The controversial purchase of a virtual health platform by Waikato District Health Board is to be probed by the Auditor General.

State Services Commissioner Peter Hughes announced today he has formally requested the Auditor-General conduct an inquiry into the Waikato District Health Board's SmartHealth product and the procurement process from HealthTap.

It is the latest development in the Commissioner's investigation, being undertaken at the behest of Health Minister David Clark, into allegations of wrongful expenditure of public money by former Waikato District Health Board chief executive Dr Nigel Murray.

A spokesman for the Auditor-General's Office confirmed it had been making preliminary inquiries into the the case.

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The news comes as the two-year contract with HealthTap, the American company that powers the DHB's controversial SmartHealth app, has been revealed to have cost taxpayers almost $15 million.

The purchase of HealthTap services - the American company that powers Waikato DHB's virtual health app SmartHealth - has been criticised by auditors. Photo / Natalie Akoorie
The purchase of HealthTap services - the American company that powers Waikato DHB's virtual health app SmartHealth - has been criticised by auditors. Photo / Natalie Akoorie

The amount, stated as US$5m [NZ$7.3m] for each year in a damning Audit NZ review of the procurement of the virtual health model, has never before been revealed to the public.

Waikato DHB has kept the cost of HealthTap, which together with the cost to launch SmartHealth totals $18.8m, a closely guarded secret, citing commercial sensitivity and contract negotiations as reasons.

The Audit NZ review, part of an overall report including a section on Murray's expenses, was highly critical of the way HealthTap was purchased in mid-2015.

The section on HealthTap was released by the DHB today in an unprecedented move prompted by "public interest", board acting chairwoman Sally Webb said.

Auditors said the procurement raised a number of concerns including that:

• It should have been conducted through an open tendering process and that the US$10m trial was an amount well over any threshold for open tendering;

• The business case was written for a virtual care solution and not specifically for the purchase of HealthTap;

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• DHB staff planned to report value for money at the conclusion of the trial [in May next year] but auditors believe the board cannot demonstrate that;

• There did not appear to be much market inquiry as to what else was available;

• A two-year trial with a single provider could now cause issues of fairness with any proposed tendering and future procurement.

There were also concerns by auditors over how potential conflicts of interest had been handled.

"We were informed that the board declared any interests at the beginning of each meeting and management [did so] on a two-weekly basis at management meetings.

"We would have expected to see a positive affirmation being made by those associated with the procurement that they were free from any conflict as good practice."

The Herald previously reported that the proposal for a virtual health model was presented to and signed off by the board in one month.

Former board member Ewan Wilson said the proposal was "lacking in detail and substance" and was rushed through.

That business case has never been released to the public despite repeated requests for it under the Official Information Act by the Herald.

Murray and former board chairman Bob Simcock were given authority to make the final decision over committing to HealthTap.

Murray went on to champion the product, spending more than $45,000 flying internationally and domestically to learn about and promote SmartHealth, an app that uses smartphones and iPads to conduct online appointments between doctors and patients.

The app has flopped, not attracting the targeted number of users despite targets being lowered, and is now being independently reviewed ahead of the end of the trial.

The report said overall the board needed to be able to demonstrate value for money.

Webb said it was the board's desire to ensure there is correct scrutiny of the issues identified with the procurement process.

"We are conscious that this is public money and therefore we want to have a transparent process and be able to rectify any issues that are raised."

Waikato DHB interim chief executive Derek Wright said the DHB welcomed the Auditor General's investigation into HealthTap and would co-operate fully.

He said it was important for him that the DHB "learns lessons from how we did things in the past".

"We are already undertaking a review of the HealthTap product to see if it is the right service for our virtual health strategy.

"We need to have the Audit NZ information relating to HealthTap in the public domain so we can be as open and transparent in this process as possible."