HealthNZ Chief Financial Officer, Rosalie Percvial and CEO Margie Apa

Health New Zealand which incorporates all the 20 old District Health Boards is overwhelmingly the biggest branch of government.

Now, nearly two years old, it is beginning to show both the early gains that have come from the amalgamations at the same time as the financial challenges it faces are much more in focus and more stark.

The biggest challenge will be how much it needs to spend just to maintain the status quo in health without making any of the improvements which both the previous and current governments have promised.

A worst case scenario, which could easily become reality, would see health become a fiscal timebomb blowing away the Government’s hopes of roping in its Budget.

Speaking at a meeting of Parliament’s Health Committee on Friday, the former Health Minister, Ayesha Verrall said the system required an additional $13 billion over the next three years just to stay abreast of inflation and demographic pressures.

However, HealthNZ Chair, Karen Poutasi warned that since that figure was calculated, inflation had risen higher than the figure that was used to develop it.

“It was calculated. a while ago and inflation is actually higher than was in the original calculation,” she said.

“It covers the ordinary operating cost. It doesn’t cover, extraordinary things that would change the cost structure. And it’s not for new initiatives either.” 

It was also not clear whether the present government would even agree to confirming that funding in this year’s Budget.

Treasury has long warned that there was a fatal cocktail of inflation and demographic change which would impact the health budget.

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Treasury’s 2021 statement on the long term fiscal position showed that the growth of health spending would pitch New Zealand into permanent deficits by 2025 unless a change was made to revenue or other spending.

It said health expenditure was projected to grow to over 10% of GDP by 2061, up from about 7% today.

“This reflects both demographic change and the fact that health expenditure tends to grow more quickly than income over time in most economies,” the report said.

“We have modelled the fiscal impact of health spending growing more slowly over time.

“Achieving the upper end of those scenarios would likely require tough choices.

“Governments would need to weigh the impact of those choices against accommodating more significant increases in healthcare expenditure over time.

“This will involve judgements around what society values the most, which is likely to be different for different generations.”

There are two immediate challenges facing the health system.

The first is the ongoing saga of the miscalculated health holiday payment and the huge backlog of payments owed to hospital staff.

The former Ministry of Health spent $50 million on consultants and held three years of meetings while it watched its liability for an unpaid holiday pay increase for health workers by $150 million a year.

The Ministry had not paid the correct holiday pay to 260,000 current and former health workers since 2015.

It was estimated that by May last year, the error could cost the Ministry $1.8 billion.

The liability passed to Te Whatu Ora (HealthNZ) and a spokesperson told POLITIK in April last year that full payment was expected by the end of the year.

The liability is now estimated at $2 billion.

Andrew Slater, Te Whatu Ora’s Chief People Officer told the Committee that payments had been made in Auckland but having done that they discovered problems with the multiple legacy payroll systems used across the country.

As a consequence, though it had been expected all payments would be made by the end of June they were now expecting the payments to be concluded by the end of the year — nine years after the first liability was incurred.

Percival said provision for the payments was currently on the Government’s balance sheet.

But she said one of the biggest risks HealthNZ faced was what the implications of the recalculated holiday pay might be for paying peoples’ leave in future.

“That puts a bigger liability on our balance sheet so that i is probably one of our biggest risks or really issues that we face,” she said.

The other big challenge is the pay equity agreements for nurses and hospital healthcare workers which were agreed in 2022 and 2023.

Again, it is the multiple legacy payroll systems of the District Health Boards which is the problem.

“At this stage, holiday pay and pay equity are probably the two key payment issues for us,” said  Margie Apa, HealthNZ CEO,

“While we’ve signed off, or agreed the arrangements with employees, the timing and sequencing of being able to pay them when these two large transactions are going through our very, challenging and fragmented payroll systems has been a challenge.”

But that is as far as it will go.

Percival said HealthNZ would not be able to afford to pay the outside providers it funds to implement the pay equity agreements in their various services and practices.

Apa said the difference now between the external providers and HealthNZ staff could be as high as 14 per cent.

The sheer enormity of HealthNZ was on display at the Select Committee.

It has 80,000 staff and a $58 billion asset base of over 1200 buildings with 73 building projects worth $6.6 billion currently underway.

“It is a very, aged fleet,  our infrastructure,” said Apa.

“The average age of our buildings is over 45 years old.”

And on top of the owned buildings, HealthNZ also has $328 million of leases across the country.

But against these daunting figures and pay commitments, Apa said Health NZ had already begun to find savings.

“We are on track for our 540, million dollars of savings,” said Percival.

“They have all been built into our, current budget so they’re in the 23- 24 year.

“A number of those savings are in back office consolidation and they are in purchasing consolidation.”

Percival said that in her own area, finance, HealthNZ had already found $11 million in savings.

“ We’ve been reviewing some of our financial practices across the country and some of  our financial management to make sure it’s as tight as it can be,” she said.

“And I’ve been reviewing and taking more discretionary money out of budgets to ensure that everything is pretty tight.

“So we have a range of things that generate the $540 million.

“And that’s built into our budget but we will need to make ongoing savings each year and keep becoming more efficient to meet the demand in both cost growth and, and volume growth for the health system.”

National’s opposition to Labour’s health reforms which established HealthNZ has always been lukewarm.

So far, in government, it seems its biggest concern was to change the name from Te Whatu Ora to HealthNZ.

But as the Select Committee hearing made clear, there are huge challenges to come including integrating the Maori Health Authority into HealthNZ.

The Pre Election Economic and Fiscal Update did provide for some real growth in health expenditure; probably around two per cent a year, depending on inflation.

But given the demographic and other pressures on the system, HealthNZ will need every dollar the government can give them.

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