Improving the effectiveness and efficiency of public services is a priority for governments as the population ages and becomes wealthier. McKinnon has partnered with Prof. Gary L Sturgess to study and document the decade-long organisational transformation of New South Wales Health Pathology (NSWHP) as a case study into the critical success factors driving successful productivity enhancements in the non-market sector.  

The human services sector is a large and growing portion of our economy and society, much of which is delivered government. Governments need information and tools on how to continue to meet community expectations while managing cost growth. The reform of NSW Health Pathology (NSWHP) delivered tangible benefits by empowering frontline senior managers with the right levels of responsibility and incentives. This reform provides valuable insights for driving improved productivity in publicly-funded service delivery.   

The reform of NSW Health Pathology has delivered improvements in many domains over the case study period, including delivering improved productivity and savings for Local Health Districts while maintaining quality and safety.    

1. Productivity gains: NSWHP delivered more than 22% increase in productivity (activity / hour worked), which was even higher in regional and rural areas (up 27%).  NSWHP processed 24% more pathology requests, while staff FTE grew by 10.5% overall.  

2. Savings for Local Health Districts: NSWHP returned around $280m in savings to Local Health Districts (2023 terms) and reduced total charges to LHDs by 14% in real terms.   

3. Sources of Savings: NSWHP reduced spending on goods and services by 14% in real terms through better procurement, reduced over-ordering of potentially-duplicative tests and made other gains in reducing sick leave and workers compensation claims.   

4. Safety and Quality: NSWHP reduced Harm 2 incidents by 39% since 2018/19, with Harm 1 incidents low and stable. During that period, independent assessments of laboratory quality have improved and turnaround times have been maintained.   

Our case study found that these benefits were driven by four key pillars of success:  

• Leadership – The NSW government’s creation of the conditions for leadership success, the installation of professional senior managers, and the impact of leadership continuity were key to NSWHP’s success.   

• Startup conditions – In important ways, NSW Health Pathology was a ‘start-up’, and management benefitted from the energy which drives successful new enterprises in their early years.   

• Authority and control – Establishing NSWP involved the deliberate choices to move to a state-wide model from regional units, remove management control from LHDs and creating an independent executive agency with clear purpose.   

• Performance – In the absence of market competition or the discipline which the risk of commercial failure would bring, NSWHP constructed a performance culture for the organisation, based on service level agreements with the Ministry of Health and with LHDs, and a comprehensive system of benchmarking.