Just what the doctor ordered? Overcoming challenges in New Zealand’s healthcare sector

December 28, 2016

According to New Zealand’s Ministry of Health, rising healthcare spending – which already stands at nearly 10 per cent of gross domestic product (GDP) – is starting to strain District Health Board (DHB) budgets. The strain on public and private healthcare providers will continue unless they find a capital solutions provider that is willing to think outside the box.

Budgetary squeeze

With one of the largest healthcare expenditures in the OECD, Wellington’s 2016 budget promised an additional NZD$2.2 billion in health spending over the next four years, its biggest budget increase in seven years.

More than three-quarters of the health budget is distributed to the country’s 20 DHBs which oversee the provision of health services, including public hospitals, in their respective regions. Yet despite the windfall, many DHBs are operating in the red, and costs are only likely to rise.

The number of New Zealanders over the age of 65 has tripled since 1980, and will likely triple again by 2036. Adult obesity has also tripled from 10 per cent in 1970, to 30 per cent in 2013.

This unfortunate combination has helped produce an increasingly unsustainable annual health spend per person, which has risen from USD$1,059 in 2001 to USD$4,896 in 2014.

To complicate matters further, these funds are not being spent efficiently. The average hospital cost per bed in New Zealand is USD$1.2 million per annum, compared with the OECD average of just USD$700,000.

Deloitte believes inefficient computer systems are to blame for the high costs, and suggests that as much as two per cent of New Zealand’s GDP is wasted on administrative inefficiencies, equating to around a quarter of total healthcare expenditure.

Additionally, the healthcare industry is facing a workforce shortage, particularly in rural and regional areas. This is affecting the provision of affordable 24/7 acute care and after hours primary care.

The operating model of the New Zealand healthcare sector, as in many developed countries, clearly needs a dose of reform to ensure sustainability. So what can be done to help improve the situation for New Zealand’s financially constrained DHBs?

Technology and financial solutions

In lieu of governmental reform and in a bid to combat financial strain, health departments are looking to alternative sources of asset financing.

The rapid rate of technological advancements in healthcare, coupled with the public’s expectation of access to the newest and most effective treatments, has resulted in increasingly quicker asset obsolescence and upgrade expenditures.

However, health departments and organisations that maintain or upgrade to the latest technology can receive a range of benefits, preventing many of the challenges caused by outdated assets. Healthcare providers who routinely upgrade their technology could also find that this helps to attract and retain staff.

By upgrading and utilising the latest technology, this could help reduce patient stays in hospitals or care homes, improve staff productivity, reduce energy consumption and time spent on repairing outdated technology.

Following the 2011 Christchurch earthquake, the Canterbury DHB decided to rebuild its public health infrastructure with the future in mind. It successfully transformed its financial position from a NZD$1.7 million deficit in 2007 to an NZD$8 million surplus in 2011. This was based on significant investment for a district-wide, fully integrated shared system between hospital, community and primary care services, which reduced administrative costs.

Similarly, Southern DHB (SDHB), which oversees Southland and Otago, has also begun investing in technological improvements, when Fiscal constraints previously prevented SDHB from purchasing vital equipment.

Alleasing partnered with SDHB to create a solution which shifted NZD$2 million of capital expenditure (capex) into the operating budget. This enabled SDHB to spread the cost of its equipment over a number of years via a rental agreement, and also better manage end of term processes around obsolete equipment. This freed up SDHB to focus on providing the best standard of healthcare possible to its patients.

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