by converting the RHAs into divisions of the THA and placing regional board committees within each region.

The Major Challenges
We looked first at our major challenges. Our major providers, the Crown Health Enterprises (CHEs), have aggregated cost growths exceeding both their revenue growth and the rate of inflation. Pharmaceutical costs are escalating beyond the funding allocated. The challenges are significant and the constraints are considerable. The THA has inherited the strategies of the RHAs and shares the same constraints in making changes. These centre on the service requirements associated with the funding, which was largely tagged in the past, and while this has been freed up to some degree, the obligations to purchase similar levels of services remain. Shifting resources is difficult in this environment. It involves assessment and consultation. Getting results or gains will almost certainly involve lags between the implementation of the changes and the generation of benefits.

The Board moved quickly to assess where it needed to make rapid progress. If the THA could not remould its arrangements with CHEs to achieve better incentives for the management of costs and improvements in services, and if it could not increase its influence on the growth rate in pharmaceuticals, it would not be loosening up the hobbles for the new organisation. It was apparent that agendas would be dominated by the pressing financial concerns generated from those two areas.

Financial Pressures
We face two kinds of intense financial pressure: those for price increases and those to provide more services. These pressures are very apparent in another of the Board’s priority areas, in mental health services. We are working closely with the Ministry of Health and the Mental Health Commission on the changes needed in these services and the best ways to allocate resources.

Rationing
Given the pressures for price increases and for more services, it will not be a surprise that rationing is another priority area for the THA. Rationing occurs at multiple levels throughout the system. It starts with the allocation of funds to vote: Health at the Government level; it involves the allocation of funds to regions through the Ministry of Health’s funding formula; using these allocations, the regions develop budgets for service areas and purchasing arrangements are made; providers then allocate their budgets to their operations; and clinicians and consumers make decisions which affect the call on the providers’ resources.

The THA’s contribution to rationing will extend beyond its own internal budgeting decisions, to considering where the rationing decisions should be made and how arrangements can be developed to encourage good rationing decisions. This leads us on to the remaining priority area, integrating care.

Integrating Care

The Steering Group advising the Government on changes in response to the Coalition Agreement, considered integrated care as one of the most promising developments in contracting both in New Zealand and overseas in terms of co-ordination, improving the cost effectiveness of treatment choices and better health and independence outcomes.  ¹  

Integrated care is listed as one of the strategic objectives in our Statement of Intent (SOI) as a purchasing method to develop appropriate services that "bridge" the interface between primary and secondary/tertiary health services, and health and disability support services, ensuring well co-ordinated "seamless" care and intersectoral collaboration (the SOI has recently been tabled in the House of Representatives and is a public document).

We can best describe the range of integrated care arrangements as a spectrum. At one end are providers improving the flow of patients and information between their organisations but using no new structural or financial arrangements. At the other end are integrated care organisations which might purchase and provide services. We can shift the pointer along this spectrum and pick up the variations lying between these two ends, such as general practitioner (GP) budget-holding and integrated care organisations which arrange for the provision of services but do not directly provide them.

Developing Integrated Care
The THA will be building on the work of the RHAs and providers in developing integrated care arrangements. We will be evaluating existing arrangements, assessing new ones and implementing at least 15 new initiatives by June 1998.

We are seeking better rationing decisions at all levels and from this, improved services for groups of people. In many instances, where the provider focus is on individuals, and single episodes of care, there is no incentive for providers to co-ordinate care. The fundamental shift we are seeking is the creation of arrangements that give an organisation responsibility for providing access to services over time, for a population. This shift needs to spread from the margins into the core of how resources are used in the health system.

The THA is not best placed to manage the multitude of interactions between consumers and providers. It is too distant. This system is far too complex to be finely prescribed and managed from the centre.

This leads us towards designing arrangements with organisations which have the incentives to make good decisions on the use of resources across a population. In some cases we are already out of the blocks and running with new arrangements. In other cases we are working through the design and implementation details.

Models of Integrated Care
One established arrangement is the Matpro contract, which involves midwives, GPs and specialists in providing integrated maternity services in the Wellington region. Many other arrangements are being developed, such as the integrated care models for mental health in the Midland Health division, and the integrated care pilot in Invercargill for drug and alcohol services.

These arrangements are a step further along the spectrum from the budget-holding arrangements developed over the past four years. Many GP contracts include some degree of budget-holding for referred services such as laboratories, pharmaceuticals and radiology. The jury is still out on the degree of gains being generated and we have some evaluation work to undertake in this area.

Still further along the spectrum there have been proposals developed by CHEs and others, which have involved the creation of large organisations to integrate the purchasing and provision of services. To picture what these might look like, imagine the purchasing function of the THA combined with a CHE and other providers, in one organisation.

Superficially this could appear to be an answer to the problem of fragmentation between providers and to the problem of a purchaser which is not placed to make detailed rationing decisions. But aggregation brings its own difficulties. Large organisations can lose focus, lacking innovation and strategic direction.

The Challenge of Monopolies
Large organisations with disparate functions are also difficult to manage. When they are monopolies as well, the challenges to make them responsive to the market are considerable. Monopolies have few external forces encouraging them to be innovative. Centralised monitoring is a poor substitute for creating an environment where performance is demanded and if not delivered, where purchasers, consumers or referring clinicians will go elsewhere.

Imagine there is only one insurance company in town that would provide cover for your house burning down and that insurance company owns all the building firms in town. Where is the pressure to give you competitive premiums and where are the incentives for the building firms to hold down costs and provide quality services when they are the only suppliers?

We could create situations like these with large integrated care organisations which own and operate the services and have a dominant position in an area. Across industry governments look to avoid the problems of monopolies. We should not be naïve and regard health as different, believing the good motives of clinicians and others alone will mean we will get the best value from services. If that were the case, why isn’t it working now? The escalating costs in our hospitals are largely driven by increases to the salary and wages bills in CHEs. We need to create an environment where these escalations are discouraged and large vertically integrated organisations will not do it.

Creating the Right Environment
This environment is one where people with new ideas, innovation and a better way of doing things are not stifled by a monopoly that has tied up key providers or facilities in such a way that new and alternative arrangements are excluded. We may not be able to avoid contracting with monopolies in all situations, but we can build arrangements that allow people both within and outside of the arrangement to innovate and propose new ideas.

As well as the problems associated with monopolies there are other problems we need to manage and these include cream skimming, cost shifting, getting the payment formula wrong, underservicing, service failures, failures to meet the desired goals, and failure to get the confidence of consumers and the public.

Evaluating the Options
We do not have a long track record in developing and assessing integrated care arrangements. Moving into these arrangements is a learning process for the purchaser and providers. Reports on results need to be placed in context and we must be careful about making generalisations.  ²   There are indications that managed care arrangements in the USA have decreased costs.  ^3    4   On the question of quality, studies have found that quality was roughly comparable between Health Maintenance Organisations (HMOs) and indemnity plans.  ^5    6   The assessment of fund-holding in the UK by the Audit Commission raised questions about whether the benefits outweighed the costs.  ⁷   Evaluations of the British GP fund-holding practices and the American HMO arrangements can have limited application to the New Zealand system. We are starting from a different base of service with very different sets of institutional arrangements.

Criteria for Assessing Integrated Care Proposals
If we are going to expend our scarce resources on integrated care arrangements, we must do what we can to make these as successful as possible from the outset. With this in mind, we are developing criteria for assessing proposals. These criteria will canvass areas such as:

1. Whether the proposal provides value in terms of cost, quality, outcomes and access. The benefits, including the benefits of any projected changes to health outcomes, must outweigh the costs. The assessment of value should be against clear and agreed benchmarks.
2. The identification and quantification of risks. The proposal should allow the parties to contract to share and manage risk appropriately, with certainty about the risks carried by each party. Where population coverage is part of the proposal, the size of the population and the capitation rate should be sufficient to support the risks to be managed.
3. The potential gains should be identified and quantified to a reasonable standard and they must be able to be incorporated into a contract where the parties can share these gains. The assessment of the gains should be against clear and agreed benchmarks. Gain sharing arrangements should be explicit.
4. There should be an effective working relationship between the purchaser and provider, or there should be a clear potential for one to develop.
5. The organisation making the proposal must have the ability to undertake the core functions of an integrated care organisation. This will include arrangements to line up clinical and financial incentives. It also includes developing effective relationships with providers linked to the proposal (eg referring clinicians) and the communities affected by the proposal.
6. The proposal should be based on sound information. Where any party has doubts about the quality of the information used in developing and negotiating the proposal, including information supplied to the other party, this must be clearly communicated.
7. The proposal should clearly specify services. These should be in a form which can be costed and priced, and should be able to be compared with alternatives.
8. The proposal must fit within the Government’s (and therefore the THA’s) strategic directions in health and disability services.
9. In developing the proposal and in any subsequent implementation, there must be consultation with affected parties which meet the consultation requirements.
10. In developing and implementing the proposal, the spirit and letter of the Commerce Act must be complied with. The THA will, as a matter of principle, promote the development of alternative sources of supply for services and will avoid creating monopoly situations.

Objectives for the Criteria
What we want to achieve with these criteria is the ability to see whether the proposal demonstrates net gains over what currently exists.

We would expect to be working with potential providers on the proposals. The assessments I have outlined could not be made in isolation by either party, nor should they be. Developing these proposals takes everyone into new territory and there is unlikely to be a "one size fits all" solution. No one organisation has a monopoly on the information and ideas needed to make these proposals work.