By Russell Palmer of RNZ

Health New Zealand’s board went from “receiving the level of reporting it needed”, to its financial situation being “suddenly ... quite different” in just five days, Health Minister Shane Reti says.

In an interview with RNZ on March 19, Reti had said the board “is receiving the level of reporting they need to do their basic functions, their core functions”.

It was the same day Finance Minister Nicola Willis wrote to him raising serious concerns about Health New Zealand’s financial position.

The interview had been about a report that had come back to him from the Ministerial Advisory Group that had been tasked with looking into how the health reforms were progressing.

It said they had led to “tangible, early signs of success and benefits” but were just 16 months into a five to 10 year reform process, noting the organisation had inherited at least 1500 distinct IT systems – which in 2019 had been estimated to need $2.3 billion in funding over 10 years to bring up to standard.

One new IT system – the Finance, Procurement and Information Management (FPIM) – had brought the DHBs’ financial information together, and the report said the results in the first year of operations was “exceptional”.

“The benefits of being able to understand operational financial performance for the first time using a national standardised approach are being realised,” it said.

Reti at the time disputed that it was excellent, but “what I will say, is Health New Zealand board is receiving the level of reporting that they need to do their basic functions, their core functions”.

Health NZ chief executive Fepulea'i Margie Apa. Photo / Mark Mitchell

RNZ went back to him this week about those remarks, given the coalition’s decision last month to fire the one remaining member of the board and promote the other to Commissioner, based on what the government claims was financial mismanagement by the board and senior leadership.

“Yeah. So in March, we understood that they were going to reach their predicted surplus, up to March, and then around about March 22nd, 23rd, suddenly, it was quite different.

“The full scope of that became apparent in the letter that Margie Apa wrote to me on the 23rd.”

Reti didn’t raise public concerns due to appointments

Asked why he had not raised these financial concerns publicly at the time, Reti pointed to appointments he had made.

“Actually, I think actually, putting in a Crown Observer within weeks is kind of a signal. And then within probably another week or two of getting that letter ... going through the process of appointing someone with financial expertise [to the board].

“So we were already doing a lot of stuff to try and support and get information from Health New Zealand.”

Reti announced Ken Whelan’s appointment as a Crown Observer on December 19 last year – well before the MAC report or the Auditor-General’s concerns were made public – but his accompanying statement made no mention of Health NZ’s finances, focusing instead on workforce and wait times.

“The incoming government is resetting a clear focus on health outcomes. The Labour government failed to acknowledge a health crisis and failed in its duty to provide adequate oversight and support during a period of massive upheaval for health.

“I am confident that the appointment of a Crown Observer will assist the HNZ Board and management to work with the board to overcome a range of issues, including health workforce and hospital wait times.”

As for the financial expert, Reti confirmed the appointment of Roger Jarrold to the board via a notice in the NZ Gazette on March 25, for a three-year term starting on March 29.

Jarrold is a chartered accountant who has worked as a chief financial officer in construction and health, and has also been on the boards of the NZ Blood Service and Health Research Council.

Health NZ commissioner Professor Lester Levy. Photo / Dean Purcell

No announcement or statement accompanied the appointment.

A late April article from NZ Doctor noted the board is required under the Pae Ora Act to have between five and eight members.

It said Jarrold “replaces the seat held by Dame Karen [Poutasi]”, who was the chair before Lester Levy, but quit after less than a year in the role.

The decision in June to promote Levy to Commissioner meant Jarrold – the only other remaining member of the board – would be out of a job from July 23.

Levy could hire him as one of up to three deputy commissioners, but none have yet been appointed. Four regional directors have been.

Health NZ annual report and Auditor-General’s report

Questions also remain over whether evidence Reti has used to support claims of financial mismanagement by the board and its senior leadership – including a report from the Auditor-General – point to a different conclusion.

One of the key initial pieces of evidence he refers to was the annual report in October, which includes the Auditor-General’s report. The Auditor-General also provided a Ministerial letter to him in February, setting out in more detail the main findings from the audit. A copy of this letter was provided to RNZ.

Although both identify concerns, these were largely about the lack of reporting on service delivery – the actual provision of healthcare – rather than the organisation’s financial position.

The report identified three areas it said “needs improvement”, and one was related to “Financial information systems and controls”. But the problems identified were IT policies around passwords, user access settings, and business continuity and disaster recovery plans. It also suggested aligning “sensitive expenditure” policies with good practice, and improving systems for disclosure of third-party payments.

Two other areas were identified as needing improvement: one was about reviewing service performance – that is, measuring the provision of healthcare – against targets. The other was about improving the presentation of service performance measures, including in the annual report.

“The annual report would benefit from a clear performance framework and an overall summary of where the system is performing well and where it is not across output classes,” the letter said.

But crucially, the letter to Reti points out the findings of “needs improvement” were “not an assessment of overall management performance, or of the effectiveness of Health NZ in achieving its financial and service performance objectives”.

Under the heading “Financial information systems and controls”, the Ministerial letter states: “We did not identify deficiencies in the system of internal control”.

Reti has repeatedly used this report to back up his claims about financial mismanagement at Health NZ.

“The Auditor-General’s report said that they were concerned that the board was not ... receiving information or gathering information, particularly at subcommittee structures, that it wasn’t receiving information,” Reti said.

“And really across a range of domains, the Auditor-General expressed concern to me, that a number of the improvements were [needed] - major improvements is how they were framed.”

“There wasn’t an operating framework or a performance monitoring framework that they could get good information from, and the Auditor-General pointed that out ... so just go back and look at what the Auditor-General was saying.”

Pushed on this, Reti said there was no conflict between his own comments and that of the Auditor-General.

“If you don’t have an operating model, an internal performance monitoring framework, how do you know if the finances are going well or not? That’s how you monitor,” he said.

The Office of the Auditor-General (OAG) this week told RNZ the systems identified were important for good financial management, despite its letter to the minister specifically noting improvements were not related to the “effectiveness of Health NZ in achieving its financial and service performance objectives”.

“Strong management controls, financial information systems, and performance information are critical in supporting good organisational performance. Our 2022/23 audit identified issues in these areas for Health New Zealand. These systems are critical for good financial management and performance,” the office told RNZ in a written response.

Asked specifically whether an operating model or internal performance monitoring framework was typically necessary to understanding how an organisation’s finances were tracking, OAG said: “Public organisations should be accountable for their financial and non-financial performance and be able to appropriately report on both”.

“They should have in place governance and management arrangements to effectively plan and monitor their financial and service performance and to be able to address any concerns that arise.”

Labour leader Chris Hipkins said he did not believe the evidence the Government had provided about Health NZ’s financial position stacked up.

Labour Party leader Chris Hipkins. Photo / Mark Mitchell

“No. I think it’s absolutely farcical. In fact the public statements that they’ve been making are directly contradicted by their own paper trail.

“The reports clearly demonstrated that Te Whatu Ora was producing a surplus through till March, that the thing that tipped them into deficit was a combination of holiday pay, pay equity, and recruiting more nurses.”

Prime Minister Christopher Luxon this week made comments about the board and senior leadership had “no great understanding or literacy around cash flow” – a comment one of the former board members took issue with.

Hipkins thought the comment was “utterly defamatory and inappropriate.

“You’ve got a former commissioner for the Inland Revenue ... some very respected company directors, some very respected health professionals. I just think what they’re doing, the way they’re spraying personal abuse and attacks around, is just wrong.”

Ministerial Advisory Committee report

The MAC report in February had also raised concerns about ageing hospitals after “years of underinvestment” needing $24b of capital investment, a need to rework funding for GPs, and the “localities” approach to the regions.

Reti had released it on February 28 alongside a statement saying it “shows a few benefits, but overall once again demonstrates a lack of leadership by the previous Labour government”.

He highlighted four concerns, including pressures on community and primary care, localities, an urgent need for an agreed public health operating model, and the risk the reform process could be overwhelmed by the day-to-day operation of the health system.

“I do want to acknowledge positives, including delivery of last year’s Winter Preparedness Plan and a more effective way of transferring patients between areas to get access to treatment, but overall, it’s clear that turning the health ship around will take years of intensive work.”

His statement raised no concerns about finances.

The report also warned of the need for payroll and HR systems as a “very high-risk area for the organisation with the risk of one-off failure of one or more payroll or rostering systems ... across all its systems being likely over the next five years”.

Newsroom last month reported the coalition had cut $381m that had been set aside for IT programmes for sharing health information between hospitals, GPs and specialists - and across district boundaries.

- RNZ