What would you expect a minister of health to do if presented with a report by respected researchers that raised serious questions about the quality of health spending?

More precisely, a report that found the unit costs of hospital services had gone up by 18 per cent in real terms in the five years to 2006, while hospital productivity - the volume of services produced per person employed - had gone down by 8 per cent.

You might assume that the minister's first reaction would be to read and understand the report, ask the Ministry of Health to investigate and verify the findings, and invite the researchers in for a discussion.

Not so the reaction of former Health Minister David Cunliffe. He dismissed the report as "silly" and launched into an ideological rant about privatisation of health.
 

The report, Productivity Performance of New Zealand Public Hospitals 1998/99 to 2005/06 (available at www.nzbr.org.nz), was the work of former secretary to the Treasury and former chairman of the Health Funding Authority Dr Graham Scott, and former Ministry of Health manager of information Mani Maniparathy. It was part-funded by the New Zealand Business Roundtable.

The study built on and extended work by the Treasury and the Ministry of Health into public hospital efficiency and productivity.

A 2005 Treasury report found that hospital efficiency had declined by 7.7 per cent from 2000-01 to 2003-04 when it had increased by 1.1 per cent in the previous three years.

The Treasury study measured efficiency by comparing the growth in costs, after allowing for inflation, with the volume of services produced. The Scott/Maniparathy study recalculated that measure and extended it over two more years, which confirmed the Treasury's findings and showed that hospital efficiency continued to fall.

That measure of efficiency was influenced by salary increases in the period studied. To remove this effect, the latest study also calculated the volume of hospital services divided by the staff numbers employed.

This is a standard measure of labour productivity, and produced the finding that labour productivity in public hospitals fell by 8 per cent (with a fall of 15 per cent for medical personnel and 11 per cent for nurses).

Thus the former minister's response that salary increases were needed to attract and retain health professionals is irrelevant to the productivity findings. Nor are the findings related to how hard doctors and nurses work.

The research goes no further than analysing trends in productivity and unit costs of services.

Explanations by David Cunliffe were unconvincing. He pointed out that the Labour-led Government invested in primary healthcare and hospital infrastructure, but such investments should cause hospital productivity to go up, not down.

He claimed more front-line professionals have been employed, but then why has their average output decreased? As well, many more administrators and board members have been employed. Are they lowering average productivity?

Fragmentary evidence from the Ministry of Health presents a mixed picture with two quality measures showing improvement and two no change, and no causal effect between quality measures and the decline in productivity has been established.