TERMS OF REFERENCE FOR THE REVIEW OF HEALTH FUNDING ARRANGEMENTS
Purpose
The Government is looking to improve the value people derive from public spending on social services. In order to achieve this outcome, it is looking for health funding arrangements that:
· deliver a high quality health and disability system that provides the right care at the right time to the right people, maximising health and population outcomes while minimising cost;
· better integrate the delivery across its social portfolio to improve outcomes for specific populations (e.g., children in hardship and people with mental health problems);
· better match its investment to the return on that investment;
· provide greater fiscal certainty by reducing fiscal risk;
· be affordable short-term and sustainable longer-term.
The Director-General of Health has requested a review to develop options for health funding that better meet these criteria. Since the sustainability of Vote Health funding arrangements are an important determinant of the Government’s overall fiscal strategy, the review will be supported by officials from central agencies along with officials from Health.
The objectives of the health funding review are to advise the Director-General on the following questions:
1. What funding arrangements best support the five criteria outlined above?
2. How can the Ministry improve its internal processes for reviewing and prioritising Vote Health expenditure (and shared priorities with other social sector agencies) to give ministers assurance that decisions reflect government priorities for health and the wider social sector, and represent value for money?
3. How should the allocation of overall funding to district health boards be determined to encourage effectiveness, efficiency and innovation within DHBs (including how that funding might be better used to align the incentives on providers and consumers to improve service users’ wellbeing)?
Background
Prior to 2014, Vote Health has been allocated annual increases in baseline funding to continue delivering the same per-capita volume of health services. This is in addition to funding for new Cabinet-initiated programmes (examples over the years are new vaccinations, additional elective volumes, Herceptin and new screening programmes) or unforeseeable health events. The expectation was placed on Health that all pressures would be managed within this allocation by reprioritising funding within Vote Health as necessary. From 2002/03 to 2005/06 Vote Health received a three year allocation, and in 2006/07 and 2009/10 this was replaced by a one-year appropriation and indicative allocation for the following two years.
The amount of funding sought from Cabinet has been based on the estimated cost of meeting changing health needs. Until recently this was adjusted to allow for the pressure on health services of technological change. The funding “package” also included efficiency incentives. From 2010/11 to present the two adjusters (for efficiency and changes in demography) have been retained, but the efficiency expectation has been adjusted each year to allow the allocation to fit within the Government’s fiscal strategy. The funding available has been split between new initiatives, DHB funding and Ministry of Health funding on the basis of expected pressures, anticipated efficiency gains and savings generated by reprioritising existing services.
For Budget 15,
Withheld under s. 9(2)(d) and 9(2)(f)(iv) of the Official Information Act 1982
In Scope
The scope of the review could include, but is not limited to, the following questions:
1. How do we ensure that the arrangements for Vote Health funding are best set up to maintain the confidence of Ministers and people of New Zealand that Vote Health funding is sustainable and represents value for money?
2. Do the funding and associated monitoring arrangements support the provision of services that are value for money?
3. Are there opportunities to give Ministers better analysis of the value for money of health spending, without further increasing reporting arrangements or changing the current decentralised funding and provision model (the DHB model)?
4. What opportunities are there to ensure health funding arrangements support and incentivise improved health outcomes, improved care, more innovation and adoption, and achieve better system performance?
5. Do the funding arrangements support the appropriate balance of decision-making between the centre (government, in the person of the Minister) and districts (District Health Boards)?
6. How can trade-offs and risks within the Vote be best managed in the context of the current arrangements for setting budgets (across the social sector)?
7. In what areas of health spending could an investment approach be a useful framework for making prioritisation decisions?
8. Which funding arrangements would provide Ministers with the greatest level of certainty around the management of fiscal risks within the health sector?
9. Are current funding arrangements for target populations, in particular Very Low Cost Access, aged care, primary care, disability and mental health funding, sufficiently flexible and well-matched to incentivise new models of care while contributing to a sustainable high performing health system?
Where additional areas are identified during the funding review which could be included within this project scope, this is to be at the mutual agreement of the Director-General and the review Chair.
Out of Scope:
The scope of the review would not include the following:
1. The current institutional arrangements for the health sector. In particular: that funding will remain tax-based; that the DHB model remains as an important component of the system (i.e., semi-devolved decision makers who provide health services directly and contract for services on the basis of population need); and the principle of capitation funding as an important element in the funding of DHBs and for primary care.
2. Financing of the health system including the balance between public funding and private financing.
3. Any consideration of what is the “right” amount to allocate to health spending (as opposed to the processes for determining the arrangements for Vote Health funding).
Related work
The Minister of Health has asked the Ministry to lead a refresh of the New Zealand Health Strategy to be delivered by June 2015. The refresh will bring the strategy up to date and provide a road map for the sector for the key shifts needed over the next five years. The funding review will need to reflect the high-level direction set in the strategy – to achieve the timelines set for both projects there will require close linkages between the review process and the development of the strategy.
The Director-General of Health has asked an independent review group led by Sue Suckling to assess capability and capacity within the sector to implement change. The review will take as its starting point the decisions made by Cabinet following the recommendations from the 2009 Ministerial Review Group.
A technical review of the population based funding formula, the main allocation mechanism for distributing funding on an equitable basis between DHBs, is underway and is set to report to ministers in August 2015 so that change can be reflected in the 2016/17 planning year. The technical review can proceed while the wider issues are being considered. This technical review is surfacing wider policy questions which could be encompassed in the scope of the wider funding settings review at the agreement of the Director-General and the review Chair.
Process and Deliverables
The review will be led by Dr Murray Horn with additional panel members appointed on an agreed basis in consultation with the Chair and Director-General. .
Officials from the Ministry and Treasury will provide technical support and advice to the review. The Ministry will provide administrative and secretariat support.
The deliverables for this review will be as follows:
· An update on the process to be adopted will be provided to the Director-General by 10 April 2015
· A draft report to the Director-General of Health by the end of the second week of May 2015.
· A final report and presentation of the key findings and recommendations to the Director‑General of Health is to be completed by 30 June 2015.