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Union cavalry charges Wellington DHB mustard gas

  • January 30th, 2015

Wise admirals agonise about whether they’re getting ready to fight the last war they won. They know how easy it is to get better battleships after aircraft carriers have made them a liability.

But labour Unions distract their members into re-fighting battles lost decades ago, while their real enemies flow past and leave them behind for mopping up at liesure. Union ideology leaves them without the analytical tools to recognise enemies out of uniform.

Searching for the top hat and cigars of ‘private capitalism’ seems to drive the campaign by Association of Salaried Medical Specialists executive director Ian Powell against what the enemy he’s identified as “privatisation” in today’s DHB consideration of the laboratory services tender process. There’s a strong clue that fossilisation might be to blame in the NZ Doctor report’s repetition of George Santayana’s: “Those who do not learn from history are doomed to repeat it”. There’s no indication what history the ASMS relies on as its teacher. They’re whining about the colour of the uniforms of their next bosses, while pathology could be commodified and reduced to a least cost service under all the likely options.

Tim Hunter in Stuff’s Business Day lays issues out clearly, from an investor and taxpayer perspective, and what should be the perspective of the DHB Boards, and the Minister of Health and his Ministry.

The problem for ASMS members (and the other specialists who rely on pathology services) and indirectly for patients, is that three Wellington DHB’s are incentivised to bank a ‘below cost’ discount in the current tender round, and leave future managers to deal with the profound effects on DHB capacity to bargain in future rounds.

As Hunter sees it there would be such a huge strategic gain for the Australian bidder if it can sew up 90% of New Zealand health lab services, that it is worth almost any likely discount to eliminate the incumbent service providers (Aotea and Sonic). With no effective base of people and facilities and local knowledge for challengers in future tender rounds, the Australian company can expect to recoup quickly in the next rounds what it might lose in the current tender, not just from Wellington, but from the South Island where it controls all major services, and in the North Island.

With 90% of the services, there will be no effective benchmarking against others for the government and the DHB’s to rely on for comparative information. Australia itself will be no help. For example Tasmanian demand is pretty similar to the Wellington region demand. The Tasmanian authorities may be mulcted for nearly 3 times per patient what Wellington’s existing services cost, because Wellington has already benefitted from earlier competitive tender rounds, for which there is no Australian equivalent.

The strategic interest of the other DHB’s in preserving competition and benchmarking should see them contributing to Wellington, if necessary, just to ensure that 90% domination does not occur. That kind of strategic consideration should have had the Ministry of Health and the Minister taking a vital interest in this process.

Perhaps they have. But from direct and client experience of the naivete of government tendering processes I doubt it. There is a pathetic government sector belief in the price number that flops out of tendering competition. Business people know that relationships and multiple continual informal quality features are just as or more important.

Ordinarily competition law would have helped protect the Wellington DHBs from a strategic error. They’d have had to focus thinking on the long term dynamics, to get a massive concentration of power in a dominant provider past the Commerce Commission. Such reflection might have thrown up a “Whoop Whoop – Pull Up”. But the health industry has a statutory exemption. It does not extend to the relevant circumstances. But the DHBs may be unaccustomed to worrying about competition.

Competition law could indirectly protect the pathology personnel, even if their union does not see it. They should be much more worried about losing choices of employer in New Zealand. For employees it is vital not to lose the competitive tension that pliges even would-be ruthlessly profit (or Minister pleasing) bosses to preserve the goodwill of their employees. For example, it would be interesting to know if the DHB contract after centralisation will effectively oblige the employer to foster (or even grudginly permit) involvement in the professional development (College activity) and training and other sector good activity that preserves the status and independence and bargaining power and international reputation of the people.

Instead of looking at what actually protects high value and status in employment over the longer term, the union is fighting its 1980s campaign on ‘privatisation’. It ignores the evidence that monopoly employers of any stripe are a much bigger threat to long term job content and satisfaction, than whether the managers who disrespect them are state employees or private monopoly employees. And that ignores too the evidence that competition among hospitals is good for standards and for patients.

If the contract is a matter of crude price (perhaps muffled by camouflage concessions of branding or nominal ‘ownership’) then expect commodification of the service whoever owns it. From experiencing the laughable elements of government procurement tenders for legal services, I doubt that a great bundled contract of the kind reported by Tim Hunter and indicated in NZ Doctor, will even recognise the long term quality and relationship issues. Such contracts need a finely tuned specification flexibility that understands relationships.  In legal services that has been preserved by government agencies quietly ‘working around’ the new procurement rules.

In health I doubt that anyone can readily mitigate the ill effects on staff of creating a monopoly. And long term no contract can save them from the effects of monopoly employment across New Zealand.

The only competition that will protect employees then, will be for those who are qualified and prepared to leave New Zealand for a better job.

Disclosure – I have shares in Abano which is a part owner of a current provider in our region. It has told shareholders that it is bidding. But I do not know whether it is in its interests to win the contract or lose, because the dynamics pointed out by Tim Hunter could mean that the pricing is so tough it would be better to get out and not be a pawn in a game where the government is a naive counter-party. Providing complex services to a crude customer which does not have the tools to value and reward quality is not worthwhile over the long term.




“Providing complex services to a crude customer which does not have the tools to value and reward quality is not worthwhile over the long term.”

Which is the same way of saying that not all business is good business.

There are three value propositions surrounding these transactions, price , quality and service. By definition, you can excel at any two, but not all three. If customers are only prepared to value ‘best price’ then either service, or quality will suffer. (or both).

You would hope that the health sector and its responsible Minister would recognise that they are not going to be well served by a monopoly provider.

  • Bill Foster
  • February 8th, 2015
  • 8:27 am

You did not get around to mentioning a couple of major flow-on problems from having a dominant supplier:

First they are likely to willingly participate in proposals to increase standards and regulation of their services (when not really needed) even if that reduces profitability (though probably increases cost to the consumer) as that strengthens barriers to entry and consolidates their position.

Secondly, since they are evaluated on overall performance, suppliers can afford to save money by neglecting service quantity or quality at the margin (e.g. rural areas) where it is more expensive to provide for them.

These characteristics of having a dominant supplier in the name of “efficiency” are what rural areas are seeing under the “supercity” model of local government amalgamation. Wellington region ratepayers are well advised to avoid it!

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