Funding Populations and Paying Providers: The Role of Financial Risk in the New Zealand Primary Health Care Strategy
This thesis examines how funding changes in the New Zealand Primary Health Care Strategy (NZPHCS), introduced in 2002, altered the magnitude, locus and management of financial risk in the New Zealand primary health care sector, and the consequences for cost, equity and care delivery objectives. A simplified model of a primary health care system is developed to explore how the funding changes influenced, and were influenced by, existing institutions and arrangements in the New Zealand sector. Drawing on industrial organisation, transaction cost economics, health economics and health care policy literatures and analysis, financial risk sharing between the government and private entities before and after the NZPHCS implementation is assessed. The effects of the policy on a range of indicators assessing the relative, theoretically-expected changes in costs and equitable allocation of financial and health care resources are identified. The NZPHCS was intended to reduce service user fees, foster an integrated multidisciplinary approach to primary care delivery, reduce health inequalities and encourage the promotion and maintenance of healthy populations. Progress towards thesem objectives was disappointing. The government abrogated responsibility for managing financial risks associated with uncertainty about funded individuals’ future care needs when replacing fee-for-service funding with capitation funding of individuals within a population. Very small, risk-averse care providers became the primary risk pool managers. Via legacy balance-billing arrangements, much higher risk management costs have likely been passed on to service users in either or both of higher-than-expected fees and more variable care quality. Those with the greatest needs for primary care, and those whose fees the government intended to reduce most, have most probably borne a disproportionately higher share of the additional financial risk management costs. If the New Zealand primary health care system is to evolve towards the one envisaged by the NZPHCS, the government should assume a share of responsibility for managing financial risks associated with utilisation uncertainty. A mixed funding model, proposed and evaluated against the NZPHCS and three other policy options, provides risk management arrangements most likely to be conducive to delivering the desired cost and equity objectives. At the same time it provides a more stable path towards a fully government-funded New Zealand primary health care sector than the current arrangements. The findings specifically address the New Zealand context. However, the model and analytical framework developed are applicable to a wide range of primary health care policies, notably where partial private funding is either utilised or contemplated, and changes from service-based to population-based funding are being considered.