Mark O'Brien:
Hello, I'm Mark O'Brien and you are listening to Transformational Healthcare Leadership, a podcast series from Oxford University's Saïd Business School. A collection of interviews with leaders from across the globe exploring the five key themes of the school's healthcare leadership program. The personal leadership journey, understanding the evolving environment, effective strategy formation, driving innovation and improving performance.
The COVID-19 pandemic precipitated massive disruption in healthcare. So how have healthcare leaders responded to this challenge? What are they thinking? What personal journey are they on? How do they survey the changing landscape? What strategies have they tried or intend to try to ensure their team, their organization, their country not only survives, but thrives?
In this episode, I interview Stephen McKernan and particularly explore the themes of understanding the evolving environment and effective strategy formation.

Stephen McKernan:
Well, kia ora, Mark. [inaudible 00:01:08] Special welcome and acknowledgement from Aotearoa, New Zealand. It's lovely to be here today and to share some thoughts with you on our recent journey here in New Zealand. Just to cover off your first question, Mark, the historic arrangements where we had the Ministry of Health as the government's principal advisor on strategy and policy, but it also performed a range of other roles, including commissioning of some functions.
We had a publicly funded system and at its heart were the 20 district health boards who received funding allocations on the basis of a population health funding allocation. They would then allocate funding both to the, what we term the provider arm, the hospital part of the system, and also commissioned primary and community-based services, aged residential care, and the plethora of other providers providing primary and community-based care.
This system has actually been in place for some 22 years. It first came into being in 2000, and so it's quite long actually for a healthcare system to have gone 22 years without substantial reform. But through that 22-year period, there have been a range of other features put into the system, which really has caused the system to sort of deviate away from some of the original intentions. This culminated in a review that Heather Simpson undertook, was commissioned by the government to undertake a review some two years before we became engaged. And at the heart of this review, there were a number of themes around how the system was functioning and concerns, one of those was while DHBs had a requirement to lift and improve health inequities, they had really struggled to do that at a national level. There were some pockets of promise, but at a national level, we'd really struggled to impact issues of equity.
So we have a substantial difference in life expectancy and outcomes for Māori and for Pasifika. This also came to a head in the Wai 2575 Waitangi Tribunal claim, which highlighted these deficiencies, particularly for Māori. The system had also become overly complex. This was another theme of the Heather Simpson review for a system that was relatively simple, it had become overly complicated on this 22-year journey, and it had really struggled to deliver in the national interest. DHBs were prioritizing at the local level, but would really struggle whether it was the rollout of a national bowel screening program or the rollout of a financial system to lift performance. These things were taking a very, very long time and we really struggled to embrace and deliver, in the national interest, the things that a new and contemporary system would require.
It was a system that also failed to keep up with consumer preferences. Surveys show that consumer's willingness to, whether it's adopt digital technologies or to undertake tests at home or to interact with their primary care provider virtually and services virtually, consumer preferences were running well ahead of the system's ability to respond, and these were worrying features and lost opportunities.
And the fourth key theme was really about the long-term sustainability of the system that as we allocated funding, it tended to be the hospital part of the system, the specialist part of the system that got the lions share of the funding allocation coming out to district health boards. So while we wanted to shift services closer to home and while we wanted to embrace primary care, we really struggled to shift resources into that primary and community space. So this view that short-term annual funding cycles and allocation to large entities that would then allocate those new resources really weren't getting to the areas that would really make a health impact over time.
So that's a bit of a long-winded answer, Mark, but at the heart of this 270 page document, those four key themes were really some of the case for change of why the system needed to respond.

Mark O'Brien:
That's fascinating, Stephen. So it sounds from the beginning there was an objective to deliver a national health system. So where do you begin? There's shortfalls in the systems as it was. How do you go about designing a process to develop a national strategy and a direction that addressed those shortcomings?

Stephen McKernan:
Well, actually there wasn't, your point about the national health system, wasn't quite true at that time. The Heather Simpson Review actually highlighted that there should be the creation of a body called Health New Zealand and the creation of the Māori Health Authority, but that district health boards would exist, but there would be a reduction in that number. Government had accepted the case for change and accepted the general direction of the review, but they'd chosen to come up with a sort of redesign of the system and hence the approach to ourselves to lead the reform program and the reform unit. So we were tasked really with going away and coming up with, what I'd term, the policy response, the policy and strategy response to the problem definition that the report had outlined. Remember, since the report had landed at the beginning of 2020, we also had the impact of COVID.
So one of the issues that was front of mind for ministers also was, are the lessons and learnings that were experienced through that COVID six months, how are they going to be encapsulated in the redesign of the health system? So in taking a, I guess, a policy and design view, we started with, one of the desired outcomes that we seek for the system, what was termed Pae Ora (Healthy Futures) we wanted a system that was more equitable. Achieving equity was a clear desire. A system that was more sustainable, a system that was more centered on the consumer, on person-centered care, a system that truly achieved partnership, particularly our obligations to Te Tiriti that underpin the very fabric of New Zealand society, and a system that achieved excellence in quality and outcomes and innovation transfer.
So if this was the vision, then what we determined was that they needed to... is what does how look like? So we wanted a system that reinforced the Te Tiriti principles. We wanted a system where people could access a greater range of services in their home. We wanted a system that would truly embrace the virtual access and the opportunity that digital solutions, well-designed, could provide our system. And we wanted a system where workers who worked in the health system, our health workforce, were truly valued into the future.
So we called these the key system shifts that we wanted to achieve, but to achieve these shifts, we also came up with a range of strategic choices that government would have. What is the level of autonomy that you want in the system? How do we go about the planning and commissioning of hospital and specialist services? Recognition that the hospital part of the system, the outcomes and delivery should look pretty similar no matter where you are in New Zealand. Acknowledging that some of the scope of delivery of services provided at hospitals they might be tailored and changed, but what is the level of national consistency versus local flexibility? What are the enablers that we require in the system and how are they best provided?
So we landed on this direction for strategic choices and we listed all the functions. We never talked about district health boards or primary health organizations or the ministry, for that matter. But rather, we focused on what are the functions that the system needs to better deliver on the problem definition, and therefore what are the choices that are available within the actors in the system in order to organize the system accordingly to better deliver? So that was the approach that we took, a policy approach, a focus on the desired outcomes, a focus on some of the system shifts, thinking about the strategic choices and options available, and then how do you mesh that together to get the right distribution of functions across the system? How do we tailor primary care in remote and rural communities and allow a level of local flexibility versus perhaps running a national hospital network that you might want to plan and organize with a stronger national oversight and view? So these were the choices that led into ultimately the system design.

Mark O'Brien:
Stephen, that's fantastic. I love the language of strategic choices being so explicit in the work that you did because I think in any major strategic change, sometimes people have an idea that there's the one right model and that they start designing, if you like, before they actually do that big thinking, what are actually the choices ahead of us? So I just love the way you articulated that, but Stephen, I can't imagine the complexity that you must have faced with that, the interplay between politics, stakeholder groups, clinicians, just to name a few, consumers, all try to influence the outcome of this work. How did you manage that process of hearing all the voices, on the other hand, not raising expectations to a level where everybody would be disappointed with the strategic choices you made?

Stephen McKernan:
Well, I mean you said it was a huge challenge. It was probably the most enjoyable part of the process, to be perfectly honest, Mark, because we didn't have a model and an output, we were able to engage in a way where we didn't know what the final design was going to be. As I said, government were keen on a policy process, a design process, so what we would engage on were features of the system, and we had a huge level of engagement between the period from September 2020 to March 2021, we did over 300 stakeholder engagement sessions with a huge range of groups, some of who you've named, the colleges, the unions, interest groups, staff, and we tended to talk about functions. So what would a specialist part of the system, what would the national network of hospitals look like? What parts of that should be nationally planned? Who should be making decisions, for example, around investment in new technologies in the system? What should we do once versus what should we allow a level of local tailoring?
So we would go out and we would test and we would engage with stakeholders on these features of the system because as I said, we hadn't, at that point in time, had a specific structural option in mind that we were looking to sort of get feedback on. So that was a fascinating time for us and there was huge anticipation and huge support for the system and that engagement process.

Mark O'Brien:
That's great, Stephen. So that's part of the strategy of helping to redesign. Can you tell us more about the full strategy to achieve the aims of the redesign and how that was implemented? Were there stages in the process perhaps that you could outline to us?

Stephen McKernan:
Yeah, definitely. So I mentioned previously, the design phase was really that period, September, we came on board in September and it was that September through to March and it was really through February, March where we landed the cabinet paper and we put a range of options and choices to ministers before agreeing the final design, which was announced in April. So in many ways, that period from September to April is what I'd call the policy and design phase. As I said, there were the announcements in April around the future operating model design for the system. Then we moved into a phase which I'd call more sort of implementation planning. We had to... A big construct there was the creation of the legislation, the Pae Ora Bill and working with parliamentary council in order to do that. And that phase took about four to five months.
There was further policy and design work, sort of second order work, and we also looked to start to establish some of the key features of the policy and design work and national health plan, the consumer framework, the workforce charter, the establishment of prototype. So we geared up from being a policy group of about 20 odd people through the design phase into a transition unit that had about 130 people as we started to implement and develop some of the key design features of the new system and some of those key products like the health plan. So I called that sort of the implementation planning phase, and that really rolled through to September, October.
Then there was the establishment phase, and this was the appointment of boards, the Māori Health Authority, which has now been called Te Aka Whai Ora and Health New Zealand Board, Te Whatu Ora. Those boards were stood up as section 11 committees because we didn't have legislation, we still wanted to stand up boards that could start to form and almost prepare as shadow entities and get ahead of steam before the passing of legislation and all the preparatory work that was required by one July of this year.
So we stood up those boards as section 11 committees, ministerial advisory boards, but to all intents and purposes, they were establishment boards. Then the legislation was ultimately passed earlier this year. The fourth phase though, that period really from boards through to one July, we were very clear on what the minimum viable product was that we needed to have in place for one July. We had to transfer the 80,000 staff, for example, from district health boards into Health New Zealand, Te Whatu Ora. We had to shift a significant number of people out of the Ministry of Health as it looked to define its functions and transfer those people into Te Aka Whai Ora and Te Whatu Ora, to Health New Zealand and the Māori Health Authority.
So there was a massive program of work, which I would call preparation for day one that really occurred between that period of January through to July. And this was also complimented by a very strong assurance focus, a ministerial committee that, or a committee that advised me and that advised the entities around the assurance work. What were the key things that had to be in place in order to be live on day one? So really four phases for me, Mark, that policy design, that implementation, that establishment, and then that preparation for day one is probably the best way that I can outline those.

Mark O'Brien:
As I said, Stephen, at the start, this is strategy on a grand scale, isn't it? When you're working at a national level to completely redesign a system. My understanding is in the final design there were five key principles guiding the new system, and I know you've alluded to some of these already in what you've said. The first was people-centered, a system that brings together the voice of all communities. Equitable, a system that focuses on working in partnership with Māori and Pacific Islanders, who form a large percentage of the New Zealand population. Accessible, a system that offers more equitable, convenient, and integrated access to service for all New Zealanders. Cohesive, a national health system that delivers locally supported by coordinated planning and oversight, and finally, excellence. Excellence in everything that's undertaken. Perhaps I can invite you to add any further thoughts or ideas on these five key principles.

Stephen McKernan:
Yes, thanks, Mark. I think one of the key issues around what's this national system is while there are some things that make sense to do once nationally, the level of tailoring and the importance of localities has often been overlooked and understated. And at the heart of that, it's around how locality planning and localities into the future will incorporate the voice of consumers and work with Iwi Māori partnership boards, which are a new construct to provide advice around planning and priorities for at a locality level.
As we said at the start, the system has failed to address issues of equity for Māori. The importance of having Māori active and involved in the governance and prioritization of programs and work within the system is critically important. And Iwi Māori partnership boards to ensure that Iwi have a voice and say around what it means for access, what it means for Māori to be more involved is critically important, and that's a key feature of these key design principles and the system moving forward.
I think the other point I'd be keen to make there is that we worked closely with the National Consumer Collective under the banner of the Health Quality and Safety Commission, and the importance of consumer rights right through the system and consumer involvement into locality planning and into some of the national priority setting is critically important and a key feature of the system moving forward.

Mark O'Brien:
That's fantastic, Stephen. So let's now get down to the results. What's the end product? How's the system designed differently now? You've mentioned the two boards. Tell us a little bit more about what the New Zealand health system will look like.

Stephen McKernan:
I'll start with the Ministry of Health. The Ministry of Health will continue to have a critically important role as the government's principal advisor on health matters, on the performance of the health system, the priorities for the health system, but it is a slim down ministry and much of its commissioning function and some of its arrangements around digital and support for the system have transferred over to Health New Zealand, to Te Whatu Ora. So the ministry, again has that critical role as steward and as the principal strategy and policy advisor.
Te Whatu Ora or Health New Zealand has taken the 80,000 employees that worked within our hospitals, worked within our community-based services, district nursing, public health nursing and so on, dental therapy, mental health, and it is the operational arm of the New Zealand Health system, as we said, a truly national health system. It will also undertake planning and commissioning and driving performance and innovation and improvement through the system.
It will have four regional divisions that both run the specialist part of the system, the operational delivery part of what we know as a hospital and specialist part of the system, and also commission the other parts of the system, population health providers, primary and community-based providers, and it will network that through districts and into localities. Te Aka Whai Ora, the Māori Health Authority is a new creation and a really exciting creation, and it has a breadth of role. So, on the one hand, it will be a strategy and policy advisor working with the ministry to advise the minister on health strategy and policy in respect to Māori. It will also have a role in monitoring the performance of the system and in particular Te Whatu Ora or Health New Zealand around how is Health New Zealand going against delivering on its Māori health obligations in respect to its performance with Māori? And it will co-commission with Health New Zealand at a regional and locality level, those locality plans, those regional commissioning arrangements. So in essence, you have a co-commissioning function and joint sign off in relation to priority setting and performance of the system.
The public health agency and the National Public Health Service. So inside Health New Zealand, Te Whatu Ora, you will have a national public health service. This brings together the 12 public health units that used to exist within district health boards. So a strengthened national public health service, and this was one of the key recommendations and changes following the impact of COVID. That ability to perhaps take some of the variation and get a truly national response was something that everyone, most that we engaged with, were very supportive and keen on. Inside the Ministry of Health, there will be the public health agency as a business unit of the ministry, which is really the strategy and policy function around public health priority setting for public health policy and strategy setting on behalf of the system as a whole.
There are some other features of the system that are critically important, just to highlight. I mentioned at the locality level there will be localities, primary community-based localities that will work with Iwi Māori partnership boards to understand priorities and reflect these priorities. And this is where that level of local tailoring, the relationship with other providers, social care, education providers, housing providers, to really impact some of those social determinants at a grassroots and locality level being a critical feature of the system moving forward. And those locality plans will be commissioned at a regional level by Te Aka Whai Ora and Te Whatu Ora, Health New Zealand and the Māori Health Authority. This isn't a separate system, this is a joint system, but partners working in tandem to ensure that the priorities required to truly lift health gain are better reflected at locality level and commissioned regionally.
There are also some key, call them, products or requirements that are nested in legislation, Mark, that are new features. So a government policy statement that sets out the intention that government has multi-year statement for health service provision, a health plan, a three-year document and funding settings that move from an annual allocation to, in time, a three-year grant to move away from the churn that goes with the annual planning cycle to something that provides great surety and that health plan will encapsulate the priorities for the system for that next three years. That health plan is to be a joint document produced by Te Whatu Ora, Health New Zealand and Te Aka Whai Ora, Māori Health Authority.
There will also be some key strategies, Māori Pacific disabled people, rural women's health that will inform that critical health plan. So this overarching health plan being a key document, as I said, these are new features of the health system and at its heart are about really trying to shift and put the focus on a system that addresses equity in a way that gets the whole system to do it rather than what we've often felt like historically, almost trying to run it as a separate work stream alongside the system. So that's some of the key, I guess, artifacts and features of the system, Mark.

Mark O'Brien:
Stephen, I can imagine a lot of our listeners listening enviously to those design principles. Personally, I thought the idea of a three-year funding cycle would be incredibly appealing to leaders who are trying to make a significant difference, as you said, to address those sort of structural inequities in healthcare delivery across the world. So yeah, I think it was really an incredible opportunity for us to hear from someone who was actually tasked to do this big thinking to hear those sort of design features of the new system.
Stephen, we're going to quickly move on to implementation of the reforms, but I'm just going to ask you, are there any lessons you learned in designing this strategy process now that we should hear about? What worked well and what, if anything, would you do differently if you had your time again?

Stephen McKernan:
Certainly, I don't think we could have gone any faster given the five months of design, the legislation process was, as far as legislation processes go, was very rapid in order to get the entities in place for one July. There've been huge challenges along the way, as you can imagine. The shifting of functions from the Ministry of Health that some thousand people transferred over in a very short period of time and the timelines necessitated that. Also, just the size of the task for Health New Zealand, Te Whatu Ora, in particular to gear up to transfer over staff, to get the processes and systems in place. And I think if we had more time, that would've been beneficial in terms of bedding in some of the structures and people in the leadership of the system. But equally, it's within their making.
I think equally, Te Aka Whai Ora started from scratch to actually build a new entity, it's sometimes easy to underestimate the size of the challenge to bring on capacity and capability to perform the tasks. So for me, if there was anything, it would've been nice to have had some more time. Equally, the importance of the agencies moving to respond quickly and being able to create that is within their domain right now.

Mark O'Brien:
Well, Stephen, it was just wonderful to hear your reflections on strategy, but I'd like to turn our attention now to your other areas of expertise and interest and link them back to your redesign of the New Zealand healthcare system. The complexity of healthcare design and delivery has been supercharged by the COVID-19 pandemic, as you mentioned, and many leading economists and social thinkers believe that the combination of the effects of climate change, increasing geopolitical in its stability, which is manifesting particularly in healthcare through supply chain disruption. In some countries we have an aging demographic, in others, a large youthful population struggling to find work and satisfactory living standards, and all herald globally rather than perhaps previous regionally-based, an era of scarcity ahead.
I know in New Zealand you face the challenges of financial and labor force limitations in responding to the needs of your population. So what advice do you have for our listeners on how to lead complexity in these very challenging times?

Stephen McKernan:
Yes, they have certainly been incredibly challenged times, Mark, and the geopolitical environment continues. It is an unsettling time, and I think the first and very important point is to create the operating environment that best supports and recognizes the people who currently work in the system and the important work that they do day in, day out, that need to provide the leadership, to provide the inspiration, to keep going, to provide the care and the empowerment that people's voices and opinions matter. Understanding the needs of the workforce and where you can look in to support and with new technology, new models of care, particularly in some of the primary and community areas, different modes of workforce delivery will all be needed to get us through this period of time.
For us in New Zealand, one of the things I think we've been really challenged with in terms of health workforce, the 20 district health boards were only ever required to implement an annual plan. A large system that's focused around the needs of our annual planning cycle. So the incentive for district health boards is if you've got workforce shortages, and I should know, I used to be one, it's easier to often borrow from the neighbor as it is to really work collectively to address the long-term shortages. And this is something that the system can now better do and is a huge opportunity and a absolute must, given the demand pressures that are on the system at the moment.
So incredibly difficult, but that need for that engagement, that empowerment, that collaboration and working collectively to deliver on these demands and challenges we face and to recognize the stress and the challenges that the system is under, but also to be very clear around where those glimmers of hope are, whether it is the new workforce models, whether it is the new technologies that can be a game changer, those digital solutions, the home-based monitoring support to support early discharge and so on. These things are all collectively important and will become more important as we progress now and into the future.

Mark O'Brien:
Well, Stephen, what a wonderful conversation, full of such recent and on the ground experience of strategy formation and delivery at scale. Stephen, finally, we ask all the contributors to this podcast series, the same two questions at the end of each interview. Firstly, what possibilities in the healthcare ecosystem most excite you as you gaze into your crystal ball for the next 10 years?

Stephen McKernan:
Oh, Mark. In the New Zealand context, I'm hugely excited about the establishment of Te Aka Whai Ora, the Māori Health Authority. I think this has the potential to be a real game changer for Māori and for New Zealand as we truly embrace our indigenous roots and really apply a system-wide focus on impacting inequitable outcomes. Those new models that Māori know best, what will and will not work for them, whether that's in relation to how Māori engage more broadly with social care providers, intersectional providers, is really, really exciting. The innovation that they can bring to lifting health outcomes for Māori, I look forward to with huge anticipation.
I guess the other point, you mentioned healthcare ecosystem, it would have to be the possibilities that digital provides. I think we use words like transformation and disruption way too liberally in many of our sectors, but really digital does provide that. Services that are well-designed that really can impact some of our historic ways of providing services are a real game changer. And whether that service is designed by Māori or Pasifika or elderly or other population groups, digital does provide a real opportunity to transform and disrupt some of the business models and some of our historic provision that we often feel stuck and difficult to shift in healthcare systems.
So for me, that's a New Zealand example in Te Aka Whai Ora and the prospect and opportunity that's provided there through the Māori Health Authority, well, with Te Aka Whai Ora and also the digital world and the opportunities afforded by new technologies.

Mark O'Brien:
Stephen, I'm sure everybody wishes the New Zealand health system well as it undergoes this amazing transformation. My second question, as a leader yourself, what's the one piece of advice you would now give your 20-year-old, younger self about becoming a powerful leader?

Stephen McKernan:
I think certainly one of the key learnings for me in coming to EY, which I feel has been a bit of a lost opportunity as I reflect back on my career, has been the exposure to what other sectors and industries are doing. I think health can and should be much more open to learning from other sectors and industries around the innovations that these sectors bring and could bring to our healthcare. Whether it's a huge focus on the role of the customer or being more customer-focused or bringing data and insights or supply chains in health, there is a lot of learning that we should adopt from other sectors that I think we've historically been a bit slow to.
I think in that, for me, as I get older, I can also reflect on the last 20 years. I don't think we recognize well enough the cost of time and the cost of inaction. We often think and are happy to put up with what is less optimal results, when actually taking the bull by the horns and addressing some of the challenges and issues that are in front of us, although they may be difficult, are critically important to do.

Mark O'Brien:
Stephen, such amazing wisdom. It's been such a pleasure interviewing you today, and thank you so much for your time. And as I said a little earlier, I'm sure all of our listeners wish you and the New Zealand healthcare system all the best as you undergo this amazing transformation.

Stephen McKernan:
Thank you Mark, and it's been great having this conversation with you this afternoon. All the very best and all the very best to your listeners on their healthcare journey.

Mark O'Brien:
You have been listening to Transformational Healthcare Leadership, a podcast from Oxford University's side business school where we speak to outstanding healthcare leaders from across the globe who share their insights on healthcare leadership as we navigate the complexity of modern healthcare delivery. And for those interested in furthering their healthcare leadership journey by joining us at Oxford for the executive education offering that I and my colleague Eleanor Murray have the privilege of leading at Saïd Business School.
You can find details about the Oxford Healthcare Leadership Program in our show notes. We'd love to see you at Oxford. Transformational Healthcare Leadership is produced by Chris Ashmore Media, and if you enjoyed listening, please subscribe to hear further episodes and tell your friends. Thanks for listening.