A controversial virtual health app that failed to attract enough users and drew consults for penis enlargements has been canned, with critics slamming it as a waste of $18.8 million of taxpayer money.

Waikato District Health Board today announced it had pulled the plug on SmartHealth because it could not justify spending another $7.2m on a contract with American-based technology company HealthTap to continue providing the service.

The news comes before an EY (Ernst Young) review of the online doctor service, commissioned by the DHB last year, is complete and as the Auditor-General continues to probe the procurement of the original two-year contract with HealthTap.

The Herald revealed in October the proposal to proceed with the HealthTap app was rushed through board approval by disgraced former chief executive Dr Nigel Murray and former board chair Bob Simcock in one month in mid-2015.

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The business case has never been made public.

Former Labour MP Sue Moroney, who in December asked the Serious Fraud Office to investigate the circumstances surrounding the procurement of HealthTap when she complained about Murray's excessive spending, said the contract had been a waste of $18.8m of taxpayer money.

"It's an absolute failure of governance," Moroney said. "These are the very reasons why boards need to make sure that they do proper due diligence before they commit tens of millions of taxpayer funding to any project within health.

"I think also it's important that because the contract has been cancelled that means there should be even more scrutiny on the circumstances under which it was granted in the first place."

Dr Nigel Murray (centre) and Bob Simcock (third from right) both spent taxpayer money visiting HealthTap's US base in California. Photo / Christine Cornege
Dr Nigel Murray (centre) and Bob Simcock (third from right) both spent taxpayer money visiting HealthTap's US base in California. Photo / Christine Cornege

She said the Auditor-General's investigation into HealthTap was more critical than ever.

"This is not a reason to now say that it doesn't matter anymore about the money that's been squandered already. It matters more than ever."

John Macaskill-Smith, the chief executive at Pinnacle Ventures - whose parent group represents 400 GPs across the Midland region - welcomed the news.

"HealthTap wasn't a mistake. It was a crime that involved $20m of New Zealand's hard-earned tax funding."

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Macaskill-Smith was in charge of Pinnacle when he said in December 2016 that SmartHealth would be in direct competition with a local virtual health app created by the GP group.

"It's a tragedy that what could have been a great next step for the communities of Waikato and surrounds - this is building on existing electronic patient portals, emerging new models of patient care, established relationships and local innovation - was lost due to extremely poor leadership at the DHB.

"That thankfully has now been addressed at both management and governance levels."

He said at a time when many people were struggling to pay the cost of a GP visit, or their medication and even to find local services which left them no option but to visit a hospital, "the funding could have brought so much more, both short term and long term".

"The broader tragedy is it's a further blotch left on the health sector around technology-based innovation that is so desperately needed to help sustain the health sector.

"How many more $20m stuff ups like this can we afford?"

Last month senior doctors at Waikato Hospital slated SmartHealth as an expensive waste of time and money that must not be repeated.

One doctor had even been inundated with overseas consults regarding penis enlargement.

In announcing the news today that the contract would not be renewed, interim chief executive Derek Wright said the board agreed to a staff recommendation to axe the service because the DHB was struggling to meet hospital demand within its budget and another $7.2m could not be justified.

He said the app had failed to attract ambitious targets and it only had 10,000 people signed up, "considerably fewer" than expected.

It also had failed to reduce Emergency Department presentations at Waikato Hospital, and in fact the number of people going to the ED had gone up in recent years.

"While HealthTap itself was a useful service and many of our patients who used it were very positive about the experience, we didn't engage our clinicians effectively in how best to use the product in their area, and there were technical teething troubles early on."

DHB chief of staff Neville Hablous said the board made the mistake of procuring the technology before identifying how it would be used.

"The result of that is that we brought in the technology and we then asked our clinicians to find ways to use it.

"We did not provide adequate support to enable them to do that piece of work and as a consequence their ability to use it was rather patchy and ad-hoc."

Hablous would not be drawn on why the technology was procured in that way or whether the board had failed in its core governance duty.

The Office of the Auditor-General has previously said its investigation was ongoing.

In March the State Services Commission released its inquiry findings into the expenses of Murray, finding that his spending of $120,000 of taxpayer money was either unjustified or unauthorised and that Simcock was too trusting of the CEO.

Both men spent taxpayer money visiting HealthTap's US base in California with Murray spending $45,000 in two years championing the app.

The app will finish at the end of this month and the DHB will write to affected users.