Health NZ finances dump reveal when fractures began to show

Tuesday, 8 October 2024

What went on behind closed doors in the lead-up to the Government installing a commissioner at Health NZ is becoming clearer following a massive dump of documents from the embattled Crown agency.

The agency recorded a $934 million deficit for the year ended June 30, 2024, and would face a projected deficit of $1.76 billion by June 30, 2025 “without interventions”.

These interventions include a savings target of up to $2b, massive cuts to capital projects and staff.

“We are going to have to reduce the cost structure for organisation and increase output,” Commissioner Lester Levy told media on Tuesday.

His comments followed Health NZ - Te Whatu Ora’s release of 454-pages of financial information, including letters between the Health Minister Dr Shane Reti and the former board, briefings, aide memoires and monthly financial statements.

The documents identify the cost of staffing beyond what was budgeted, significant one-off costs, and Crown funding not being received when it was expected.

Broadly, the agency’s leaders put the deficit down to the agency living outside its budget, but at what point this became clear to the former board and ministers remains a point of contention.

The documents reveal the books began turning from black to red in April.

Reti has said he was first made aware of a “deterioration” in financial outlook by officials and the Crown observer during March.

However, in one telling letter director general of health, Dr Diana Sarfati told chairperson of the board, Dame Karen Poutasi on February 2 that Reti was concerned about the Ministry of Health’s access to information from the board.

Reti had stressed the ministry needed to see papers before going to the minister, receive timely information, including for the Budget process, and have access to board papers.

Sarfati urged the board to fast-track crucial information to make a case for funding in the upcoming Budget before a February 15 deadline.

In the same letter, Sarfati said both the health and finance ministers had “expressed disappointment in the savings identified by HNZ” so far.

Things ramped up on March 22 when Poutasi wrote to Health Minister Dr Shane Reti refuting “serious allegations” about the board’s performance from Finance Minister Nicola Willis.

Willis had written to Reti on March 19 concerned “the deficit could accumulate over time” and “the Board did not seem across the detail of this issue”.

The allegations “present an unfair and incomplete view of the position”, Poutasi wrote.

“We want to assure you that as a Board we are committed to and focused on raising productivity and ensuring good financial discipline.

“It is worth noting that we understand that all the current board members were selected after an extensive independent process for their skills and experience including in financial, commercial and transformation disciplines,” Poutasi wrote.

Reti dismissed what was left of the board in July and he and Prime Minister Christopher Luxon announced Levy would take over as commissioner.

But on Tuesday following the document dump, Reti appeared to defend the board.

“This material demonstrates how quickly the deficit appeared on the Health NZ books, and also shows that the incoming Government and the Health NZ board were unaware of the extent of the overspend until it was too late.

“Once we knew we sought more information, but the situation continued to deteriorate. We then made the decisive decision to appoint a Commissioner.”

Levy would not comment on the Government’s early claims about Health NZ “mismanagement” of its finances but cited a “breakdown in internal controls” on Tuesday.

Reti said Levy and his team were working to get HNZ back to budget and in a position to achieve the Government’s health targets, which largely relate to faster access to treatment.

“We expect Health NZ to work within this record investment in health, and get back to budget,” Reti said.

The documents stated the agency could “break even” by the end of June 2026.

Health NZ chief executive Margie Apa said the documents revealed much of the overspend is related to increased staffing, along with one-off payments like Holidays Act liabilities rising by $172m and Covid stock worth $121m being written off.

“Some [costs] are ‘ongoing’ (e.g. growth in nursing FTE and hours paid beyond budget),” Apa said.

“Our ability to deliver the frontline health services New Zealanders expect requires us to be in a stable and sustainable financial position.”

Despite this, Health NZ managed to “care for more people than ever before” last year and made some inroads into wait times, she said.

“The work being done at the moment will allow us to live within our means while ensuring continuity of service and delivering on the Government’s health targets.”

That included appointing four regional deputy chief executives “to focus on delivering for their communities”.

Apa said the work would “strengthen the frontline and ensure there is no impact on frontline clinical delivery.”

She and Levy emphasised there would be no cuts to medical staff.

Labour’s health spokesperson Dr Ayesha Verrall said the documents proved the Government was “gaslighting” the public over claims of excessive layers of management and a bloated non-clinical workforce saying “these documents… don’t back those claims”.

“It is clear the cause of Health New Zealand’s deficit is underfunding, not over spending.

“They are now cutting services and penny-pinching, blaming back office staff who keep the health system functioning.”

The document dump was a response to a number of Official Information Requests and other interest, Health New Zealand intends to proactively release a range of documents related to its financial situation.

The Post lodged Official Information Act requests in July asking for emails between executives on a range of dates in late February and March about finances and deficits, along with minutes of meetings from a committee understood to have been set up early this year in response to financial concerns.

On October 3, long after a response was due, Health NZ provided one email from Margie Apa to former chief financial advisor Rosalie Hughes (then known as Rosalie Percival) and chief people officer Andrew Slater on February 27 related to a report on key performance indicators from the executive leadership team.

The email stated the reports “don’t have all the financials or FTE data. Can you remedy and get reporting or discuss with colleagues how they can access their information.

“The most complete is Dale and Nick’s. I suspect this is because they can navigate financials from past experience.”

Dale Bramley is the agency’s planning, funding and outcomes director, and Nick Chamberlain the director of the National Public Health Service.

Hughes was excised from the agency after Levy took over as commissioner. She won New Zealand’s CFO of the Year Award in 2023.