Intended for healthcare professionals

Education And Debate

Gp budget holding in new zealand: lessons for Britain and elsewhere?

BMJ 1997; 314 doi: (Published 28 June 1997) Cite this as: BMJ 1997;314:1890
  1. Laurence Malcolma, professor emeritus
  1. a Aotearoa Health Lyttelton R D 1 New Zealand,
  • Accepted 3 February 1997


The recent election in New Zealand resulted in the new coalition government rejecting key aspects of the National government's controversial, Treasury led health reforms implemented in 1993.1 2 Based on the largely successful economic and state sector reforms of the 1980s, the health reforms had two key goals: improved efficiencies and better access, especially to elective surgery.3 Superficial assessment of the hospital sector had led to expectations that savings of 20-30% could be achieved through competitive and commercial incentives.3 Yet actual expenditure has increased by this amount, and waiting lists have grown by 50% since 1993.1 4 The new government favours collaboration over competition, and its health policy is to abolish the market oriented CHEs (Crown health enterprises) and replace them with regional hospital and community service units, which will be required to improve the health of their communities.2 The four regional purchasers that have a contract with providers are to be replaced with a central funding authority. The funder-provider split remains, but “purchasing” has been rejected as being too commercial. The government now seems to recognise that health is primarily a social service, not a business. The bottom line is not profit; it is better health outcomes.

Growth of collaboration in primary care

The new government has recognised that collaboration may be much more effective than competition as an incentive in health care.5 6 Nowhere has this collaboration been more clearly demonstrated than in primary care through the formation of independent practice associations.7 The concept of independent practice associations, and their moves towards managed and integrated care, was borrowed from the United States. In practice, however, these associations have been much closer to British fundholding.7 8

Initial opposition to independent practice associations from the medical profession to this new contracting relationship has been replaced with strong support, especially from general practitioners. Unexpectedly rapid growth in membership has resulted–at the end of 1996–in 60% of general practitioners being not only members of independent practice associations but budget holders of laboratory, pharmaceutical, and other services.7 This proportion is expected to increase to over 70% by mid-1997.

The independent practice associations also strongly support managed and integrated care.7 They are on the verge of taking on budgets for referrals to secondary care, including inpatients, but again through collaborative ventures rather than competitive relationships with secondary services. Independent practice associations are essentially population based and becoming increasingly committed to public health goals.7 They are similar in many respects to the new commissioning bodies proposed by Britain's new Labour government.

Summary points

New Zealand's new coalition government has rejected key elements of its predecessor's health reform policies

Collaborative and professional incentives are to replace failed competitive and market incentives

The success of collaboration has been shown through rapidly growing independent practice associations–60% of general practitioners were members in late 1996

These associations manage budgets for an increasing range of services, and savings of up to 23% are being put into higher priority services

The next step is managed and integrated care relationships with secondary care providers

Budget holding and integrated care in New Zealand has many similarities to but also contrasts with Britain

Key lessons from the New Zealand's experience include the ascendancy of professional incentives over market mechanisms in health care, the potential for collaboration in achieving professional goals and the ability of doctors to be accountable, within a budget, for decisions about priorities in health

Independent practice associations are not the only form of managed and integrated care emerging in New Zealand.3 Community groups including Maori are also becoming budget holders and integrated care organisations. For Maori especially this is motivated by deeply felt concerns about redressing their poor health. In contrast with Britain, the New Zealand government funds less than 50% of the cost of general practitioner services.9 Underuse of primary care services by Maori and low income populations is associated with high hospital admission rates.9

Convergences and contrasts with Britain

There are many similarities and convergences, but also contrasts, between budget holding in New Zealand and fundholding in Britain. Independent practice associations range in size from large group practices to ProCare Health, in Auckland, which has a membership of 340 practitioners. With an average membership of 57 there are major economies of scale, and the associations report administrative costs ranging between only 1-2%.7 8 7 Larger groups are able to take on a much wider range of services, including all secondary care services, with minimal risk for member practices.


Up the garden path–New Zealand's prime minister expresses qualms to the minister of health about the direction of the health reforms

Budget holding is a flexible and progressive process.7 8 7 Independent practice associations can choose to take on budgets for general medical services through capitation; laboratory, pharmaceutical, and maternity services; and other services.7 11 They are thus able gradually to build up experience and competence in budgetary management and administrative and information systems. Extension to secondary care involvement is based on this graduated experience.

Savings made from budget holding are real and are held by the association. Savings already achieved in laboratory and pharmaceutical budget holding range from 8-23%, much higher than reported figures for Britain.11 Savings are used to provide new services as determined by the association in conjunction with purchasing health authorities. These include free or reduced cost of access to the only partially subsidised general practice services–for example, free mammography, improved immunisation programmes, and terminal care. Independent practice associations have widely rejected personal financial incentives as unprofessional and unethical.7 10

Budget holding in New Zealand is a “generalisable” model in that all general practitioners in an area can join an association, rather than going to the trouble of developing individual practice contracts.7 Practices hold a contract with their association, which negotiates contracts with purchasing authorities. This ease of entry may have been an important factor in the rapid growth of membership–in some areas 100% of general practitioners. But this raises questions about the commitment of individual general practitioners to the goals of their associations and how they can participate more, especially in large groups.

As in Britain, however, larger groups offer a more powerful peer review process for improving both quality of care as well as accountability for costs. Most associations have established mechanisms for monthly feedback on use of pharmaceutical and laboratory services to contrast the individual members' performance with that of the group.9 This is an effective mechanism not only in achieving savings but in reducing variation between individual practitioners.9 To complement this peer review process many associations have established small groups to prepare guidelines and to discuss prescribing and other aspects of professional practice.

Lessons from New Zealand's experience

In summary, some important lessons have been learnt from New Zealand's experience of health reform. The first is that professional incentives, based on collaboration, can be much more effective than market and commercial incentives in modifying professional behaviour and improving both efficiency as well as quality.5 General practitioners comment on the sense of pride, professionalism, and achievement that they are experiencing. They have a better sense of the “bigger picture” of health.

The second lesson is that general practitioners can collaborate in relatively large groups to achieve public goals. Larger groups offer economies of scale, the opportunity for competent leadership to influence the quality of care of a wider group, better information and risk sharing, and the achievement of professional goals through shared and owned practice guidelines. Through this collaborative and entrepreneurial process doctors in the private sector are managing increasing amounts of public money. Although this is primarily to achieve public goals, concerns have been raised from public sector interests about the power that this puts into the hands of the private sector–hence the understandable rejection by almost all independent practice associations of personal financial incentives.

Perhaps the most important lesson is that doctors can become accountable for the prioritising of health resources. As with clinical service management in the hospital based sector,2 12 independent practice associations are recognising that they have the power to shift resources from lower to higher priority services. This includes the power to achieve an aspiration widely held for many decades, a desirable shift in priority from secondary to primary care.

The Economist, commenting on the outcome of the recent election in New Zealand, said that New Zealand “may have lost its appetite for further reform but its economy is still a model for others.”13 The managed and integrated care that is emerging in New Zealand, based on professional rather than commercial values and incentives, may also be a “model for others.”


Conflict of interest: None.


LM is also professor emeritus at Otago University, New Zealand.


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