Shopping for health: purchasing health services through contracts

The 1993 New Zealand health service reforms were based on the purported efficiencies of the purchaser/provider split. Purchasers are required to contract for services that will maintain, improve and restore the health of the populations they serve. The purchasing role, which requires the development of contracting skills as well as the setting of strategic directions and priorities, is new and as yet poorly developed. This paper describes the role of purchasing agents in setting priorities, the different approaches that are being taken to contracting for services and some of the problems that have arisen in the first year of contracting. It explores the trade-off that is evident between the potential for improving efficiency through contestable contracting and the need to minimise transaction costs associated with the contracting process. The purchasers' accountability to the public and the Minister is analysed in the broader political context of the purchasers' role in shaping a public health service and improving the health of the population.