Health

Recalibrating Hospital Funding: Enhancing Equity and Clinical Excellence in New Zealand's Health System

"The Population-Based Funding Formula aims to allocate funding equitably based on the relative needs of District Health Board populations."
— New Zealand Ministry of Health

Challenge

New Zealand operates a public hospital funding model. In the early 2000s, New Zealand's health sector grappled with the complexities of its hospital funding mechanisms. While the Population-Based Funding Formula (PBFF) was designed to distribute resources equitably based on demographic and socioeconomic factors, its application revealed several challenges:

• Under-servicing Risk: Fixed funding allocations raised concerns that providers might limit services to stay within budget constraints.
• Mismatch with Need: The formula's sensitivity to high-need patients was questioned, potentially leading to inadequate resource allocation for those requiring intensive care.
• Hospital Disconnection: The primary focus on community and primary care in capitation models left hospitals operating largely under activity-based funding, creating potential misalignments in service delivery.

For instance, in tertiary services like hip surgeries, funding levels were insufficient to ensure surgeons maintained the necessary expertise. This scenario risked perverse outcomes, where surgeries might be performed to meet funding criteria rather than patient need, compromising care quality.

Strategy

As Chair of the Finance and Risk Committee at Hutt Valley Health Hospital, Shaan Stevens, the Chief Legal Officer and Matte Birchler of GG International, undertook a comprehensive review to address these issues:

• Analytical Assessment: Evaluated the implications of the PBFF on hospital operations, focusing on service delivery and financial sustainability.
• Stakeholder Engagement: Collaborated with clinical leaders, financial analysts, and policymakers to gather insights and identify areas of concern.
• Policy Recommendations: Proposed adjustments to funding models to better align with clinical needs, including considerations for surgical volume thresholds to maintain practitioner proficiency.
• Risk Mitigation: Developed strategies to prevent under-servicing and ensure that funding mechanisms supported both equitable access and high-quality care.

Transformation

The review led to significant advancements in hospital funding approaches:

• Enhanced Funding Models: Recommendations contributed to refining the PBFF, incorporating adjustments for tertiary services and ensuring allocations matched patient needs.
• Improved Clinical Outcomes: By aligning funding with service requirements, hospitals could maintain surgical expertise, reducing the risk of unnecessary procedures and enhancing patient care.
• Policy Influence: The insights from Hutt Valley Health informed broader health policy discussions, promoting a more integrated and responsive funding framework across New Zealand's health system.

Strategic evaluation and targeted policy adjustments are crucial in ensuring that hospital funding models effectively support equitable, high-quality healthcare delivery.