Health Minister Simeon Brown (left) said he disputes the figures. Photo / Dean Purcell
Health Minister Simeon Brown has attacked Treasury officials over their analysis of his Health Delivery Plan, which said Health New Zealand Te Whatu Ora will need to double its spending-cut target in the coming year and limit health workforce pay increases to an “unprecedented” degree.
Health NZ told Treasury it forecast $600 million in savings in the 2024/25 fiscal year and would need to find a further $900m in the current year and $200m next year in order to break even in the 2026/27 year.
However, because the Government was loading additional responsibilities onto Health NZ at the time it was struggling to manage its existing responsibilities, Treasury reckoned even greater cuts will be required to break even and meet the Government’s new demands at the same time.
Health NZ has been struggling to get on top of a deficit since last year, when former Health Minister Shane Reti brought in Lester Levy as a commissioner. Three deputy commissioners were added later. The organisation is expected to return to being governed by a board next month. Trade publication NZ Doctor reported Hamiora Bowkett is the favoured candidate to chair the board. Bowkett is currently the executive director of the Health Assurance Unit, which advises Brown on the health system.
Commenting on figures provided by Health NZ last November, Treasury officials said that in order to reduce the deficit to $200m this year, Health NZ “needs to find additional savings of $900m over and above saving[s] made in 2024/25″.
“If we add to this the elective care package and $100m capitation package proposed in the draft Cabinet paper to be funded from HNZ baselines, that is total savings needed in 2025/26 [figure redacted] – nearly twice the amount sought in 2024/25," officials said.
The Government sought $600m in savings last year. Twice this figure would be $1.2 billion.
Brown “absolutely” disputed this figure, noting the Government provided Health NZ with additional funding in each of this Parliament’s three Budgets.
“[I] completely, completely dispute that,” Brown said.
“We expect our agencies to deliver within budget, and that is to deliver on the priorities of the Government and our priorities are incredibly clear,” he said.
“We expect more delivery against our health targets.”
Brown noted the Treasury paper, which briefed Finance Minister Nicola Willis on his plan, admitted that officials had not consulted the Ministry of Health or Health NZ. The paper therefore “may omit important context”.
“Let’s not forget – this is the same Treasury that missed Health NZ overspending by $130 million a month, while the organisation was literally running its financial system out of an Excel spreadsheet.
“It’s easy for Treasury to criticise from the sidelines – but the reality is too many Kiwis are waiting too long for care.
“Treasury, the Ministry of Health and the rest of Wellington’s bureaucracy spent years backing Labour’s mega-merger while waitlists blew out.
“Their one job now is crystal clear – help us get Kiwis off those waitlists and into surgery. Patients don’t care who is delivering the surgery, they care about getting their hip, knee and cataract operations done.”
Brown said the Health NZ Commissioner has been making “excellent progress in the financial year, which will set Health NZ up into a much more positive trajectory this financial year [and] which will allow the Budget uplift to be applied to increased service delivery for New Zealanders“.
The paper was released to the Herald under the Official Information Act. A separate paper, released to the Labour Party, also showed Treasury officials warning that Health NZ “will not be able to find significant new funding from within baselines in 2025/26 to meet the costs of the proposed new initiatives”.
The health plan itself used a demographic model to show that the Government’s annual proposed Budget increase for health actually exceeded forecast cost pressures in the health system.
These pressures are driven by inflation as well as New Zealand’s ageing population, which requires increased resource each year just to stand still.
Labour’s health spokeswoman Ayesha Verrall said she did not disagree with the principle of using cost-pressure adjustment to fund new initiatives because these might help to reduce the burden on the health system overall.
However, Verrall did say she would be concerned if the Government were loading new services on to the baseline funding of Health NZ in a way that was unsustainable.
The paper released to the Labour Party noted that Health NZ’s spending forecasts predicted labour costs rising by just 1.6% a year over the next two years.
This figure includes increases in wages and the number of people employed.
“This would be unprecedented and well below historic[al] lows, at a time when motivating the workforce will be critical to achieving the desired outcomes for patients,” officials said.
Verrall said the unrealistic modelled labour cost increase “showed the extent of underfunding”.
“The Government has overestimated how much fat there is in the system. The idea that there are large cuts in the health system is the National Government’s own magical money tree,” she said.
There were other concerns too. Treasury said Health NZ had been paying money into a “‘rainy day’ contingency” throughout the first half of last year.
Health NZ was meant to draw down on this fund in the second half of the fiscal year to pay for any unexpected cost overruns – although Treasury disputed the idea these cost overruns were unexpected and instead said they were “foreseeable and nearly inevitable”.
Health NZ only paid $376m into the rainy day fund of an expected $1.05b.
Verrall said that having such large sums of money tied up in a contingency raised important questions about financial accountability and oversight.
Brown was critical of Health NZ’s financial oversight too, noting that the system National inherited from Labour included a financial system that “operated ... on an Excel spreadsheet”.
Earlier this year, he published a report by Deloitte that was extremely critical of Health NZ’s financial management.
The new Government is keen to focus the health system on a suite of new targets, but Treasury said it was concerned these targets were prone to “gaming” by the health system.
The Government has a target of treating 95% of people waiting for elective surgery within four months. Treasury officials said there was evidence the system was prioritising people who had only just been put onto the waitlist over people who had been waiting far longer than four months so that the target might be hit.
The Department of Prime Minister and Cabinet had also raised concerns and was looking into the issue, the paper said.
“We’ve always warned that targets create incentives for gaming and it appears that it is already happening for the Government’s targets. People who haven’t been waiting as long are being prioritised for surgery to improve the Government’s statistics, rather than those who have been waiting longest.
Brown said the Government’s “Elective Boost” programme was having a difference and patients didn’t care who actually performed the surgery as long as their operations happened.
“Elective Boost is doing that, having already delivered over 9500 additional surgeries. It’s time the public service stepped up and backed delivery instead of defending yesterday’s failures.”
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