Who’s going to pay for new hospitals?

On July 1, the new body replacing the district health boards (DHBs), Health New Zealand, will become one of the country’s largest property managers. New Zealand has 83 public hospitals. A 2020 Health Ministry report put the replacement value of the assets managed by the 20 DHBs at $24 billion.

The report noted many main hospital campus buildings were at the end of their useful life.

Also in 2020, the Heather Simpson-led report into the health and disability sector estimated that $14b would need to be spent on health infrastructure investment over the following decade.

This figure did not include repairs, maintenance, and ICT (another area where outdated and inadequate systems are commonplace, as demonstrated by the 2021 ransomware attack on the Waikato DHB).

Two months ago, a report from the New Zealand Infrastructure Commission, Te Waihanga, concluded the Simpson report’s estimate, which was based on 2018 figures, was out of date. The review suggests the Crown will need to stump up some $20b over the next 10 years to address the current infrastructure deficit.

‘‘Years of under-investment in hospitals and other public health facilities across New Zealand mean that many are no longer fit for purpose, making it difficult to introduce the new models of care that Government intends,’’ said Blake Lepper, GM Infrastructure Delivery at Te Waihanga.

This past week’s Budget set aside $1.3b to fund priority health infrastructure projects over the next five years. That is on top of the $586 million allocated in last year’s Budget to just two projects: the redevelopment of Whanga¯ rei hospital and the construction of a new mental health unit at Canterbury’s Hillmorton.

Given the many calls on the health vote, from medicines to mental health, it is surely worth questioning whether large capital projects are best funded by the Government, or whether there is a better way.

The Government and its agencies have been bold in outlining the challenges faced by the healthcare sector, including the need to improve the quality of capital funding decisions, asset management and longterm investment outcomes.

Agree or disagree with it, the decision to replace 20 DHBs with two national agencies is a bold move. However, when it comes to managing healthcare infrastructure, the Government’s approach has been to modify the status quo.

The capital investment committee will continue to advise the Ministers of Health and Finance on the prioritisation and allocation of funding for capital investment and health infrastructure. Current committee members are extremely able and well qualified for their role. However, the committee is established by the minister of health, can be terminated by the minister of health, and ‘‘consists of such members as the minister determines’’.

The cabinet paper setting out the proposed reforms asserted, somewhat optimistically, that ‘‘the integration of hospitals into Health NZ will enable improved planning, supply chain, procurement and asset management’’ and that a national service planning view ‘‘should drive capital savings … and a more robust consideration of the tradeoffs between operational and capital investment’’.

That more robust consideration will not be brought about simply by structural change. It requires specialist expertise – something the Simpson report recommended should be developed by the health investment unit, which will become part of Health NZ. That specialist expertise already exists in the New Zealand private sector.

The dual public-private system is well entrenched in New Zealand healthcare, but greater use could be made of private sector expertise for procuring, developing, owning and managing healthcare infrastructure.

DHBs have long relied heavily on the private sector to provide services such as diagnostic imaging and surgical procedures. That is widely accepted as an economically effective way to provide better services to more patients and to meet urgent needs.

Surely it makes even more sense to involve specialists in non-core business activities like property ownership and management. Involving partners from the private sector in developing and maintaining property infrastructure would ensure a clear separation between capital management and operational management – and improve the outcomes in both areas, benefiting healthcare professionals, patients and taxpayers.

It is surely worth questioning whether large capital projects are best funded by the Government.