ACC mulled buying two hospitals

The Accident Compensation Corporation (ACC) was quietly lining up to buy two public hospital buildings under the previous National-led government, before politics got in the way.

With the current government making a fresh push to find alternative ways to pay for big infrastructure, ACC says it is still looking to invest in public health infrastructure.

"ACC is constantly on the lookout for good investment projects and ACC is a key part of the public health sector," it said.

Health NZ Te Whatu Ora is trying to bring its deficit down from $1.7 billion to half a billion, while also more than doubling its annual capital spending on infrastructure to $2 billion.

The Accident Compensation Corporation did the groundwork to buy the $72m new outpatients building at Christchurch hospital, and $12m health centre in Westport in the lead-up to the 2017 election, according to newly-released papers that detail the deals for the first time.

The deal was hatched by the district health boards offering to sell ACC the buildings, while the Health Ministry helped set the terms.

At Buller, the build of a 10-bed clinic "has been delayed due to the government refusing to provide the capital and therefore ACC's involvement is likely to be seen as a positive", an investment committee paper from mid-2016 released under the OIA said.

That optimism proved premature. In the election campaign that followed, Labour opposed the Buller deal, promising instead to spend $20m on a full rebuild. The cost blew out to $90m in 2019, then $120m.

There was little reporting of ACC's Christchurch deal at the time - "this proposal didn't receive ministerial approval and did not proceed", a spokesperson for ACC's investment fund told RNZ.

ACC had foreseen there might be pushback closer to home.

"This investment in the rebuild of Christchurch is unlikely to attract any negative media coverage, however it is possible that some members of the District Health Board (DHB) will be opposed to the transaction on the grounds that in their view the DHB should own property assets rather than lease them," its papers said, and repeated this regarding the Buller plan.

Neither deal got to the point of briefing ministers.

The aim had been for the health boards to have 35-year leases.

The terms were being set while the ministry was still seeking contractors to build the two facilities.

The rent and other costs are blanked out of the OIA documents. But the Buller purchase price was expected "to be equivalent to the construction costs" - at the time it was $12m.

The boards would have fronted all the operating and capital spending, and managed the buildings.

Christchurch's five-storey, 10,500sqm out-patients block was a solid investment because of the gold-plated tenant and the site near Hagley Park, which "would always be of interest to a range of medical-based tenants".

"Vacancy and tenant default and fluctuating valuations are mitigated by the length of the lease and the quality of the tenant."

It opened a year late in 2019, roughly on budget.

The papers drew a comparison with a private properly investment company that - in deals with supermarket operators - was getting yields of just over five percent.

ACC has a huge investment fund of $48.5 billion but very little invested in public health - just a parking concession at Middlemore Hospital in Auckland.

"We would always consider an opportunity to invest in public health infrastructure. Any specific deals under consideration will likely be commercially sensitive," its spokesperson said.

The returns on health builds are proving attractive. Private investors have a bunch of new private hospital projects on the go, with more in the works, and groups like Infratil have been pouring money into new private radiology clinics.

But at ACC, not a single document had been generated this year about actual or confirmed investment in public hospitals, it told RNZ under the OIA.

It refused to provide documents regarding potential transactions, on grounds of commercial sensitivity.

Big hospital projects have been fraught, capped by the cost over-runs and public protests at moves to re-examine the Dunedin Hospital rebuild.

Te Whatu Ora had begun well before the government changed hands, looking at "'a more collaborative delivery model" with project partners for complex builds.

It has yet to be confirmed if ACC is part of that. Its investments do extend into education, with it partnering in 2020 with an iwi in a $50-60m deal to buy four schools. It also has a joint venture with Ngāi Tahu to develop an office block for its Dunedin operations.

The Christchurch and Westport deals which did not work out were a direct buy-and-leaseback type, but this is not the only option.

Another is public-private partnerships (PPPs), where private consortia design, build and run facilities, getting paid annual fees by the Crown for typically 25 years.

Te Whatu Ora last year said it had stopped short of considering PPPs to build hospitals, though documents in early 2017 talked of it taking "lessons" from PPPs.

ACC was an early adopter of public-private partnerships, with involvement at a South Auckland prison in 2012, and at two highways north of Wellington and Auckland.

Investment media has reported ACC was pleased at how these investments were going.

But the corporation's latest annual report did not mention investing in PPPs or in healthcare facilities.

The previous government ruled out PPPs in health, and the current government is yet to explicitly rule them in.

"The last government just rejected private capital outright," said Infrastructure Minister Chris Bishop.

"Our approach is the exact opposite but it's going to take some time to build up the commercial expertise and competence inside government.

"I want to be clear that this government is open to PPPs, sale and leasebacks and unsolicited proposals for private sector infrastructure investment."

The government has just overhauled the PPP framework to shift more risk away from contractors, back to the Crown, with Labour's backing.

Te Whatu Ora has been overhauling its capital infrastructure approach for more than a year, and that is caught up in its current massive reset aimed at getting back to financial stability.

Critics recently wrote in the Medical Journal about PPPs, warning about "any stealthy introduction", under the headline, "The looming spectres of public-private partnerships for hospitals and the resulting decline of government responsibility for comprehensive secondary healthcare in Aotearoa New Zealand."

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