HealthNZ yesterday “dropped” 454 pages of documents relating to its financial performance over the last 18 months.
The documents confirm that it has a massive structural deficit, which, without savings, is expected to be $1.4 billion annually beyond the current financial year.
But the papers also suggest that Health NZ believed it was being undermined by the Ministry of Health and Treasury and, perhaps most interestingly, make no reference to backing up any of the Prime Minister or Health Minister’s claims of a blowout in back office costs.
Instead, the papers point to a 2018 agreement on staffing levels between the Ardern government and the Nurses’ union as the cause of the cost blowout.
Health NZ maintains that the cause of the deficit is largely an explosion in nursing costs.
That explosion has its origins in the deal made in 2018 by the Labour-led government and the New Zealand Nurses Organisation to introduce what then Health Minister David Clark called “safe staffing levels “ in public hospitals.
That established the Care Capacity Demand Management (CCDM) system for allocating nursing resources in hospitals, which Health NZ is now blaming for the increase in nursing numbers.
Since July 2022, nursing Full-Time Equivalents have grown by 4213 FTE (12.2%), and outsourced nurses have grown by 98 FTE (52.2%).
“As our largest workforce, nursing FTE by the end of May totals 38,762 FTE (at the cost of $4,526 billion, year to date,” Apa told Reti in a June 2024 Health NZ “aide memoire”.
“In filling roles over the last 24 months, the Care Capacity Demand Management (CCDM) method for rostering nurses became uncoupled from affordability,” she said..”
Apa said that it was intended that CCDM would create a safer, more sustainable, and productive workplace.
“However, in filling vacancies in Health NZ, we have uncovered a loss of local, regional, and national financial controls and a disconnect between budgets and rostering, which needs to be rectified quickly,” she said.
But she contested the [proposition that CCDM by itself could determine appropriate staffing levels.
“Unions believe it should be automatic, and our view is that it should be subject to affordability,” she said.
Apa said that “care hours available” had overtaken “care hours required” starting from September 2023.
“This trend is consistent across all regions, though Te Waipounamu has experienced the longest period of care hours available exceeding ‘care hours required,” she said.
While Health NZ’s costs were starting to blow out in March, Finance Minister Nicola Willis was facing her own crisis and desperately looking for savings to try and trim the Budget she had to present in May.
Willis had anticipated a health NZ surplus of $650 million
She wrote to Health Minister Shane Reti: “I understand that Health New Zealand is currently forecasting a surplus of only $507 million,” she said.
“I am informed that this is due to a range of one-off or unanticipated (at least by Health New Zealand) in its budgeting) costs which the Ministry (of Health) considers that Health New Zealand should have managed within baselines.
“This is of concern, particularly with relation to how it will impact Health New Zealand’s opening financial position for the 2024/25 financial year.”
In the letter to Reti, she said: “Treasury officials met with the Board of Health New Zealand on February 23 2024, and reported that the board did not seem across the detail of this issue.
“While $150 million is small in the context of the baseline, I am concerned that the deficit could accumulate over time, as previously occurred with the district health boards.”
Willis was also critical of Health NZ’s failure to respond to Treasury’s requests for data on productivity, which was measured by “caseweigths” per FTE or patients per staff member.
“Treasury officials raised this matter with the Board on February 23 2024, and again, got a sense that the Board was not engaged with the detail of the issue,” she wrote to Reti.
“I am especially concerned that as far as my officials can tell, the Board had not, for some months at least, been receiving any information that would allow it to monitor the productivity of the most expensive part of its business – and had not asked for this information.”
This may well be the origin of one of the Prime Minister’s claims when he sacked the Health NZ board on July 24.
He would accuse them of not knowing the right questions to ask about the entity’s finances.
But what he may not have realised was that Reti had obviously shown the letter to Health NZ chair Karen Poutasi, who set out her objections to it in a letter back to him.
“The letter (from Willis) suggests that these matters were put to us in our meeting with the Treasury Secretary and her colleagues on February 23, and the Board was not engaged with the detail,” she said.
“With respect, this is strongly denied to the extent that our board has remarked on reading the letter that doesn’t in any way reflect the meeting they were at.
“In fact, the board had had a detailed session in our strategy meeting the day before on declining productivity in the HSS sector and the criticality of addressing this.
“Had the Secretary of Treasury asked us for our position and plans on this we would have been more than happy to have that discussion with her but that did not arise.
“The meeting instead consisted of the Secretary explaining the difficult fiscal position the Government was in and making it clear that containing health sector cost pressures within baselines would be expected with which we agreed.”
But it wasn’t only the Treasury reporting concerns about Health NZ back to the Beehive.
It seems the Ministry of Health might have been doing the same thing.
If it was, that would confirm a widespread Wellington rumour that there has been tension between the Ministry and Health NZ.
Back in February, the Director-General of Health, Dr Diana Sarfati, wrote to the Chair of Health NZ, Karen Poutasi, saying that during a Health Joint Ministers’ meeting at the Beehive, “the Minister of Health expressed concern about the Ministry’s access to information in regard to Board papers.”
This got a sharp response from Apa, which hinted at suspicions that the Ministry could not be trusted.
After she had set out what material she could provide to the Ministry, she wrote: “In response, I would appreciate a written assurance from you that appropriate protocols are in place to handle the information provided to you in a confidential and secure way.
“For example, we agreed circulation should be limited, and a register of document provision/receipt should also be kept.
“The information provided should also only be used for the purpose provided, i.e. to support monitoring.”
It seems that Willis was putting pressure on Reti to get Health NZ to control its costs.
In her March letter, she reminded him he had direct interventions available to him: “For example, the ability to appoint a Crown Manager to oversee financial management at Health New Zealand until you are comfortable that things are back on track.
Health NZ’s challenge was that its hands were tied in many ways.
The legacy accounting and administration systems from the District Health Boards were a shambles.
For example, everyone except the Auckland District Health Board used paper to prepare their rosters.
In a May report to Reti, the acting Chief Executive and the Chief Financial Officer listed the challenges they faced.
They said the inadequacies in systems, processes and capabilities did not enable them to fully plan, budget and forecast personnel costs.
“Rostering and scheduling are not digitally controlled (through in-built system constraints); a substantial portion of medical personnel record their time on paper.
“There is no stable or single source of truth, with the 20 plus payroll environments in place across the sector, varying approaches across districts in important processes (e.g., back pay) and the lack of a single master data file for employees, the ability to produce a consistent, timely and stable picture of personnel costs is extremely difficult, time-consuming and subject to the risk of manual errors.”
This lack of data and cumbersome outdated systems is behind Health NZ’s massive unpaid holiday pay liability.
This is now at least $2 billion and started back in 2010 when the District Health Boards calculated holiday pay entitlements incorrectly.
So far, only Auckland District Health Board employees have been paid, but that process uncovered more problems.
The faults in the payroll are embedded in the various payroll systems so that every day that staff go to work the error grows. Health NZ estimates it grew by $172 million last year, and behind the nursing blowout was the other major influence on the current 2023-24 deficit forecast of $742 million.
In July, the health Commissioner, Lester Levy, set out the immediate strategy.
“The budget strategy for Health NZ is to return to a breakeven position within no more than two years,” he said in a paper to Reti and Willis.
“Themes for the next three budgets will be: 2024/25 – Reset/Refocus 2025/26 – Breakeven 2026/27 – Vaiue-add.
“Savings of at least $900M in 2024/25 and S500M in 2025/26 are required.
“A stretch target over the next eighteen months valued at $2 billion in 2024/25 is being used to drive focus and manage risk.”
In practice this means restrictions on hiring, cuts to overtime and a cutback on outside contractors.
But much more will be required.
In some ways, the health crisis is only just beginning.
