Value for money and Health A Treasury perspective VFM Champions’ Conference 29 February 2008 © The Treasury

Outline of presentation • Fiscal and economic context • Long-term expenditure challenge • Unpacking ‘value for money’ • Responding to the VFM challenge

© The Treasury

Fiscal and Economic context

Treasury’s overall vision = higher living standards for all New Zealanders

• Health sector matters for wellbeing: – Effective health services mean lower morbidity and mortality

• Yet funding health services means doing without something else – implying choices and trade-offs © The Treasury

Fiscal and Economic context

Health services receive a large share of government spending

Core Crown expenses in 2007/08 - $56.1 billion

© The Treasury

Fiscal and Economic Context

How does NZ health expenditure compare with other OECD nations?

Total health expenditure as a share of GDP (2005) selected OECD countries

Total health expenditure per capita (2005) selected OECD countries Poland

Poland

6.2

Finland

$867

Spain

$2,255

Finland

$2,331

New Zealand

$2,343

Japan

$2,358

7.5

Japan

8.0

Spain

8.2

United Kingdom

8.3

OECD

9.0

United Kingdom

$2,724

New Zealand

9.0

OECD

$2,759

Sweden

9.1

Sw eden

Aus tralia

9.5

Canada

A ustralia

9.8

France

$2,918 $3,128

Canada

$3,326

France

$3,374

11.1

United States

15.3

United States

0

2

4

6

8

10

12

14 16 Percent of GDP

$6,401 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

$US PPP

Source: NZ Treasury, from OECD data, 2006

Source: OECD Health at a Glance, 2007

© The Treasury

Fiscal and Economic Context

Total health spending in NZ seems in line with OECD – given our level of wealth… y = 0.1009x - 252.66 R2 = 0.7716

7,000

Positive correlation between national wealth and total health expenditure per capita (2003)

6,000

Health expenditure per capita (US$ PPP)

USA 5,000

4,000

3,000

Aus t

2,000

NZ 1,000

0 0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

GDP per capita (US$ PPP)

Source: NZ Treasury, from OECD data, 2006

© The Treasury

Fiscal and Economic Context

…but the recent rate of growth in our health spending has been relatively high Average annual growth in real per capita health expenditure and GDP, 1995-2005

Source: Health at a Glance OECD, 2007

© The Treasury

Fiscal and Economic Context

What’s driving the growth in health expenditure?

• Demand-side pressures – Expectations as incomes rise – Growing burden of chronic disease – Demographics - an ageing population

• Supply-side pressures – Technology uptake and diffusion – Workforce remuneration and shortages © The Treasury

Long-term expenditure challenge

How much of our GDP will we be spending on publicly-funded health by 2050?

Publicly-funded health expenditure as a percent of GDP: scenarios 35

8.0% average annual growth scenario

30

Percent of GDP

25 20 15 10

Statement on LT Fiscal Position 5.8% average annual growth scenario

5 0 2005

2015

2025

2035

2045

Statement on the Long-term Fiscal Position 2006 © The Treasury

Long-term expenditure challenge

Recent rate of growth seems unlikely to continue…

“…current growth in health spending cannot be maintained without cuts in other areas or significant increases in tax rates – neither of which are tenable.” Minister of Finance Speech to the Business Budget Summit November 2007

• Appears reasonable, and prudent, to expect a more moderate rate of growth in future

© The Treasury

Long-term expenditure challenge

Long-term pressures mean increasing focus on obtaining value for money

• Increased spending on health requires trade-offs: more tax revenue, or relatively less for other priorities • Ministers need assurance of the value of spending on health (existing and potential) • Public need to see that resources are used well – if they are to support increases → Regardless of future decisions about the rate of growth in spending, value-for-money will continue to feature in debate about our health system © The Treasury

Unpacking VFM

What is value for money?

Achieving value for money in health broadly means… …making best use of the resources available for the provision of health services

© The Treasury

Unpacking VFM

More specifically, value for money in health care means…

• Doing things which maximise population health gain – the right quantity / quality / mix of activities within available resources • Using inputs (staff, supplies and assets) in a way which maximises outputs • Paying no more than necessary for inputs (within context of wider govt objectives, such as state sector employment policy) © The Treasury

Unpacking VFM

Components of value for money – a framework

Expenditure

Salaries and wages Clinical and non-clinical supplies Interest, capital charge, depreciation

economy

Inputs

Staff time

Outputs

Outcomes

quantity & quality

attributable to health care

GP consultations

Lives saved, life years added

Clinical and non clinical supplies

Outpatient attendances Hospital discharges

Services from equipment and facilities

Immunisations

productivity

Illness prevented Reduced impact of illness

effectiveness

value for money © The Treasury

Unpacking VFM

Measuring value for money is complex… but vital

• Requires measuring changes in system performance – to inform planning and improve decision-making • No simple indicators of value for money capture sector complexity – multiple data sources required to build picture of performance • But… complexity should not preclude ongoing efforts to develop quality of information across the sector

© The Treasury

Responding to the VFM challenge

How might we respond to a more moderate rate of spending growth?

• Striving for more value from existing resources: innovation will be vital in both provider-arm & community-based settings • Better quality monitoring of changes in system performance – both provider arm and community • Being clear about expected health gains from any allocation of resources

© The Treasury

Responding to the VFM challenge

Where are the value for money opportunities likely to lie?

No quick fixes but broad areas for focus include: ¾ Public positioning ¾ Clinician engagement in decision-making ¾ Addressing chronic disease burden ¾ Sharing innovation to reduce variation

© The Treasury

Responding to the VFM challenge

Getting better VFM means working smarter to get the best outcomes from available resources…

We need to know that we’re getting the most that we can out of the resources we’re putting into health… …because we need to get more, if tomorrow’s health system is going to be one that delivers what we want – at a price we can realistically afford.

© The Treasury