Appendix: Overview of the health sector

Health sector: Results of the 2016/17 audits.

In this Appendix, we provide an overview of the health sector.

Structure of the health sector

New Zealand's public health sector is administered under the New Zealand Public Health and Disability Act 2000 (the Act). The Act establishes DHBs and some other Crown entities, setting their purpose, functions, governance arrangements, and reporting obligations. It also establishes the responsibilities of the Minister of Health (the Minister).

Government spending on health in 2016/17 was $16.22 billion, making it the second largest area of government expenditure after social security and welfare.

The broader public health system has three main components:

  • The Ministry of Health (the Ministry) advises the Minister and the Government on health issues, leads the public health and disability sector, and monitors DHBs and other Crown entities. The Ministry also performs regulatory functions, provides health sector information and payment services, and purchases national health and disability services.
  • DHBs are responsible for providing for the health needs of their district. They do this through various activities, including providing secondary and tertiary health services in their hospitals, and funding other organisations and groups to provide primary health services. DHBs are supported by shared-services agencies, which provide administrative, financial, and information systems and services.
  • Primary health organisations (PHOs) are not-for-profit organisations funded by DHBs to deliver primary health services. People generally receive these services by visiting general practices, most of which belong to PHOs. PHOs are not public entities, and so are not audited by the Auditor-General, but their general practices are the part of the health system that most people have contact with most often. PHOs receive a large amount (between $900 million and $1 billion) of health funding each year.

The Ministry of Health

The Ministry is the lead agency in the health sector. The Director-General of Health is the chief executive of the Ministry and has statutory responsibilities under the Act and the Health Act 1956.

As well as being the principal advisor to the Minister, the Ministry is the steward of, and has overall responsibility for, the management and development of the health and disability system. The Ministry seeks to improve, promote, and protect the health and well-being of New Zealanders through:

  • its leadership of New Zealand's health and disability system;
  • advising the Minister and the Government on health and disability issues;
  • directly purchasing a range of national health and disability support services; and
  • providing health sector information and payment services for the benefit of all New Zealanders.

District health boards

DHBs were established by the Act, which sets out the objectives that DHBs must work towards. The objectives, as set out in section 22 of the Act, include the following:

  • to improve, promote, and protect the health of people and communities;
  • to promote the integration of health services, especially primary and secondary health services; and
  • to seek the optimum arrangement for the most effective and efficient delivery of health services in order to meet local, regional, and national needs.

DHBs are responsible for providing or funding health services for the populations of their districts. DHBs differ greatly in terms of their population size, density, and demographics. Waitematā DHB has the largest population at about 597,000, and the smallest is West Coast DHB, at about 33,200.

Each DHB prepares an annual plan, which is agreed with the Minister, and, for those DHBs deemed to be at high financial risk, the Minister of Finance. The plan includes budget and performance measures. DHBs are organised into four regions: Northern, Midland, Central, and South Island. Since 2011, regulations have required DHBs to prepare plans showing how they will operate regionally, as well as their individual plans.

DHBs are governed by a board made up of up to four members appointed by the Minister and up to seven elected members. The one exception to this is Southern DHB, which is governed by a Commissioner. In 2015, following several years of poor financial results, the then Minister dismissed the Southern DHB board and appointed the Commissioner, who is supported by two deputy commissioners. This arrangement is expected to continue until a new board commences following the 2019 elections.

Other Crown entities

Other Crown entities set up under the Act have various roles in the health sector:

  • The Health Quality and Safety Commission works with clinicians, providers, and consumers to improve health and disability support services.
  • The Health and Disability Commissioner promotes and protects the rights of consumers, as set out in the Code of Health and Disability Services Consumers' Rights.
  • The New Zealand Blood Service provides the health system with access to blood and tissue products and related services.
  • The Health Promotion Agency was formed on 1 July 2012 by merging the Alcohol Advisory Council and the Health Sponsorship Council. It leads and supports work in a number of areas, including the promotion of health, well-being, and healthy lifestyles, and provides advice and research on alcohol issues.
  • The Pharmaceutical Management Agency (Pharmac) decides which medicines and vaccines to publicly fund in New Zealand. It also negotiates contracts for some hospital medical devices.

Funding the health sector

DHB Funding

The bulk of DHB funding is allocated using the population-based funding formula. The population-based funding formula is used to calculate the share of funding allocated to each DHB, on the basis of its population, the population's needs, and the costs of providing health and disability services. The formula includes weightings and adjustors for population age and other indicators of need, such as deprivation status and ethnicity. These weightings are based on expected average health care costs for each person (such as inpatient, outpatient, maternity, immunisation, mental health, and pharmacy costs), and adjustors for unavoidable costs (such as "rural" adjustors to reflect the higher cost of providing services in rural areas).

Funding provided to DHBs using the population-based funding formula is "devolved" funding, meaning that DHBs determine how best to use the money for the benefit of the people in their districts. In 2016/17, DHBs collectively received $12.2 billion of this devolved funding. DHBs also collectively receive additional funding of about $1.1 billion from the Ministry of Health to provide national health, public health, and disability services.

DHBs provide hospital-based services and purchase services from third parties such as PHOs and residential facilities. Collectively, DHBs spend about $6.2 billion3 on services from other providers each year.

Other health sector funding

As well as purchasing health and disability services directly from DHBs, the Ministry purchases them from a range of other providers such as the other Crown entities, PHOs, and non-government organisations. Services purchased in this way include health workforce training and development, disability services, ambulance services, maternity services, and some mental health services. In 2016/17, total spending on these services including through DHBs was $2.9 billion.

Finally, there is the role of the Accident Compensation Corporation, which in 2016/17 spent approximately $2.3 billion on injury treatment, emergency travel, care, and support.

3: This is the amount paid by DHBs to all other providers, which includes $1.57 billion paid to other DHBs for inter-district flows – that is, payment for care provided to patients who live in another district.