GUEST BLOG: Ian Powell – Funding general practice in New Zealand


Universal public healthcare in New Zealand was enabled by new ground-breaking social security legislation in 1938 under the first Labour government. It has been the foundation for our health system ever since aside from a failed ideological market experiment in the 19900s.

Although this was a remarkable achievement, this didn’t lead to unified structures and funding mechanisms across the spectrum of health from community to hospital. Largely due to the opposition of privately owned general practices to being ‘nationalised’, a compromise was reached requiring different governance structures and also different funding mechanisms.

As an aside, in those more colonial days medical representation was different. There was no New Zealand Medical Association. Instead there was a branch of the British Medical Association which was a vociferous opponent of the implementation of a public health system. Consistent with this hardline position the BMA also vociferously opposing the introduction of the National Health Service in the United Kingdom a decade later. But, today, there is no stronger supporter of the NHS than the BMA including opposing privatisation initiatives.

Current funding of general practice

Prior to the formation of district health boards (DHBs) in 2001, general practices were funded by the Ministry of Health through a Crown entity called Health Benefits Ltd. With DHBs assuming responsibility of the whole of healthcare (community including primary and hospital) for their geographically defined populations, funding for general practices and other primary care providers was devolved to DHBs. (HBL was left to hibernate until resur rected by then Health Minister Tony Ryall for an inglorious attempt to be a national shared services agency for DHB support services, but that’s another story.)

This led to the current system where funding for primary care goes to DHBs which then apportion it to PHOs, which in turn fund general practices through capitation and other non-government primary providers based on the number of patients registered and their health needs.

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The Heather Simpson-led review of the health and disability system didn’t signal major changes to the funding of primary care, in that its structural approach involved continuing with the DHB system of covering both community (including primary) and hospital care but with fewer “mega” DHBs. However, Health Minister Andrew Little has changed all that with the Government’s left-field intention in his April white paper to abolish DHBs and return to separate structures for primary and hospital care.

The decision to abolish DHBs was most likely only developed this year. The Simpson review never even discussed it. Consequently, little substantial planning on new structures for both hospitals and primary care would have been undertaken before the minister’s announcement.

The Simpson review proposed DHB-supported localities undertaking locality planning to replace the Primary Health Organisations (PHOs). Minister Little similarly envisages locality networks presumably supported by the new ‘Health New Zealand’ (working title only) and its four regional offices.

But there is no appreciation of what might comprise a locality network. They were only briefly discussed in the Simpson review. Little has been said on locality networks since Little’s announce ment. One thought, expressed hypothetically, has been a population size of around 100,000 which would suggest about 50 networks.

Whether around 50 becomes the number of locality networks or not, it is likely to exceed the current combined number of DHBs and PHOs, but what their infrastructure support, capacities and capabilities might be seems to be a blank. It might mean that PHOs remain given the potential vacuum. Certainly, General Practice NZ has quickly and adroitly positioned itself to advocate for the continuation of PHOs in some form and has the minister’s ear.

Returning funding to its national origins

It may well make sense in this poorly thought-out restructuring for general practice funding to return to its national origins, although through ‘Health NZ’ rather than the Health Ministry, with funding going directly to practices and other primary care providers.

The Government has created a dog’s breakfast by moving to abolish DHBs without sufficient consideration of alternative struc tures and systems, and for unintend ed consequences. A more streamlined, national funding mechanism for general practice might help GPs’ digestion.

In fact, I would have advocated seri ous consideration of returning to a national general practice funding system had DHBs continued. Based on the most scientific survey possible (of one GP – mine) there are arguably unnecessary extra transaction costs in the current system. He described the mechanism as central govern ment distributing primary care funding to DHBs who then passes on to PHOs who in turn forward it on to a contracted company to pass on to practices.

Interestingly, a few years ago, South Canterbury DHB streamlined the process by cutting out the PHO and its contracted company, thereby reducing transaction costs and improving both efficiency and goodwill between the DHB and the local gener al practices. But the Government has chosen to ignore that grassroots success. It didn’t square with its paradigm.

[This is a slightly revised version of my column published by New Zealand Doctor on 23 June 2021]

Ian Powell was Executive Director of the Association of Salaried Medical Specialists, the professional union representing senior doctors and dentists in New Zealand, for over 30 years, until December 2019. He is now a health systems, labour market, and political commentator living in the small river estuary community of Otaihanga (the place by the tide). First published at Otaihanga Second Opinion.


  1. Very intetesting Ian.
    You say the NHS model in UK has the support of the BMA; what is the major difference between the NHS and our GP funding model?
    It seems to me our current model is unfair with free treatment at A&E and sometimes prohibitively expensive treatment at private clinics – this causes huge pressure on A&E departments.

  2. Ian your articles on healthcare are always interesting.

    Re HBL – on the face of it, different DHB’s implementing widely different back end systems for e.g. HR, payroll etc, makes no sense and this should be centralised as it’s the same across the whole system. But I’m guessing the usual combination of technical and managerial incompetence in healthcare killed it.

    I’d be keen to hear your views on why the HBL shared services model failed.

    • HBL in the main failed (not in everything such as consolidating banking) because it was too top-down and without sufficient expertise at a governance level at least. Its proposals were too arbitrary thereby creating financial risk for DHBs who managed to provide a brake to some of it such as food and laundry. A national payroll system would only work if you had similar rosters and shifts in all of the DHBs but the high variability of population sizes and health needs prevents this.

  3. Campaigners demand judicial review of NHS deal with Peter Thiel’s AI firm Palantir
    Report says CEO sipped watermelon cocktails with NHS England chief at cosy party

    Palantir and UK policy: Public health, public IT, and – say it with me – open public contracts
    Nope, COVID-19 is not a catch-all excuse for backdoor deals

    “The news that openDemocracy is calling for a legal review of Matt Hancock’s allegedly illegal deal with Palantir is a sign of two things: that things have gone wrong and are going wronger in government health policy; and that there are still ways to start to put it right.

    Health minister Matt Hancock last week was found by a High Court judge to have acted unlawfully [PDF] and to have made a “transparency breach” by failing to publish details of contracts within 30 days. His excuse, no defence in law, was that things were happening really quickly and did we want to all die while he filled in some pettifogging forms? No, Mr Hancock, we wanted to live and we wanted you to fill in the pettifogging forms. Hire more people. Do your job. Follow the law.

    We know that doing things in an emergency at unprecedented speed does not mean breaking the rules.”


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