The awkward five days that exposed Health NZ’s financial crisis

Thursday, 10 October 2024

Health NZ - Te Whatu Ora chief executive Margie Apa laid bare in March that unbudgeted costs to nurses could reach more than $460m.

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Over the space of five days in March, Health New Zealand’s board was simultaneously telling ministers that the agency was living within its means while its chief executive was having to “elaborate” on how it wasn’t.

On Tuesday, Health NZ – Te Whatu Ora released 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 in response to multiple Official Information Act requests.

Between March 19 and March 23, a perfect storm set in motion the sacking of the board and the appointment of Health NZ Commissioner Lester Levy.

Here’s how it unfolded:

March 19

Finance Minister Nicola Willis writes to Health Minister Dr Shane Reti concerned there are early signals of an operating deficit, despite January results forecasting a $507m surplus.

She is doubtful planned savings of $540m for the year to June 30, 2024 will happen and fears “the deficit could accumulate over time”.

She mentions twice in the letter that when Treasury officials met with the board two weeks earlier, “the Board was not across the detail of this issue”.

It is clear, at this point, Willis has lost faith in the board.

“I believe the solution to these issues lies in a capable board that is meaningfully monitoring and controlling Health New Zealand's financial performance, based on good information that it can understand, probe and challenge to hold management to account.”

She says the terms of several board members are about to expire, and encourages Reti to “consider the best use of those positions”.

This letter has been public for some time, but the immediate aftermath was not known until this week.

March 21

Two days later, chief executive Margie Apa sends Reti an urgent and Budget-sensitive briefing citing “internal personnel over-recruiting specifically nursing” as a key explanation for cost increases.

This, along with unplanned hits on clinical supplies, over-expenditure on infrastructure and higher-than-predicted impacts from pay equity costs and Holidays Act payments were among “six areas where expenditure is tracking outside budget expectations”.

Dame Karen Poutasi hit back at the allegations that the agency was not living within its baselines.

March 22

Meanwhile, the board’s chairperson Dame Karen Poutasi bites back, hard, at Willis’ “allegations” in a letter to Reti – who holds the fate of the board.

Poutasi makes no mention of a possible deficit, or staffing hired beyond budget, but admits a $587m surplus is lower than expected and points the finger back at Government.

“The Minister's letter implies that this [lower surplus] is due to Health New Zealand not properly managing costs and living within its baselines.

Poutasi points to the pay equity and Holidays Act changes that Government had required “and which we were assured would be fully funded from the centre”, and “insufficient” funding for them.

It’s unclear if Poutasi is aware at this point of the information Apa provided the day before on nursing staff costs.

The same day, the Ministry of Health internally publishes a quarter two report on health system reform progress, detailing how thousands more patients are waiting longer for surgery and appointments than they were 18 months earlier.

It would be revealed a month later publicly and be labelled a sign of “system failure” by a senior doctors’ union.

March 23

March 23 is a Saturday, but Health NZ chief executive Margie Apa writes to Reti and “elaborates … on financial assumptions and measures we are taking”.

She copies in Health Director-General Dr Diana Sarfati and Sarfati’s deputy, Simon Medcalf.

Apa says the agency has filled 2432 more full-time nursing positions than it had budget for, and “nursing is overspent”.

“If unmitigated the overspend could continue to approximately ($467m)…”

Professor Lester Levy was Health NZ’s chairperson for a matter of days before becoming commissioner.

Outsourcing could reach a $170m deficit by year-end, she adds.

She notes $120m is going to “leave revaluation” because payments were larger than expected.

She warns pay equity funding is not going to cover the costs of leave revaluation and the surplus should be reduced to to reflect this cost “as it is not within our baselines”.

Health NZ is overspending $100M/month, leading to the board's dismissal. Former chair Lester Levy is appointed as commissioner to find $1.4B in savings. The government allocated $16B for health over three years.

In April, the forecast surplus drops to $237m, and a briefing to Reti in May, from then acting chief executive Dale Bramley admits to an “underlying spending problem of about $100m each month”.

By May the agency has eaten all the surplus and projects a $528m year-end deficit. That deficit would end up being $934m.

On July 11, Reti writes to Lester Levy, who was at that point board chairperson, saying he is already considering sacking “all members of the board” but wants to give them a day to respond before going public.

By July 22, the last standing members of the board are sacked and Levy is appointed commissioner.

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