Health NZ, the statutory Crown entity which provides the bulk of New Zealand’s healthcare, declined to further break down the contracts’ value and volumes in order to protect commercial information it deems sensitive.
The details were disclosed under the provisions of the Official Information Act.
The six-year contracts mark a significant departure for the public health system.
Until recently, outsourcing elective surgeries to the private sector was common but generally ad hoc and relatively unplanned; the scale was also much more limited.
Critics warn that the long-term contracts with the private sector will bleed funds and staff from public hospitals, including limiting opportunities for surgical training, including for surgical registrars.
Mercy Hospital confirmed that its contract contains no training provisions. Allevia declined to make any comment to the Herald.
Southern Cross group chief operating officer, Mark Stewart, declined to say whether the contract provides for training; however, in a written statement, he noted that the company has a partnership with the New Zealand Orthopaedic Association and Health NZ to provide for orthopaedic registrars’ training in its facilities.
The Government is determined to push even further into private provision in an effort to reduce the long wait times for surgeries in the public system.
Private hospitals welcomed the move to long contracts and say these allow them to prepare and invest to meet the public system need.
To be clear, many of New Zealand’s private hospitals are owned by charities, including both Southern Cross Healthcare, the country’s largest private hospital network, and Mercy Hospital, Dunedin.
Allevia is owned by Healthcare Holdings and controlled through a 41% stake by interests linked to Sir Stephen Tindall. The interest is held through the Albert Park Trustee Company.
A further 30% of Healthcare Holdings is owned by limited partnerships tied to private equity firm Waterman Capital.
Richard Whitney, the CEO of Mercy Hospital, described the new contracts as a significant change and improvement.
In the period of District Health Boards, he said local public hospitals would contact his facility with very immediate, short-term requests to outsource surgeries.
“It wasn’t unusual for contact to be made at the beginning of the month and they’d expect procedures to be completed by the end of the month.
“What that didn’t allow, was for the private hospital to actually review its capacity to accommodate those patients, nor did it allow the public sector to have confidence that patient treatments would be undertaken within their expected timelines because there had been no discussions prior or agreements around how that would work,” Whitney told the Herald.
In those days, Mercy would treat public system patients if it could but often the hospital’s lists were full and treatment wasn’t possible, Whitney said.
In the past couple of years, Health NZ “panel agreements” with private hospitals have provided a more consistent framework for contracting, but the agreements for committed work that flowed from them was measured in months, not years.
Long contracts mean the hospital can plan for the volume of surgeries it will perform, including for Health NZ out to 2032, and in doing so it will invest in two new surgical units in the coming two to three years.
Each unit costs in the region of $7-$10m. The public contract won’t directly secure any debt needed for the expansion, but revenue is key to anchoring lending, and the Health NZ patients represent a very reliable and steady stream.
Likewise, both Southern Cross Healthcare and Allevia are either undertaking, or have recently completed, huge hospital expansions.
Private hospitals also contract with health insurers and the Crown’s Accident Compensation Corporation, known as ACC.
Targets
Improving health system performance against key targets, including reducing the elective surgery backlog, is an important aim for the current Government.
In March last year, Health Minister Simeon Brown directed Health NZ to make medium-term contracts with private providers a priority, and ultimately to move to long-term contracts, in the order of 10 years, to improve the cost and delivery of care by private providers, particularly the private surgical hospitals.
The most recent figures, to December last year, for the elective surgery backlog, show that 64.5% of patients wait less than four months for elective surgery, which is necessary but not an emergency.
It’s still a long way off the target of 70% set for June 2026, and of 95% set for 2030.
The critics
Dr Sharon English, chair of The Royal Australasian College of Surgeons, told the Herald in a written statement that she isn’t sure that long-term contracting with private hospitals will ultimately improve either surgical wait times or patient care.
She said that the only “long-term solution” to improving access to care is supporting and funding the public health system and that the contracts with private providers may draw resources away from public hospitals.
In a written response to questions, Labour’s health spokeswoman, Ayesha Verrall, said the move accelerates the privatisation of the health system and could create a two-tiered system.
She said patients requiring more complicated and risky procedures were left to the public system and these risked exhausting staff and creating even longer wait times.
Asked if Labour would roll back the approach if given the opportunity, she said only that private providers “have a role” in the health system, but “entering into long-term contracts such as these suggests that this is not a temporary solution, but a privatised model”.
Brown called the long-term contracts a “first step” for HNZ with which he’s pleased.
He said the long duration agreements allow HNZ to drive down the outsourced price it pays per procedure and also to tackle long surgical wait times for patients.
Brown said HNZ is working on long-term agreements for surgery in ophthalmology and he expects it will also pursue them in the area of ear, nose and throat.
Separate from the contracting, the agency is working to extend surgical training to private hospital settings, Brown said.