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This research examines the conflicting relationship between management and medical personnel in the New Zealand Public Health Sector with regard to costing and funding systems. Due to the lack of research into small DHBs, this research focuses on small hospitals as they face unique circumstances not experienced by larger hospitals, to discover potential areas where costing and funding systems cause conflict, the reasons for this conflict and to provide possible solutions to prevent or mitigate this conflict. The method employed is a qualitative exploratory case study of one DHB utilizing a two phased semi-structured interview approach. A total of 10 interviews were conducted and analysed.  Three main areas from which conflict arises were identified: the costing system within the case hospital, the Population-based funding system and Inter-district flows. Each area is investigated from the perspectives of management and medical staff, using Institutional Theory and the concept of legitimacy. The institutional theory lens is used to identify and separate the interviewees into three groups based on their competing institutions. Each group’s answers were then compared to find reasons as to why there was conflict.  Three core reasons for the conflict were identified: ineffective communication, lack of trust in management and the costing and funding systems themselves. Much of the tension is because of misconceptions, limited knowledge and poor communication leading medical personnel to feel that management does not respect their opinions and management to believe that medical personnel are unwilling to cooperate with them. This research also determined that the institution of management that focuses on costs and economic use of resources and the institution of medical personnel which is patient focused, are necessary to the operation of a public hospital. Though it can be a difficult to balance, the ideal situation would be for these institutions to work in harmony and perhaps eventually merge. Suggestions are given for reducing internal conflict between management and medical personnel and it is hoped this research offers a starting point for future research into improving both the costing and funding systems and the internal relationships between management and medical staff.

How Costing and Funding Systems Create Institutional Tensions Between Management and Medical Personnel in The Public Health Care Sector