Ian Powell: Rescuing Simpson from Simpson

Ian Powell: Rescuing Simpson from Simpson

Will the health reforms proposed for the Labour Government make the system better or worse? Health commentator Ian Powell (formerly the Executive Director of the Association of Salaried Medical Specialists) gives his analysis of what change is most necessary, and what should be avoided.


The review of the Health and Disability System by the Heather Simpson led panel (hereafter referred to as ‘Simpson’) is a review that needs to be rescued from itself. At the heart of this statement is the failure of Simpson to recognise how best to achieve sustainable transformational change beneficial to New Zealand’s universal health system. Pre-determination and deficient analysis are responsible for this failure.

Broadly speaking there are two alternative ways of trying to effect transformational change in universal health systems – structural or cultural. Partly because they are so complex, interconnected, labour intensive and health professional dependent, transformational change requires a relational leadership culture including an empowered workforce, to deliver continuous process improvement. Relational cultures focus on the relationships between different parts of the system. As a result of being less bureaucratic, they are able to work in a high trust way which means that they are low rather than high transaction cost. This enhances effectiveness and efficiency in terms quality of care and fiscal performance.

Structural versus cultural (relational) change

The experience of health systems is that while cultural change can lead to improved structural change, the other way around fails. Structural change invariably lacks insights into the drivers of performance and non-performance and at best focusses on symptoms (more often on pre-determined positions) rather than causes.

Universal health systems are dynamics, not structures. Structures should exist to enable and support health system dynamics, not the other way around. The best performing structures are those that understand these dynamics.  Despite this experience Simpson advocates a major overhaul through restructuring the health system.

Simpson’s approach should be contrasted with the last major change to our health system which was the introduction of district health boards under the Public Health and Disability Act 2000 by the Labour-Alliance government. The major change involved changing the culture that the health system was to operate under. Previously, since 1993, public hospitals were covered by both the Commerce and Companies Acts which required them to act as competing businesses both with themselves and the private sector. This involved changing process culture in the public system from cooperative collaboration to competition; unnatural and unsuitable for the provision of an essential universal public good.

The Act took public hospitals out of this business legislation and instead required the public system to function cooperatively. This cultural change was the decisive change. DHBs were formed to align with this cultural change. They were based overwhelmingly on the same boundaries of their predecessor state-owned companies but with a wider scope to encompass community (including

residential as well as primary care) and hospital health services (which was where the public system was heading before 1993 under area health boards).


The thinking behind restructuring health is simplistic. It comes down to two unsubstantiated sentiments – there are too many DHBs and the Ministry of Health isn’t up to it so a new additional health bureaucracy is required. This thinking is hardly surprising if one’s only knowledge of structures is structures.

In late 2017 the New Zealand Medical Association hosted an opening its new building. Speaking at the gathering was new Minister of Health David Clark. During his speech he chose to emphasise that the newly elected Labour-led government wouldn’t be afraid to make the hard decisions giving the example of reducing the number of district health boards.

I observed to a senior ministerial advisor standing next to me, who at different times was also an adviser to Prime Minister Jacinda Ardern (and confidant), that this was an unwise statement because of the confused messages it would send to a system and workforce already under stress. Her response was simply that it had to be done. It has subsequently become clear that pre-determination over DHB numbers and the need for an additional national health bureaucracy has shaped the thinking of the Prime Minister at least.

What is a DHB?

“Too many DHBs” has become a mantra in New Zealand simply on the basis that 20 is too many for a population of five million. Eventually, if it is repeated enough then it must be so. It is akin to a mediative chant that would make Hare Krishna proud. What this mantra fails to consider is what a DHB’s purpose is.

Put simply, a DHB is a statutory authority responsible for ensuring the provision of community and hospital health services for a geographically defined population. This includes ensuring population needs analysis. This means that DHBs need sufficient capacity and capabilities for both personal and population health services.

Population or geographic size are not determinative for defining their boundaries. Big differences in size are immaterial – if there are good relationships between tertiary and secondary care providers. A DHB needs to include at least one base hospital undertaking a range of 24/7 acute and non-acute surgical, medical, maternity and mental health services. To do their job well DHBs must know their populations well. The further away decision-making is from its populations the less a DHB will know about their populations needs.

Once DHBs go beyond two base hospitals, which means consequentially larger and more dispersed populations, even cultural drivers would struggle to compensate for this compounded difficulty. This is also the case where there is a big distance between two base hospitals. The fraught top-down driven merger of the former Otago and Southland DHBs into Southern DHB with base hospitals in Dunedin and Invercargill that also serve large hinterlands is a great example of how structure can impede improving population health.

Severity of pressures on public health system

There are severe pressures on our public health system that amount to a workforce crisis. We have severe health professional shortages in DHBs leaving the existing workforce overworked and overstretched with the inevitable outcome being widespread fatigue (even burnout). In the case of hospital specialists where the data is strong, the best estimate of shortages is 24% and the burnout rate is huge. Along with the natural aging of the population, workforce pressures are contributing to an excessive number of specialists leaving DHB employment but not necessarily to retire from medicine.

The health and safety of the workforce is a huge loser in this situation but the biggest loser is patients who are at greater risk of harm when being treated by a fatigued workforce. Further, unmet need (ie, denied access to diagnosis or treatment) is at least 9% of the population according to a conservative estimate.

How governments fund DHBs contributes to these severe pressures. This is not just the level of funding. There are four areas the Government should focus on.

  1. One of the biggest contributors to high DHB debts is acute patient demand which is increasing at a higher rate than population growth. This is a big cost driver because of the additional resources required. We need to develop better models of care to address this. The signs are there with the experience of Canterbury DHB’s clinically developed and led health pathways between community and hospital.
  2. Social determinants of health are driven from outside the health system but massively drive up its costs including public hospitals. A strategy for addressing this cost driver is critical.
  3. Major capital works (hospital rebuilds and facilities) is another big contributor. Good work initiated by former Health Minister David Clark has identified that many public hospitals and facilities are in a poor state. Much expensive construction is required. The Government sets a capital charge on funding which is now 5% (until recently it was 6%). DHBs undertaking approved major capital works have to pay this charge from their annual operational expenses as well as having the impact of depreciation.

To put it simply, those DHBs undertaking hospital construction have much greater annual operational costs than those that don’t and therefor greater debts. We need a different way of funding major capital works that doesn’t impact on operational expenses and therefore debt beginning by getting rid of the ill-suited capital charge.

  1. Funding responses to natural disasters should not be through debt management of annual operational expenses. The former National led government ignored advice not to do this when considering the response to the Christchurch earthquakes which proved to be a bad mistake. Work needs to be undertaken on how best to avoid this in event of future natural disasters including pandemics more deadly than Covid-19.

The current health system structures, including the number of DHBs, are not responsible for the severity of this situation. Simpson’s restructuring will only impede resolution.  This is re-enforced through the Productivity Commission’s review titled On the technical Efficiency of New Zealand District Health Boards’ Hospital Services: A Dynamic Stochastic Frontier Approach. This study looked at the period 2011-2018. It noted that:

The results show that the majority of New Zealand DHBs performed exceptionally well in short-run relative to the equilibrium level of technical efficiency in the sector. The findings of this study disclose the fact that New Zealand DHBs suffer from significant long-run technical inefficiencies due to high adjustment costs resulting from capacity constraints and lack of adequate clinical infrastructure.

Key deficiencies in health system

Simpson identified two major deficiencies in our health system – social inequities and lack of national cohesion. The analysis of the former would have benefited by more discussion on the external social determinants of health that cause these inequities. In fact, rather than being central to Simpson they are barely referred to.

Characteristically universal health systems have both national and local dimensions. Simpson’s second identified deficiency would have benefited by discussion on the tension over when system decision-making should be undertaken locally or nationally. Tension is inevitable but not necessarily bad. It can be an important stimulus for ongoing improvement in a cognitively driven dynamic health system.

Nevertheless Simpson is correct to identify these deficiencies. But a third major deficiency is missed out – the integration of community and hospital healthcare including the continuum between them. As statutory creations DHBs are currently constructs for enabling integrated care. Almost every other health system would love to have this mechanism to enable integration and yet again in New Zealand we seem to be intent on breaking down the very mechanisms that other parts of the world are trying to create (within United Kingdom, Ireland and Australia come to mind).

Progress on enhancing integrated care has been impeded by health leadership looking through a structural lens in which usually arbitrary attempts are made to shift resources and services from hospitals to primary care; in other words, a power or ‘land grab’. Where progress has been made in from the late 2000s it has largely been through the relational approach, pioneered by Canterbury DHB, based on coordinated clinical and other collaboration between hospital and community health providers.

Simpson promotes investing more in primary care largely provided by general practices. This is good. Potentially, through earlier intervention by improved access to primary care, many patients won’t need to be admitted to hospital. But further investment in primary care also detects more unmet patient need some of which requires hospital care. This was the experience of the 2000s under DHBs with both increased GP consultations and hospital admissions. Then there are the chronic illnesses, many due to external social determinants of health, that require patients to receive both community and hospital care.

Unfortunately Simpson’s narrow structural lens leads to a failure to consider the dynamic of integrated community and hospital care. This includes its ongoing interactions, through clinically developed and led heath pathways. Despite being difficult to achieve because of the combined effects of increasing aging of a growing population and poverty related illnesses, Canterbury DHB’s health pathways have successfully bent the rising curve of acute demand saving millions of dollars. It has deservedly been internationally recognised as a success.

Simpson’s structural overhaul

Simpson recommends a major structural overhaul of the health system by increasing bureaucratic centralisation through the creation of both ‘mega DHBs’ and an additional powerful new national health bureaucracy. There is a failure to explain how this overhaul would address the severe pressures on the health system or the major deficiencies Simpson identifies. Instead it would enable increased top-down decision-making and reduced engagement and voice (public and health professional) in the system.

‘Mega’ DHBs

Specifically, the number of DHBs would reduce from 20 to either 12 or 8 over five years. Health Minister Andrew Little wants five years reduced to around two while the head of the Government’s implementation unit based in the Prime Minister’s Department Stephen McKernan (also Ernst & Young Consulting senior partner) is reportedly seeking to reduce the number further than Simpson to six. This suggests even fewer but more ‘mega’ DHBs than Simpson based in Auckland, Hamilton, Wellington, Christchurch (possibly also Palmerston North and/or Dunedin).

What is often not understood is that DHBs are currently some of the largest employers in New Zealand and that almost every DHB is the largest in their district. Just to put into context, Auckland DHB and the combined Canterbury/West Coast DHB are individually the 7th largest employers in the country. Each of them are about the same size as the whole Police Force and larger than any central government agency.

Unfortunately this narrow structural mindset misses the fundamental point that the more critical coordination and integration is between community and hospital care. This is where effectiveness and innovation is best able to improve the health system’s capability to contribute towards reducing unmet need and the effects of social determinants of health.

A strength of DHBs is that they are responsible by statute for the healthcare of defined populations within their boundaries, from community to hospital. What enables them to succeed is the extent to which the community-hospital relationship is relational rather than bureaucratic. By moving to a small number of centrally controlled ‘mega DHBs’ the distance between community care providers and decision-makers increases. One negative consequence would be that by decision-making being more distant the relationship between community providers and decision-makers becomes more bureaucratic and less relational than now.

‘Health NZ’

The second part of Simpson’s recommended overhaul is the creation of a new powerful national bureaucracy (provisionally named Health NZ) to sit alongside the Health Ministry. Health NZ would be responsible for the funding and delivery of health services to the whole health system and for its outcomes. The new ‘mega DHBs’ would be required to implement its decisions. In other words, Health NZ would tell these DHBs what to do, including over what, where and how services should be provided. The United Kingdom’s health system provides a great example of where structure and centrally driven health planning has been to the detriment of its population access to health services.

Simpson says that the Health Ministry doesn’t have the capability to address the challenge of national cohesion in our health system. Rather than advocate for the Ministry to establish this capability it instead goes down the path of creating a new additional bureaucracy with all the scope for corrosive tension through confused accountabilities, competing ‘policy brains’, and increased transaction costs that this entails.

Unfortunately, Simpson forgets New Zealand’s history in forming additional national health bureaucracies. In the late 1990s we experienced the ill-fated and short-lived Health Funding Authority in conflict with the Health Ministry. The outcome was that the Authority was disestablished and its functions transferred into the Ministry (applied common sense). Interestingly the Ministry official responsible for managing the transfer Peter Hughes presently heads the Public Service Commission (formerly State Services Commission). The Prime Minister would be well-advised not to have a closed mind to his advice.

In 2009 Murray Horn undertook a review for then Health Minister Tony Ryall. It proposed a new additional national bureaucracy called the National Health Board with functions similar to Simpson’s Health NZ. Then Director-General Stephen McKernan argued against this instead advocating the NHB functions be incorporated into the Ministry. Ryall accepted McKernan’s advice largely on the grounds of cost (again applied common sense).

Simpson cites Finland and Norway as overseas examples of their NZ Health but gets its facts wrong. Neither country has the equivalent of Health NZ and that both their health systems are more decentralised than New Zealand’s presently is. How is it that such a momentous recommendation is based on such a poor investigation and, more so, how can it be taken seriously by the Government unless predetermination is the explanation.

The way forward

The way to rescue Simpson from Simpson can be found in Simpson itself; specifically the processes needed to make its recommended locality planning and national health plan work well. Simpson’s structural overhaul guarantees they won’t.

Locality planning

Although insufficiently explained a positive feature of Simpson in the proposed introduction of planning by localities. Local government boundaries would probably be practical for most localities. Locality planning would include population health needs assessment, unmet need, what services should be provided, new network services, and expected outcomes. Each locality would have an indicative budget based on the age, ethnicity and deprivation of its population and would establish service networks.

South Canterbury DHB greatly improved its engagement with GPs by a relational focus that removed structural impediments. Despite being ignored by Simpson (the positive experience of a small DHB was inconvenient for its proposal structural overhaul), it provides a good learning experience for locality planning.

The Kapiti Coast where I live provides an interesting example of the potential of locality planning. Prior to Simpson the District Council established a health advisory group to look at what and how health services here might best be provided and accessed. Already in its short existence it has chalked up a success by identifying a pocket of unmet need, enabled registration with a general practice, and then further enabled access to additional health services such as diabetes treatment.

But effective locality planning requires DHBs that know their populations well and who are not frustrated by top-down bureaucratic processes. It also requires unimpeded community voice. The more mega the DHB the further the distance between decision-makers and the community voice and consequently the greater the impediment to that voice.

National Health Plan

Simpson correctly highlights the lack of structured planning in the health system describing it as a fundamental flaw. This has not been the result of DHBs (or even the number of DHBs) but rather another example of central agencies that have failed to deliver on their key functions of creating the necessary policy constructs.

As part of an integrated planning system Simpson recommends the development of a national health plan (New Zealand Health Outcomes and Services Plan to give it its full title) that looks ahead for 10 to 15 years. Good work in this direction initiated by Stephen McKernan when Director-General of Health (but side-lined after Tony Ryall became health minister in late 2008) is drawn upon.

Simpson acknowledges that health systems take a lot of time to turnaround and the investment needed is often large and complex. Therefore a long-term plan would help enablers (including workforce, suitably equipped buildings and facilities, and information technology) being able to be in place in a more timely and effective manner.

The plan would contain a set of long-term outcomes and related performance measures which would then be integrated in the system’s planning and prioritisation. Its focus would be on hospital based services strengthening them through networks in order to best establish what services are provided where and how equitably taking into account access, clinical viability and financial sustainability.

Rescuing Simpson

The threat that Simpson’s structural overhaul creates for the health system and government credibility will occur when the rubber hits the road. How is a huge DHB based in Auckland or Hamilton going to sufficiently understand the community and hospital healthcare needs of respective populations of Northland and Gisborne/East Coast?

When a base hospital loses its local DHB what is under threat is the range of services that hospital provides because a distant bureaucratic centralist decision-making system will find that these are where big short-term financial savings can be made.

If the Government has the insight to rescue Simpson from Simpson and if it follows evidence, as it did when responding to Covid-19, it should reverse the order of its approach. It should drop the structural overhaul and instead first focus on cultural change through locality planning and the development of a national hospital plan based on good population needs analysis. The health system already possesses the expertise to make this happen.

When locality planning and the national health plan become firmly established then it would be appropriate to assess whether the current DHB set-up is fit for purpose.

If Government lacks insight and ignores evidence then the winners will be top-down bureaucratic decision-makers and the business consultants they will be inevitably drawn to. And in 2023 it will go into the general election with the current pressures and challenges facing our health system not improved but instead in an even worse state. Electorates can become unforgiving very quickly.


Ian Powell was formerly the Executive Director of the Association of Salaried Medical Specialists for over 30 years until December last year.  He is now a health commentator, editor of the blog ‘Otaihanga Second Opinion’, and based in Otaihanga on the Kapiti Coast.

This article can be republished under a Creative Commons CC BY-ND 4.0  license. Attributions should include a link to the Democracy Project.