Abstract:
ln 1993, the New Zealand health system was radically restructured. Area health boards, which were responsible for both purchasing and providing health services, were replaced by a quasi-market system in which public and private providers compete for public funds via contracts with purchasers. This thesis employs transaction cost economics (TCE) to
examine the theory, the policy and the practice of the emerging quasi-market for health
services in New Zealand. The main hypothesis which emerges from TCE is that
contractual arrangements, which differ in their costs, will be aligned with transactions,
which differ in their attributes, in a way which minimizes the sum of production and
transaction costs. If services involve specific assets, or are difficult to measure and
monitor, the transaction costs of contracting are likely to be high.
The structure of the New Zealand health system prior to and after 1993 are
described and analysed. Features of the emerging quasi-market include monopsonistic
regional purchasers, a highly concentrated market for hospital services, weak budget
constraints for CHEs, and a lack of competitive or political neutrality. All of these factors
tend to dilute any incentives for efficiency.
The TCE framework is used to examine the early contracting experiences and
contractual relationships for four different health services: rest homes, primary health
clinics, surgical services and mental health services. The selection of these four services
was based upon a profiling of the characteristics which, according to TCE, are likely to
influence the cost of transactions. The results support the central argument of the thesis.
That is, that the costs of contracting are higher for some services than for others because
of inherent differences in the attributes of different health services. A blunt policy
instrument which forces a split between the roles of purchaser and provider for all health
services fails to recognise these differences and may prohibit the development of
organizational structures which might otherwise be selected as means of economizing on
the transaction costs. Efforts must now be made to encourage a more discriminating
approach to contracting in which a classical or neo-classical style of contracting is retained
for those services where potential efficiency gains are high and the transaction costs of
contracting are relatively low while longer-term relational contracts are developed for
services where transaction costs are high.