Economy 'held back by health spending'

As procedures such as robotic-assisted operations become more mainstream, the demand for them increases.

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Healthcare costs are out of control and will become a major drag on the economy unless we make some tough decisions, says the author of a new study submitted to the Health Ministry and Treasury last week.

"What we've got is a ball and chain around the New Zealand economy," said Paul Winton, principal of consultancy firm Temple Capital Investment Specialists.

"It's similar to the story of the boiling frog it's something we'll probably only realise too late."

Winton's analysis, "Health, New Zealand's untreated addiction", follows a report from a ministerial review group headed by former ANZ bank chief Murray Horn and underscores its central theme spending on healthcare is growing at an unsustainable rate.

But if anything, says Winton, the ministry underestimates the scale of the problem.

"The changes [recommended] in that report, while they appear significant, are only scratching around the edges," he said.

Public-sector health spending is about $11.3 billion and accounts for 20% of the core Crown expenses budget. Winton estimates private-sector spending and other costs such as training and environmental controls add a further $8b, meaning health spending is equivalent to about 9% of GDP. Over the last decade this expenditure has been growing at twice the rate of GDP growth.

"At this rate in 2026, spend will be $30b higher in real terms and account for [about] 40% of government core spend, twice the current load of healthcare on the tax system," Winton said.

"And if we are spending more of our money on health we are not spending it on things that are the underlying drivers of the economy."

The analysis reveals the major contributors to healthcare spending growth are not the usual suspects of bureaucracy and an ageing population, but rather the ever-increasing scope of treatments available, combined with the rising cost of medical products and wages for healthcare professionals.

"People talk about the massive, bloated Health Ministry, but it's only 1.9% of total spend," said Winton. "You could get rid of everybody tomorrow and the spend would be back up there by Christmas."

First cab off the rank for change should be the centralised procurement of medical goods, from latex gloves to dressings, pumps and wheelchairs, he said, echoing a recommendation of the Horn review.

The idea is to mimic the success of the government's drug buyer Pharmac, which has kept a firm lid on pharmaceutical spending since its creation in 1993.

This is likely to be unpopular in some circles. The Medical Technology Association, representing manufacturers, importers and distributors, was last week quick to dismiss the idea of a Pharmac-style procurement agency.

"Pharmac has looked at it before and concluded that it involves far greater complexity and costs than just buying a pill. Innovative medical devices cannot simply be replaced by a generic model to save money. You would just be buying cheap, old technology," said its CEO Faye Sumner.

One of the companies involved in medical device supply to the healthcare industry is Christchurch-based Ebos, a stockmarket darling enjoying a share price high after announcing record profit of $20m on Friday.

Winton said the result was "driven by the 12% real, 14% plus nominal growth in this sector we identified that is largely unmanaged. Great if you're an investor not so if you're a taxpayer."

A close companion of device-cost blowout is the growing multitude of treatments available the more treatments are supplied, the more are demanded. Examples include heart transplants and fertility treatments, where technology has allowed once-rarified techniques to become relatively mainstream.

This was the biggest single contributor to cost growth in the last decade, said Winton, and managing that means tough decisions.

"If we simply put a cap on [spending] we don't have a framework for how those new treatments are going to be introduced. The fight becomes around minutiae rather than a considered debate around the issues.

"If we do manage to crack this nut, that gives us a relative economic advantage."

The alternative was a game of political football in which the people with the best public relations teams got the most goals, said Winton, citing the case of cancer drug Herceptin in which Pharmac's clinical judgement on funding was overruled by Prime Minister John Key after a public relations campaign.

However, the political sensitivity of this debate will make it tough for any government to come out and say it will not increase health spending. Health Minister Tony Ryall in January committed the government to continue the growth in health spending set out by the previous government and said the purpose of the ministerial review was "improving frontline health services not reducing the health budget".

- © Fairfax NZ News