Health Policy Monitor
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Increased use of private hospitals

New Zealand
Partner Institute: 
The University of Auckland
Survey no: 
(14) 2009
Toni Ashton, CHSRP
Health Policy Issues: 
Role Private Sector, System Organisation/ Integration, Access
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes no no no no


On 24 June 2009, the government amended protocols which set out the circumstances under which District Health Boards might purchase publicly-funded medical and surgical services from private sector providers. The objective is to encourage greater collaboration between the public and private sectors in the planning and provision of services, thereby maximizing use of available capacity and improving access for patients.

Purpose of health policy or idea

District Health Boards (DHBs) are responsible for either purchasing or providing services for the population living within their district. Because DHBs own the public hospitals, most publicly-funded hospital services are provided in these public hospitals. Around 6% of planned (non-urgent) publicly-funded operations are currently purchased from private hospitals. However, these are usually purchased through short term, spot contracts, often as a means of spending excess funds towards the end of the financial year. The government now wishes to encourage "smarter use" of the private sector by encouraging DHBs to engage with private providers in planning services and in developing longer term contracts. The overall aims are to improve the use of available hospital capacity, to improve efficiency of service delivery, and to reduce waiting times by increasing access for patients.

Main points

Main objectives

Improve access to and efficiency of hospital services.

Type of incentives

The policy does not include any special financial or non-financial incentives for DHBs to increase their use of private hospitals.

Groups affected

District Health Boards, Private hospitals, Surgeons and other specialists

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Characteristics of this policy

Degree of Innovation traditional rather traditional innovative
Degree of Controversy consensual controversial highly controversial
Structural or Systemic Impact marginal rather marginal fundamental
Public Visibility very low very low very high
Transferability strongly system-dependent rather system-neutral system-neutral

Political and economic background

A new center-right government came into power in November 2008 following 9 years of government by a center-left coalition. A key plank of the health policy of the senior coalition partner, the National Party, was to "Support the smart use of the private sector to increase the number of people getting timely access to vitally needed surgery, and reduce hospital waiting lists" (National Party, 2008). Towards this end, the government changed the protocols which provide guidance to DHBs about the circumstances under which they might purchase services from private sector providers. The new protocols remove a requirement that: "in respect of hospital-based services, publicly-provided services are preferred, all other things being equal". It also releases DHBs from requirements to (a) include any proposals for a significant shift of services from a public to a private provider in their annual and strategic plans, and (b) consult with the relevant health professionals about the proposed change. Any significant shifts to a private provider will, however, still be subject to approval by Ministers. DHBs must also ensure that such shifts do not threaten the long-term viability of their remaining services.

Change of government

In November 2008, a center-left government was replaced by a center-right government which has a stronger belief in the potential efficiencies associated with markets and private sector provision.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes no no no no

Origins of health policy idea

During the 1990s, a purchaser-provider split (or an internal market as it was called in the UK) was introduced into the New Zealand health system. Under these arrangements, in theory at least, public and provider providers would be treated equally, with the most efficient providers being awarded contracts to provide services. In practice, the incumbents won most of the contracts. This meant that public hospitals continued to provide most publicly-funded hospital services as they had done prior to the reforms. There were a number of reasons for this, including the fact that many private hospitals were not interested in providing services to public patients and so did not bid for contracts.

In 2000, the New Zealand health system was once again restructured, with 21 DHBs being established to undertake the roles of both purchaser and provider. The center-left government of the day indicated that, under this regime, public provision was preferred whenever possible.

The re-election of a center-right government in 2009 means that private hospitals are once again viewed as an acceptable alternative to public hospitals. It remains to be seen whether or not this policy will lead to a greater use of private hospitals than it did in the 1990s.

Initiators of idea/main actors

  • Government: This policy was part of the National Party's 2008 election manifesto.
  • Providers
  • Payers
  • Political Parties

Approach of idea

The approach of the idea is described as:
renewed: Freedom of choice of providers was central to the quasi-market system that was in place in New Zealand from 1993 to 2000.

Stakeholder positions

Anecdotal evidence suggests that District Health Boards are generally pleased to be given more flexibility in their purchasing decisions. However they have some concerns about the lack of data available about, for example, relative prices and private sector capacity. They are also acutely aware of the need to prioritise elective surgical procedures with other, more pressing, demands on their budgets.

In New Zealand, specialists can choose to share their time between working in the public and private sectors. This provides them with an opportunity to supplement their public sector salaries with private, fee-for-service payments. Thus it seems likely that specialists who split their time between the two sectors are likely to support this policy. However, the Association of Salaried Medical Specialists, which represents specialists working in public hospitals, has expressed concerns about the policy on the grounds that it will increase the demand for specialists in the private sector and so may further limit the supply of specialists for the public system where retention of senior medical staff is already problematic.

The Green Party, which is currently in opposition, has also criticised the policy on the same grounds. In addition, they argue that contracting out of services by DHBs ignores opportunities for greater collaboration among DHBs to better utilise existing spare capacity.

The Private Surgical Hospitals Association has expressed its support of this policy (Private Surgical Hospitals Association, 2009). However it's primary interest appears to be in opportunities for increased private financing of health services, rather than increased private provision of services that are publicy funded.

Actors and positions

Description of actors and their positions
National Partyvery supportivevery supportive strongly opposed
District Health Boardsvery supportivesupportive strongly opposed
Private Hospitalsvery supportivesupportive strongly opposed
Association of Salaried Medical Specialistsvery supportiveopposed strongly opposed
Specialistsvery supportivesupportive strongly opposed
District Health Boardsvery supportivesupportive strongly opposed
Political Parties
The Green Partyvery supportivestrongly opposed strongly opposed

Actors and influence

Description of actors and their influence

National Partyvery strongvery strong none
District Health Boardsvery strongvery strong none
Private Hospitalsvery strongneutral none
Association of Salaried Medical Specialistsvery strongneutral none
Specialistsvery strongweak none
District Health Boardsvery strongvery strong none
Political Parties
The Green Partyvery strongweak none
National PartySpecialistsPrivate HospitalsDistrict Health Boards, District Health BoardsAssociation of Salaried Medical SpecialistsThe Green Party

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

The extent to which DHBs purchase more services from private hospitals as a result of this policy announcement depends on many factors such as: their capacity to supply adequate services in their own public hospitals, the price that they are able to negotiate with private providers, their relationship with private providers, and the impact of outsourcing on their training needs. The policy is likely to be more relevant to DHBs in the larger urban areas where (a) there is more pressure on the public hospitals and (b) there are more choices of private providers.

Expected outcome

The potential benefits associated with DHBs purchasing more elective surgical services from private providers include: increasing the number of people treated, reducing public hospital waiting times, improved utilisation of existing spare capacity across the two sectors, greater collaboration between the two sectors, and reduced prices. At the same time the policy carries a number of risks. These include the possibility that the private sector will be more costly than the public sector; the size and nature of any additional transaction costs associated with contracting out; increased pressure on the public sector workforce if health professionals spend more time working in private hospitals; the effects of different pricing mechanisms on access to services; and potential impact on the financial viability of services provided by some of the smaller public hospitals. If the policy is to be successful, the DHBs will need to be alert to these - and other - potential risks. They will also need to be willing and able to withdraw from the process if the risks are considered to outweigh the benefits.  

Impact of this policy

Quality of Health Care Services marginal neutral fundamental
Level of Equity system less equitable two system more equitable
Cost Efficiency very low neutral very high

While this policy may secure more timely access to services, there is some concern that the easier, less costly patients would be treated privately, leaving the more complex and more costly cases for treatment in the public hospitals. If this occurs, it could make the system less equitable.


Sources of Information

  • National Party. 2008 Health: Waiting lists. Accessed 30 August 2009.
  • Ryall, T. Public Hospitals to Make Smarter Use of the Private Sector. Press Release. June 29 2009.
  • Association of Salaried Medical Specialists. Repairing the 'Leaking Bucket'. A paper to the Commission on Competitive and Sustainable Terms and Conditions of Employment for Senior Medical and Dental Officers employed by the DHBs. January 2009.
  • Private Surgical Hospitals Association. A Balanced Healthcare System for New Zealand: Public and Private Sectors Working Together Cooperatively and Collaboratively. Press Release. 24 June 2009.
  • Hague, K. Ryall Undermining Public Health for Private Gain. Press Release. July 28 2009.

Author/s and/or contributors to this survey

Toni Ashton, CHSRP

Suggested citation for this online article

Toni Ashton. "Increased use of private hospitals". Health Policy Monitor, October 2009. Available at