Health NZ savings target now $2 billion

Friday, 4 October 2024

Health NZ Commissioner Lester Levy at the health select committee in September.

Questions are flying over how and when Health New Zealand’s savings target became $2 billion ‒ and how this can happen without cuts to frontline services.

When the Government brought Commissioner Lester Levy into the agency in July, Health Minister Dr Shane Reti said Levy had a “savings objective of approximately $1.4b” – a figure which matched the projected deficit by June 30, 2025.

But, a footnote buried in Health NZ’s quarterly report released on Thursday, reveals the savings target has climbed.

Health New Zealand Commissioner Lester Levy, in his first Parliament appearance, called the agency's issues a 'cocktail' of problems. Appointed to address financial concerns, Levy appeared without key documents. Jenna Lynch reports.

“A reset of the savings programme is under way as part of budget 24/25 and the turnaround programme to identify specific savings and actions to enable HNZ to realise savings targeted at $2bn for 2024/25,” it states.

Sector leaders already say it’s impossible to cut $1.4b in public health spending without affecting the front line, despite Government and Health NZ leaders saying it can be done.

Council of Trade Unions (CTU) economist Craig Renney said the bigger the saving, the bigger the impact.

Council of Trade Unions (CTU) economist Craig Renney says the report is the first mention of a $2b savings target.

“You can't cut $2b from health and not notice it … That’s a huge potential cut and is clearly not possible from just efficiencies.“

Renney said it was unclear why the savings figure was $2b, when Thursday’s report did not indicate the projected $1.4b deficit had grown.

“Nowhere has anyone said we need to save more money than is necessary to keep the lights on.”

“What are they doing with an extra $600m? This suggests that either things are much, more worse, or they’re going to try and cut money to then recycle it [somewhere else].”

Health NZ has a total annual spend of about $28b, including more than $14b for hospital services and $9b on primary care.

Health NZ, Reti and Finance Minister Nicola Willis were all asked how the agency would make $2b in savings without affecting the front line.

Health NZ did not directly address questions but sent a short statement saying savings target and reset programme were yet to be finalised.

Health Minister Dr Shane Reti is facing questions on where the savings directive came from. (File photo)

“The $2b figure represents an estimate as at the end of June and further work has been under way on saving targets. This work is ongoing and we are close to finalising our plan and savings targets, which we plan to release publicly in due course,” it said.

Willis and Reti were both asked whether they called for the $2b in savings and why, and whether Cabinet signed off on the figure, and when. Neither would address those questions directly.

Willis’ office said Reti was the appropriate minister to respond. Reti’s office said he was not available for an interview on Friday, but said the minister expected to receive HNZ’s savings plan shortly.

His office did not respond further when The Post pushed back on why the target was $2m.

The quarterly report has shed the clearest light so far on how and why Te Whatu Ora’s finances deteriorated from a forecast surplus of almost $300m to an unaudited deficit of $934m by June 30, 2024.

The report states Health NZ expected to receive $529m to fully offset pay equity payments for thousands of nurse, midwives and allied health workers, but this “was not received during the year”.

Reti previously said Cabinet approved funding to cover pay equity settlements for allied health and midwifery staff, but made no mention of nurses.

Cabinet approved $419.5m for Health NZ in September – outside the reporting period of April-June.

Chief executive Margie Apa said the 2023/24 deficit also due to one-off factors including write-offs to surplus Covid-19 stock ($193m), Holidays Act payments ($172m), cuts to Hauora Māori funding, higher than expected staffing costs and more outsourcing.

‘Plagued by inefficiencies’ - doctors’ union

The head of the Association of Salaried Medical Specialists (ASMS), which represents thousands of senior doctors, said nothing in the quarterly report evidenced the Government’s claims of financial mismanagement.

Rather, the agency was “plagued by the inefficiencies” of underfunding, staffing gaps, overpopulated and outdated hospitals and tired IT systems, ASMS executive director Sarah Dalton said.

“When you've got crumbling facilities and failing equipment, that is expensive. It's like trying to keep an old car on the road. It's plagued with problems. You have to keep fixing it, and it's not very efficient,” Dalton said.

“That creates cost, but that's not mismanagement. That is the product of our under resourced system.”

Labour’s health spokesperson Dr Ayesha Verrall said she would be lodging written questions on $2b target, but said the quarterly report supported her view the health system was underfunded, not financially mismanaged.

“Lack of funding is driving the deficit.

“Cabinet decisions caused a large part of Te Whatu Ora’s deficit in the 23/24 year and those claims became the basis for a round of cost cutting that’s just getting underway now.”