July 22, 2024 9:42pm by David Farrar

The Health NZ problems

In response to serious concerns around oversight, overspend and a significant deterioration in financial outlook, the Board of Health New Zealand will be replaced with a Commissioner, Health Minister Dr Shane Reti announced today.

“The previous government’s botched health reforms have created significant financial challenges at Health NZ that, without urgent action, will lead to an estimated deficit of $1.4 billion by the end of 2024/25 – despite this Government’s record investment in health of $16.68 billion in this year’s Budget,” Dr Reti says.

“Health NZ first reported a deteriorating financial position to me in March 2024, despite earlier repeated assurances by the organisation that it was on target to make savings in 2023/24.

“In the months since, the situation has worsened. Health NZ is currently overspending at the rate of approximately $130 million a month.

“That’s why today I am announcing the appointment of Professor Lester Levy, the recently appointed Chair of Health NZ, as Commissioner for a 12-month term. This is the strongest ministerial intervention available under the Pae Ora Act and not a decision I have taken lightly, however the magnitude of the issue requires such action.

“The issues at Health NZ stem from the previous government’s mismanaged health reforms, which resulted in an overly centralised operating model, limited oversight of financial and non-financial performance, and fragmented administrative data systems which were unable to identify risks until it was too late.

This decision is no surprise, and the reasons why are multiple.

The merger was not what was recommended

The Heather Simpson review did not recommend merging all 20 DHBs into one monoithic entity. She recommended moving to 8 to 12 DHBs.

Labour ignored this and decided to do in health what they did to the polytechnic sector, and try and centralise everything.

The timing was awful

Deciding to try and do the largest possible reform of the health system during a global pandemic was nuts. Even if the decision was correct in principle (and it wasn’t), it should have not been implemented during a period where the health system was struggling just to cope.

Top level governance and management was needed

A world class CE would be needed to pull off a merger of 20 DHBs and 80,000 staff. The CE appointed had merely been CE of a DHB for three years. I have no reason to think they were not a good DHB CE, but what Health NZ needed was someone with massive experience in change management and leadership.

There were some good people on the Health NZ board, but a board can only act collectively through formal meetings. This is partially why they changed Lester Levy from a Board Chair to a Commissioner. Effectively Levy is now the Executive Chair, and the CEO is more akin to a COO.

The merger added many layers of bureaucracy

Rather than reduce management jobs, the merger has increased them. For example each DHB used to have a CIO. I’d almost guarantee you they are all still there (maybe different titles) but now they will have above them a Regional CIO, then a Deputy CIO and a NZ CIO.

The PM has said in some areas there are 14 layers between the patient and the CE. Decisions that used to be made locally quickly now go up to Wellington and wind their way through multiple layers. They have both regional and national bureaucracies on top of what was in each DHB,

Costs can exceed savings for many many years

In theory one HR/payroll system is better than having 20. But when you already have 20 operating then, you need to build what may be an entirely new system with bespoke design that can cope with the requirements of all 20 former DHBs. This will cost a huge amount, and at the same time you need to maintain all the existing systems, and then work out a transition plan which can also be highly costly and disruptive.

Health spending is increasing not decreasing

The problems with HealthNZ are not due to National not increasing funding.

In 2019 real health spending per capita was $3,610 (on 2017$). In 2023/24 it was $4,270 and in 2024/25 it will be $4,330.

As a percentage of GDP health spending was 5.74% in 2019, 6.82% in 2023/24 and projected to be 6.90% in 2024.25.