The Government has agreed to build a new medical school at Waikato University
It will cost $230m of which $82.85m is coming from the Government and $150m from the university
From 2028 the school will add 120 medical training places annually
The University of Waikato finally has the Government nod to push ahead with its long sought-after medical school, but on a heavily scaled-back budget.
Originally, both the National Party and the Ministry of Health mooted a $380 million cost to establishing a new school, based on figures providedby the University of Waikato.
The cost breakdown was for the Crown to contribute $280m for the capital expense of establishing the school (the likes of buildings and equipment), and for the university to contribute $100m, but it was never clear exactly what the university’s contribution would buy.
Now, the establishment costs have been pared back to a much leaner $232m. Notably, operating costs will not be required until 2028 when the school opens; estimates of this cost have not been made public, though they will be predicated on a four-year programme for graduates, rather than the five-year programmes at the University of Auckland and the University of Otago.
The new plan is that the Crown will foot $82.85m of the Waikato school establishment cost, while the university, with the help of some well-heeled donors, will pay $152m.
On the face of it, that’s terrific news. New Zealand will get a third medical school – focused on rural healthcare delivery across a four year programme – and the Crown will kick in less than a third of its originally anticipated share.
But it does raise some questions. How was the budget wrestled so significantly lower? And what (if any) consequential elements have been lost from the original plan?
Health Minister Simeon Brown announced the Crown will kick in $82m to establish a new medical school at the University of Waikato. Photo / RNZ
The University of Waikato’s original budget for building the school appears to have been well-padded. And, more importantly, essentially none of the university’s contribution was originally earmarked for capital costs.
Neil Quigley, vice-chancellor of the university, refuted the “well-padded” characterisation; he told the Herald that the original figures were only a very rough estimate.
“We were asked to provide something, it was not a detailed analysis, that covered what we would need to spend on campus and on facilities for clinical placements. It was incredibly high level, an outer limit ... a ballpark of what it might cost.”
This eyeballed capital cost, $280m, was to be borne by the Crown.
It was so high, Quigley said, because it was entirely predicated on building from scratch the campus facilities required as well as new space off campus at roughly a dozen clinical sites.
It was always anticipated, he said, that “the process and the business case” for establishing the school would pin down an actual cost.
And, as it transpires, the university will need a new teaching building, but the other facilities, including considerable laboratory space and space to accommodate student placements at regional clinics and hospitals, can be provided by simply repurposing and refitting existing buildings.
Asked what he originally envisioned the university’s $100m contribution would buy, Quigley was vague: “Off the top of my head ... I can’t quite give you detailed answers about what we were thinking three years ago when the original numbers were produced.”
The most significant budget change is that the original funding pledged by the university has both increased and its purpose revised and sharpened.
For example, a Ministry of Health briefing paper of last August – which was still using the $280m figure for the Crown and a $100m cost for the university – noted that further clarity was required from the university about its financial contribution.
“The University of Waikato has noted that it expects much of the [$100m] contribution will support the outcomes of a new medical school (if established), for example through the provision of scholarships or funding for research. There may also be some contribution towards establishment costs ... ” the paper advised then Health Minister Shane Reti.
A significant refinement of the university’s cost ensued, with the help of some $2m of consulting work, and, it appears, some arm-wrestling from the Act Party.
Deputy Prime Minister and Act Party leader David Seymour has been sceptical to date that the case for funding a third medical school compares well with other options. Photo / Mark Mitchell
What $2.1m in consultants’ fees bought
By August of last year, the Ministry of Health had already received preliminary cost-benefit analysis from consultancy Sapere, which found that all the new options under consideration had a net benefit, but that the University of Waikato school came out ahead, albeit marginally in the base case.
The alternatives (aside from the status quo) constituted variations on increasing the current intake of medical students to the University of Auckland and the University of Otago – New Zealand’s only medical schools – by 120 per annum, and above other recent commitments to increase.
One of those options also included the creation of an “interprofessional school of rural health”, to be run by the existing medical schools.
That early cost-benefit analysis also seems to have used the investment figure of $380m; this early work was publicly released by the Ministry of Health, but was heavily redacted in parts, including the section on capital costs.
In August, Act Party leader David Seymour wrote to Reti in response to the Sapere work.
Seymour had raised a variety of concerns both with Sapere directly and with Ministry of Health economists about the cost benefit work; the objections contained in his letter relate to the cost-benefit methodology and the evidence base for comparing the different investment options.
Neither the letter from Seymour to Reti, nor Reti’s response to Seymour, mention Waikato’s capital costs and how much of these the Crown should pay – the correspondence was publicly released last November.
But significant change followed and the Act Party – either more directly or through its insistence in its coalition agreement with the National Party that the Waikato plan be subject to a full cost-benefit analysis – seems to have played an important role.
Whether National alone would have pursued such a rigorous process is an open question; it campaigned on building the new medical school in the last election and has had strong links to the university.
The cost-benefit work was conceived in two phases. The first phase compared the Waikato option with alternative ways to train more doctors; the second phase involved a refinement of the economic case for the Waikato school in particular and also covered implementation.
It’s not clear whether this second phase of the Sapere work fed into a preliminary or “programme” business case for the new medical school produced for the Ministry of Health by Allen and Clarke Policy and Regulatory Specialists in the second half of 2024. However, it certainly underpinned the detailed business case and implementation planning done by Deloitte, which contained updated cost-benefit work as well as the economic case provided by Sapere.
Neither of the business cases, nor the implementation work, is public.
Health Minister Simeon Brown has said the work will be proactively released. But Brown confirmed that medical school costs agreed to by Cabinet are derived from the detailed business case.
All up, the consultants were paid about $2.1m. Allen and Clarke Policy and Regulatory Specialists were paid $546,000 for the early business case and project management of the overall work programme.
Sapere and Deloitte were paid $657,555 and $629,651 respectively, and the balance of the cost was made up by fees to the Treasury for two “gateway reviews” of the medical school plan ($150,000), one in mid-2024 and a second in January of this year.
Gateway reviews are mandatory for all high-risk property, infrastructure and construction developments funded by a wide swath of the public sector, including core government departments.
IQA New Zealand and the New Zealand Institute of Economic Research Inc also made external reviews of the business cases and the cost-benefit work for $84,000 and $20,000 respectively.
How Waikato will foot the bill
Quigley told the Herald that the university is in a “strong financial position” and plans to combine its own funding with philanthropic support to make up its $152m contribution to the $235m cost of establishing the school.
The university ran operating deficits during the pandemic years, which were financially extraordinary, but returned to surplus in fiscal 23/24.
The university is currently debt-free, he noted, and projecting a $20m operating surplus in the current fiscal year.
Quigley said the medical school cost may require new debt, and that the university has considerable head room (this is negotiated with the Tertiary Education Commission).
Asked if other university projects will take a back seat, he said: “There is nothing currently planned that would need to be put on hold”.
