Integration in Funding and Service Delivery in Health Reform in New Zealand and the United Kingdom

• Introduction
• Integration of Funding Streams and Development of the “Purchaser” Role
• Integrated Service Delivery
• Has Funding Integration Occurred?
• Why is Integration of Service Delivery Taking So Long?
• Integration in the National Health Service Reforms
• Conclusion
• References

Introduction

Health reforms in New Zealand in the last 10 years have focussed on boundaries between funding streams, organisations, and different groups of professionals in the sector. “Integration” at funding or service delivery levels has been proposed and partially implemented as a means of addressing boundary problems by internalising them within a single organisation. More recently, health service reform in England has pursued the theme of integration.

This paper discusses the policy rationale and track record for proposals for integration of funding streams and integration of service delivery in New Zealand and comments on some similarities and differences in the English reforms of the 1990s.

Integration of Funding Streams and Development of the “Purchaser” Role

Until the late 1980s, public funding for health services in New Zealand was disbursed through a mish-mash of separate programmes under the Department of Health’s budget, tied to incumbent providers: capitation-based budgets for public hospital and related services; fee-for-service payments for general practitioners (GPs), midwives, medicines, diagnostic tests; grants to a range of NGO service providers. Outside the Department of Health’s budget, the then Accident Compensation Corporation (ACC; now renamed the Accident Rehabilitation and Compensation Insurance Corporation) and the Department of Social Welfare made payments for some health and disability support services.

This fragmentation of funding streams for health created a number of problems, many of which were documented in the 1986 Health Benefits Review   ¹   but remained largely unchanged by 1991:  ²  

• barriers to good resource allocation
• incentives for cost-shifting from capped to open-ended programmes and for overuse of fully subsidised fee-for-service programmes
• fragmentation of service delivery in primary and community care, and poor co-ordination across the primary-secondary-community interface and the health-welfare interface
• barriers to innovation in the roles of health professionals and to development of flexible teamworking across professional boundaries
• avoidable transaction costs (such as duplication of diagnostic testing and duplicate systems for payment of providers by different funders).

The health reforms in New Zealand in the 1980s created Area Health Boards (AHBs) which integrated funding and delivery for hospital and most community health services and for public health services. By 1989, AHBs were given a single, cash-limited funding stream from which they were responsible for delivering services and achieving outcomes. There was policy debate at the time about integrating primary care funding under AHBs, but GP suspicion that the Boards would be hospital-dominated and that such integration would be a Trojan Horse for bringing independent GPs into the public sector and under tighter Government control would have been a barrier. Policy debate about integration across the health-welfare interface became bogged down in departmental conflict and in fears among the disability client groups that integration with the health sector would lead to medicalisation.

Integrated management of the total health care needs of a client population was a major theme of the next wave of health reform in New Zealand, announced in 1991. The model of health care organisation which inspired this aim was something like the group or network model Health Management Organisations (HMOs) in the USA. HMOs involve varying degrees of vertical integration between funder and provider roles, however, the New Zealand health reforms followed the UK in implementing a purchaser-provider split of AHBs. In New Zealand this vertical split was seen as politically necessary in order to achieve integration of funding streams: the purchaser-provider split was in part intended to mitigate the concerns of GPs and consumer groups about primary-secondary integration and health-welfare integration.  ³   The new health purchasers at the time – titled Regional Health Authorities (RHAs) – were given integrated, cash-limited budgets combining the funding streams for hospital services with those for primary health services previously reimbursed under regulated fees-for-service, and funding for community services disbursed as grants to non-government organisations (NGOs). During 1993–1995, most funding for disability support services from the Department of Social Welfare was also transferred to RHA budgets. Nevertheless, the long-term vision expressed in the Minister of Health’s 1991 Policy Statement was that HMO-style vertically or virtually integrated health care plans, with strong primary or community health bases, would evolve over time as alternatives to RHAs.

An essential pre-requisite, if integration of funding were to meet its aims of better resource allocation and better incentives for cost-effectiveness and risk management, was the development of the “purchaser” role by RHAs. Creation of this role amounted to a mix of downward and upward delegation: downward delegation of the Department of Health’s role in resource allocation across programmes and in setting terms of provider reimbursement for the regulated fee-for-service sector; and upward delegation of the role of AHBs in setting the mix and volume of hospital and related services.

Integrated Service Delivery

The clear hope of the 1991 Policy Statement was that integration of funding streams would, among other things, lead to integrated service delivery: better co-ordination and management of patient care across different settings. The Statement referred to “encouraging better co-ordination in the management of total health care across general practice, other community-based health services and hospital services”.  ⁴   Examples of desirable developments given in the Policy Statement included: better flows of patient information and continuity of care when people were referred to or discharged from hospital, use of case-co-ordination and more systematic management of population health through screening and health promotion.

A number of subsequent policy statements have, if anything, increased the emphasis on development of what is variously called co-ordinated, managed or integrated care.  ⁵   Integrated care is not a well defined model of service delivery in New Zealand parlance, but is defined by some common objectives and principles. There is emerging acceptance of some desirable defining features of integrated service delivery:

• registration of a population with a service provider/co-ordinator – either a primary health care provider or a community-based organisation
• definition of a range of services and associated budget within which the registered population’s health service needs are to be met
• payment arrangements and management structures and systems which align clinical and financial incentives
• commitment to move towards setting the budget on the basis of needs-weighted capitation.

However, the terminology of integrated or co-ordinated care is also used for service-specific initiatives (such as co-ordinated mental health services and the service co-ordination role in disability support services) which share some of the same aims (for example: seamless care; better exchange of patient information across settings).

The policy rationale for pursuing integrated service delivery was perhaps less clearly articulated than the rationale for integrating funding streams. Both analysis and some evidence from comparison of health systems supported the view that integrated, cash-limited funding could address problems arising from fragmented funding. There are public health, equity, and economic arguments that can be mounted in defence of the features of integrated care set out in the preceding paragraph – and some positive experience with systems that have these features in the UK and the USA. However, there is no strong evidence base to support a particular configuration of primary and community health services, or particular models of managing the relationship between primary and secondary care in a system as complex and as subject to technology change as health.

Has Funding Integration Occurred?

Parts of the 1991 agenda for integration of funding streams were never implemented. Proposals to allow integration of public and private financing for health care through alternative health care plans were dropped in 1993. ACC responded to the proposal to integrate health funding for accident victims under RHAs with a counter-proposal that all RHA funding for health services for accident victims be transferred to ACC. ACC saw this as a means of reducing the risk of the public health system shifting costs to ACC. ACC took the view that it faced better incentives to invest appropriately in health care, because it would benefit financially if the investment reduced ACC’s earnings-related-compensation costs. It has taken five years to resolve this dispute with a compromise that sees ACC financing and purchasing elective health care and continuing to pay supplementary fee-for-service subsidies for some primary and ambulatory care.

Central Government also placed a variety of restrictions on the ability of RHAs to shift resources from historic patterns of spending – in effect partitioning their budgets into some of the same old programmes. Ring-fencing of budgets for disability support services, public health functions, and (more recently) mental health services was intended to safeguard against the risk that short-term demand from high-profile acute health care would lead to erosion of longer term investment in public health or of spending on lower-profile services. In practice, ring-fencing has tended to act as a ceiling as well as a floor on spending in these areas.

Some less obvious barriers to funding integration have perhaps been more important. From the first year that the RHAs were established, the Government intervened to limit their ability to shift resources away from Crown Health Enterprises (CHEs) through policy directives on pricing and volume, and through intervention in contract negotiation and in RHA proposals to remove services or close facilities. This intervention was not motivated solely by the inevitable political pressures to sustain public hospitals and cherished NGOs (such as the Plunket Society), but also by concern that the RHAs had incentives to underprice CHE services, forcing the Government to inject additional resources into the health sector as deficit-support or debt write-offs for CHEs. These interventions have been far from transparent – conveyed in letters and meetings rather than in RHA Policy Guidelines or Funding Agreements. While the Health and Disability Services Act 1993 envisaged that Ministerial directions would be tabled in Parliament, in practice, the purchasers/funders and CHEs have accommodated the wishes of their Ministers without the need for transparent formal direction.

Why is Integration of Service Delivery Taking So Long?

The emergence of GP groupings – Independent Practice Associations (IPAs) – following the 1993 health reforms has been quite rapid, particularly in the light of the New Zealand Medical Association’s opposition to contracting. There are many examples of promising, innovative initiatives from IPAs, from new Maori health ventures, and new NGO providers. Some of these initiatives involve co-ordination or integration across organisational boundaries and traditional health professional roles. Few of these initiatives span the primary/secondary interface. In the main, service delivery has changed little, and movement towards giving integrated budget responsibility to primary and community care groups has been incremental at most.

A number of commentators on the health sector in New Zealand have argued that fragmentation has increased since the 1993 health reforms and that co-operation among organisations has decreased. Certainly, the number of separate health-related organisations in the public sector has increased, and relationships among them at senior level have been marked by conflict that has often spilled over into the public arena. It is not clear how much this has affected service delivery. There have been repeated claims of fragmentation and poor co-ordination in mental health services,  ⁶   and some disability support services, however. This has been attributed in part to the shift of services away from CHEs to a range of community providers (which critics attribute to competition, and defenders attribute to response to consumers’ desire for choice).

Why is integration so slow? One factor may be the lack of clarity from policy makers about the desired end point. But in the absence of good evidence for a particular model of service configuration, it is a lower risk path for the Government to espouse objectives and principles, remove barriers to change, and then wait for evolution to occur (and feed the dinosaurs in the meantime). In any case, even if there were a preferred model, the Government and the purchasers/funders lack the power to re-organise the many private, independent practitioners and NGOs that make up primary and community health services. They could use exhortation and create financial incentives for change, but in the end they have to rely on initiative of providers and other innovators in the sector to respond to the opportunity. The initiative and innovation requires slow, hard work – entailing changes to the ways many professionals go about their daily work, and demands, investment decisions in information and management systems that have to be co-ordinated across different organisations.

In practice, financial incentives for service integration have been lacking and administrative or political obstacles have been significant. The pressures which led the Government and the RHAs to protect the historical patterns of spending (see section headed ’Has Funding Integration Occurred?’) have also created barriers to development of new patterns of service delivery. This has meant that the RHAs only shifted resources at the margins – mostly from increments in Government funding – away from block contracts with CHEs and traditional NGOs.

In addition, Government officials and the purchasers/funders have been very risk averse about agreeing to moves away from familiar patterns of service delivery. Unless proposals for change are almost guaranteed to avoid public controversy, avoid financial destabilisation of an incumbent provider, and provide credible assurance of service continuity, they have faced a rocky passage. Caution is understandable: New Zealand organisations do not have any track record in the sophisticated clinical and financial management systems required for successful managed care. To take the leap of handing over responsibility and public funds for managing local monopoly health services to a new organisation would be very rash indeed in the New Zealand context unless the transition could be managed in incremental steps, allowing time for integrated care organisations (ICOs) to earn the confidence of the Government, the public, and health professions.

Official caution has been compounded by the lack of national policy resolution of some controversial issues about managed care development. In theory, progress might have been easier if there had been national policy on issues such as:

• mandating use of national unique patient identifiers
• sharing of clinical and financial data between health sector organisations
• retention and use of savings or profits by budget-holding providers
• shifting to needs-based capitation funding at provider level
• mandating of patient registration with a primary care/integrated care provider
• for-profit (or not) status and ownership of integrated care organisations.

But an explicit Government decision on any of these issues would have divided the health professions and invited a campaign for policy reversal – running the risk of foreclosing even the opportunity for voluntary incremental development.

RHAs were encouraged to make progress on some of these difficult issues on a voluntary basis. In the absence of national policy, different RHAs took very different views. One RHA developed guidelines for ICOs which insisted that these should be community-based organisations, with local democracy, in which GPs were prevented from exercising precedence over other health professionals working in the community. The same RHA wanted to regulate vertical integration between primary care organisations and CHEs – based on idiosyncratic views about competition policy. Another RHA developed a policy which was more laissez faire about matters of ownership and vertical integration. Presumably the merger of four RHAs into a single Health Funding Agency will force development of a common view, but may be less conducive to local innovation.

Integration in the National Health Service Reforms

The UK National Health Service (NHS) reforms announced in Working for Patients  ⁷   in 1989 did not have any particular focus on integration. GP fund-holding would later prove to foster stronger linkages and responsiveness of Trusts to primary care. But GP fund-holder budgets only covered a subset of services and so, if anything, increased fragmentation of funding streams. It was not until 1995/96 that a second wave of reforms combined, at Health Authority level, funding streams for primary care purchasing (previously the responsibility of Family Health Services Authorities) with hospital and community health service purchasing. Even so, the highly restrictive and complex regulations the NHS operates under left very limited scope for Health Authorities to transfer funding between different areas of the budget, except in the context of particular pilot projects.

In its last two years in office, the Conservative Government enacted legislation and instituted pilot projects which allowed greater integration of funding streams in primary care purchasers (the Total Purchasing Pilots (TPPs)) and greater flexibility in use of professionals within the primary care team (the Primary Care Act Pilots (PCAPs)). These initiatives were still in their infancy when the Labour Government took office in 1997, vowing to eliminate GP fund-holding.

The Labour Government’s White Paper for the NHS in England, The New NHS  ⁸  , in some respects builds on the themes of TPPs and PCAPs, claiming that it “replaces the internal market with integrated care”.  ⁹   New Primary Care Groups will be responsible for planning and commissioning (the term now used in preference to “purchasing”) care from a unified cash-limited budget, covering most health services. Some funds will be held back from this integrated budget for purchase of tertiary or complex services by the Health Authority (Primary Care Groups are likely to have populations of around 100,000 – too small a catchment to support specialised services). General Medical Services (GMS) payments for GPs’ own pay (and pay for pharmacists, dentists and optometrists) and premises costs will also be kept outside the integrated budget. The freedom that was given in New Zealand to RHAs to develop new forms of contracts with health professionals remains a bridge too far in the NHS.

Primary Care Groups will be able to develop into Primary Care Trusts, combining commissioning with responsibility for providing community health services (previously provided by NHS Trusts). This is intended to allow rationalisation and better co-ordination of the various professionals working in primary and community health services. The Government has also created some pilot sites – “Health Action Zones” – in which there will be opportunities to pilot integration between primary and secondary care, and between health services and Local Authority-managed social services. As in New Zealand, there is no clear blueprint for service configuration, but there is a general push towards larger primary care organisations, and towards some form of integration between primary and community health services. How individual general practices will relate to these new Primary Care Groups and Trusts is not yet clear – and may well be an area in which the Government simply sets objectives and allows evolution.

Conclusion

It is taking a long time to realise the potential created by the New Zealand health reforms through integration of funding. There are still many barriers to development of integrated service delivery arrangements. One of these is the lack of strong evidence about the best configuration of primary and community health services, and the best way of organising the interface with secondary care. The recent NHS reforms in England should lead to the development of larger primary and community care organisations there, and greater service integration in the community. Evaluation of early developments in the new NHS reforms should help to resolve some of the uncertainty about the direction for change in New Zealand.

References