Commissioner Lester Levy. Photo: RNZ / Nick Monro
A consultant's report to the government says Health New Zealand lost control of spending, sending it off the rails.
Health NZ released the report soon after Minister Simeon Brown declared the "recklessly mismanaged" system under the previous government "changes today".
A new board would come in place of Commissioner Lester Levy, and health services would become more localised, Brown said in a speech to the BusinessNZ Health forum.
Deloitte, one of the 'big four' consultancies, did the 77-page report - released midday Friday - to find causes behind Health NZ / Te Whatu Ora's sudden lurch last year from forecasting a half-billion-dollar surplus to a half-billion-dollar deficit that then grew to over $1 billion.
It talks about "missing" plans, unheeded warnings and that "there was never buy-in" from operational teams to make savings even as the agency headed into a slow-motion financial car crash.
It intimated the country might have been better to have stuck with the previous 20 district health boards (DHBs).
While the DHBs "still faced financial challenges, financial plans looked at how these would be addressed", and by contrast, Health NZ financial planning was vague, it said.
"The decline in financial performance in 2023/24 was primarily due to Health NZ losing control of the critical levers that drive financial outcomes."
Health NZ did not have the right executive or board level controls for such a huge agency, it said.
"There was no plan in [Health NZ] during 2023/24 that demonstrated an understanding of what would need to be true to stay within the income for the outputs and services to be procured or provided by [Health NZ]."
A savings plan was drawn up in mid-2023, but did not work.
Simeon Brown. Photo: RNZ / Nick Monro
"There were no supporting action plans, ownership, budget impacts, tracking and reporting, and governance applied to the savings programme."
The centre made requests, and the districts ignored them: "Consequently, the savings were not made."
Yet senior managers kept on telling the health minister savings were on track. In the face of that, performance reporting warned of "extreme risk" around savings, but any "course-correct... was missing".
Bad budgeting at the centre took its toll.
"Budgets were found to be inaccurate," the report said.
Managers down the chain lacked control, and some believed that some extra money somewhere existed to cover "known overspending".
"Regional teams indicated that budgets were flawed and there was no buy-in, leading to a disconnect between meeting targets and tracking progress.
"Inconsistent budget setting and lack of accountability led to unexpected overspending and financial deficits which went undetected for a period of time."
A revolving door of staff undermined capability and experience, diminishing financial controls.
Factors outside Health NZ's control weighed in, such as a 30 percent rise in nurses' wages in three years. A review in mid-2024 of six locations found five of them approved extra nurse hires based on a safety formula "under the mistaken belief that there were centrally held funds available to cover the increase in staff costs".
Deloitte found that making some key savings, such as in business processes, would have required investing in IT and digital tech; now, however, IT and digital are facing huge cuts to their teams under the reset Levy instituted.
The agency's board was sacked and replaced by Levy in mid-2024. A deficit put at $130m-plus a month continued.
Within one week in February, chief executive Margie Apa resigned, as did the director-general of health - a Ministry of Health Ministry - and the director of public health.
Deloitte said health's centralising reforms launched by the Labour government during Covid-19 stripped out layers of DHBs and other controls, disconnecting the new top decision-makers from the health front line.
Brown said on Friday the report was a "damning verdict on the state of our health system when we took office 16 months ago".
Margie Apa. Photo: RNZ / Samuel Rillstone
"This is a system under significant pressure and a system which was recklessly mismanaged under the past government, thrown into turmoil at the worst possible time, and left to drift without accountability," Brown said.
He laid out initiatives to try to turn this around, including $285m more for GPs over three years, longer contracts with private hospitals to get public elective surgery done, and possibly setting up a new central hospital building unit.
Labour leader Chris Hipkins, in a state of the nation speech on Friday, said the party's third goal was a quality public healthcare system where "everyone has access to the care they need, when they need it".
The Ministry of Health had oversight of Health NZ, and a ministerial advisory committee was tracking the progress of the health reforms. However, RNZ has previously reported these said they lacked visibility of what was going on - the committee said tracking financials was not its job - and Te Whatu Ora did not give them the data they needed to ascertain that.
The highly paid private consultants who were collectively paid millions of dollars to design Health NZ, in the 18 months before it was instituted in 2022, were drawn in large part from consultancy EY. They did not come up with an alternative financing model for health as a whole.
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