Why change the health structure before the culture?

How can we improve health systems in quality, comprehensiveness and how easily patients can access healthcare diagnoses and treatment? 

Should it be by cultural change or structural change? 

Officially, there's been no argument: culture trumps. Since 1938, culture has been the driver of health system change. Until now. 

Cultural change works best when it's signalled well in advance, so there's public transparency and everyone can accept why and how it's to occur. Structural change has come later, to better enable cultural change to be implemented.

The sweeping replacement on July 1 of district health boards by a new national bureaucracy, Health New Zealand (Te Whatu Ora), represents a shift to putting structural change first. In doing so, it has removed an underpinning principle of Aotearoa New Zealand’s health system – 'subsidiarity'. Let me explain.

In health systems, cultural change is the way the system is changed to take on new cultural traits, behaviour patterns and norms. It's most effective when it transcends politics and sets standards for the health system to adhere to. 

In contrast, structural change is a change in the relative weight of significant components of the system’s structures.

Let's look back

NZ's universal public health system was launched by the first Labour government as a key part of wider comprehensive welfare reforms under the Social Security Act 1938. 

Its main elements were free hospital treatment, free medicine, a maternity benefit and subsidised general practitioner visits.

Underpinning this new universal system was the principle of 'subsidiarity', based on cooperative relationships. It's the same principle that underpins the relationship between the European Union and its member states.

In plain language, subsidiarity in health systems means that decisions should be made locally, except where it makes better sense to make them nationally. This reflects the reality that overwhelmingly healthcare has been provided locally, mainly through hospitals and GPs.

Being a universal system, it still needed national cohesion, which was supplied by central government. Subsidiarity is a common feature in universal health systems. 

System improvement

The next significant structural change came under a National government, but with bipartisan Labour support. 

The Area Health Boards Act 1983 involved an important cultural change developed after a lengthy process of consultation, including trials in Northland and Wellington. 

The cooperative principle of subsidiarity continued to apply.

Hospital boards were disestablished and replaced by 14 area health boards which combined the curative functions of the former and preventative functions of the Department of Health’s district health offices. They were gradually implemented, between 1983 and 1989.

But, for the first time, local statutory health bodies became responsible for the healthcare of geographically defined populations – the districts. This included promoting and protecting their health, investigating and assessing their health needs, and planning future health services in each district.

Had the area health boards only had enough time, they would've extended their strategic involvement into primary and other community care. The cultural shift was to enable hospital and community care to be better integrated. But this was not to be.

Oops. Bad cultural change

The National government repealed the legislation it had enacted just 10 years earlier by replacing it with the Health and Disability Services Act 1993. 

The legislation was a major cultural change, to set up an internal business market within the health system, including between the public and private systems.

The new structure included setting up state-owned companies called 'crown health enterprises' and purchasing agencies called 'regional health authorities'. 

Public hospitals were now covered by the Commerce and Companies Acts. Competition, rather than cooperation, became the driver of public hospitals. 

National’s legislation also reversed the move under area health boards towards breaking down local structural boundaries between hospital and community care.

This was a case of structure following culture – as it should. 

In terms of the culture, the restructuring made sense. But the problem was that the culture was seriously flawed as the basis for a universal health system seeking to meet its goals. 

Although it was not a departure from subsidiarity, national cohesion was badly compromised. Quite simply, it was driven by abstract ideology that clashed with daily reality. 

A government can’t credibly claim on one hand that healthcare is a universal public good and, on the other hand, that it is a commodity to be delivered by competing businesses.

Return to cooperation

This was recognised by the Labour-Alliance government which repealed National’s act and replaced it with the New Zealand Public Health and Disability Act 2001. 

In brief, cooperation returned as the driver of public hospitals, which were no longer companies, and district health boards (DHBs) were set up, picking up from where area health boards left off and taking it further.

In essence, the public health system returned to the cooperative values that were in force from 1938 to 1993. But there was an important difference. 

Integration of healthcare in hospitals and healthcare in the community (including general practice) was an express requirement of DHBs.

This integrated care emphasis was a good step forward. It recognised that most of the innovation that drives health system improvement comes from those who do the job of healthcare, rather than those who don’t, and that much of healthcare, for reasons of commonsense practicality, is delivered locally.

However, for subsidiarity to work effectively in this context, rather than in isolation, national cohesion was needed. This is because the leadership culture for DHBs needed to be high engagement relational (low transaction cost) rather than contractual (high transaction cost). It needed to be clinically-led, rather than managerially-led.

Unfortunately, the Ministry of Health failed to give the national cohesion necessary to spread this engagement culture to all DHBs. 

There was, to various degrees, good innovation in all DHBs. However, in the critical area of integrated care through clinically-developed and -led health pathways between community care, progress was unnecessarily slow and uneven, because of ministry failure.

The benefits of integrated care were significant. Pioneered by the particularly innovative Canterbury DHB, it led to flattening the curve of rising acute demand, which nationally had been increasing at a greater rate than population growth. 

Increasing acute demand was the most common driver (coupled with underfunding) of DHB deficits and, pre-pandemic, was the biggest cause of delayed (non-acute) surgery. 

Under the Pae Ora Act

So where does the Pae Ora Act that took effect on July 1 fit in? It's not a return to the failed business competition-driven legislation of 1993. But it is an abandonment of the principle of subsidiarity that has necessarily underpinned our public health system since 1938. 

It's also largely based on putting structural change before cultural change, despite official protestations to the contrary.

I was critical of parts of the Heather Simpson review of the health and disability system when it was released in 2020. But that review did recognise that the health system had still performed well and that its foundations should be built on. 

It recommended continuing the subsidiarity – DHBs, although fewer of them.

Further, the review also correctly recognised that that a major failing of the system was a lack of national cohesion. So, it recommended transferring the national functions of funding and planning from the health ministry to the new body we now know as Health New Zealand.

Labour went into the 2020 election committed to putting in place the principles of the review’s recommendations. There was no reference to abolishing DHBs.

Despite that, in April 2021 came the announcement that DHBs were to be abolished. The focus on integrating healthcare between hospitals and communities was also to be removed.

The Pae Ora Act is based on cultural change – it has an emphasis on addressing health inequities. But this is a refinement of the wording that already existed in the repealed 2001 act. 

The setting up of the Māori Health Authority (Te Aka Whai Ora) is consistent with a cultural change to redress inequity; similarly, setting up the Public Health Agency is consistent with a cultural change strengthening population health.

However, in the much more comprehensive planning and provision of healthcare, the driver is overwhelmingly structural change. 

This change is justified on two erroneous claims.

1. The health system is fragmented into 20 different systems. The truth is that healthcare has to be delivered locally, central government had significant control of DHBs, and the health ministry’s failure to provide national cohesion was the biggest failure. 

2. That health is a postcode lottery, where access to healthcare varied depending on where you lived. The truth is that DHBs were best able to identify any existing postcode lottery because of their superior understanding of local populations.

Abolishing the principle of subsidiarity as a basis of New Zealand’s health system is bureaucratic centralism. But no one admits that. 

At least in 1993, the National government was upfront about introducing business competition into the health system.

Good cultural change was the basis of the 1938 legislation, improved cultural change was the basis of the 1983 legislation, bad cultural change was the basis of the 1993 legislation, and a return to good cultural change was the basis of the 2001 legislation.

In contrast, structural change is the basis of much of the 2022 legislation. 

Just as DHBs were not the cause of the problems in our health system, neither will Health New Zealand, nor its chair nor chief executive, be the cause of increasing problems. 

The cause will be the bureaucratic centralism de-facto culture.

The solution is, more than anything else, a much improved engagement cultural change, away from bureaucratic centralism. 

Only by this will we get sustainable health system improvement. This is where we need to focus the most effort.