The preceding analysis indicates that the arrangements that have emerged under the NZPHCS, whilst in principle a managed care insurance system, are substantially less than optimal in respect of the requirements for a fully-functioning, efficient managed care insurance model. It appears that the use of institutions and relationships that prevailed under the pre-NZPHCS system in an 'evolutionary' move towards what appears to be a fully-fledged managed care model are likely to be counter-productive to the equity objectives of the strategy, substantially more costly than either the pre-NZPHCS system or the optimal managed care model, and as a consequence of the limited competition that exists, unlikely to respond to the normal competitive pressures to evolve into a more cost-efficient model. Thus, rather than the institutions and contracts being a 'first step' in an evolving strategy, the current higher-cost institutions and contracts are likely to become entrenched, to the long-term detriment of both taxpayers and patients.
Two instruments appear to be critical in the inability of the NZPHCS to achieve its full range of managed care objectives. The first is the presumption that general practitioners would retain their individual right to set patient co-payments independent of PHO contracts. This presumption has left PHOs with no meaningful ability to practice financial risk management. Whilst there is no policy statement about the retention of the right to charge, the unstated assumption that it exists has restricted the use of fiscal strategies associated with traditional managed care models. However, even if no such assumption existed, the second instrument, the requirement that service providers be part of PHO governance, means that providers have been granted sufficient power to ensure that the contracts under the NZPHCS do not leave them any worse off than pre-NZPHCS. In their capacity as PHO governors, general practitioners would be unlikely to be party to designing contracts that limit the professional autonomy that has been their non-negotiable bottom line in the development of New Zealand primary health care policy since 1938. As successive governments have been either unable or unwilling to restrain general practitioner charging autonomy using legislative powers, it is unlikely that PHOs, most of which are operating as general practitioner supplier-owned co-operatives, would be able to achieve such restraints using only mutually agreed contractual mechanisms.
Given that the outcomes of the NZPHCS are largely predictable from an analysis of risk-bearing in health insurance markets and the New Zealand history and institutions, the advisability of instituting a full, insurance-based managed care model with the associated requirements on the insurance companies to manage costs in a health care market that effectively denies to these managed care insurance organisations half of the tools normally available to such organisations to manage their costs must be questioned. The higher costs and inequitable distribution can be observed even at this early stage and will become more substantial over the next four years as premium subsidies increase. Indeed, the full extent of the higher costs at an individual level are likely being masked in the early stages by the sheer size of the additional government funding injected into the sector. As unrestricted practitioner charging negates the effects of patient demand pooling that normally accompany insurance schemes, any attempt to set up a managed care system based upon capitation payments of either the insurer or the service providers appears to be fundamentally flawed. This is not to say that practice-based strategies associated with PHO management and services to improve access cannot be legitimately and effectively funded on a capitation basis and provide measurable benefits. Indeed, benefits may have already accrued from these strategies. Rather it is a commentary on the wisdom of using capitation payments to fund the service delivery components of a universal insurance scheme in the presence of practitioner price-setting autonomy. Under current arrangements, the practice-based strategies would have to be extremely effective to outweigh the substantial additional costs of the imperfect insurance instruments that attend the NZPHCS in order to deliver a system that is of net greater benefit or offers better value-for-money than its predecessor.
In principle, leaving aside the power and professional autonomy of medical practitioners, the structures and intended contracts in the NZPHCS offered a potentially viable model of competing insurers and competing service providers that had the potential to deliver an efficient and effective insurance-based primary health care system for New Zealand that was capable of real innovation in both contracting and service delivery. However, to do so would have required a truly competitive environment, both in respect of insurance and service delivery markets, with fully transferable insurance premiums independent of insurer-service delivery contracts, and where insurers were governed, managed and operated as specialist insurance companies [65
]. Such competition in the market for purchasers of services, where patients could freely exercise their insurance custom, would lead to genuine competition in the markets for both insurance customers and service provision contracts, where it would be harder for provider co-operatives to unilaterally determine the terms and conditions under which they would enter into contracts with insurers. This would have led to vibrant competition not just for contracts, but also in the models of insurance and care delivery that could move beyond the managed care model under which the system was established to alternative arrangements. If such a system allowed patient co-payments determined by the insurer, it would resemble the United States managed care model, but with the potential to evolve if models other than managed care proved more efficient. Such innovation is occurring in the United States as managed care proves less desirable for some patients and their insurers [66
]. If patient co-payments were not allowed, then the New Zealand system it would resemble England's NHS. However, this model would require full funding from government sources.
In its present state however, the NZPHCS resembles neither of these models. It allows for all the additional costs of an insurance-based system, but none of the equity benefits of a fully state-funded system, and none of the fiscal benefits of a managed care system that constrains some of the excesses of insurance-based systems. Whilst there may be gains from the practice-based managed care strategies currently undertaken by PHOs, the costs of these gains will not necessarily be able to compensate for the substantial extra costs of the system as it is currently operating. If the costs and inequities of the NZPHCS escalate as predicted, any gains may be quickly eroded. Unless the deficiencies of the current insurance-based system are addressed soon, the very substantial proportion of the additional government funding committed to primary health care will likely amount to an ill-judged, overly-costly investment.