Bleeding to death - healthcare giant in crisis

Tough choices face new Auckland District Health Board chairman Wayne Brown as he wrestles with a $72 million deficit. FRAN O'SULLIVAN and MARTIN JOHNSTON take the patient's pulse.


Auckland's planned super hospital risks becoming a financial white elephant before it is built.

Just 22 months from its October 2000 starting date, the controversial programme to merge the acute services of Auckland, Green Lane and National Women's hospitals into one new super hospital at Auckland's Grafton site is on time and on budget.

The Starship children's hospital is getting a new emergency department, but the plans to extend its intensive care unit and take the children's heart unit, which is now largely integrated with adult services at Green Lane, are in doubt.

National Women's will be demolished. Green Lane will be refurbished with a new building erected beside it to form New Zealand's largest centre for day-stay surgery and outpatient clinics.

The super hospital will provide the most up-to-date facilities in New Zealand.

It will be built - no question about that.

But the forecast $40 million annual savings from merging the three hospitals, savings the Government expects the project to achieve, have proved an illusion.

It is an illusion which is putting even more pressure on the clearly stretched Auckland District Health Board, pushing its existing financial problems to crisis level.

The country's largest health board is bleeding red ink.

Tough choices are on the agenda as chairman Wayne Brown moves to get the board's $72 million deficit under control, pushing his board, the chief executive and the Government to face up to the unpalatable spending decisions which reflect New Zealand's inability to afford a "First World" public health system.

Handpicked by Health Minister Annette King to sweep up the fiscal mess, the new broom demanded - and got - top commercial rates before he took on the country's biggest health challenge last December 10.

Aided by Vicki Salmon, Mr Brown has since had his head down finding out the facts. Now he is determined to "expose" what is really going on.

The position is worse than he was told, he says, and the "freakiest" discovery so far is that much of the $40 million predicted to be saved by laying off staff and streamlining administration will go in costs such as higher interest payments.

Investing $400 million plus to achieve $40 million savings was a "crap investment at the best of times" says Mr Brown. "But I'm now discovering that the savings have been largely swallowed up."

The new broom questions why the former National Government approved the project.

"It seems to me the best reason it was put in place was that the Government thought it was going to do them good at the election. Well it didn't work for them.

"I'm not interested in politics, I want to know what we're going to find out."

Mr Brown's readiness to criticise the previous Government is matched by a tough internal message.

"The first thing I said to the staff at the Auckland District Health Board was: 'One, you should not take my arrival as a vote of confidence in what's happening. Two, I know it looks big and scary but it's not the biggest thing I am involved in.

"'If I don't get control of Auckland District Health Board's funding costs, then our losses get first call on the $400 million the Government has set aside for new initiatives'."

Mr Brown has dictated a new mantra to his board, that rather than complaining about being underfunded, "You get on with what you've got, and move towards improving those things that we can."

It is an approach which is causing disquiet, though only one board member, Charles Lowndes, has so far broken ranks.

Chief executive Graeme Edmond, who served faithfully under the previous regime, has faithfully adopted the ethic of his new boss.

"The solution to our financial position is in our own control," he says. "Gone are the days of saying the funding is not right, lobbying and expecting those things to be addressed."

To stave off his critics, Mr Brown has given Prime Minister Helen Clark a damage control sheet - a one-pager summarising his business record which she can use to offset rumpled health sector feathers - and her own concerns as powerful health interests kick up in an election year.

It lists Mr Brown's triumphs: improved health services in Northland and Gisborne, delivering record-breaking reliability to Auckland electricity consumers, and presiding over the country's lowest annual road toll.

But that is history.

Says Mr Brown: "Every rock you lift has slaters crawling out from under it."

The question fazing health planners is whether the " slaters" are replicated elsewhere in the system.

In December, when Mrs King announced the Government's financial plans for health - $400 million of cumulative new money for each of the next three years - she told the boards she expected deficits to be eliminated in that period.

Critics of the Government say hospitals received only 0.4 per cent extra this year, compared with increases in their operating costs of about 4 per cent.

Nationally, health boards are facing a deficit of $220 million or more. About $100 million of that is in greater Auckland: $72 million in central Auckland, up to $12 million at Waitemata, and up to $18 million at Counties Manukau.

Auckland District's ability to better manage its $1 billion from the Government's $7.47 billion health budget is critical.

Driving Auckland District's $72 million deficit is a range of causes:

* Mounting costs for sending cancer patients to Australia for radiotherapy, newly provided cancer drugs and community laboratory tests.

* Wage settlements which topped more than 5 per cent for nurses and 6 per cent for junior doctors.

* The low dollar, which has pushed up the costs of imported medical supplies.

* Bad debts of up to $3 million a year for overseas patients, mainly Pacific Islanders.

* Sluggish progress on a major staff cutting programme.

The Government has already put its foot down on the forecast $72 million deficit, ordering a rethink on three projects - the $33 million plan for a separate children's heart unit and expanded intensive care unit at Starship, more beds in the National Women's part of the super hospital, and a new rehabilitation facility.

In December, a cash shortage caused the board to breach banking covenants. The Government injected more equity to keep the bankers at bay, but a second breach is expected in June, indicating how finely balanced the board's finances are.

Credit rating agency Standard & Poor's is keeping close watch on the board's position and the financial row with the Government.

While the board runs four major hospitals - National Women's, Starship, Auckland and Green Lane - it also provides many of the country's most specialised treatments, like liver transplants and heart surgery for babies.

It also runs community, public and mental health services and pays the Government's subsidies on GP visits and other primary healthcare.

It is Auckland's biggest employer, with more than 7500 staff.

But those numbers will fall savagely as the previous board's $40 million cost-cutting programme takes effect.

At Mr Brown's first board meeting, he resorted to theatrics to express his "shock" that about 600 managers - both pure bureaucrats and the likes of charge-nurse-managers - are employed below chief-executive level.

"Six hundred," he mouthed conspicuously to the press bench, eyes wide.

He inflamed doctors present by tagging them "grumpy".

The brash, bronzed, lanky surfer wants deep cuts from what he considers a fat bureaucracy.

" When you're $70 million and more in trouble, [laying off] two managers isn't going to do it, and we've got 65 people grumpy about that."

Three senior manager jobs went in December, sparking a rebellion among 65 senior doctors at National Women's because they lost their hospital's general manager job to a joint position with the Starship.

Days later, the rebels were joined by nearly 100 specialists from Green Lane, Starship and Auckland - about a third of the board's senior doctors - who signed a letter of no confidence in the chief executive over the changes and lack of consultation.

Their collective "grumpiness" reflects genuine concern for patients' safety if vital clinical expertise is lost when clinician/managers are laid off (a risk the chief executive, Mr Edmond, says he will do his utmost to avoid).

But it also highlights the entrenched power that has developed within these specialised hospitals.

Mr Brown, a self-made millionaire engineer and property developer, has committed himself to eroding these power bases.

"The fact that they're running all these different regimes everywhere, four separate things for one health board, strikes me as an obvious area for change ...

"Four separate management systems, four separate ways of doing things, and people say we must keep our own identity."

Women's groups and doctors at National Women's are worried that there will be a loss of focus on women's health when inpatient services shift to the new super hospital.

But Mr Brown dismisses these concerns.

"National Women's is just Auckland women's health. That's important. In terms of being a brand, some brand.

"Most people can't remember whether it was Metro or North & South they read the bad articles in.

"Brands are terrific for fast-moving consumer goods. This is an over-subscribed, publicly funded, and slightly underfunded at that, health service."

At least 60 jobs are expected to go in middle-management.

Many more will go when the plan reaches into the lower levels of administration, but neither the chairman or chief executive will give an exact estimate.

Dr Richard Frith, an Auckland Hospital neurologist and one of two board specialists who have already resigned from senior positions in protest at the changes, led a staff delegation to last month's meeting to object to the way the layoffs are being handled.

He believes attempts to eradicate the hospitals' separate identities will fail.

The culture is so deeply ingrained with staff, he says, that when they go to parties and the question of where they work comes up, they name National Women's or the other hospitals, but never Auckland District Health Board.

But the men at the top brush such sentiment aside.

Describing his relationship with his chief executive as cordial, Mr Brown says: "He knows what he has to do. The change programme is a joke. It needs to be deeper, broader and faster."

It is a message that Mr Edmond has received publicly at the board table, but also in private over "drinks with Wayne".

"We are 12 months behind on the change programme, and I hold myself accountable for that," Mr Edmond admits.

"We did not have the right leadership on the change programme internally.

"We perhaps were too willing to to cater to all the differing views across the organisation."

Countering the doctors' views, he says his team was, if anything, "too consultative".

"By the time you got to something that was possibly acceptable you hadn't changed anything. You ended up with a watered-down version of the status quo.

"We're on a time line. That's why we are seeing discontent ...

"We are challenging comfort zones, we're challenging historical practices, but we are shifting this organisation."

Mr Brown is quick to praise competence and those he approves of, but he also manoeuvres to discredit opponents.

Mr Lowndes, a former Act parliamentary candidate and Citizens and Ratepayers-Now elected member of the board, has marked off his own corner of the board table as the opposition.

The other nine members - six publicly elected and three Government appointed - have swung behind the chairman and his will to cut spending to the Government's limits.

Charles "F." Lowndes, as Mr Brown delights in repeating, has stuck steadfastly to the previous board's line that the Government's financing is seriously inadequate.

For Mr Edmond, it is the toughest time in his career. He has until June next year to get his budget under control.

Unlike previous years, the Government is not coming to the party.

A wave of nostalgia sweeps over him for the times when the board posted a surplus. "I felt really buoyed. We were in break even, the Government had just approved [the super hospital plan], we were feeling pretty good. Now we're back to where Auckland health services have been before."

nzherald.co.nz/hospitals