Peter Crampton, Professor of Public Health, University of Otago, Gabrielle McDonald, Senior Research Fellow in Public Health, University of Otago
The government’s recently announced new health funding formula for general practices aims to better distribute funding according to patient needs.
We welcome the update, to take effect from July next year, and the government’s commitment to reviewing the funding formula regularly.
However, the new formula remains incomplete.
The government accepted expert advice to include factors such as rurality, morbidity (the level of sickness) and socioeconomic deprivation (poverty), but it modified recommendations and left out ethnicity.
Matching funding with need
The public health system strives very hard to match the level of funding to people’s need for healthcare services. Communities with the most need should of course receive the highest level of public funding.
Since the early 2000s, the formula has been the main funding mechanism for general practices providing primary healthcare and related services. It is used to allocate money to individual general practices based on the characteristics of the patients enrolled with each practice.
Over the past 20 years, there have been many calls for the formula to be substantially overhauled and to include not only age and sex, but also other factors that affect healthcare needs.
It was acknowledged when the formula was first set up 25 years ago that ethnicity and poverty should be included because they are powerful indicators of need. But back then, the necessary data were simply not widely available.
Despite these calls and various reviews and technical reports, as well as better data, changes to the formula were only minor and incremental.
Then, in 2022, the government commissioned the Sapere consultancy firm to carry out a thorough analysis. This report concluded a new formula should be implemented that includes age, sex, ethnicity, socioeconomic deprivation and morbidity.
Ignoring ethnicity leads to poor policy
Up until the most recent announcement, we expected the government to implement a state of the art, fully fit-for-purpose formula. But the government chose to change it in an unexpected way by removing the ethnicity funding factor.
For context, the government acknowledged the importance of needs-based funding in its cabinet circular in September last year. The circular directed all public services to adhere to the principles of needs-based funding and service provision, acknowledging that funding for a particular ethnic group is justified as long as there is evidence of need.
Extensive epidemiological evidence from the past 30 years tells us the need for health care of Maori and Pacific populations is very high, and is driven not just by poverty but also by the added disadvantages they face in New Zealand society.
Life expectancy, for example, is seven years less for Maori and 6.9 years less for Pacific people compared with people who identify with European or other ethnicities.
Another glaring example is that for a variety of cancers, Maori registrations and death rates are higher than they are for people in other ethnic groups.
By excluding ethnicity, the funding formula fails to properly reflect the underlying patterns of health need. This leaves us with an inferior formula because it does not take account of the measured health needs of Maori and Pacific families and communities.
Sadly, we are not a colourblind society, and some ethnic groups are systematically disadvantaged compared with others, resulting in poor health outcomes.
These differences persist when poverty is taken into account. In epidemiological terms, ethnicity is one of the best indicators of need for healthcare.
Aside from reducing the effectiveness of the formula, the omission of ethnicity sends the misleading message that it is not important and has no place in health funding. Nothing could be further from the truth.
The government’s focus on blanking ethnicity is undermining the foundational principle of matching health dollars with need. This is poor public policy.
Instead of the partial formula that was announced, we argue for a complete, evidence-based mechanism to fund general practices – in keeping with the government’s own stated objective of needs-based funding, supported by evidence.
Peter Crampton has been involved with capitation funding formula design since its inception 25 years ago, as a member of technical advisory groups for the Ministry of Health and Te Whatu Ora. He receives funding from the Ministry of Health and the Health Research Council.
Gabrielle McDonald does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
