GUEST BLOG: Ian Powell – Media muddle muffles Canterbury DHB’s deficit importance

On 30 August the Press (part of the Stuff stable) published an article under the eye-catching headline ‘Cash-strapped health board’s operational deficit ballooning despite ambitious savings plan’: . The headline made the article a must-read. It certainly read well but there was one ever so slight problem with it; it was factually wrong.

The focus was on the unaudited results of Canterbury District Health Board (CDHB) for the financial year ended 30 June 2021. CDHB’s budget, proposed from their former senior management team led by then Chief Executive David Meates, was for a deficit of $145 million.

The prime driver of the deficit was the earthquake recovery costs including increased depreciation costs arising out of the three delayed hospital rebuilds project managed by the Ministry of Health and the government imposed capital charge.

Apples and oranges

The Press reported that the unaudited deficit was $172.58 million which was $27.5 million over budget. At first glance this is a bad look. But there is a problem. Comparing $172.58 million with $145 million is an apples and oranges comparison. The $145 million excluded the costs of repatriating underpayments for public holidays under the Holidays Act and Covid-19 costs.

This is because both items affected all DHBs and was beyond their control. Consequently the Government has agreed to separately fund them. As an aside, if the Government had extended this sensible principle to the costs of Health Ministry project managed rebuilding depreciation (plus the capital charge) then CDHB most likely would not have had a deficit at all.

Technically the costs of both public holidays underpayment and Covid 19 appear as a ‘below the line’ deficit. They are included in the Press reported $172.58 million deficit for 2020-21. However, they should have been excluded in order to make the right comparison.

When these items are excluded, the deficit reduces to $149,830 ($4,824 over budget). It is surprising that CDHB Board Chair John Hansen (or anyone else from CDHB) didn’t correct the error despite being asked to comment.

But there’s much more to it: external discrediting agenda

If this were all there was to the situation then there would be nothing more to say. It was an understandable error. But there is more to it. Crown Monitor Lester Levy, whose appointment was to discredit the financial acumen of CDHB’s senior management team, argued that it was possible to reduce the deficit to around $90 million (instead of $145 million) without having any impact on services.

The Board Chair stated to Parliament’s Health Select Committee that they would probably make some further savings (ie, a lower deficit than $145m), Crown Monitor Levy advised the Health Ministry that it was entirely possible to reduce the deficit by a further $50-60 million, and external business consultants Ernst & Young’s (EY) claimed that there were 200 too many nursing full-time equivalents at Christchurch Hospital.

ALMA Consulting, not known to have extensive experience in the health system, were brought in at some cost to drive additional savings (apparently funded by the Health Ministry).

Given all of this, the best that CDHB has been able to achieve is deliver a result close to (but higher than) the previous senior management team’s recommended (and adopted) deficit level of $145 million. But this previous team was accused by Levy, the Health Ministry and EY of poor fiscal management.

It is this disappointing financial result and the falseness of the poor fiscal management accusation is the real story of CDHB’s reported latest deficit.

The former senior management team was forced out by a combination of a crown monitor chosen for the wrong reason, a new politically appointed board chair, the health ministry, and EY consultants.

This same allegedly financially inept team delivered on its Board agreed financial budgets in 9 out of the previous 10 financial years. The exception was a Board approved $4 million mental health overspend to prevent a full blown mental health crisis in Canterbury due to the earthquakes that was being actively undermined at the time by the Health Ministry.

Where does the blame rest

It would be wrong to blame the new senior management team for the failure to get closer to Lester Levy’s recommended around $90 million deficit let alone not achieving the official $145 million deficit.

While they were less experienced than the team that was forced out, the eventual outcome reflected the reality of trying to provide health services when big earthquake recovery cost drivers such as rebuilding delays, rebuilding depreciation and capital charges are beyond their control.

The former David Meates led team got it right. Crown Monitor Levy, Board Chair Hansen, the Health Ministry and EY consultants led by Stephen McKernan (now heading up the Government’s health system implementation unit despite being an EY senior partner) got it hopelessly wrong.

The one thing that we can be confident about is that none of those responsible for the smearing of Meates and his senior management team will ever apologise for their actions, including destabilising a high-performing DHB. Further, all of those responsible will retain their jobs.

So much for accountability in New Zealand’s health system leadership.

Ian Powell was Executive Director of the Association of Salaried Medical Specialists, the professional union representing senior doctors and dentists in New Zealand, for over 30 years, until December 2019. He is now a health systems, labour market, and political commentator living in the small river estuary community of Otaihanga (the place by the tide). First published at Otaihanga Second Opinion.