Doing the splits: contracting issues in the New Zealand health service

The purchaser-provider split is an integral part of the New Zealand and UK health care reforms. The split is seen as an opportunity to introduce competition by increasing the number of players. The assumption is that competition among providers, purchasers or indeed funders, increases efficiency and provides more consumer choice. This paper looks at the issue of contracting in the New Zealand health services within the framework of transaction cost analysis. It examines evidence about the effects of formal contracting rather than the more traditional, informal negotiations that take place within a hierarchy. A number of potential problems with an indiscriminate provider split are highlighted and the conclusion drawn, that the outcome of such a split is likely to be more unpredictable than official expectations. In the absence of pilots, monitoring the implementation will be critically important to be able to compare the outcomes of different ways of organising the health care system.