Newly-released documents shed new light on the leadup to the Government’s dramatic intervention in Health NZ.
The 450 pages of briefings and financial reports, released this afternoon, showed that Te Whatu Ora - Health NZ insisted it was on track to meet its 2023/24 budget and provide more than half a billion dollars in savings up until March this year, before a sudden deterioration in its financial position.
It also showed that the board strongly rejected allegations from Government that it was not on top of its finances, and confirmed that the main driver of its financial position was an overspend on nurses.
In July, Health Minister Shane Reti appointed a commissioner, Professor Lester Levy, to replace Health NZ’s remaining board members, citing financial mismanagement and poor performance.
The just-released briefings show that Health NZ’s monthly financial updates continued to project a surplus until March.
The same month, Finance Minister Nicola Willis wrote a letter questioning whether the board had adequate oversight of its finances and expressing concern about whether it would hit its savings target.
She cited a Treasury meeting with HNZ after which Treasury officials said “the board did not seem across the detail of this issue”.
Board chairwoman Dr Karen Poutasi reacted strongly to Willis’ letter, saying it was an “unfair” and “incomplete view of our position”.
“With respect, this is strongly denied to the extent that our board has remarked on reading the letter, that that doesn’t in any way reflect the meeting they were at.”
The following month, Health NZ first began reporting that its financial position was much worse than previously reported.
A financial update by acting chief executive Dale Bramley said the projected surplus of $583 million had been downgraded to a “best case scenario” of $317m. By June, officials were projecting a surplus of just $1m - but only if pay equity funding was received, which it wasn’t.
A quarterly report released last week showed that the final deficit for the 2023/24 year was $934m.
When Levy took over, officials projected a $1.4 billion deficit at the end of the 2024/25 financial year. That deficit has now been revised to $1.76b, after further losses in July and August after Levy took over.
Officials outlined a $2b cost-cutting target for the 2024/25 year – described as a “stretch target”.
A major cost-cutting drive included a pause on recruitment. While Health NZ leaders maintained that no frontline clinical jobs would be impacted, the briefings show that officials warned that such a pause could “inadvertently close off recruitment to clinically necessary roles”.
They further warned that it could “unintentionally create workforce shortages in other parts of the frontline or in key enabling parts of the organisation”.
The internal briefings also underlined the impact of a huge growth in nursing recruitment on Health NZ’s finances.
A briefing in April said this was costing the organisation $100m a month in new wages and additional hours, and was the main risk to Health NZ’s budget.
A further briefing in late June said Health NZ was now restricting nursing recruitment to “clinical risk areas” and areas covered by the Government’s national health targets.
Health NZ’s financial situation came to a head on July 11, when Reti penned a strongly-worded letter to Levy as the then-Health NZ chairman, outlining his “serious dissatisfaction” with the entity’s performance, threatening the “potential dismissal of all members of the board”.
“As you know, I have become increasingly concerned with the financial performance of Health NZ, and the unexpected and persistent overspend occurring in the hospital system since March this year.
“While the financial performance itself is a cause for major concern, I am further dissatisfied that this did not materialise in reporting until March of this year, and indeed that previously the board had assured me that Health NZ was on track to break-even.”
He gave the board until the following day to respond, promising he wouldn’t go public with his concerns until board members had had their say.
Four days later, the Herald reported the resignations of board members Dr Jeff Lowe, a respected Wellington GP, and Naomi Ferguson, a former Inland Revenue chief executive, more than a year before their terms were set to conclude.
The following week, Reti announced the board - now only consisting of two members - would be dissolved and replaced by Levy as a commissioner.
Health NZ leaders respond
In a press briefing held following the document release, Levy confirmed no cuts would be made to Health NZ’s senior medical workforce, saying he wanted to grow the number of senior medical officers within the organisation.
He maintained his position that cost reduction efforts would include diminishing back-office roles but could not speculate how many jobs would need to be cut so Health NZ could break even.
Neither Levy nor Health NZ chief executive Fepulea’i Margie Apa could state how many voluntary redundancies had been budgeted for, noting they would have to wait until the process it had initiated with staff had progressed.
Apa conceded Health NZ was not sufficiently aware of the one-off costs that exacerbated the entity’s near $1b 2023/24 deficit and argued if they had been managed earlier in the year, it could have mitigated the cost blowout.
While acknowledging how an increased nursing workforce had contributed to the poor financial position, Levy sought to defend the organisation’s staffing efforts by claiming the number of nurses hired in the 2023/24 financial year was the highest compared to the previous eight years.
Apa also spoke of the impact of unexpectedly low staff turnover, which had decreased from 12% in December to 5% in June.
Levy accepted different decisions should have been made by Health NZ management and its board when they became aware of excessive costs, but he wouldn’t echo the Government’s criticisms of the then-board’s financial literacy, saying he wouldn’t be making a judgement on that.
Asked how the cost blowouts had impacted care provision for the public, Levy claimed the quantity and quality of healthcare provision had not been limited so far - and would not be limited as Health NZ sought to cut $2b of costs.
Unions and advocates, however, have expressed frustration at unfilled vacancies, long waitlists and huge pressures on clinical staff.
Isaac Davison is an Auckland-based reporter who covers health issues. He joined the Herald in 2008 and has previously covered the environment, politics and social issues.
Adam Pearse is a political reporter in the NZ Herald Press Gallery team, based at Parliament. He has worked for NZME since 2018, covering sport and health for the Northern Advocate in Whangārei before moving to the NZ Herald in Auckland, covering Covid-19 and crime.
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