Paying for the Hospital Waiting List Cull at the GP's Surgery: The Changing Locus of Financial Risk-Bearing in New Zealand's Primary Health Care Sector

Abstract

In 2002, New Zealand's government-funded primary health care payments were changed from a fee-for-service basis to a capitation basis as part of a change towards a population-based, managed care style of primary health care provision. However, some specific differences characterise the New Zealand system. Government payments meet only a fraction of the costs of care, and as no provisions have been made for alternative cost recovery, all additional costs are paid only by individuals consuming primary care. The managed care entities have been established as nonprofit entities without risk reserves, so pass on capitation payments to general practitioners, who retain the right to charge patients for costs not covered by the capitation payments, albeit subject to some weak forms of government oversight and potential regulation. Moreover, government plans on increasing capitation payments progressively, with commensurate requirements that patient payments be reduced for those patients receiving increased capitation funding. The New Zealand arrangements lead to some very unusual allocations of costs and financial risk relative to standard managed care models. Specifically, all risk management responsibilities lie with a large number of very small providers, leading to high costs in respect of statistical variation in the allocation of patient pools and demand for care amongst practitioners. As only practitioners can charge fees, a disproportionate share of the costs of risk management are borne by ill individuals, in proportion to each time they visit a general practitioner. The paper illustrates these 'perverse' effects using two recent demand shocks - a strike by hospital doctors and the culling and referral back to general practitioners of substantial numbers of patients on hospital waiting lists - showing how these exogenous factors will lead to price rises for all patients visiting general practitioners. The effects illustrated appear likely to be exacerbated by price regulation associated with the increasing number of individuals receiving government capitation payments. Relative to the previous system, the capitated system is likely more costly, and likely to lead to substantial changes in the structure and function of the New Zealand primary health care sector.