The government’s legislative overhaul of New Zealand’s health system, passed this month, makes “timely access to quality healthcare” a core statutory purpose.
The Healthy Futures (Pae Ora) Amendment Act removes previous provisions that focused on engaging with and meeting the needs of Māori and places a stronger emphasis on health targets and the outsourcing of care to private providers.
Behind this new instruction to Health New Zealand to work with private healthcare providers lies the reality that private-equity owned corporations are already playing an ever-increasing role in the healthcare system.
For example, an estimated quarter of general practices are now owned by large corporates such as Tāmaki Health and Green Cross Health.
Community laboratory testing is dominated by private services, with one corporate alone, Awanui, accounting for about three quarters of community testing . Similarly, about a fifth of dental services are owned by corporates.
In healthcare, as elsewhere, the form of ownership matters a great deal.
Private equity corporations use capital from institutional investors and from wealthy individual investors, along with high levels of debt, to buy healthcare services.
There are implications of increased corporate ownership for both access to and quality of healthcare services.
Ownership models
Already there is considerable participation of private corporations in New Zealand’s healthcare system.
There are four main forms of ownership in New Zealand’s health system: public (e.g. public hospitals), private for-profit (e.g. private radiology services), private non-profit (e.g. some general practices) and an emergent type of iwi (tribe) and Māori ownership that shares some features in common with the other three.
Sometimes the distinctions are more theoretical than real, but nevertheless, often there are important and very real differences. For example, public hospitals have a strong record of serving families with high health needs regardless of their financial means .
The distinction between locally-owned private for-profit providers (many general practices) and private equity-owned corporates is important. The former are embedded within and have long-term relationships with their communities. The latter tend to have the singular aim to return a dividend to their shareholders and often have no long-term commitment to their communities.
The risks and benefits of corporatisation
The acquisition of health services by private equity owned corporations is typically financed by debt. The modus operandi is often to buy, using the health service to be acquired as security, increase profits through cost cutting (often through reduced staffing), increase prices, aggregate market power, avoid the provision of unprofitable services and then sell after a relatively short time.
For example, it was reported recently two corporations have made purchase bids on practice networks that are already corporately-owned. If the deals go ahead, they would control more than 15% of New Zealand’s general practices.
The need for rapid revenue growth means that typically services are acquired, costs cut and assets stripped and the service sold for profit over a period of a few years, often at the cost of quality of patient care.
The international evidence on the impacts of private equity ownership on the quality of care and health outcomes comes largely from the US. It is mostly, but not exclusively, negative , and remains inconclusive for some measures.
The evidence raises several warning flags , including:
- Cost cutting
- unnecessary profit-generating procedures
- worse health outcomes
- fewer highly qualified staff and high staff turnover
- preference for low-risk patients
- service closures
- loss of autonomy for health professionals
- loss of transparency and public accountability.
The policy gap
Successive New Zealand governments have been silent on regulating corporate ownership of healthcare services and on how widely to open the door to overseas-owned corporates.
This represents a marked contrast with New Zealand’s much more discriminating policies about ownership of sensitive land assets, for example.
The Overseas Investment Office has a general test for any overseas private equity investor being a fit and proper person or entity when they invest in a New Zealand business asset. A national interest test is mandatory for some types of investment, including significant businesses and sensitive land other than farms.
But this is nothing like the degree of specific testing of risks and benefits when an overseas investor wants to buy a dairy farm, in which elevated criteria of economic benefit to New Zealand are applied.
In some cases the bar is lower for international private equity interests to purchase and run a chain of local general practice clinics, or a community lab testing business, than it is for them to purchase a single residential home .
Corporate ownership of healthcare services matters for people who use healthcare services and those who pay for them.
New Zealand’s policy silence about forms of healthcare ownership represents a significant gap in policy making and a lost opportunity to address a sustainable, accountable future of the public health system. We need wide and informed debate about the future of corporate ownership of our healthcare services.
