Documents reveal Treasury’s warnings about Health NZ’s finances and board

Newly released documents are exposing how fearful the Treasury was for Health New Zealand’s financial position and how officials believed “no one inside HNZ appears to have a clear picture of what is going on”.

The documents also show Finance Minister Nicola Willis’ strong condemnation of the organisation’s former board that had allegedly not been monitoring declining productivity as she urged Health Minister Dr Shane Reti to intervene.

The Treasury reports, dated between January and July this year, describe the “exceptional burden” now facing Health NZ Commissioner Lester Levy as he strives to cut $2 billion in spending this financial year and make progress on the Government’s health targets, all while combatting weak internal controls, low morale and a “generally bad” relationship between the national office and the frontline.

Concern for Health NZ’s financial position became public as surprise resignations from the organisation’s board occurred in July before all positions were scrapped and replaced by Levy as commissioner.

Treasury has warned the $2b savings target places an "exceptional burden" on Health NZ Commissioner Dr Lester Levy. Photo / Alex Burton

In October, 450 pages of briefings and financial reports showed 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 and recording a near $1b deficit, largely thanks to an overspend on nurses.

At the time, Reti, Willis and Prime Minister Christopher Luxon all criticised the board and alleged members had been financially illiterate – a claim some board members rejected.

As early as January, the Treasury was stressing to Willis its concern about Health NZ/Te Whatu Ora’s progress against its 2023/24 budget.

In a briefing ahead of a meeting between ministers and health officials, Treasury said there was a lack of information about how Te Whatu Ora was progressing.

“It looks to us and to the Ministry of Health as though Te Whatu Ora is tracking to deliver an operating deficit this year even if it realises all its expected savings, which we don’t think it can. And we are concerned it may also under-deliver against expected service volumes.”

Prime Minister Christopher Luxon and Health Minister Dr Shane Reti have been critical of the former Health NZ board. Photo / Sylvie Whinray

Among Treasury’s concerns was Health NZ not tracking delivery information internally – it labelled this “unacceptable” – and that the cost of delivery “may be going up in ways that the entity is not adequately investigating or managing”.

“In an effort to achieve financial targets in 2023/24, Te Whatu Ora may deliver fewer than expected services to New Zealanders. Until we get access to reliable data, though, we cannot validate these concerns.”

A letter from Willis to Reti on March 19 cited a Health NZ report that revealed an accelerating productivity decline using the metric of case weights per clinical and support full-time equivalent (FTE).

Finance Minister Nicola Willis was concerned about the board's governance. Photo / Mark Mitchell

Willis said Treasury officials had raised the matter with Health NZ’s board in February and got “a sense that the board was not engaged with the detail of the issue”.

“I am especially concerned that as far as my officials can tell, the board had not, for some months at least, been receiving any information that would allow it to monitor the productivity of the most expensive part of its business – and had not asked for this information.”

Willis told Reti she endorsed the appointment of Crown observer Ken Whelan and encouraged him to consider the “best use” of upcoming board appointments as existing members reached the end of their terms, including former National minister Amy Adams.

A briefing in April, reported last month, said an increase in nursing recruitment was the main risk to Health NZ’s budget, costing $100m a month in new wages and additional hours.

Today’s documents show Treasury told Willis in April it was continuing to “hear worrying information” from Health NZ, which centred on a “significant overspend on nursing FTE in hospitals”.

The agency was highly critical of Health NZ, including suggesting that no one there appeared to understand what was going on – even saying, “the more we hear, the worse it sounds”.

“The information base on which we are trying to make judgments about risk is partial, sketchy and often confusing. We are finding it difficult to get a clear picture but note the formal narrative from Health New Zealand is far more optimistic than what we are hearing in confidence.

“No one inside HNZ appears to have a clear picture of what is going on, and internal monitoring and reporting is manifestly poor. But we know the situation isn’t good, and we believe it is better to over rather than under-react to any possibility of the health system sliding into deficit.”

Officials were concerned the Government’s health plans may not be “of the timeliness or quality needed for them to fulfil their intended roles in steering the system”.

“We are leaning in closely to the Ministry of Health and HNZ to express concerns, seek clearer information, and give advice where we see potential to manage risk.”

Among their recommendations was to note Treasury “remain significantly concerned about the likely year-end result and underlying financial position of Health New Zealand and the quality of its information base, management and governance”.

Health NZ chief executive Margie Apa and Commissioner Lester Levy appear before the Health Select Committee. Photo / Mark Mitchell

In July, Treasury advised Cabinet of Levy’s intention to cut $2b of spending but expected about $1.4b to actually eventuate within 12 months, which it described as a “huge undertaking”.

“While a ‘bullish’ approach is warranted and welcomed ... delivery of this will rely on an organisation that was unable to find $540m in planned savings this financial year.”

Officials referenced Levy’s commitment to achieve “annual milestones” against the Government’s health targets within current funding by “taking cost out and increasing output”.

However, they acknowledged it would be “extremely hard”.

“[W]e would not want ministers to underestimate the size of the challenge, or the amount of difficulty and resistance likely to manifest over the next six months.

“[Health NZ’s] internal controls are weak, morale is low, clinicians’ expectations of autonomy are high, and the relationship between national office and the frontline is generally bad.”

Treasury endorsed the proposal to make Levy Health NZ’s commissioner as it would give him a “strong public mandate to make significant changes” but also warned it would “place an exceptional burden on one individual”.

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.