The Riseand Fall of a Crown Entity: A Case Study of the Public Health Commission
by Todd Alan Krieble 1996
submitted for the Degree of Master of Public Policy at Victoria University of Wellington November 1996 Preface
I have written this paper because it needed to be written and it needed to be written for two reasons. People working in the health system, in my view, can benefit from a much greater understanding of the nature of Crown entities, on which the current health system is built, and in particular how this influences governance and management. Secondly, those responsible for designing institutions can benefit from an increased understanding of the nature of public health and how best to organise for it.
Having worked for the Department of Health prior to the 1993 reforms, with the Public Health Commission during its short life, and now back in the Ministry of Health I am convinced that there is no one right way to organise the machinery of government. There are, however, some important design principles to consider. The architectural design of the state is too important to the welfare of the citizenry to be drawn up in haste. Even the best master builder is unable to remedy serious design flaws. And as for the occupants and users - well - they have to live, work and otherwise interact with it, which sounds like a very good reason to have some input.
I am indebted to my supervisor, John Martin, for his guidance. I would like to sincerely thank Gay Keating for her comments, and Jim Brumby, Warwick Brunton, Gillian Durham, Michael Hyndman and David Skegg for granting me interviews and for their comments. I would not have written this paper without the encouragement and support of Annette Dixon, Gillian Durham and David Lambie as my employers during the last three years. The views expressed in this paper are of course my own and cannot be taken to represent the views of the Public Health Commission or the Ministry of Health.
Lastly, and most importantly, I would like to thank my family for their patience and understanding.
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11 The Rise and Fall of a Crown Entity: A Case Study of the Public Health Commission
Table of Contents
Chapter Subject Page
1 Introduction 1
2 Theoretical Framework 7
3 Rationale for the Public Health Commission 29
4 Experience of the Public Health Commission, 1992-1995 39
5 Analysis and Discussion 48
6 Conclusions 61
Appendices
Appendix 1 Crown Interest in Public Sector Organisations 64
Appendix 2 The Public Health Policy Community 65
Appendix 3 Public Health Organisation, 1992-1996 66
Appendix 4 Public Health Commission 70 Establishment and Board Membership
References 71
N Chapter 1 Introduction
Purpose of the Research
The purpose of this research is to examine the case for and against the Crown entity form of institutional option for the provision of:
• public health intelligence (analysis and monitoring of the state of the nation s -} health); • public health policy advice; and • purchasing of public health services.
• This paper is concerned with the public health function within the machinery of government. Public health in this context is defined as the health of the population and is discussed more fully at the beginning of Chapter 3. A Crown entity can loosely be described as a public organisation which is not a government department under direct ministerial control but which is subject to accountability requirements under the Public Finance Act, 1989 and is listed in Schedule Six of the that Act. Crown entities are discussed further in Chapter 2.
The particular case of the Public Health Commission (PHC), established in July 1993 and effectively disestablished in July 1995, will be examined. The key research question to be addressed is: was the PHC the optimal model for discharge of its functions? The research results expected will add support either for or against the Crown entity form for the public health functions. This research will draw on institutional design theory and interest group theory for an analytical framework.
The literature on the experience of Crown entities is relatively small. It is hoped that this review of the case of the PHC will add to the knowledge base for thinking more generally about Crown entities in New Zealand.
The prehistory of Crown entities
Crown entities, as defined in terms of the Public Finance Act, 1989 are in direct line of descent from the category of institutions often referred to in the international literature broadly and perhaps imprecisely as quasi-autonomous non-governmental
1 I organisations or quangos . Two seminal pieces of work are of note.. The Carnegie Corporation sponsored Anglo-American Accountability Project of 1967-73 was made I up of a series of empirical studies which examined the tensions between independence and accountability in the organisation of some state functions. One I of the results of this project was a clearer classification of the types of organisations in the private-public continuum. Hood and Mackenzie (1975). classified these I organisations as being government, quasi-government, quasi-non-government and non-government. This classification gave rise to the term quango which was used to I refer to all types of non-departmental governmental bodies and remained in popular use through the 1980s.
The second seminal project originates from the United Kingdom in a 1980 report by Sir Leo Pliatzky a former senior Treasury official. Pliatzky produced a report for the I then Prime Minister (Mrs Thatcher) on 489 non-departmental government bodies to which the Government of the United Kingdom entrusted £5,800m in 1978/79, 1561 advisory bodies spending £15m, and 67 tribunals spending £30m (Pliatzky, 1980). The Pliatzky rport examined whether the Government was getting value for money I and accountability from quangos. The answer was neither in Pliatzky s view. Similar attention to the proliferation in New Zealand of quangos was expressed in I New Zealand, most notably by Sir Geoffrey Palmer in Unbridled Power? (1987) who held similar views to Pliatzky,
Institutional Design Theory I The institutional design theory relevant to this research relates to the literature on I quasi-autonomous non governmental agencies and machinery of government (Barker, 1982; Hood and Jackson 1991; Pollitt, 1984). There is an emerging New Zealand literature on what could be described as Crown entity theory (Boston, 1995 et al; Brumby and Ayto, 1995; Martin, 1994). 1
Interest Group Theory 1 Interest group theory relates to the very nature of a pluralistic society in which I differing values and interests affect the state, and how political institutions respond to pressures and influences from pressure groups. In this paper particular attention will I be given to the concepts of the policy community and the attentive public with which I I 2 the PHC interacted (Blank, 1994; Pross, 1986). The degree of distance from ministerial control has strengths and weaknesses with regard to the influence of interest groups in the functions being carried out by a Crown entity (Martin, 1994). This paper will rehearse the various arguments for and against establishing a decoupled Crown entity such as the PHC (Roberts, 1987). There is also a clear connection between quangos and the role of professionals in policy making which will be examined (Deeks, 1992; Dunleavy, 1982).
The PHC may have been a corporatist anomaly in an increasingly laissez faire or pluralist system of interest groups (Mulgan, 1994). A significant body of recent opinion in New Zealand suggests that the balance of influence is in the hands of economically powerful interest groups at the expense of the public and consumer (Kelsey, 1995; Mulgan, 1994). A number of commentators have offered views on the effects of interest groups on the public health and most recently on the PHC (Beaglehole, 1995; Chapman, 1994; Lancet, 1995). The PHC clearly altered the pre- 1993 status quo of interest group representation on matters directly and indirectly related to public health. At the same time interest group influence was claimed to be a factor in the demise of the PHC (Coney, 1994; Pezaro, 1995).
Methodology
The methodology adopted will inform the evaluation of the arguments for and against the Crown entity form for discharge of the PHC s statutory functions.
Data Collection
The collection of data for examining the particular case of the PHC will be primarily through examination of documentation (published and from official records) on the establishment and disestablishment of the PHC. Interviews with individuals in key positions of knowledge and influence will be used to supplement and corroborate the available literature.
Institutional design and interest group data will be collected from:
Government documents on the health reforms, i Ministerial press releases, 1 New Zealand Parliamentary Debates (Hansard), I 3 • Social Services Select Committee submissions and reports, • Annual Statements of Performancç of the PHC tabled in Parliament, • media reports, • published articles, • officially released papers (both published documents and those released under the Official Information Act, 1982) from the PHC, Ministers, Government Ministries and interest groups, • interviews as required.
Analysis
This data will then be analysed and discussed in light of the framework provided by the institutional design theory and interest group theory.
Hood and Jackson (1991), HM Treasury (1985), State Services Commission (1995), and Wilding (1982) identify reasons why governments may establish quangos or Crown entities. These reasons will be evaluated and framed as criteria by which to assess the case for the PHC. These reasons include:
1 capacity to draw on expertise available outside the public service when the I public service does not possess the required skills,
2 the freedom to act outside the prescriptive procedures that may constrain the activities of central government, I 3 the provision of an independent point of influence and power to reflect the public interest or a particular point of view (and thus promote pluralism more broadly) and provide contestability for in-house agencies, -
4 the creation of a quasi-judicial buffer of independence between the government and the conduct of particular activity to remove the potential for political I decisions (e.g. review of MPs salaries),
5 the enhancement of efficiency and effectiveness in the provision of government-funded goods and services. I 4
LI The interest group analysis will assess the PHC in light of the policy community and I attentive public in which it operated. In discussing models of representation, Pross (1986), and to a lesser ,extent Mulgan (1994), identify a set of dimensions within which to analyse interest groups. These dimensions can be used as the basis for analytical questions to assess the appropriateness of the PHC as a model of I representation. In the context of the PHC these include:
1 Were public health matters more governable through the PHC? (i.e. was the Government not able to directly deal with the issue through the established machinery of government?)
2 Did the PHC directly challenge/undermine the authority of the political executive? (i.e. was it making policy unsupervised by ministers?) I, 3 Did the PHC s existence give stature and legitimacy to the core public service? (i.e. did the existence of the PHC give the Ministry of Health a quiet life , something to oversee, monitor and refer specialised issues to, or was it, conversely, in some way threatening to the regular public service?)
4 Did the PHC represent the public health interest in proportion to its constituency? (i.e. did it alienate the key players in the policy community by I being too weak or too strong?)
1 5 To what extent did the PHC have the capacity to manage conflict in the wider policy community? (i.e. did it reconcile all interests?) I In light of this discussion, the options for the location of the public health function Ll within the machinery of government will be evaluated.
I Other Methodological Issues I Assessment may be limited, particularly so soon after disestablishment of the PHC, by the sometimes sensitive nature of influence and anecdotal evidence about the ability of some interest groups to clandestinely influence decisions. The quality and relevance of the analysis will be enhanced by some comparative discussion about institutional arrangements and interest group representation for public health, historically in New Zealand and internationally. 1 5 Organisation of this paper
The paper is organised as follows:
Chapter 2 provides the theoretical framework for examining the basis of whether a Crown entity form of organisation was optimal for the discharge of public health functions.
Chapter 3 examines the rationale for the PHC in the health sector reforms of 1991-93.
Chapter 4 reviews the experience of the PHC from its conception to its demise.
Chapter 5 analyses the experience of the PHC in light of the framework established in Chapter 2.
Chapter 6 draws conclusions about whether a Crown entity was the optimal organi sational form for discharge of public health functions and advances some more general propositions about the place of Crown entities within the New Zealand machinery of government.
6 - IF
Chapter 2 Theoretical Framework
Institutional Design Theory
The Machinery of Government
The machinery of government refers to the organisational architecture through which the government carries out its executive functions. There are many approaches to the classification of the machinery of government (for a review in the New Zealand context see Ch. 4 Institutional Design in the Public Sector in Boston et al, 1996).
One useful categorisation is advanced by Hood and Jackson (1991, p. 89) who classify agency types in terms of:
• classic public bureaucracy justified on the basis of direct control and co- ordination, • independent public bureaucracy justified on the basis of more attractive employment, less red tape , distance from politics, • private or independent bureaucracy justified on the basis that government need not be a direct supplier of a service and that the private for profit or non profit sector performs better.
Recent New Zealand Governments have expressed a preference for the latter two types. Boston et al (1996, p. 81) demonstrate that the decisions taken since 1984 have had particular regard to:
maximisation of allocative and productive efficiency (including horizontal co- ordination), • reduction of direct ministerial control of some functions, • increase in managerial and political accountability, • ensuring clear organisational missions, • ensuring contestable advice, • minimisation of bureaucratic, professional or provider capture, • improving bureaucratic representation of disadvantaged groups.
This has led to a reinvented public sector characterised by:
• private rather than public organisation of commercial functions,
7 I • single rather than multiple purpose organisations, • small scale rather than large scale organisations, • non-departmental organisations for policy implementation, • pluriform administrative structures (in some cases), • separation of functions (e.g. policy from operations, purchasing and providing), • multiple sources of supply, • flat management structures, I • straight line accountabilities, • decentralised administration
The pursuit of reform objectives has not necessarily been uniform or consistent. A similar set of objectives with similar results has, for example, emerged in Britain (Greer, 1992; Jenkins, Cams and Jackson, 1988). In both countries there has been a sharp increase in the number of decoupled agencies. The Next Steps Initiative, a 1988 review of management and efficiency in British Government recommended that
agencies be set up to carry out executive functions of departments. Pliatzky (1992) 1 notes that this runs completely counter to his 1980 report and the rationale for organising government that underpinned it. Fashions in institutional design theory come and go.
Government, by Proxy I Kettl (1988) describes the, preference for arms-length bureaucracy as government by
proxy . This phenomenon is found at varying distances from the centre and can be I portrayed in tiers. In New Zealand, the first tier consists of core central departments. The second tier is made up of stand-alone Crown entities and state-owned enterprises. The third tier is the private sector which is involved in working for the state under contract (Boston, 1995) to supply specified goods and services. Crown entities are in the second tier mid-way between core departments and the private sector. There are, however, elements of the literature about use of the private sector and contracting out
that are relevant for the , , second tier particularly since many Crown entities are I formally contracted to provide services, and some face a degree of competition. U
Kettl (1988, p. 7) identifies four factors for the growth in government by proxy which are relevant to Crown entities. These include: I 8 I
a
Ithe expanding scope of the government s mission, • the technological challenges of modern life, • budget constraints, and I • theoretical arguments supporting the use of proxies.
Ma First, Ketti notes the role of government has expanded greatly and now includes an extensive responsibility for the welfare of the citizenry since W.W.11 (although in the I 1990s this may be less true in the case of New Zealand which pioneered aspects of the welfare state). Secondly, the administration of government programmes is far more Icomplex. There are some areas where the government cannot collect all the knowledge necessary to take advantage of technology developments and opportunities. Further, budget constraints have tightened as demographic and societal changes have placed pressure on demand-driven expenditure. Finally, Kettl suggests that the source of the intellectual arguments for government by proxy is to be found in theories of decentralisation and self-government and more recent public choice theory. Decentralisation consists of delegation of delivery functions and/or sharing of decision making and authority from higher authority to lower authority. It is based on ideas about those closest to the ground being best able to understand citizens preferences Iand thus maximise benefits from public programmes (Martin, 1991). Public choice theorists such as Buchanan (1978) and Niskanen (1971) suggest that bureaucracies operate in their own self interest and seek to maximise job security and agency budgets which is neither efficient nor in the public interest. Privatisation of provision is suggested as the alternative so that government can fund services without having to I actually provide them. There is an assumption that the private sector is more efficient (which may not always be the case).
Together these arguments support a preference for distancing public activities from the core of government. The increase in demand for government services accompanied by budget constraints naturally lead governments to focus greater attention on the effectiveness and efficiency of public sector governance arrangements. The separation of funding from provision in many cases allows for comparative advantages to be realised. Government by proxy may put activity at a distance from the centre but is intended to promote efficient government.
Agency Theory
I, Agency theory has been influential in the restructuring of the New Zealand public sector over the past decade (Boston et al, 1996, p. 16). Pratt and Zeckhauser (1985)
I9 seek to explain relationships in society as a series of contractual relations between principals and agents which specify obligations and arrangements including systems of incentives and disincentives. These contractual arrangements are more beneficial (than the principal seeking to carry out particular work) because agents can provide for more efficient production through their existing expertise and specialisation. From this perspective, the architects of government aim to design the machinery of government in a way that ensures that the agents act in the interests of the principals. Agency theory is highly relevant to the consideration of Crown entities. Crown entities have ministerially appointed boards between the management and staff and the Minister. The relationship between the board and the Minister is by way of an annual purchase agreement which is a form of contract with planning and reporting requirements set out under the Public Finance Act, 1989.
There is a countervailing view (Aucoin, 1995; Boston, 1995; Martin, 1995; Rhodes, 1994), that holds that concepts of the public interest and trust in governmental relations may be undermined by extensive use of agents and may not be the best way to deal with public choice theorists concerns about self-serving bureaucracy.
The critical point about agency theory is ensuring that agents act in the principal s interests, including the public interest, however defined. The key lies in first defining the Crown s interest or objectives. In deciding on whether to use an agent or Crown entity, the principal needs to consider the degree of contractability, output specificity, the impact of independence and the quality of information for decision-making. The costs and benefits of organising activities within core departments or with an agent can then be compared.
The New Economics of Organisation
The new economics of organisation developed by Moe (1984) and advanced by Horn (1995) seeks to explain the behaviour of legislators and the public bureaucracy as a basis for assisting with institutional design choices. This approach pulls together the literature on contracting, hierarchical control and principal-agent theory linking economics with political science. Moe argues that politicians as principals have objectives related to retaining their positions of power and influence and bureaucrats, as their agents, tend to be poor performers and budget maximisers. While it would seem logical to do otherwise, politicians may choose public bureaucracies to deliver
10 programmes for objectives other than productive efficiency. Moe (1987, p. 761) sums up this point by stating we would be,
• . wrong to conclude - that public bureaucracy exists because it is efficient without qualifying what we mean by efficient. It exists and takes peculiar structural forms because it conduces to the well-being of critically located politicians. It may be an efficient organisational arrangement from their standpoint, but is not necessarily from anyone else s...
Public bureaucracies compound the problem, in Moe s (1987, p. 765) view because,
they tend to attract and retain individuals who are of a lesser quality, overly concerned with security and not disposed to innovate and they tend to enlarge the opportunities for shirking while minimising the rewards for productive efficiency.
In this situation the public, as the principal contracting with the elected representatives, is increasing unlikely to have their preferences met. The public have an important role to play by providing feedback to politicians to monitor the performance of the bureaucracy and to allow politicians to adjust their behaviour in line with public expectations.
Horn (1995, p. 184) is less cynical about bureaucratic behaviour than Moe and other theorists (e.g. Niskanen, 1971) and recognises that public sector institutional design cannot simply mirror the private sector •because of the unique problems of governments. In exploring the relationship between the politician and the bureaucrat, Horn (1995, p. 192) suggests that policy and administration cannot be neatly separated. Bureaucrats should be more responsive to the policy intent of the enacting legislature than to any new set of interests in an incumbent legislature or the political executive which may want to administer the law differently. He maintains that a new government should legislate to secure a new mandate for the bureaucracy to alter its administrative behaviour. Politicians are thereby distanced from day-to-day decision making. Thus medium term rather than short term interests can be promoted. He views this as being consistent with the apolitical and neutral role of the public service.
11 I
Crown entities as a hybrid organisational form I The considerations discussed in the previous sections have some relevance to the New Zealand experience in recent decades but there are no set criteria for deciding when a I Crown entity is the best organisational form for the discharge of particular functions. Some conceptual thinking about the place of Crown entities has, however, taken place. I The Treasury has expressed a view of the Crown s interests in relation to the level of ministerial involvement and nature of the Crown s interest, as either commercial ownership or purchase (Brumby and Ayto, 1995). The Crown entity sits somewhere between the core department and the state-owned enterprise (See Appendix 1). State- owned enterprises are characterised as requiring less frequent and more formal ministerial involvement, with the Crown having primarily an ownership interest. Departments are characterised as requiring frequent but less formal ministerial I involvement, with the Crown having a direct purchase interest. Crown entities on the other hand are characterised as requiring, like state-owned enterprises, less frequent and more formal ministerial involvement, but like departments, a direct purchase interest. In purchase and ownership terms the Crown entity is a hybrid. I I Crown entity defined
The term Crown agency the original name for Crown entities, and tests for I determining such a status, were established by the Parliamentary Finance and Expenditure Select Committee in 1989 in an attempt to differentiate entities owned by the Crown from departments, offices of Parliament and state-owned enterprises (Lorimer, 1992). The Select Committee s tests to determine when a government body is a Crown entity included whether or not the body in question is:
S I a body in which the Crown owns a majority of the voting shares; or
S one over which the Crown has power to dismiss a majority of members of the I governing body, or to dismiss the chief executive; or I
S one in respect of which the Crown has the right to more that 50% of net assets on disestablishment; or I
S one in relation to which the Crown would be expected to assume any residual I liabilities other than pursuant to a guarantee; or
12 J • a body which Parliament considers to be owned by the Crown and deems to be a Crown entity.
These tests in practice did not add up to a statutory definition; Crown entities are listed in Schedule Four of the Public Finance Act, 1989 so are ultimately defined by their inclusion. By virtue then of being on this list, Crown entities face specific reporting obligations under Part V of the Public Finance Act including statements of intent, financial statements and annual reports. This approach (listing in a statute governing financial management) is financially oriented towards the ownership interest and does not reflect the wider design issue of how a Crown entity might fit into the government s policy objectives or purchase interests.
When Crown-owned companies are included there are more than 2,700 Crown entities. These entities are responsible for about one-third of all Crown expenditure (Schick, 1996). They range from advisory bodies such as the Law Commission through regulatory agencies such as the Civil Aviation Authority to producers of services such as schools and Crown health enterprises. Schick (1996) considers that there may be little value in seeking consistency of design among all the Crown entities given the diversity of purpose, and like the State Services Commission (1995), views a case by case analysis as the most productive approach.
Crown entities are not subject to the State Sector Act, 1988 which in Schedule 1 lists core departments of state and which confers certain powers and responsibilities on chief executives. Employees of Crown entities are not public servants. The extent to which they are subject to the Public Service Code of Conduct for example, is unclear (SSC, 1990).
Types of Crown entity independence
It is important to distinguish between the two types of independence that Crown entities as agents of a principal can be given (Brumby and Hyndman, 1996). The first is independence of operation and the second is independence of professional judgement. Crown entities, especially regulatory agencies tend to fall into the independence of judgement category with provider agencies tending to fall in the independence of operation category. Devolved purchasers have elements of both. The literature oriented towards political accountability in Crown entities (for example,
13 Martin, 1995) tends to be opposed to independence of judgement which is seen as the domain of politicians. This is particularly true when independence of judgement is not just technical but involves value-laden decisions about who gets what in society. An example would be a health purchaser s investment decision between additional health services to Maori to reduce ethnic health status disparity but with diminishing return at the margin vs. more service for the general population leading to a better aggregate health status outcome. Purchasers face these difficult equity/efficiency trade-offs on a frequent basis. The number of value-laden decisions faced by purchasers can be minimised if ministers skilfully utilise the various policy instruments (e.g. statements of intent, policy guidelines to purchasers, persuasion) to articulate the Government s values and expectations. The literature oriented towards efficiency (see Jenkins et al, 1988) Supports independence of judgement on the basis that ministers are not well placed to make day-to-day operational and technical decisions. If ministers are able to clearly articulate performance expectations then purchaser should be able to avoid unguided independence of judgement decisions and focus on the more operational judgements that politicians are not well placed to make. In the case of some regulatory/quasi-judicial functions, independence of judgement should clearly not be the domain of politicians as in the case of the Police Complaints Authority or Human Rights Commission which may from time to time act on, or investigate the behaviour of ministers.
Accountability
The New Zealand public sector reforms of the past decade have led to creation of many new state-owned enterprises and Crown entities. Martin (1994, p. 46) describes this decoupling as severing what was previously thought to be a symbiotic relationship between ministers and departments. Power and responsibility have been diffused and distanced from ministers. Martin (1995) and Rhodes (1994) are concerned about the wholesale distancing of government activity from ministerial intervention. In Martin s view (1994, p. 44), decoupling ministers from the day to day management of public functions, has left a dangerous vacuum in respect of accountability and the wider concept of responsibility. In addressing responsibility, Martin is stressing not just the answerability associated with accountability but the acceptance of responsibility for rectifying unsatisfactory situations and preventing re- occurrence. Ministerial ability to rectify problems in Crown entities is, it is argued, attenuated by the governance arrangements based on contracts •
14 Wilding (1982, P. 40) adds considerable insight to the accountability issue by viewing it as a triangular relationship among the Crown entity, the Minister and Parliament. He states:
The easiest side of the triangle to deal with, in principle though not always in practice, is the relationship between the fringe body and the Minister - provided that it is properly thought out when the fringe body is -first set up. Unfortunately, it has not always been properly thought out, and this sometimes gives rise to trouble. But there are also plenty of examples to show that the relationship can be constructed as to work well.. .It is the Minister s responsibility that is the real problem. Ministers frequently appoint part or whole of the governing bodies of these fringe bodies and provide them with money or approve their fees and charges. If a serious error is made and some really awful chickens come home to roost, the Minister is stuck with the final responsibility. . . The main problem in all this, as it seems to me, is that accountability in our constitutional and political system is the property of ministers.
Wilding goes on to suggest that as political accountability rests with Ministers, the closer a quango is tied to a minister the more its independence is lost thereby removing the original rationale for establishment. Quangos can have political accountability or be independent, but beyond a certain point the balance is lost.
There is also an economic perspective in which accountability is seen as a tool to influence the behaviour of an agent acting for the benefit of a principal (Brumby and Hyndman, 1996). Accountability is derived from a desire to influence the behaviour of the agent and a sense of social justice in the performance of a publicly-funded function. The accountability mechanisms in the Public Finance Act, 1989 require Crown entities to produce an ex-ante Statement of Intent in co-ordination with the responsible minister and an ex-post Statement of Service Performance (usually in the annual report). By signalling and documenting performance expectations in advance, ministers are placed to influence the behaviour of Crown entities beforehand. Accountability in the case of Crown entities carries with it the sanction that boards can be replaced if they do not perform to expectation. This should promote efficiency in the pursuit of government objectives.
15 Ministers are rightfully accountable and responsible for the performance of Crown entities. As custodian of the public investment, ministers need to make skilful use of the tools available to influence Crown entity behaviour.
Fragmentation and Co-ordination
As well as the potential loss of core competencies in central government, the creation of single purpose agencies and contracting out leads to fragmentation of the state (Martin, 1994 p. 45). Webb (1991) points out that health and social services in particular require a high degree of co-ordination. These areas are complex and face multifaceted problems. The continuing climate of change and the high level of closely related professional interfaces require co-ordination. At the Cabinet level, Galvin (1991) suggests that if government is to govern in the long term interest of the public then co-ordination is needed not just within a sector but across portfolios such as health with education, social welfare and housing.
Contracting out does not necessarily imply that co-ordination suffers. Ananalysis needs to. be made of the efficiency gains of contracting out against any loss of co- ordination. It is possible to structure incentives to promote co-ordination.
Inherently government functions and the limits of contracting out
In considering the issues of decoupling and fragmentation , the question of what is a public function needs to be answered first. In an examination of the issue on inherently government functions, Boston (1995) reports the US General Accounting Office as having concluded that the issue of what constitutes an inherent government function will never be fully resolved. Boston (1995, p. 85) quotes the US Office of Management and Budget as defining a govermnent function as:
• . a function which is so intimately related to the public interest as to mandate administration by government employees. These functions include those activities which require either the exercise of discretion in applying government authority or the use of value judgement in making decisions for the government.
16 This definition is limited as the further concept of the public interest is introduced. Boston suggests that in the extensive literature on the public interest, there is little agreement on what constitutes the public interest. Nonetheless, the definition is helpful on two fronts. It directs attention to the use of discretion in applying authority related to the policy process, including formulation and implementation. The second useful point relates to value judgement. The process of evaluation of options which involves value judgements is ultimately in the hands of elected governments and is integral to the political process and the exercise of democracy itself. Boston (1995, p. 87) supports this by suggesting that the public interest is a matter of ideology or judgement and therefore not amenable to a technical solution. A less helpful aspect of the definition is administration by government employees which does not differentiate whether government might administer the funding, purchasing and provision of a function. In an economic sense the test of a inherently government function , for a given set of government objectives, is based on whether a market exists or will form (at each level) to fund, purchase or provide the function. If the market fails then a case exists for government involvement.
The public choice literature may suggest that contracting out which relies on market mechanisms is preferable to central bureaucracies in terms of productive efficiency (cost and quality). Market mechanisms may perform well in some areas but there are limits in the public sector. Boston (1995, p. 96) has examined the possible limits of contracting out the policy advice function and identifies conditions under which in- house provision of advice is preferable. These include:
• high degree of uncertainty (especially adverse selection of an agent by the principal), • limited contestability, • high likelihood of opportunism (e.g. conflict of interests), • frequent and complex transactions.
In the case of Crown entities, these conditions are of some relevance. In respect of the first condition, Crown entities operate under statutorily assigned functions and have public accountabilities that should reduce uncertainty and actions contrary to the government s interest. On the second point, the existence of Crown entities along side core departments can increase contestability provided that core departments have not been hollowed out by transfer of critical resources and functions to the Crown entities. Thirdly, single purpose Crown entities would not usually face the potential for conflict of interest that is found in the private sector s experience with differing
17 revenue streams and opposing client interests. Crown entities may face some conflict of interest when they have more than one function as in the case of policy advice and purchasing of services. In these situations, public choice theorists would argue that organisations and officials seek to maximise their own interests (e.g. policy advice that advocates for more purchasing resources). On the final point, the frequency and complexity of transactions between Crown entities and core departments or ministers varies depending on the sector and the Crown entity s role but public sector business is complex and there are often multiple objectives. An additional reason for in-house provision of policy advice is the performance measurability problem particularly in relation to the quality of policy advice.
Boston (1995, p. 105) argues that a high degree of contracting out of policy advice poses significant risks and that ...departmental managers need to consider the longer term impact. . . and the more heavily senior managers rely on short term appointees to prepare policy advice papers, the greater the chances of them losing control over the nature and the quality of their department s policy outputs . While Crown entities with policy advice functions are not short term appointees delivering on the core department s outputs, they do represent a situation in which the core department may not have the in-house capacity to competently evaluate the advice of a Crown entity. This could be a problem if a sector faced a proliferation of Crown entities advising on policy matters. At the same time, the modern labour market with high employee mobility, and staff on limited term contracts has resulted in the reverse phenomenon of contracting in . Therefore, core departments may no longer be able to rely on a stable in-house workforce even if they wanted to.
In the contracting-out literature, Crown entities are not generally considered. The literature tends to be focused on the public vs. private dichotomy. Crown entities are midway on the contracting out continuum just as they are in the middle (second tier) of the state s purchase vs. ownership interest continuum. Crown entities represent neither the in-house form of core departments nor the out-house form of the private sector but rather are a half-way house of publicly owned but arms length form of organisation.
Martin (1995, p. 46) does offer some insights on contractualism within the machinery of government. In examining the case of the Civil Aviation Authority, Martin observes that there is more than one contract. Not only is there a purchase agreement between the CAA and the minister but there is also a Service Charter relating to the aviation industry as customers over fair and efficient discharge of the regulatory
18 function and with the citizenry for safety in aviation. The public express their preferences through the political process. Therefore Ministers are accountable for the action of Crown entities like the CAA. In the case of the CAA, the Government gets administration of their regulations, citizens have a right to details of any public contract and the services and price being paid, and as customers receive the promised services. The CAA then has contracts of various forms and levels of explicitness with at least three parties.
Managerialism and Efficiency
Central to a discussion of Crown entities is the notion of managerialism which is built around the presumption that the generic skills of private sector management are to be preferred over central bureaucratic control primarily in pursuit of efficiency (Boston et a!, 1996; Hede, 1991). A central tenet of managerialism is to let the managers manage . This implies that public sector managers be given the freedom to operate more flexibly in the deployment of resources including staff, less restrictive financial rules, improved accountability, incentives for service delivery, better management information and performance measurement. The rationale is based in part on those closest to the interactions having the best information and being best placed to innovate. Management is contrasted with administration ; the latter has come to imply central bureaucratic control, inflexibility in deployment of resources, poor incentive structures and poor information for decision making. Managerialist arguments are relevant to institutional design theory as many Crown entities have been set in place to manage efficiently the implementation of policy domains. Managerialism tends to be even more relevant to state-owned enterprises as these organisations deliver specific goods or services to the public with the Crown s principal interest over being that of the owner or shareholder. Capital market disciplines that influence management behaviour in the private sector do not operate in the public sector. State-owned enterprise governors and managers face some pressure to perform because they can be sold if they under perform in the public sector. Mechanisms to promote good governance and management in Crown entities, which do not face the private sector disciplines, are discussed below.
Newbigging and Moore (1981) point out that a major aim of increasing managerial freedom and flexibility in the context of quangos was to distinguish the broader policy role of ministries and departments from detailed administration which could be carried out separately and in a more corporate manner. This distinction was not applied
19 neatly with the PHC as it had both a policy function and a more administrative purchase function.
Commentators on the new managerialism such as Martin (1994) and Mintzberg (1996), express concern that too much focus on managerialist concerns could weaken the unique constitutional role of the public sector with multiple accountabilities and the need to preserve the tradition of free and frank advice. In terms of the policy function, if core departments see themselves solely as clients of ministers, free and frank advice may be muted in favour of advice that officials think ministers want to hear. Crown entities with increased autonomy and a contestable policy capacity may actually be in the best interests of ministers who otherwise do not have the benefit of comprehensive and fearless advice. Mintzberg (ibid, p. 83) suggests a more balanced approach and calls for a deeper understanding to recognise that in terms of management, the public sector is not all bad, and the private sector not all good. He considers that the public are more than customers of government. In respect of their relationship with citizens, governments face complex trade-offs among competing interests which cannot always be reconciled on a customer-like basis. Some issues are in the public sector precisely because of problems with management such , as measurement of performance, competing interests, and multiple policy objectives. By first understanding how the public sector is different it is possible to more meaningfully evaluate and adopt or discard private sector management tools. Alford (1993) holds a view that neither the managerialists nor the critics fully account for the conduct of public sector activity and suggests that public sector managers are involved in a managerialist production process directed at creating value but one that is more diverse and public in content. While managerialism is not the perfect model, critics offer no real alternative. Therefore, the most constructive approach is to modify the managerial model for application by public sector managers.
Public Scrutiny
Because of the distance from elected ministers, public organisations with varying degrees of autonomy , are often considered to be less democratic and less open to public scrutiny as core departments. Core departments of state tend to have clear accountabilities to ministers and a large degree of openness to the public. The extent of openness of Crown entities varies but by and large New Zealand Crown entities are subject. to the same administrative law/due process, the Official Information Act, 1982, Public Finance Act, 1989 planning and reporting requirements, Audit Office review and Parliamentary scrutiny as core departments. However, the Audit Office (1994) consider that the situation is not always clear and is unsatisfactory in some cases.
Patronage
A vast number of appointments are made by government to boards of Crown entities. Holland (1981) suggests that political appointments subvert democracy. These appointments have the effect of increasing the representation of government outside Parliament and the normal rules of democratic government. This includes the expansion of a partisan quasi-judiciary on tribunals, arbitration bodies and other ruling bodies, potential for taxation without representation when bodies have revenue-raising powers, and a degree of continuity of government past its elected term.
Weir and Hall (1996) state that in Britain there are no rules to govern patronage and that the precise picture is unclear. A similar situation prevails in New Zealand. There are few statutory rules governing appointments in New Zealand which are generally made by the Appointments and Honours Cabinet Committee. Ministers are only required to take into account the attributes of the proposed appointee, and any conflict of interest (Cabinet Office, 1996).
Boston (Nationali Radio interview, 1 August 1996) suggests that the key point is that political appointments to boards are not unusual but need to be held in check and operate on principles of justice and fairness rather than considerations of cronyism or nepotism in the discharge of executive functions. Sir Robin Butler (1991) considers that these problems can be overcome by instilling values of integrity, impartiality and appointment on the basis of merit by fair and open competition rather than patronage. Boston et al (1996, p. 363) consider that the scope of political patronage in appointments to Crown entities is an area requiring future research.
Encouraging Performance in Governance and Management
From an economic perspective, performance rather than patronage is the issue. Public agencies do not exist in a control market environment in which the threat of take- over serves as a incentive for efficiency on governing bodies and management. In economic theory, monopolistic entities maj lack incentives, disciplinary pressures or
21 i^ competitive pressures to perform well. Milgrom and Roberts (1992, p. 50) consider that governors and managers of agent organisations may decide on arrangements that are more efficient for themselves than the principal. Geoff Mulgan (1994, p. 57) proposes that a competitive market should be introduced at the level of the governing board to promote efficiency in governance. He labels this process, as a democratic version of competitive tendering . The governors deemed best able to deliver on the Government s expectations would be awarded board appointments. Potential governing bodies would be free to apply and bidders would be required to set out their plans against an indicative budget and set of objectives and targets. These applications would then be open to public scrutiny and an Appointments Commission would openly vote to decide on the successful governing body. It is suggested that this model would encourage creative coalitions, be transparent, and more democratic. Non performing boards would be subject to regular review and dismissal by government.
Interest Group Theory
The interest group system is made up of groups whose members share common interests of concern. Mulgan (1994) describes three schools of interest group theory which are:
• corporatist theory, • pluralist theory, • market-liberal theory.
Schmitter (1974) identifies the corporatist theory of state in which the political system officially vests power in public organisations. In this model, public policy is determined by these legitimised interest groups. Interest groups may. be institutionalised in state agencies. In the corporatist state interest groups are formally recognised by the state, usually in statute, and are given rights to represent that interest. Crown entities can be seen from this perspective as part of a corporatist interest group structure.
In contrast, is . the classical pluralist approach (Mulgan, 1994, p. 195) in policy- making which is based on an open exchange of views from a range of largely privately organised interests. The pluralist state is more or less a passive recipient of these pressures. The pluralist state responds to the pressure that is brought to bear.
22
. . A The third model is the market-liberal model based on a view of the public interest that says governments should resist being influenced or captured by interest groups as they seek to advance their self interest at the expense of the public interest. This model is associated with public choice theory (Buchanan, 1978; Olson, 1982) that is centred on the rational pursuit of individual interests in a free market. The role of the market-liberal state is to provide a level playing field and set the necessary, but minimal, rules of the game.
Mulgan (1989, p. 105) considers New Zealand to be largely a pluralist system but notes corporatist tendencies in the establishment of public corporations, boards and other quangos. In reviewing the degree of democracy in any interest group system, an examination is required of the extent to which different groups are represented and whether they receive benefits/influence in proportion to their size of the group they represent. One of the roles of government is to consider the interests of groups that cannot effectively represent themselves (e.g. refugees, intellectually handicapped). Mulgan (1994) notes that some interest groups organise themselves better than others and therefore have a greater impact.
Pross (1986, p. 98) describes the collection of these interests in a particular field as a policy community . He defines a policy community as:
... that part of the political system that - by virtue of its functional responsibilities, its vested interests, and its specialised knowledge - acquires a dominant voice in determining government decisions in a specific field of public activity, and is generally permitted by society at large and the public authorities in particular to determine public policy in that field.
He divides the policy community into:
• the sub-government which consists of the government agencies and institutionalised interest groups which formulate policy advice and carry out programmes;
• and the attentive public which is less well demarcated but includes agencies, interest groups, private institutions, individuals including academics, and journalists that will be affected or are otherwise interested in certain policies but do not usually participate in their formulation. The attentive public serves to monitor policy. The
23 value of the attentive public is that it usually represents more diverse perspectives than a consensus seeking sub-government.
Campbell et al (1989) consider that policy communities develop as a direct result of I fragmentation and specialisation of the state. Policy communities tend to become conservative in the sense that they generally seek to protect current arrangements as I opposed to big policy changes. This does not mean that there are not opposing interests within the policy community seeking modifications to their advantage. Policy communities are less likely to challenge directly the legislated authoritybut will seek to obtain more delegated power and to make policy within the community. Richardson and Jordan (1979) view this as undermining the democratic process. Baumgartner (1989), in a examination of French and American policy communities concludes that policy communities have greater independence from the broader political system when they can convince others that their work is technical in nature.
Pross (1986, p. 222) suggests that governments may favour corporatist structures because they:
• enhance governability by dedicating resources to managing the interests, • facilitate control of line agencies by generating a more in depth understanding of the issues and the policy community, • enhance the legitimacy of the centre by concentrating power and developing a centre of expertise.
All of this is in aid of consensus seeking in pursuit of a stable environment. When consensus does not eventuate, dissident groups will work to circumvent the policy community and create disquiet about the workings of the policy community as a whole. Central organisations are interest groups themselves. Lindblom (1968, p. 70) considers that those closest to the actual decision, the proximate policy makers as he calls them, are much more involved in the play of power than as referees. Campbell (1989) notes that the influence of the proximate policy makers, which he describes as bureaucratic primacy, can vary from country to country. but is strong when the central agencies are focused with a sense of mission and there is less competition among interest groups. Crown entities become dominant and manage the less powerful interest groups in the policy community. The PHC clearly fits within the corporatist model and will be analysed in light of its policy community of which it was the apex. Related to this is the concept of insider and outsider interest groups propounded by Grant (1984). Insider groups are accepted as legitimate by government while outsider
24 groups are not. Insider groups tend to be routinely consulted and have ease of access to the policy process. Outsider groups have difficulty in accessing the policy process and tend to rely on different, sometimes sensational, tactics to generate attention.
Equally of importance is the rise of the global policy community which Walker (1989) cites as having less influence on the day to day detail of policy but having a significant influence in shaping the longer term debate on particular policy issues. Atkinson and Coleman (1992) consider that the literature does not offer a good understanding or explanation of the impact of policy communities on macro political institutions, internationalisation of policy and policy innovation and change. Considine (1994) seeks to address this in part by introducing the concept of actor networks which he sees as being more dynamic and pervasive than policy communities, Actor networks are not only interested in influencing decisions widely but also participate in implementation and service delivery.
Pross (1986) believes that corporatist policy communities left to themselves tend to become representative and pluralistic. The unorganised, or those with limited voice , are more likely to be given an opportunity to be considered along side the organised and otherwise advantaged groups. However, in Pross s view, the self-organising corporatist policy community does not adequately consider the wider whole of government view that governments must take. Final responsibility for policy remains with the Prime Minister and in the collective nature of Cabinet Government.
In his comparative analysis of New Zealand and United States health policy, Blank (1994, p. 18) defines .the attentive public as that segment of the public which is informed and interested in policy issues, either as a general interest, such as health or a specialised interest such as women s health. He regards health as having a broader attentive public than other areas mainly because everyone has a direct personal interest in health. But because of the technical nature of health in respect of both medicine and economics, the health debate is also driven by the interest groups that make up the health policy community. A pluralist model is probably the most accurate model by which to observe the larger health policy community. Although it is not realistic for all citizens to fully develop a detailed public knowledge of technical and complex health policy issues, Tong (1986, p. 39) considers that the role of the expert in a democratic society is to bring the attentive, and less attentive public meaningfully into the policy process so they can express their interests and preferences. The public have an interest as citizens not just consumers.
25 Concern has been raised by Ashton (1992) and Blank (1994) about the perceived lack of public participation and engagement with the policy community in health reform policy in New Zealand. These observers note the increasing use by public authorities of outside consultants largely to avoid capture of policy by professional interest groups. Despite the exclusion of the public from much of the health policy decisions, consensus on health policy is, Blank suggests, not possible. However, there is still a place for explicit public debate on some key issues.
In the United Kingdom the work of Cooper et al (1995) identifies a similar health reform process with similar concern over public participation and what they term as the democratic deficit . Attempts at public consultation and public involvement in decision making in the United Kingdom have not been markedly successful and the British system has been characterised by Pfeffer and Pollock (1993) as unaccountable health authorities chasing the opinions of a largely uninformed public for legitimacy of allocation decisions. This view may be overstated. Health authorities in both New Zealand and the UK, nonetheless, have statutory obligation to consult with their populations. Diverse interests will ensure that trade offs will never be decided solely on the basis of public consultation. Cooper et al (p. 31) recommends several routes to increased public participation in allocation decisions including, community health councils, local voice initiatives (e.g. public meetings), citizen s juries, electronic I democracy, open governance and improved consideration of potential applicants when non-elected directors of health authorities are used. The other option is to have elected I or partially elected boards as was the case in New Zealand with area health boards. I The present health policy community in New Zealand consists of ministers, the Ministry of Health, Treasury, Crown Company Monitoring Unit, regional health I authorities, health, insurers, provider groups (e.g. Plunket, CHEs, private hospitals, pharmaceutical manufacturers) pressure groups (e.g. Public Health Coalition, ASH, I Age Concern), health service users and some academic participants (notably in the Schools of Medicine). The public health policy community is a subset of the wider health policy community to which it belongs (see Appendix 2). The defining feature of the public health policy community is that, on the one hand, it is made up of different interest groups that seek to improve and protect the public health, and, on the other hand, interest groups with different objectives that may have either a positive or deleterious impact on the public health. I Popham (1981, p. 334) suggests that, by comparison with personal health events, I public, health issues are rarely a matter of urgency and do , not feature highly on
26 political agendas unless put there by pressure groups in the policy community. Deeks (1992, p. 132) examined the case of the tobacco control efforts of public health interest groups to illustrate how public health issues can be put on the policy agenda through intense efforts by proponents in the bureaucracy and professional groups.
Professionalism and the Policy Community
Dunleavy (1982, p. 187) argues that the quasi-government form of agency encourages professionalism especially when associated with highly professional occupations such as medicine. This dynamic, he argues, leads to horizontal accountability to the profession rather than vertical accountability to the elected government: He maintains that professionals feel the,
.need to remain insulated from political overview and theoretical view of neo- pluralism (that public policy decisions are technical and complex). Although professions practical concerns are rarely expressed in such terms, they are typically quick to conclude that diminished political control, offset by strengthen professionalism occupational control, is a beneficial combination in the general public interest.
The public health professional culture in training and practice is based partly on advocacy. Chapman (1994) and the Lancet (1995) consider public health advocacy to be a professional obligation of public health medicine specialists. As an organisation with a high professional component, the PHC could be viewed (if not by design) as an advocate for the public health and an organisation with horizontal accountability to the public. At the same time the PHC had vertical accountabilities to the Minister of Health.
Conclusion
The institutional design literature is driven by two themes, at times conflicting: one is managerial accountability in the political and democratic sense, and the other is accountability in an economic and shareholder sense. The first theme views Crown entities in the context of a close knit machinery of government. By dispersing responsibility to Crown entities, government s risk fragmentation and lack of co- ordination. Accountability to politicians and ultimately the electorate is attenuated
27 when government is administered by a constellation of agencies outside the core public service, particularly when independence of judgement is devolved. The recent re-design of the New Zealand public sector and the relatively small size of the bureaucracy is such that political accountability may not, however, be as problematic as it is in other jurisdictions. The second theme of economic accountability is based on a view that modern life is complex, government is probably too big, budgets are constrained and that neither bureaucrats or politicians face incentives to act efficiently in the best interests of their respective principals. Politicians should be distanced from technical-type decisions and bureaucracy should face, when possible, market disciplines to function efficiently. Crown entities sit in the middle ground between state-owned enterprises which do face market disciplines and core departments which are in close relationships with ministers. The performance and accountability, arrangements for the New Zealand public sector are relatively well developed. Crown entity accountability is probably less problematic than the general literature may suggest. Clear articulation of performance expectations and guidance is a key to performance and minimising value based judgement decisions best expressed by politicians.
Of , the three schools of interest group theory, (corporatist theory, pluralist theory and market-liberal theory) the establishment of the PHC is consistent with a corporatist approach, having been established to represent public health interests. As a whole, New Zealand society is largely pluralist. The policy community and attentive public with which public agencies conduct their business are important players in policy development. Corporatist entities are preferred by governments when they are better placed than the government itself to manage the policy community. Increasingly policy communities are international and the role of central agencies (i.e ministries) in influencing policy ,should not be underestimated. The perceived lack of public participation in the development of health policy has led some commentators to suggest that improvements are needed to reduce a democratic deficit , in health. Public health issues tend not to be high the policy agenda. Quasi-government organisational forms encourage professionalism. Public health professionals are trained to advocate for the public health. In combination, public health advocacy and professionalism may lead to multiple accountability including not just ministers but also the professions and the public health interests.
28 Chapter 3 Rationale for the PHC
Public health defined
Public health is defined as "the art, and science of preventing disease, promoting health and prolonging life through organised efforts of society" (Acheson, 1988). It involves population based strategies to encourage healthy lifestyles such as good nutrition and protection of the public health such as the provision of safe water. It is contrasted with personal health services that relate to the diagnosis and treatment of individuals.
In economic terms, public health has quasi-public good characteristics, in that a private market is unlikely to form adequately to supply and purchase services critical to the achievement of desired states of public health. Government involvement in public health may also be justified by reference to the externalities or flow on effects (positive or negative) of some actions. For example, immunisation of a certain level of the population protects the remaining uninimunised population. Polluters of waterways pose health risks to others down stream. Therefore, world-wide, governments tend to take direct responsibility for regulating, funding and providing the bulk of public health services (World Bank, 1993). There is, however, a small private sector in New Zealand (as in other countries) comprising voluntary and welfare organisations such as the National Heart Foundation and Cancer Society that tend to provide disease-specific services that augment the government s activities.
It is noteworthy that origins of New Zealand central government involvement in health are in public health. Dow (1995) points out that serious central government involvement in the organisation of health services began in public health with the establishment of the New Zealand Department of Public Health in 1900 from which developed a much wider government involvement in the funding and provision of health services in the twentieth century.
Organisation of Public Health Prior to 1993
The history of the organisation of public health in New Zealand is marked by a classical hierarchical structure of a central head office supported by districts. The number of districts varied from six in 1901 to eighteen in 1974, under successive Health Acts, and were formed around a quasi-independent medical officer of health
29 with statutory responsibility back to the Director-General. Policy was made centrally and executed by regions and districts. By 1987, district offices had expanded to include a broad-based health development function encompassing health promotion as well as the traditional elements of health protection. Public health services remained part of a departmental hierarchy. Personal health services, from the beginning of the twentieth century, were managed through locally governed hospital boards. District public health offices were merged progressively into area health boards as they began to form in the mid and late 1980s. Public health represented a different type of business to that of running a hospital. Part of the philosophy behind the creation of area health boards was to devolve responsibility for the totality of health and wellness , not just sickness . Independence of judgement increased under area health boards particularly in terms of operational policy. Public health did not always fit easily within the area health board model (Brunton, 1996) because of the day-to-day pressures of running a, hospital service.
From 1918, a Board of Health served to advise the Minister of Health on public health matters (Dow, 1995, p. 94) This board carried out reviews and advised on various matters. it deemed important into the late 1980s. Its eventual and official demise came with passage of a Health Act amendment in 1988. (See Appendix 3 for health sector organisation prior to 1993, as proposed by Upton for 1993, as implemented in 1.993 and post January 1996.)
Pressures for Health Reform & Origins of the PHC
Poor health status of the community could provide a potential argument for reform of public health services. New Zealand s health status is relatively high by world standards but has some deficiencies. System performance is difficult to compare but on key health status measures New Zealand is consistent or slightly below what is expected given the nation s expenditure on health and the principal determinants of health namely, income and education (PHCCI, 1994). Along with other developed nations, the epidemiological transition from predominantly . communicable disease public health problems a century ago to diseases of affluence such as cancer, heart disease, injury and diabetes is complete. Nevertheless, particular problems remained in a number of, areas such as vaccine preventable disease coverage, cot death, road traffic. deaths, hepatitis B and rheumatic fever. Most of these relate to child health. Relatively poor performance was one of the arguments for reform of public health. Overall, New Zealand can do better but the nation s health status alone did not offer
30 sufficient reason in 1993 to radically reform the public health component of the health system.
The rationale for the establishment of the PHC must first be seen in the context of wider social and economic reform (Scott, 1994). The period 1984 to 1990 saw major reform of the New Zealand public sector including privatisation, corporatisation and liberalisation of the general economy from regulation and government controls on commercial activity. This is well documented by a number of observers (Boston et al, 1991 and 1996; McCulloch, 1993; Suppanz, 1996). In the public sector, reform was driven by principles of efficiency, clarity of purpose, transparency and a separation of the government s ownership interests from purchase interests. By 1990 further reductions in government expenditure were only possible in welfare programmes. The massive rise in social expenditure in the 1980s was considered to be a main cause of New Zealand s debt problem. With social expenditure trends believed to be unsustainable, the Finance Minister Ruth Richardson released as part of a December 1990 economic package, the terms of reference for a review of the health system to examine the roles of the government, private sector and individual in the funding, provision and regulation of health• services. These terms of reference led to the 1991 Green and White Paper, Your Health and the Public Health (Upton, 1991) which provided the Government s blueprint for health sector reform. The essential features of the proposed system were:
• integration of primary and secondary care funding, • separation of purchasing of services from provision, • establishment of four regional health authorities (RHA5), • establishment of twenty-three corporatised Crown health enterprises (CHEs), • competition for RHAs from alternative health care plans, • a Core Services Committee to advise on what services should be accessible from public funding, policy advice and purchasing of public health services by a Public Health Commission (PHC), formation of a Public Health Agency.
In parallel was a broader social policy initiative to target social assistance to the most needy and require middle and upper income New Zealanders to rely more on their own resources. This resulted in the introduction of some additional user charges in health.
31 - The organisation of services was based on a purchaser-provider split with four regional health authorities (RHAs) and 23 Crown health enterprises (CHEs), a Public Health Commission and a Core Services Committee. The latter two agencies were charged with advising on national health priorities. Regional health authorities were to purchase services from Crown health enterprises and other providers notably general practitioners, voluntary sector and rest homes. Regional health authorities were to face competition from alternative health plans. Based on a set of core health services, alternative health plans were to enable a greater degree of choice. Maori in particular were seen as likely to want to participate in plans that would meet, their cultural requirements of health service delivery. The existence of competitive purchasing required separate organisation of public health services because health plans were unlikely to be based on territory or large contiguous populations.
The principal rationale for the establishment of a Public Health Commission for public health intelligence, policy and purchasing, located within the Ministry of Health but as a separate unit from the Ministry and regional health authorities (RHAs), focused on giving public health a higher national profile, protected resources, better co- ordination, and , improved effectiveness (Upton, 1991). Although not explicit, ,contestability of policy advice was also an important theme as was the need to retain a single purchaser, separate from R}iAs for public health services (with public good characteristics such as protection of the food and water supply) in the event of alternative health care plans being formed to serve the private good, health care needs of individuals. The case for a PHC is summed up in Your Health and the Public Health (Upton, 1991, p. 107) which states,
much lip-service is paid to the importance of public health activities, but this is not always matched by the provision of resources necessary to carry out effective programmes. . . with health funding on a tight rein, boards, are, often unwilling to put money into less visible activities, the benefits of which are not immediately obvious. Urgent health needs too easily take priority over spending on longer term programmes. The Government believes that resources for public health activities must be explicitly identified. and decisions about spending on these longer-term investments made at a national level, with direct accountability to the Minister of Health.
Some public health services benefit from an economy of scale and only need to be implemented once as in the case of anti-tobacco media campaigns or a national immunisation programme. Public health is generally viewed as a medium to long
32 term investment in improved health status. The Government has a financial interest in effective public health services as they have the potential to reduce demand for personal health services that the government also funds. Area health boards although charged with responsibility for the health of their population faced poor incentives to invest in public health because of the day to day short term pressures on hospital services. Basic public health services such as water quality and food safety tend to be less visible than other health services. The PHC was also established to improve the consistency of services across the country. A weak link in imported food inspection in one port has implications for the entire country in a way that might not be appreciated by a single area health board. Area health boards, in place for most of the country from 1989, had variable performance on public health services in the short time of their existence. Lack of information makes it difficult to compare area health board outputs and outcomes but expenditure, as a proxy, ranged from $9 per head in Otago to $35 per head in Gisborne (Coopers and Lybrand, 1992).
The Government decided to separate the purchasing from provision in public heath as in personal services. This split -was viewed as an important lever to improve effectiveness in allocation of resources to priority areas and to encourage providers who would face contestability and lose of contracts for non-performance. The PHC was to be a specialist purchaser that placed contracts with a Public Health Agency or other providers. The Government considered that RHAs and health plans still faced some incentives for health promotion to reduce the level of risk in the population they served.
Changes from the Green & White Paper
The policy work leading to the Green and White paper, as Blank (1994, p. 134) notes, Was not open to wider public discussion. Wider consideration by the public health policy community of the proposed public health arrangements could not develop until the paper was released and the PHC Implementation Group got underway. It was at this stage that two significant changes were made.
The Green and White Paper proposed that the arrangement would be similar to that between the Ministry of Commerce and the Ministry of Consumer Affairs. The parallel with the Ministry of Consumer Affairs is not entirely clear. The chief executive of the Ministry of Consumer Affairs is responsible to the Minister for policy (with the Secretary of Commerce responsible for pay and rations) whereas the PHC
33 was to be governed by an advisory Board. What the Board s relationship and responsibilities to the Minister and Ministry were to be, was not fully developed. The intended governance arrangements of a ministerially appointed board would make the PHC a very different organisation from the Ministry of Consumer Affairs, which reported directly to the Minister. The only real similarity appears to be one of location, as stated in the Green and White Paper (Upton, 1992, p. 110), designed, to allow sharing of information and economies of administration . The structuring of the PHC as an independent unit within the Ministry of Health was, however, abandoned in favour of a stand alone Crown entity following advice from the Public Health Commission Implementation Group (Skegg, 1996). This advice recommended that a stand alone Crown entity be created to clarify the ambiguity that would result from the PHC being part of the Ministry with a chief executive appointed by the Director- General of Health with a board that would have been advisory and not accountable for decisions; The issue is summed up by Professor Skegg (1996) who recalls that,
After careful consideration, the view of the Public Health Commission Implementation Group was that the PHC should be constituted in a manner similar to the Hillary Commission or Health Research Council in that the chief executive should be appointed by the Board so the PHC could be accountable to the Minister and to show commitment to the public. The prevailing view from central agency advisors was that the PHC s ability to provide advice to ministers would not be lessened by Crown agency status.
The second key decision was to not establish a Public Health Agency as a dominant provider. The PHC Implementation Group (working closely with the National Interim Provider Board which had responsibility for provider arrangements) consulted with all fourteen area health boards on the issue of whether to establish the Agency and found it seriously questioned on a number of grounds. As a result the Public Health Commission Implementation Group (Skegg, 1996) advised ministers that the agency approach was sub-optimal because:
the Agency s regional offices would effectively have a mixed role of part provider and part subpurchaser, • there was a serious shortage of contracting expertise and regional health authorities would be replicating this resource, • the three proposed regional offices would not be sufficiently, localised , • the existence of the Agency would force a cleavage between personal and public health that was not desirable at the local level. I 34 Out of the decision not to establish the Public Health Agency grew the role of regional health authorities as agents for regional purchasing to promote public and personal health service integration. Overall, the decision avoided the need to transfer ownership from the newly forming CHEs to a single agency but resulted in situation of twenty- one provider units requiring initial contracts to be carried over from the previous fourteen area health boards. Establishing a new single provider would have resulted in lower transaction costs but had significant up front consolidation costs. The Agency was also to be responsible for administering public health legislation and would have had an appointed board.
The then Health Minister, Simon Upton, had a preference for limited government and a state that is disaggregated, decentralised and diverse (Upton, 1987, p. 116). He was later embroiled in controversy about contamination and screening of the blood supply with hepatitis C virus (Scott, 1992). He expressed a consistent view that he was not intellectually comfortable as a politician making a technical and clinical decision about whether or not to introduce screening. This philosophy may help explain why public health functions were placed in a stand alone Crown entity.
PHC as Established in 1993
In the event, the PHC was established as a Crown entity under the Health and Disability Services Act, 1993. The statutory objective of the PHC was to improve and protect the public health .
The PHC had three statutory functions,
• analysis and monitoring of the state of the public health, • policy advice, • purchasing of public heath services.
The Act provided for a board to be appointed by the Minister of Health. The Board was chaired through its short life by Professor David Skegg, an eminent epidemiologist from the University of Otago. Other board members had skills in business management, public health medicine, law, Maori affairs, public health teaching and research.
35 • The secretariat was organised by Chief executive Gillian Durham (approved by the Board) along the lines of the three statutory functions with the addition of a Maori Health Group and a Corporate Services Group. The total staff reached about fifty. Responsibility for the public health intelligence and policy function transferred from the Ministry of Health with the purchase function being newly created. Administration of health regulation remained in the Ministry.
The PHC had an annual funding agreement, under the Health and Disability Services Act, 1993, with the Minister of Health and like regional health authorities operated under the Public Finance Act, 1989 which required an annual statement of intent and end of year statement of service performance. Annual policy guidelines from the Minister of Health were used to guide the preparation of planning documents and the funding agreement (Shipley, 1994b; Shipley, 1994c). This funding agreement, which was essentially a contract between the Minister and the PHC, served as the principal accountability document. Appropriations were $73.6m in 1993/94; $73.6m in 1994/95, and -$73.9m in 1995/96 (see PHC annual reports).
The intelligence function required the PHC to monitor the state of the public health, to identify public health needs and produce information for use in the health sector for planning and responding to health issues. A report of the state of the public health was published and tabled in Parliament annually (PHC, 1993d; PHC, 1994d).
The policy advice function related to public health matters, including regulatory matters, and personal health matters that effect the public health. This advice, was intended to complement the advice of the Core Services Committee and be considered by the Minister and Ministry for inclusion in directions to purchasers of personal and public health services. The rationale for creation of the PHC and its statutory function to improve and protect the public health also implies an advocacy role. Core departments are required to take a whole of government view (Cabinet Office Manual, 1996, p. 46) where as Crown entities, in a corporatist sense, may be advocates for a particular statutorily established policy.
The purchase function called for the PHC to purchase or arrange for the purchase of • programmes to improve and protect the public health. Approximately one third of the • PHC s budget was used to purchase services from voluntary, groups such as the Heart Foundation and AIDS Foundation (1HC, 1994b). .The remaining twothirds went to Crown health enterprises via regional health authorities acting as purchasing agents. A relatively low degree of interest by the Midland Regional Health Authority led to
Wt the PHC entering into contracts directly with providers in that region from 1994 (PHC, 1995a). Regional purchasing included regulatory services on behalf of the Ministry of Health. The regulatory requirements were incorporated into the funding agreement with the Minister of Health.
Comparisons in other Sectors
The Crown entity model that was finally implemented has been used in other sectors in the case of each of the s three functions of providing intelligence, policy advice and purchasing. The Foundation for Science, Research and Technology has statutory policy and purchase functions. Many Crown entities have intelligence or monitoring type roles including regional health authorities and in the transport sector Crown entities such as the Land Transport Safety Authority also have a regulatory and public safety function. Overseas use of stand alone public health policy and intelligence/monitoring bodies is not uncommon. The Australian Institute of Health and Welfare (AIHW, 1996) and Danish Council on Health Promotion Policy (Danish Ministry of Health, 1995) are examples.
Conclusion
For historical, public interest and economic/public good reasons, public health tends to be organised directly by governments. With health system reform underway, perceived problems with the arrangements and incentives for public health, and a need to accommodate competitive purchasing, led to new arrangements for public health. Given the Government s objectives for the profile and protection of public health, the new 1993 arrangements offered a number of positive features including a new agency dedicated to public health, a longer term focus, identified resources, and a degree of independence of judgement on advice and purchasing of public health programmes.
On the negative side, the decision to use Crown health enterprises rather than a Public Health Agency as providers resulted in increased contracting costs and complicated the relationship with the Ministry of Health. The Ministry retained responsibility for regulatory aspects of public health which was diffused at provider level among twenty- one Crown health enterprises. The PHC contracted for regulatory services, lengthening the accountability back to the Ministry. At the same time the public health
37 policy function was drawn out of the Ministry of Health to a Crown entity that did not enjoy the same access to Ministers and central government processes.
38 Chapter 4 Experience of the PHC, 1992-1995
The PHC Establishment Board consisting of seven members began to appoint its secretariat in late 1992 with the appointment of the Chief Executive-designate and group managers. The establishment phase focused on defining activities, appointing staff and preparing for the transfer of resources especially for purchasing. The PHC Board was appointed in June 1993 and the reforms took effect from 1 July 1993 (See Appendix 4 for board membership).
Intelligence Function
The PHC s intelligence function was generally regarded as very successful. For the first time in a decade a comprehensive report on the nation s health entitled Our Health, Our Future (PHC, 1993d; PHC, 1994d) was issued in 1993 and again in 1994. This was a vital input to the PHC s policy advice. The intelligence function reported on the nation s health outcomes and maintained surveillance over potential health risks including trends in tobacco consumption, adolescent dietary habits, incidence of HIV/AIDS, and monitoring of haemophilus influenzae type b disease. The annual report was considered a valuable planning document by a wide variety of organisations in the public heath policy community. Durham (1996b) notes that ...the reports had a public good quality and the wider sector saw the public health intelligence reports as an important input to their own policy development .
Policy Function
The PHC s policy advice function was based on a public discussion document prepared by the Commission, Towards Healthy Lives (PHC, 1993e) released in April 1993 resulting in A Strategic Direction to Improve and Protect the Public Health (PHC, 1994a) published in March 1994. The strategic direction was implemented though a health-issues based policy work programme for the following three years. The framework for this included goals and objectives for:
• social and physical environmental health, • food and nutrition, • communicable disease control, • Maori health,
39 child health, • youth, • adults, • older people.
A set of twenty three public health policy papers on priority issues such as immunisation, tobacco and road safety followed. These papers included a review of health status with respect to the issue, identified risk and protective factors and made recommendations for additional policy development, public health programmes, personal care programmes and other sectors where appropriate. Further research and information needs were identified and the benefits of action were presented. Programme targets were set. Each of these policy proposals was separately costed and presented to the Minister annually. The policy papers minus the costing information were then published. The Minister faced the task each year of deciding what to do with the advice she was receiving from the •PHC and the National Advisory Committee on Core Health and Disability Services (NACCHDS).. The original intention was for the Minister to receive advice from the PHC and the NACCHDS, consider this advice (with support from the Ministry), and present policy decisions through the annual policy guidelines and funding agreements with purchasers, mainly the regional health authorities (Upton, 1991, p. 86). This proved a difficult, if not impossible task, given that the purchasers were grappling with difficult prioritisation decisions in the face of demand-driven expenditure and the abandonment of efforts by the NACCHDS to define an elusive set of core health services (Cumming, 1994).
The net result was that the PHC policy advice papers became de facto guides to best practice for RHAs and providers and a basis for additional policy development and monitoring of targets in the annual state of the public health reports. Given that the PHC was also a purchaser with independence of judgement in the application of purchasing resources, the PHC was in part talking to itself through the policy papers by way of the Minister s office. Many of the recommendations found their way into PHC contracts as part of realignment of the current public health services in the fiscally restrained environment.
Each of the PHC s draft policy papers was distributed widely within the policy community and the attentive public through detailed mailing lists and public advertisements. Comprehensive Consultation Guidelines (PHC 1993a) were developed and later recommended to RHAs by- , the Ministry of Health. The draft strategic directions document, Towards Healthy Lives was distributed to more that
40 11,000 interested parties supported by twenty-one public meetings (PHC, 1993c). Issues papers attracted up to fifty substantive submissions each.
Purchasing Function
The period leading up to 1 July 1993 when the reforms came into effect focused on arranging the first set of provider contacts either directly or through RHAs. The RHAs agreed to serve as agents for the PHC in negotiating CHE contracts as there was economy in that they were in many cases already negotiating secondary care contracts with these providers (PHC, 1994b). In the writer s view, the RHAs had difficulty distinguishing the difference between the Ministry (as funder) and the PHC (as principal). As agents, RHAs viewed the public health function as posing some financial risks (e.g. cost of follow-up in the event of an epidemic or water contamination) that were too high relative to the possible returns. The PHC agreed to bear the financial risk and sought to ensure that RHAs had the freedom to manage their public health contracting once purchasing guidance was established (PHC, 1994g) and did not interfere with the RHA negotiations so as to ensure that the RHAs could be held accountable as agents and to maintain RHA interest (PHC, 1993b).
The Ministry of Health retained responsibility for public health regulation specifically statutory responsibility under the Health Act, 1956, Food Act, 1981 and other public health legislation as under area health boards. Medical officers of health and health protection officers employed by CHEs had a quasi-independent role under legislation but could be directed by the Director-General.
In reviewing the performance of RHAs, North Health Chief executive Garry Wilson (1995) considered that except in the case of disability support services, the health system had not managed to depoliticise decisions in primary or secondary care. He cited strong professional lobby groups and the politics of local hospitals, particularly given that most CHEs were not commercially viable. Judging from the degree of media attention on the health sector, the vesting of purchasing authority in a Crown entity in the health sector does not seem to have lessened the pressure brought to bear on Ministers.
The demonstrable gain in the public health purchasing function was the production of information about what services were being provided and at what price/level of investment and secondly alignment of services towards best practice. Quality Management. Guidelines (PHC, 1994f) and the contracting process itself encouraged
41 providers to demonstrate a robust process of effective programme development. The contracting process identified well intended providers but many were delivering ineffective public health programmes that required realignment (Durham, 1996a). For direct purchasing, experts in relevant subjects were involved by thePHC in purchase decisions including provider selection which served to improve service effectiveness, shift/target programme resources to the most disadvantaged population groups and improve the overall effectiveness of services in line with the evidence.
There is no easy way to compare the transaction costs with the benefits of the improvements. Clearly the transaction costs (but not the establishment costs) were higher than would have been the case if a Public Health Agency had been formed. The Ministry of Health regulatory section added considerably to the transaction costs by taking a strong interest in the public health contracting process. The ?HC was required to include detailed specifications for regulatory services in its agency agreements with RHAs and RHAs in turn with providers (MoH, 1994b). From the outset the Ministry was reluctant to give the purchaser and providers the freedom to manage as initially intended by Government and as set out in the Health and Disability Services Act as evidenced by the Ministry s involvement in contracting (Shipley, 1994b).
CHEs faced pressures to reduce service costs while maintaining or increasing output across all service areas. It was difficult to enforce the public health ring fence for funding at provider level given the paucity of information on price and volume prior to the reforms. All indications were that public health service levels were not cut if the number of qualified full time equivalent medical officers of health and health protection officers is regarded as a proxy. These numbers remained static or increased slightly in some areas in comparison to pre-reform levels (PHC, 4995b).
Public health services proved difficult to specify. The point has probably been reached where further specification is meaningless and limits strategic management of opportunities and risks by providers (PHC, 1994g). Public health requires a response capacity to. act in the event of epidemics or public concern regarding public health risks either real or perceived. General health promotion opportunities also arise unpredictably. Strict adherence to delivery on a rigid set of specifications limits freedom to manage the opportunities and threats. There is a community development nature to public health that complicates specification of some .-outputs. The PHC sought to strike a balance.
42 The Ministry of Health - PHC Relationship
The Ministry of Health-PHC relationship did not get off to a smooth start. Five months after establishment, the Ministry tendered advice to the incoming Government (MoH, 1993) that, significant problems exist in the current structure of the government s public health interventions . It is significant that this advice was tendered so early on in the relationship.
The Minister expected the PHC and Ministry to work co-operatively. In her 1994195 Policy Guidelines to the PHC she expected recognition that:
the Ministry of Health acts as the Minister s agent.. .and negotiates and monitors the funding agreement between the Minister of Health and the PHC,
the PHC provides policy advice on public health matters. The Ministry of Health is responsible for overarching health sector policy advice,
the Ministry of Health retains responsibility for regulatory public health activities and regulatory reform, and may contract the PHC to act as its purchasing agent in relation to regulatory public health activities,
both the PHC and the Ministry of Health have advice and monitoring roles with respect to the health sector, the execution of which can be best facilitated by mutual co-operation (Shipley, 1994b).
While this provided some clarity, issues still remained around what actually constituted policy and what constituted regulation. The policy definition was never clear but policy for the PHC was of the operational type rather than the overarching policy of health sector design and performance. In the writer s opinion the policy relationship was strained but was more co-operatively managed as in the case of the national immunisation strategy in which the PHC and Ministry worked jointly (MoH/PHC, 1995). The PHC preferred to interpret regulation as the direct application of coercive powers where as the Ministry preferred to view regulation as including the wide range of intelligence and educational activities of medical officers of health and health protection officers, as expressed in the Ministry s service specifications (MoH, 1994a). These specifications, including regular monitoring and reporting requirements, were included in provider contracts to ensure the accountability of designated officers to the Director-General. The 1994195 Policy
43 Guidelines to the PHC went into further detail about ministerial expectations about regulatory services describing the PHC as the .. . ministry s agent in 1994195, purchasing regulatory public health services throughout the country on the Ministry s behalf. ..As this purchase is to enable the Director-General of Health to carry out his statutory responsibilities... (Shipley, 1994b).
The Policy Guidelines defme the relationship further by noting PHC and Ministry agreement:
to conduct the relationship with respect to the PHC s health regulation agency role with the Ministry s Health Regulation and Protection Group,
for the Ministry to develop service specifications for inclusion in provider contracts,
for the Ministry to be directly involved in contract negotiations, or . to see and agree before signing,
that contact with the field will be co-ordinated between the PHC and Ministry,
that the Ministry has the right to contact designated officers and management regarding the work of designated officers,
that the Ministry and PHC will communicate on public health matters having regulatory implications,
that public health science services will be jointly purchased.
This situation did not give the PHC the full degree of freedom of judgement or operation that was envisaged (at least by its Board) at establishment.
Decision to disestablish the PHC
In October 1994, the Health Minister indicated her intention to ask the Ministry to review the public health arrangements. The reasons and results of the review, which picked up themes from the Ministry s Post-Election Briefing of November 1993, were
44 set out in a Ministry memorandum to the Minister in November . 1994 (MoH, 1994a) and centred on:
a large number of small providers, • dual accountability of some CHE regulatory staff, • unclear boundaries between regulatory and non regulatory public health, • multiple contracting layers, • high transaction costs, • personal-public health split, • absence of a principal policy advisor to the Minister, • overlap and conflict of roles between the PHC and Ministry of Health.
Many of these issues existed before the reforms and views varied as to whether some were really problems at all. The Minister of Health made a Cabinet Committee submission in early December on Structures in the Health and Disability Sector (Shipley, 1994d). The Minister recommended that the Committee agree to one of three options;
• disestablish the PHC, or • agree in principle to disestablish the PHC but call for more work, or • agree to improve co-ordination of policy and purchasing within the existing structures.
No preference was expressed in her submission. It is notable that the Treasury report accompanying her submission considered that the process for policy analysis had been too rushed and had not been adequately considered outside the Ministry of Health, had unquantified costs and could result in major sector upheaval. Treasury considered that solutions (e.g. replacing the Board) might exist within the current structures. A Cabinet decision was nonetheless taken in mid-December 1994 to disestablish the PHC (Shipley, 1994a).
Officials were directed to undertake further work to propose new arrangements that could protect the profile of public health. Legislative amendment was required to disestablish the PHC. This process involved considerable consultation within the public health policy community. RHAs and providers were consulted on options for reforming the public health structures.
45 In a press release of 13 December, the Health Minister (Shipley, 1994a) stated that in relation to the decision to integrate the functions of the PHC into other agencies,
The current structure is not providing the best possible co-ordination between public and personal health issues, or co-ordination between the Ministry s regulatory role and other public health services. The Government believes the positioning of public health within the Ministry is the best way of managing New Zealand s public health strategy to gain the maximum benefit from the links between public and personal health and to reduce compliance and transaction costs.
The PHC Board resigned on 16 December 1994 (effective 31 January 1996) with Board Chair Professor David Skegg noting in a press release (PHC, 1994e) that the Board had approached its . . .tasks with enthusiasm, but it would be more appropriate for others to lead the transition to arrangements about which we have serious misgivings.
At the same time the Labour Opposition became involved as they were in a Parliamentary position to block the necessary legislative amendment to abolish the PHC (New Zealand Herald, 18 January 1995). The Minister of Health in consultation with the Labour Opposition agreed to an amendment bill to the Health and Disability Services Act that would:
• establish a Director of Public Health within the Ministry of Health, • require the Director-General to produce an annual public health report, • empower the Director of Public Health to directly advice the Minister, • establish a Public Health Group within the Ministry, • require the Public Health Group to undertake regular consultation, • add public health to the independent advice function of the NACCHDDS.
The creation of the Public Health Group was inconsistent with the managerialist principles of recent state sector reform in that aspects of organisational arrangements, usually left to the discretion of the chief executive, were to be set in statute. Interestingly, this effectively resulted in the original legislative intent to protect the profile and resources of public health being preserved.
From July 1995, the PHC s secretariat was abolished with the policy function effectively transferred back to the Ministry of Health (Dominion, 17 February 1995).
46 The RHAs had already assumed the purchase role under agency from the interim PHC Board, and the NACCHDS had begun to develop an independent advisory public health role in anticipation of the changes. It is worth noting that RHA public health purchasing only became a long term option when alternative health plans were dropped as these plans, based on individual choice and enrolment would unlikely be able to fully cater for population and geographically based public health services (Ashton, 1995).
An interim PHC Board oversaw the transition completing some policy advice papers and overseeing the purchase function undertaken by RHAs as agents. The Health and Disability Services Amendment Act was passed in December 1995, a year after the decision to abolish the PHC and the responsibility for advising on all public health activities formally reverted to the Ministry from January 1996 (PHC, 1996).
I
I I I [I] I 1 1 47 Chapter 5 Analysis and Discussion
This chapter will draw on the literature reviewed in Chapter 2 and the experience of the PHC discussed in Chapter 4 to examine whether a Crown entity was the best organisational form for the discharge of public health intelligence, policy advice and purchasing functions. This examination will also draw on the interest group literature to help explain what happened within the public health policy community.
Institutional Design Perspective
Was expertise unavailable to the core public sector attracted to the PHC?
Most of the PHC s staff came from public sector health agencies or other government departments (Durham, 1996b). Most non-regulatory public health staff from the Ministry transferred, to the PHC (as the regulatory function stayed with the Ministry). On the demise of the PHC, two thirds of the PHC staff stayed within the public health sector, with half going to the Ministry of Health including the chief executive and policy manager (PHC, 1995b). It is difficult to say, therefore that public health needed to be in. Crown entity to attract expertise. However, some PHC staff and Board members (including the chair) came, from academic posts and saw the PHC as an opportunity to work closer to the decision making process without compromising their independence. The PHC s corporate culture was based on science, evidence, independence and speaking truth to power as Aaron Wildavsky (1987) puts it. These independent minded individuals were least likely to shift into the core public service. Core public servants, in fact, have a professional responsibility to tender advice that is independent in the sense that it is free and frank and is given without fear or favour (SSC, 1990). The PHC did not require the kind of commercial expertise that is found in trading enterprises like CHEs or state-owned enterprises.. The expertise needed to carry out the PHC s functions were, and are, found in the public sector. It was the view of the Chair that the PHC was able to attract better staff than the Ministry and that the linkages, with the universities were particularly important in lifting the quality of the work produced (Skegg, 1996).
The PHC was the government s primary repository of knowledge on public health issues. By virtue of being outside the core public service and with its evidence- based and academic culture (led by the academic Chair and, supportive chief executive), it was able to contribute new knowledge. , As Fancy, and Matheson (1995)
48 I"N
point out, New Zealand lacks the independent institutions and foundations that larger countries rely on for creating knowledge about society. The rules around the pricing of policy outputs, and greater focus have driven out research in policy ministries (Hawke, 1995). Crown entities like the PHC are better placed than core departments to fill some of this gap.
While public health did not need to be placed in a Crown entity to attract expertise, the fact that public health was in a Crown entity did promote the creation of new knowledge and expertise of a type that was less likely to occur in a core department.
Did a Crown entity for public health offer less bureaucracy ?
The argument that the public health functions needed to be placed outside the bureaucratic rules that necessarily restrain government activity is doubtful. Public sector reform in New Zealand has given chief executives much greater freedom, to manage. State sector reform aimed at reducing the unproductive aspects of bureaucracy has produced a more responsive and efficient public sector (Schick, 1996, p. 86). Crown entities have similar planning, reporting and financial management rules as the core public service. Purchase agreements, annual plans/statements of intent and annual reports are required for core public sector and Crown entities alike under the Public Finance Act, 1989. Staffmg decisions are devolved in both cases. Other jurisdictions may be more bureaucratic. Aucoin (1995) points to Canada as a case in point where independent agencies were created to avoid the strictures of central bureaucracy. In New Zealand the public sector is relatively unshackled.
A more compelling reason for a Crown entity form is smallness . While there may be economies of scale as part of a larger organisation, the PHC experience indicates that there can also be economy in tighter focus. Crown entities have the ability to be much more focused than core department which have wider spans of responsibility. Leaving aside the issue of whether the PHC was working on the issues Ministers wanted, the PHC was highly productive if the volume and content of its publications are indicative. In just over two years (not including work brought to completion under the Interim Board between July 1995 to January 1996) the PHC produced twenty-four policy papers, two annual state of the public health reports, seven public health intelligence reports, twenty-one sets of guidelines, twenty factsheets and a wholesale revision of major national health education materials (PHC, 1995c). This may be attributed to a high level of commitment, shorter hierarchy and the fact that the entire 1 49 V
PHC organisation was focused on particular outputs associated with its functions. The drawback of a smaller size may be lack of critical mass or clout . At fifty staff, the PHC was probably of adequate size to ensure critical mass. In terms of clout , the PHC was clearly making an impact on the policy community. Any lack of clout was more likely to be related to being outside the core public service.
The PHC was more efficient because of its focus and particular management not because Crown entities are not less constrained by bureaucracy . The New Zealand public sector as a whole experiences relatively little bureaucracy .
Did a Crown. entity for public health provide an independent point of view, & contestable policy advice?
The PHC exercised both independence of operation and independence of judgement in its policy advice function. The government received a policy advisory service in an operational sense but the PHC also brought in an element of independence of judgement about who should benefit. The PHC did offer an independent and • transparent point of view on policy matters. The PHC s policy papers were all published several months after being sent to the Minister. It is unlikely that the Government really wanted an arm s length independent point of view when the Ministry of Health lacked an in-house public health policy advice capacity. A Ministry-based policy function would have been able to be responsive to the day-to- day as well as the wider issues facing Ministers. The independent and contractual relationship between the PHC and Minister resulted in a longer and more formal planning cycle that was possibly less ministerially responsive than is usually the case with a ministry. The PHC could have operated more like a ministry by working directly with the, Minister and her office on a. daily basis, but as a matter of original design and style chose not to. The corporatist nature of the PHC was generally inconsistent with Government policy and its more pluralist and market-liberal philosophy; but the PHC was explicitly established to raise the profile of public health and. protect resources. A truly corporatist state would have vested more not less control in these organisations. The PHC had three functions that are often separated,, especially the policy function. It was unique to have had policy advice led by a Crown entity, which in the case of public health required co-ordination with other social policy ministries (as opposed to being led by the Ministry of Health) to be effective. Crown entities are not accorded the same access to Cabinet , Committees as core
50 ci
departments (Cabinet Office, 1996, P. 39). What ministers eventually wanted was interdependent advice.
The PHC did offer, in theory, a potential source of contestable policy advice particularly on operational matters. Given New Zealand s size and the dearth of public health and related policy skills, there was simply not enough quality resource to share between the PHC, RHA5 and the Ministry, particularly if the Ministry had wanted to re-build and replicate the PHC s skill set. Such a duplication would not have been of benefit to either party or the government. The risk was that neither organisation would have a strong advisory capacity. Ministers occasionally sought formal PHC advice on one-off issues but this is probably reflective of the lack of any critical mass of public health policy advice within the Ministry rather than the desire to hear different sets of analysis.
The PHC s statutory obligation to consult may have improved the quality of its policy advice. While core departments have a general duty to consult under administrative law, the PHC was highly active (PHC, 1994b) in an effort to improve/assure the quality of its work and to develop some sector-wide ownership of the issues. The placement of public health in a Crown entity may have allowed the PHC to consult more openly than a Ministry and thus improve the quality of its advice.
Did the PHC offer a buffer from political decisions?
The PHC had the potential to be a buffer from political decisions. Ministers are not the best placed to make detailed judgements about the appropriateness of public health programmes, for example, reducing sexually transmitted diseases in sex workers. However, Ministers have not been able to escape being asked to account for the decisions of purchasers and providers. In the experience of the PHC, its advice was published and presented to the Minister of Health thereby effectively removing any buffer by putting the decisions back to ministers. Ministers may choose to publicly disassociate themselves from advice or decisions taken by a Crown entity or even their own ministries.
There is a stronger case for buffering the public health intelligence function from political decisions. There are situations where the Government may want to distance itself from information type functions so as to preserve a sense of credibility and avoid undermining medium term progress in the public interest. The Government
51 I Statistician is an example where. successive governments have preserved statutory independence and integrity so that the preparation of national statistics can be carried out in, way that cannot be suppressed or influenced (real or perceived). Public health surveillance and the state of the public heath reporting is in this category.
Did the organisation of public health in a Crown entity result in a lower price for services?
Clearly the Government wants to purchase a given quality of service at the lowest price. The first order issue in health services purchasing is buying services that produce results. Durham (1996a) suggests that the focused activities of the PHC as a purchaser in identifying and contracting for effective and high quality services improved the efficiency of public health services. The separation of purchasing from provision of services provided the PHC with flexibility in the application of its resources but during its short life it was the PHC s focus on what it was purchasing, rather than who it was purchasing from, that promoted improving efficiency.
The PHC policy function was highly focused and productive as evidenced by . the volume of published policy papers, so in that sense offered value for money for the services it provided. The bigger question was whether this was the right service to the right client . Clearly the Government considered that it was not getting the service it wanted, citing the lack of a principal, Ministry-based, in-house policy advice function as a reason for disestablishing the PHC.
In terms of the public health intelligence function the Government was not getting consistent service in the decade prior to establishment of the PHC (Hyslop et al, 1983; DoH, 1989). Reports on health facts and topical issues had been issued but lacked scope and comparability.
In relation to the Government s initial objectives, establishment of a Crown entity for public health resulted in high productivity.
The institutional design case summarised F
The case for an independent policy advice function (if the Ministry lacked a principal public health policy function) is weak given that both policy advice and aspects of public health are core government functions. The Ministry was deliberately hollowed
52 out in the sense that the public health policy function located in the Ministry was relocated en masse to the PHC which was designed to assert its independence and be at arms length from the government of the day. This left the Minister without a principal day-to-day source of policy advice. A related aspect of this is that the PHC like other Crown entities was not accorded day-to-day access to the inner circle of government and the wider workings of Cabinet committees. This is of particular significance given that the wider determinants of public health lie in other sectors.
The case for placing the purchase function in a Crown entity is mixed. On one hand it is a specialised and partly technical function about which Ministers cannot be fully knowledgeable. Depoliticisation of purchasing has merit so that optimal allocation decisions can add value to health status. At the same time these decisions do involve value judgements that cut to the heart of democratic government and the accountability of the Government that goes with it. There is a path through this by devolving the purchase decisions provided that, Ministers provide clear expectations and direction, ensure strong public scrutiny, and opportunities to participate are structured into the decision process.
The case for a public health intelligence function in a stand alone entity is strongest. It does not involve value judgements in the same way as policy and purchasing decisions. It is largely a technical function about reporting facts in an objective manner. Admittedly, the selection of indicators and topics to research is based on values. Governments benefit in the long term from a credible tamperproof statistical function. It has worked in general statistics and for health in other jurisdictions (e.g. the Australian Institute of Health and Welfare) without difficulty.
Interest Group Perspective
Governability
Prior to the arrival of the PHC, there was little happening in the public health area, which the Government through the Ministry of Health could not manage. On the other hand, one could argue, and part of the policy community did (Beaglehole, 1992), that this was precisely the problem. In relation to the previous Government s top public health priority, tobacco control, efforts were slowed and in the case of tobacco advertising restrictions partly reversed in the Smoke-free Environments Amendments Act, 1991. Other internationally embarrassing public health issues such
53 /
as high rates of hepatitis B, rheumatic fever and youth. suicide were festering away. The period from 1990 until the establishment of the PHC was remarkably quiet in public heath terms. The various pro-public health groups as well as interests with products deleterious to health were in a state of relative stability, and little policy change.. The PHC had the opposite effect on the governability of the issues by raising issues which certain elements of the policy communities would have preferred lie dormant. The tobacco, alcohol and food industries made clear their displeasure to Ministers about the PHC s activities (Dominion, 14 December 1994) including for example . PHC proposals to increase tobacco tax (PHC, 1994h), consider alcohol advertising controls (PHC, 1994c) and, assess levels of household, food security (PHC, 1995d). Grocery Manufacturers executive Brenda Cutress, for example, was quoted as saying the food industry generally were very- concerned with..-the Commission when it was first set up . This and other complaints were reported in the Dominion (20 December, 1994) to have been solicited by the Associate Health Minister Maurice Williamson. He later, during the third reading of the Health and Disability . Amendments Bill (NZPD, 1995, p. 10499), referred to the PHC as employing zealot(s) . , ....
Housing and Customs Minister Murray McCully is reported to have written to the Associate Health Minister and Minister of Finance concerned about the PHC undoing his work to negotiate. an excise regime for alcohol and tobacco products, referring to the PHC as pointy headed wasters and cretins , and calling for its abolition (Coney, Sunday Star Times, 18 December 1994). Public health academics (Beaglehole, 1995), media (Christchurch Press, 1994) and the political Oppositiob (Bunkle, 1994; Clark, 1994) joined the exchange with claims of ignorance on the part of these ministers.
The PHC did not make matters more governable. Very much the reverse happened. It could not have reasonably been expected to make matters more governable given its statutory mandate and the general recognition that on a number of issues it would not be possible to improve and protect the public health without challenging vested interests. A similar set of events and exchanges in Britain led to the reform of the Health Education Authority when its tobacco, poverty and. sexual health policy work upset portions of the public health policy community and attentive public (Warden, 1995, p.10). .
54
Relationship with the Political executive
While the PHC may have upset the status quo in the public health policy community it did not act to directly challenge or undermine the political executive. The PHC was front and centre and the clear leader in the public health policy community. The PHC had a large degree of statutory responsibility for public heath policy advice and purchasing but it could only effectively operate in that narrow band of public health advice and purchasing. It did not have the access to broader levers of government. Many of the PHC s recommendations required action by other parts of the health sector, other sectors or by Parliament such a legislation, taxation or appropriation of funds. The PHC may have put pressure on Government by publication of its ministerial advice but showed no signs of wanting to usurp power or undermine the I political executive. The publication of PHC advice was part of the initial design and expected by Health Minister, Simon Upton who viewed it as open democracy and Li transparency of government processes (Skegg, 1996). Reflecting on the issue shortly after the decision to disband the PHC, Skegg (1995b) reiterated his own view that, rational decisions about public health are most likely in an open society in which - politicians and citizens can debate choices in the light of the best evidence available. The publication of policy advice was also considered by the PHC to be the feedback stage of its statutory obligation to consult (Durham, 1996). In the broadest sense, the 1 PHC was not making policy unsupervised ; it was constrained by. its annual purchase agreement with the Minister of Health and periodic meetings with the Ministry and Ministers. However, at a certain level, by operationalising its contract, the ?HC was making policy unsupervised which was the precise point of establishing the PHC as a Crown entity with a reasonably high degree of decision making authority.
The PHC Board relationship with the Minister of Health varied markedly based on who held the portfolio at the time (Skegg, 1996). In his role as Chair, Professor Skegg notes that,
.my contact with the original Minister of Health, Simon Upton, was relatively frequent during the establishment phase and first year of the PHC. I met with I the Minister about monthly which is probably rather frequent for a Crown entity. During his short term in the health portfolio I also met monthly with Bill Birch. Meetings with Jenny Shipley were always cordial but less frequent. She was clearly less comfortable than previous ministers about dealing with an I arms length Crown entity (Skegg, 1996).
55 Relationship with the Ministry of Health
Pross (1986, P. 221) argued that by creating a hierarchy within the policy community, core departments can reduce the interest group contacts they need to manage to a level compatible with their resources and other duties. The administrative detail is passed to the corporatist entity making life easier for the core departments. In other words, the Ministry of Health could give itself an easier life by letting the Commission manage the public health policy community and only involve itself on matters of broader import.
In fact, in the case of the PHC, the reality was quite the opposite. The Ministry and PHC felt threatened by each other. Ministry concern was evidenced by their participation in PHC contracting and the issue of a lengthy list of service specifications for regulatory services (MoH, 1994b). The potential for rapprochement between the two organisations faded when attempts to finalise a memorandum of understanding were ended; boundary lines became battle lines with neither party fully recognising the others interests (Brunton, 1996).
The PHC Chair and Chief Executive met about monthly with the Director-General and the two organisations had frequent daily contact at lower levels (Durham, 1996b). A formal joint operations committee was established and met irregularly several times during the life of the PHC. Regular meetings began to be called by the Ministry with medical officers of health and health protection officers (employed by CHEs) shortly after re-establishment of direct Director-General accountability for some aspects of their work. This co-ordination and communication was beneficial but was partly a response to the existence of the PHC. This contrasts with the situation under area health boards where the former Department had a very deliberate policy of delegation and devolution of functions. The Ministry was shadow contracting through the PHC which caused some confusion. It is noteworthy that the Ministry did not attempt. to do the same with RHAs over mental health regulatory services where a direct parallel exists in the relationship between the national director of mental health and area directors of mental health.
The Memorandum of Understanding between the Ministry and PHC was never finalised due to lack of agreement regarding regulatory aspects of public health. Durham (1996b) notes that,
56 There was a fundamental difference on what constituted regulatory services and where regulation fits into the Ottawa Charter approach to public health that was all encompassing and viewed regulation as an integral rather than separate part of good practice.
In its 1993 Post Election Briefing (M0H, 1993), just a few months after official establishment of the PHC, the Ministry offered options for structural changes to the public health functions. These options included (for policy advice function):
an independent commission, with a structure similar to the Core Services committee (annual advisory role with no day-to-day role), a new advisory committee combining the Core Services Committee and the Public Health Commission, a commission as part of the central machinery of government (e.g. a Ministry of Public Health).
For improving delivery mechanisms options included:
• status quo pending a reform of the public health regulatory regime, • direct Ministry purchasing of regulatory services, • revisiting the idea of a Public Health Agency.
PHC representation of the public health interest
The PHC proved to be a strong advocate for the public interest in respect of population health. The public health elements of the policy community had high expectations from the outset (Beaglehole, 1992). This can be seen in the strength of the reaction from the tobacco, alcohol and food industry cited above and the views I that came forward from public health groups particularly when Government announced its intentions to disestablish the PHC. Examples of this support can be seen in the submissions to the Social Service Select Committee deliberations on the I Health and Disability Services Amendment Bill (Skegg, 1995a). Below are some examples: I
57 New Zealand Medical Association
Never before have public health issues received such direct and well researched attention and there is widespread disbelief that they will ever again reach this standard. The profession believes the PHC has been by far the most successful all the new agencies created by the health reforms and that it has been the victim of its own success.
New . Zealand Federation of Voluntary Welfare Organisations
{The PHC} ..... Provided an opportunity for the community and service providers to contribute to the development of public health policy in a way that was not possible before.
The Cancer Society of New Zealand
The Society was extremely impressed by the high standard of the Commission s olicy work, P especially the way it consulted widely in developing policy.
National Council of Women
The PHC has produced a raft of extremely use publications with considerable public involvement. They have taken issue with some of the commercial power brokers in the tobacco, alcohol and food industries. The PHC was extraordinarily successful in giving public health real status.
Grey Power
The excellent work done so far in medium-long term planning advice for public health will be lost in an environment pressured by immediate needs and Political expediency.
The PHC was very effective in representing the public health perspective and clearly had the backing of the public health groups. As Barker (1982) and Dunleavy (1982) both point .out, some professional groups see their practice as policy, have a high degree of autonomy and tend to see horizontal accountability as important as vertical
58 accountability. The PHC clearly saw itself having these dual accountabilities to the minister and to the public (Skegg, 1996).
Whether the PHC brought the policy community into correct balance or whether it was previously in balance is a value judgement but clearly the PHC shifted the balance towards the public health interest. Whether the PHC represented the public health interest in proportion to its constituency can be answered in different ways depending on the perspective taken. On the basis of total population-based public health risks, the PHC may not have been strong enough. On the basis of impact on commercial interests the tobacco, alcohol and food industries argued that it was too strong. The volume of concern from health and community groups at the announcement of the PHC s demise would seem to indicate that a stronger public health function was the public s preference.
If a government wants strong representation of the public health interest then a Crown entity is clearly an effective form.
Management of Conflict in the Policy Community
The PHC created conflict by trying to address some serious and contentious public health issues. The PHC was asked by Ministers to consult more thoroughly with industry groups which is a clear sign that it was not managing the wider conflict. The PHC concentrated on the public health interest, as set out in statute, and was able to articulate it in a compelling manner. The PHC did not manage the wider policy community and attentive public. It managed the public health interest. The polarised views in the attentive public s perception of the PHC can be seen most poignantly in late 1994 in contrasting editorials in the Christchurch Press of 15 December which considers the PHC to have made admirable efforts on public health and the New Zealand Herald of 17 December which viewed the PHC s demise as one fewer busybody in the public estate .
Management of conflict in the policy community may be a sound reason for establishment of a Crown . entity for discharge of public health functions but the PHC did not do this nor did it seek to. The public health voice had previously been relatively weak. The PHC in effect created more interest group conflict in the policy community. Life for Ministers and the Ministry of Health was more complicated as a result.
59 Interest Group Case Summarised
The state of affairs in the public health policy community, immediately prior, to the establishment of the PHC, was a relatively quiet one. The PHC raised the profile of public health. The Green and White paper rationale for the PHC was centred on this very point. By increasing the profile of public health, the stability of the policy • community was upset. This would have seemed entirely predictable given the policy intent, the very nature of public health practice and the opposing interests in the policy community. The PHC did not therefore make public health matters more governable or manageable within the policy community. This turbulence may have partly been its undoing. In the end it was a combination, for very different reasons, of bureaucratic rivalry, tobacco, alcohol and some food industry interests, and ministerial preferences that led to the demise of the PHC.
It will be interesting to watch progress of the newly formed Mental Health Commission which is in a similar situation to the PHC. The • Mental Health Commission will advise ministers and serve as an advocate for improvements in mental health services and will monitor and report on progress on mental health service development (Shipley, 1996). Its ability to maintain good relations with the political executive and the Ministry of Health while representing the mental health interests and managing conflict in the policy community will require great skill and dexterity...... , . • .... .• . Chapter 6 Conclusions
This final chapter presents some conclusions and, to the extent possible, makes some general observations about the use of Crown entities based on the case of the PHC. The earlier chapters sought to present the literature on institutional design and interest group theory. The rationale and experience of the PHC have been juxtaposed against the theory and analysed to assess whether a Crown entity was the best organisational form for public health functions.
The PHC s establishment was broadly consistent with the institutional preferences of recent governments as discussed in Chapter 2, except that the PHC had multiple rather than single functions including a principal policy advice role. The New Zealand public sector reform environment makes Crown entities more accountable than suggested in the general literature. Fragmentation, decoupling and hollowing out are more a problem than accountability, efficiency or patronage. There is a tension between independence and accountability which a democracy has to balance. Accountability problems vary by the extent to which a function contains value judgements that are better exercised directly by elected government.
The policy function is inherently a government function and one which is not usually placed in a Crown entity, although the Law Commission and to some extent the Civil Aviation Authority stand as other examples. The minister s sources of advice were fragmented between the PHC and the Ministry of Health. The Ministry of Health had, however, very little public health policy advice capacity. A Crown entity is not an appropriate organisational form for a principal policy advice function, particularly given the quasi-public good characteristics of public health. Public health is often determined by factors in policy domains other than health which suggests the need for proximity to ministers and sister ministries. A secondary source of independent policy advice may be advantageous as it provides contestable advice and could be placed with an intelligence function for monitoring the state of the public health and purchasing under clear government direction. The PHC s statutory obligation to consult may have assisted in improving the quality of its policy advice function. Duplication and competition for scarce human resources stand as drawbacks to contestable sources of advice.
Increasingly, technological changes and the complexity on modern life mean that ministers are not well placed to make technical decisions on specific public health
61 purchasing or monitoring matters. Purchasing is a specialised function but one that has value judgements that are partly the domain of politicians and partly technical. A Crown entity form may be suitable for this function but government needs to put a stamp on the direction with clear performance expectations
The intelligence function may be more credible if it is seen as independent of political influences. The intelligence function contributes to the policy making process in the medium and long term and serves the public interest by adding credibility to policy decisions. The issue is independence not organisational form. This can be done through a Crown entity or in a department with statutory autonomy for a particular officer (e.g. Government Statistician). Perceptions of independence may be higher in a Crown entity.
The expertise of the PHC was drawn largely from the core public service and remained in the wider public sector after its demise with the exception of some academics. The public sector reform environment has resulted in the core public service being relatively unshackled from the type of bureaucratic constraint that existed until the mid-1980s.
The PHC was an appropriate form for raising the profile and protecting the resources of public health. In terms of efficiency and managerialism , the placement of public health functions in a Crown entity clearly appears to have lead to increased productivity. It has not resulted from being set free from central bureaucratic constraints but from the PHC s tight focus, organisational culture, and leadership at board and chief executive level.
Governments favour corporatist entities when these entities can manage the whole policy community (Pross, 1986, p. 220). The PHC very effectively managed the public health interest but created turbulence in the larger policy community. The existence of the PHC made life for the Ministry of Health more difficult. The Ministry and PHC were in conflict over roles. For different reasons, the PHC upset the commercial interests of those industries with unhealthful products, by representing public health interests effectively.
Martin (1995, P. 50) reminds us that Crown entities have several contracts . The PHC s contract did not come unstuck in the accountability to Parliament but rather in the relationship of PHC to Government. By virtue of its volume of publications, its consultation processes and the opinion of agencies commenting at the time of the
62 PHC s demise, the PHC was seen to have delivered on its contract to most of the attentive public and public health interests. The larger issue, however, was whether the contract with the government was being performed to the satisfaction of Ministers. In terms of the original contract , as it understood it, the PHC performed as required by raising the profile, and protecting the resources, of public health. The objectives of the government contract shifted which led to the dissolution of the PHC. The reasons given by the Minister of Health related to a shift in objectives rather than the performance of the PHC. Comments from other Ministers suggests that the PHC s disruption of some factions of the policy community was also a critical factor.
It is important to keep in mind that the overall public health objective is to improve health status. The PHC was an effective advocate in this regard but as a Crown entity had limited ability on a day-to-day basis to participate in the central machinery and wider processes of government that determined health in the broadest sense.
General lessons
Clearly the experience of the PHC shows that political preferences vary not only from government to government but also from minister to minister, and that these preferences are influenced by the policy community.
The first general lesson offered from this research is that the decision as to whether or not to establish a Crown entity depends on the objectives being pursued. Each instance should be evaluated case by case against the desired objectives using some general checklist such as the one applied in this paper. If, as in the case of the PHC, raising the profile of public health and protecting public health resources was the main objective then the PHC demonstrated that a Crown entity was an effective institutional form. If issues of intersectoral co-ordination and co-Ordination with other health services are paramount then a Crown entity would not be sensible.
The second general lesson is that when a Crown entity does not manage the various interests within a policy community, Ministers are likely to come under interest group pressure to mediate or shift the balance of power away from the dominating interest to reduce the friction and turbulence in the policy community. Despite deliberate efforts to distance politicians from day-to-day matters, Ministers remain accountable to the electorate and policy community for the big-picture objectives and architecture of government institutions.
63 Appendix 1
Crown Interest in Public Sector Organisations
Principal Crown Interest Commercial ownership/ indirect purchase Direct purchase
More formal, less frequent State owned enterprises & Crown entities Ministerial Crown owned companies involvement Departments & Ministries Less formal, more frequent
Source: Brumby, J. and Ayto, J., 1995. The Problems of Crown Entity Design. Paper for the Institute of Policy Studies, Wellington.
64 Appendix 2 The Public Health Policy Community
This abridged list of major organisations in the policy community is drawn from submissions on selected PHC draft policy papers on alcohol, HIV/AIDs, the local environment, national plan of action on nutrition, parenting, road traffic injuries, tobacco products and water quality. The large number of submissions from regional health authorities, Crown health enterprises, local government bodies and university departments are not listed.
ASH National Heart Foundation of New Zealand Accident and Rehabilitation and Compensation National Society on Alcoholism and Drug Insurance Corporation Dependence Advertising Agencies Association of New Zealand New Zealand AIDs Foundation Alcohol Advisory Council of New Zealand New Zealand Automobile Association Alcohol Healthwatch New Zealand Employers Federation Association of New Zealand Advertisers New Zealand Immigration Service Arthritis Foundation of New Zealand New Zealand Local Government Association Barnardo s New Zealand New Zealand Police Beer Wine and Spirits Council of New Zealand New Zealand Police Association Broadcasting Standards Authority New Zealand School Trustees Association Building Industry Authority New Zealand College of Midwives Cadbury Confectionery New Zealand Family Planning Association Cancer Society New Zealand Fishing Industry Board Children s Health Camps Board New Zealand Family Planning Council Citizens for Health Choice New Zealand Grocery Marketers Association DB Breweries New Zealand Meat Industry Association Dairy Advisory Bureau New Zealand Medical Association Department of Justice New Zealand Pork Industry Board Department of Internal Affairs New Zealand Vegetable and Potato Growers Diabetes New Zealand Federation Foodstuffs New Zealand Water and Waste Association Gas Association of New Zealand Newspaper Publishers Association of New Health Sponsorship Council Zealand Healtheries of New Zealand Parents Centres, New Zealand Group Opposed to Advertising of Liquor Parliamentary Commissioner for the Environment Health Research Council of New Zealand Pharmacy Guild of New Zealand Institute of Environmental Science and Research Public Health Association of New Zealand Intermilk Royal New Zealand College of General J Wattie Foods Practitioners Land Transport Safety Authority Royal New Zealand Plunket Society LeLeche League, New Zealand Social Policy Agency, Department of Social Ministry for the Environment Welfare Ministry of Agriculture and Fisheries Te Puni Kokiri Ministry of Commerce Tobacco Institute of New Zealand Ministry of Education Transit New Zealand Ministry of Women s Affairs Treasury Ministry of Youth Affairs The Safe Food Campaign National Council on AIDs The Wrigley Company National Council of Women Wine Institute of New Zealand Appendix 3a Public Health Organisation - 1992
annual agreement for policy, contract management and - administration of legislation - - - 1I Minister of Health I I advisory committees
funding & contractual relationship Department of Health monitoring & D-G Health Act functions Policy Contract Management 14 area health boards Services Finance Corporate Group
voluntary sector e.g. Heart Foundation
monitoring under Health Act local authorities
Source: Adapted from Brunton, W., 1995. "Health Sector Organisation" in D. Dow, Safeguarding the Public Health. Wellington, Victoria University Press. Appendix 3b Public Health Organisation - 1993 (proposed)
Minister of Health Minister of Crown annual departmental advice Health Enterprises agreement & advice to minister Department Public Health Public Health Commission of Health Commission Advisory Board
provider & Ownership
subpurchaser role oversight under contract Public Health Agen
service delivery contracts
private providers I I community trusts Crown health enterprises
Source: Adapted from Upton, S., 1991. Your Health and the Public Health. Wellington.
67 Appendix 3c Public Health Organisation - 1993 (actual)
Minister-of Health advice I Minister of Crown annual funding annual departmental agreement Health Enterprises agreement & advice to minister liaison Fm of Health Public Health Commissio
regional management agreement Ownership reaional health authorities oversight
liaison with CHE based statutory officers
I regional liational service contracts contracts voluntary & private provide Crown health enterDrises
Source: Adapted from: PHC, 1993. Contracting with the Public Health Commission. Wellington and Scott, C., "Reform of the New Zealand health care system" Health Policy 29 (1,2).
68 — —
Appendix 3d Public Health Organisation - 1996
National advice--ip-] Minister of Health Health Minister of Crown annual funding Health Enterprises annual departmental agreement agreement & advice to minister liaison Ministry of Health regional health authorities
Ownership oversight
liaison with CHE based statutory officers regional joint purchasing service of national contracts contracts
voluntary & private provide Crown health enterprises
Source: Adapted from Shipley, J., 1996. Health Services - 1996. Wellington.
ME Appendix 4
Public Health Commission Establishment and Board Membership
Implementation Establishment Board Interim Group (12/91) Board ((8/92) (6/93) Board (1/95) Professor David Skegg (chair) x x x Dr Karen Poutasi (chair) x Mr John Aburn x x x Professor Robert Beaglehole x x Mr Adam Begg x Mr Charles Chauvel x Dr Gillian Durham (until 5/92) x Professor Andrew Hornblow x Mr Ross MacDonald x x Dr Stewart Reid x Dr Jane Smith x x Ms Heather Thompson x x x Ms Caren Wickciiffe x x Mrs Selina Wilkinson x Mr Charles Wilmot x
Source: PHC Annual Report, 1 July 1995 - 22 January 1996. Wellington.
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