Parliament’s Health Select Committee gave its verdict on New Zealand’s troubled health system last week, publishing its report on Te Whatu Ora - Health NZ’s (HNZ) annual review.
It is the last significant report to be published on the health system ahead of the Government’s publishing of the first full Health Government Policy Statement, which the Government’s first quarterly “Action Plan” pledges to have done by the end of June.
The statement will set out where about $27 billion worth of health funding will be spent each year for the next three years, making it one of the most consequential government directives to be issued outside of its annual Budget.
MPs were critical of the lack of performance metrics in the new health system, and concerned at the $1b deficit posted by HNZ, and fearful of the $1b cost of bringing pay parity to the sector.
MPs were also critical of “responsible authorities” like the Nurses Council, which registered health professionals as qualified to work in New Zealand, suggesting those bodies were acting as a barrier to register staff to alleviate shortages.
There is some frustration that these bodies, which are independent, are not doing enough to make it easier for foreign workers to register to work in New Zealand, exacerbating workforce shortages.
There are some significant bright spots. The former Government’s amalgamation of District Health Boards is beginning to yield significant savings, amounting to $139 million in the 2023/24 financial year. These are forecast to increase to an impressive $540m this year. This year the health system will get about $27b for direct purchasing of health and disability services.
Many of the figures were included in HNZ’s annual report of the 2022/23 year - its first full year of operation. The report was published at the end of last year, but this is the first time MPs have been able to give their verdict on it.
It is a significant undertaking. HNZ employs 84,585 people, or about 1.6 per cent of New Zealand’s entire population. It is responsible for 1700 data and information technology projects, and 190 capital projects.
Deficits
Health spending expanded significantly under the former Government, and not just in response to the pandemic. In 2018, the purchasing of health services, which comprises the main part of the funding that would eventually go to HNZ (which then went to DHBs) had $14.2b worth of central government funding.
This rose to $24.1b in 2024, plus $2.8b in funding for the Covid response. The annual report said HNZ’s income was $25.69b against expenses of $26.70b, leading to a deficit of $1.01b for 2022/23, it’s first full year of operation.
The organisation said this was affected by two “one-off” financial events, the first being a substantial pay equity settlement for nurses, and the write-down of Covid-19 inventory transferred to HNZ, costing $284m.
MPs on the committee said they expected HNZ to report “no deficit” in the 2023/24 financial year.
MPs on the committee were happy with savings found by HNZ. The agency said it could achieve the $540m worth of savings this year through “back-office consolidation” and “improved purchasing power, and efforts to improve productivity in hospital and specialist services”.
The report said “no clinical services will be cancelled or reduced, and all savings will be reinvested back into the health system”.
There was a warning: HNZ said there were “inflationary pressures, increasing demand for health services, and workforce shortages are ongoing challenges that could affect its ability to meet the savings target”.
The previous Government had given the health system multi-year funding in 2022, worth an extra $13b over four years. This was meant to pay for inflation and cost-pressures driven by New Zealand’s ageing population.
HNZ warned, ominously, that inflation had increased above what was forecast when the payment was made, hinting it may be insufficient to meet costs.
Pay parity
One of the more pressing issues in the health system is pay parity between staff employed directly by HNZ in hospitals, and those who work in the “funded sector”, in primary or community care. These roles are publicly funded but are delivered by private providers.
“[N]urses in the funded sector are paid nearly 20 per cent less and laboratory workers nearly 30 per cent less,” the committee was told.
“We heard that the pay discrepancy between the funded and employed sector is particularly challenging for the aged-care sector,” the committee said in its report.
HNZ reckoned funding the cost of pay parity for just general practice would cost $170m. Including aged-care and community workers would lift the cost to “over $1b”.
“HNZ said that achieving pay parity would require additional, dedicated funding from the Government,” the committee said in its report.
During Newshub’s 2023 election debate, Prime Minister Christopher Luxon said he believed in solving the pay parity problem.
“They should be paid the same,” he said.
Labour’s health spokeswoman and the former Health Minister Ayesha Verrall said the committee did not have the opportunity to look at those figures in detail.
“It was just an estimate stated by officials,” Verrall said.
“However in government, a priority for us was to raise healthcare wages... both in the hospital sector and the funded sector,” she said.
Reti would not comment on this issue to the Herald citing budget sensitivity.
MPs ‘concerned’ health system continues to flout Holidays Act
Holidays act dramas continue to plague the health system, with thousands of staff being underpaid.
HNZ inherited a $2.1b liability for payments owed to employees who have not been paid their legal entitlement. It received one-off funding of $1.64b for the 2023/24 year to settle those payments.
The committee heard that as of November 2023, just $256m had been paid out to staff.
“Since assuming responsibility for this issue, HNZ has made progress resolving it, but progress has been slower than HNZ anticipated.
“HNZ attributed this to the fragmented payroll systems it inherited and the need to manually review and process each payment to staff,” the committee said in its report.
The committee said it was “concerned that there is continued non-compliance with the Holidays Act” and that the only staff that were currently being paid correctly were those in Auckland.
“We intend to monitor this issue as HNZ works through the remediation process. We understand that HNZ plans to complete payments to current employees by the end of 2024,” MPs said in the report.
Workforce shortages
There are some bright spots in the country’s effort to close workforce shortages. The ratio of health professionals to population has actually improved.
In 2000, the ratio of doctors to population was 1:450 and nurses or midwives to population was 1:85.
By 2023, those ratios had increased to 1:275 for doctors and 1:75 for nurses and midwives.
HNZ was asked why, despite this increase in staff, the system still suffered from capacity issues. It told the committee that “all health systems across the world are experiencing a decline in productivity - something that started pre-Covid-19 but was exacerbated by the pandemic”.
HNZ said people were “presenting with more complex health needs, which take more time and staffing resource to treat”.
It pointed to two productivity “enablers”, which were investment in primary and community care.
GP trainee numbers had increased from 100 to 230 in one year, helping to alleviate shortages, but this will not be enough to face looming GP crisis.
“We are also aware that two-thirds of GPs are planning to retire in the next decade,” the committee said.
“We are concerned that this will put an enormous strain on the primary sector and wider health system. We expect HNZ to plan for this eventuality now,” they said.
“We consider it crucial that HNZ works with the medical colleges to ensure that there is a sufficient pipeline of GPs in training to backfill planned retirements,” they said.
Immigration is another issue hampering efforts to recruit health staff, and MPs on the committee were frustrated HNZ was not talking to immigration officials about how to fix the problem.
MPs said they were “surprised to hear that HNZ has not advised Immigration New Zealand officials about how to adapt immigration policy settings to make it easier for mental health specialists to immigrate to New Zealand”.
HNZ said that immigration policy was “not in its purview” and that other agencies were responsible for this advice.
The committee also urged “responsible authorities” like the Nurses Council and other authorities responsible for registering health workers to work in New Zealand to consider whether they were helping or hindering efforts to alleviate workforce issues.
“We learnt that New Zealand’s process for accrediting foreign medical practitioners is slow compared to Australia. HNZ said it recently met with the Council of Medical Colleges, which represents 17 medical colleges, to discuss accelerating the pipeline for training and bringing people into the country.
“We fully support HNZ’s efforts to increase the volume of medical trainees and speed up accreditation. New Zealand is competing with Australia to attract talent from the Northern Hemisphere and needs to position itself competitively. We encourage the medical colleges to work collaboratively with HNZ to achieve this,” the committee said.
The committee said it reckoned medical colleges could “do more” to address those workforce shortages to grow the medical workforce New Zealand needs.
However it appears the Committee got the wrong end of the stick. It is the Medical Council that gives registration for international medical graduates to work In New Zealand not the Colleges, a fact the Council of Medical Colleges says is confused by the report. Medical student training is not the responsibility of Medical Colleges, it is the responsibility of the Universities.
A spokesperson for the Nurses Council defended its practices.
“The regulator’s role is to protect the safety of the public and we do that by setting the standards for nursing practice,” they said.
“As part of those standards, we register nurses who have been assessed as being competent to practise. This includes nurses who graduate here and internationally qualified nurses who apply to practise in New Zealand. The council has a statutory responsibility to register nurses if they meet the prescribed standards,” they said.
Verrall told the Herald the former Government had asked officials to begin work on a review of the Health Practitioners Competence Assurance Act, the legislation regulating the responsible authorities, who otherwise have a very high degree of independence.
“I have not heard whether that is still on the Government’s agenda,” she said. Reti’s office was unable to respond to requests to comment on this aspect of the report by deadline.
Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the Press Gallery since 2018.