GUEST BLOG: Ian Powell – A very bureaucratic coup: Part Two

This article is the second of a two-part series on a very bureaucratic coup against the senior management team at Canterbury District Health Board (CDHB) including its chief executive. Part 1 covered an increasing dark period in New Zealand’s public health system from the second big Christchurch earthquake in February 2011 through to the 2017 election.. Primarily this darkness involved conflicting leadership cultures between the Ministry of Health and CDHB. The former was bureaucratically centralist and top-down that morphed into attempted ‘command and control’ while the latter had a stronger emphasis on engagement with both others in the Canterbury health system and its own workforce.

Underpinning leadership culture clash

However, fundamental differences in leadership culture don’t escalate in a vacuum. They require tangible lightning rods that sharpen and deepen the conflict. This requirement was provided by the challenge of how to respond to a natural disaster; the devastation caused by the massive Christchurch earthquakes of 2010 and (especially) 2011. The severity of the pressures on CDHB was compounded by two further natural disasters – bush fires and the Kaikoura earthquake – and then the murderous terrorist mosque attack (the 8^th deadliest mass shooting in the world). An engagement based leadership culture went down one path; a command and control leadership culture went down an opposite path.

The escalating conflict began almost immediately after the 2011 earthquake with the Ministry within months of the 22 February quake, advocating significantly reduced funding to the DHB based on a flimsy and disapproved assumption of a large population loss in Christchurch. While the population did reduce in Christchurch, almost all of the population moved to surrounding districts such as Selwyn, Waimakariri and Ashburton (all of which are part of Canterbury). Subsequently Canterbury experienced significant population growth confirmed by Statistics New Zealand. This was followed by:

• pressure to force CDHB to support a Public Private Partnership for the rebuild of Christchurch Hospital;
• a Ministry attempt to prevent CDHB keeping its insurance payments ($320m) for dealing with the capital works costs for damaged facilities that the DHB incurred and paid for;
• the Ministry refusal to accept CDHB’s assessment of the mental health impact of the earthquakes and indeed its all-out attempt to discredit any impact on the population of Canterbury following a large natural disaster (ignoring the advice of the Chief Science advisor to the then government, Sir Peter Gluckman);
• the false Ministry accusations that CDHB hadn’t implemented so-called recommendations of a PricewaterhouseCoopers review (PwC). These were suggestions that CDHB had no legal authority to implement;
• CDHB’s more networking and relationship-based approach to shared services between the South Island DHBs compared with the Ministry supported Health Benefits Ltd (HBL) more rigid and high transactional contractual approach; and
• pressure to force CDHB to support financially disadvantageous new food and laundry business cases from central government with no credible business case or rationale being provided.

Adding to the tension was a growing view among the Health Ministry’s leadership that CDHB’s senior management team was overly influenced by its senior doctors. Overall the level of management engagement with senior doctors in Canterbury (and indeed all other workforces) was higher than in other DHBs during this period.

Sir Mark Solomon who had been appointed Chair of CDHB in 2016 revealed in dramatic style in the Christchurch Press (4 September 2020) how much the Ministry’s hostility to CDHB’s leadership had affected its judgement. He confirmed that after an induction meeting in Wellington, then Director-General of Health Chai Chuah told him to “get rid of David Meates” (Meates was CDHB’s chief executive) and his senior management team. Solomon responded that Chuah’s directive was “totally inappropriate behaviour.” At the induction meeting itself Solomon said that he and other Board members “…got an hour’s dump at how terrible the board and management of Canterbury was.”

The election of a Labour-led government encouraged hope among many that the behaviour of the Ministry towards CDHB would change. Unfortunately, after some initial hopeful signs, the darkness got darker and the bureaucratic politics dirtier leading to the use of business consultants Ernst & Young (EY) to do what amounted to a hatchet job on the former senior management team accusing it of poor financial management. It alleged this was due to excessively high nursing staff full-time equivalents compared with other DHBs. However, in order to make this incorrect claim, it had to misrepresent national staffing data. Despite being caught out the erroneous claim continued to be made.

Hopeful early signs

Honouring Labour’s election commitment new Minister of Health David Clark appointed Garry Wilson (a business consultant) to independently facilitate a process to reconcile past differences between the Health Ministry and CDHB. This led to a report submitted to Clark in April 2018 known as the Way Forward Report. At the time EY senior partner Stephen McKernan was the Interim Director-General of Health following the resignation of Chai Chuah (McKernan had been Director-General in the late 2000s).

The report’s analysis of CDHB’s unique financial circumstances was consistent with earlier external reports by PricewaterhouseCoopers and Sapere.  Wilson outlined a pathway for CDHB and the Ministry to address the impacts of the earthquakes on CDHB’s infrastructure and operating expenses which included a work programme. The report described the challenges facing Canterbury as different from the other DHBs. They were “complex, substantial and far reaching.” The “…unique capital redevelopment needs of the CDHB and increasing capacity constraints…” were emphasised.

In June 2018 McKernan and then CDHB Chair John Wood put out a joint statement which among other things described “the response of Canterbury DHB to New Zealand’s largest natural disaster has been exemplary despite needing to manage some of the extreme challenges faced by any organisation in NZ”.

Further, “The performance of Canterbury DHB and the wider Canterbury Health System has been everything that could be expected from a high performing DHB…” “Canterbury’s patient demand modelling was appropriate and the bed management functionality is the best we have seen..”

To cap it all off they emphasised: “It is important that the outcomes from an integrated healthcare response in Canterbury are captured as there are many lessons for both New Zealand and Internationally ….” Praise for a DHB’s performance doesn’t get much better than this; and it was from McKernan’s own figurative mouth.

The Way Forward Report was agreed with McKernan and subsequently his successor Ashley Bloomfield who commenced as Director-General on 11 June 2018. In December 2018 the Ministry released a media statement positively reaffirming support for the approach. There was now consensus between the Ministry and CDHB but this unexpectedly proved to be short-lived.

Abandonment of consensus

Regrettably this December statement was as good as good as it got. Minister Clark’s laudable objective and integrity were subverted by those able to exploit his lack of a political nose. The collaborative relationship was overtaken by a shift to an adversarial approach which centred on abandoning the consensus reached over the earthquake recovery being the driver of CDHB’s worsening financial position to a Ministry led attempt to blame it on the financial management of Meates and his senior management team. In other words, picking up from where Chuah had left off but improving the execution.

In the same month when the Ministry publicly commended CDHB for the progress being made (December 2018), Michelle Arrowsmith was appointed as a deputy director-general of health. She suddenly resigned 18 months later. Her responsibilities involved DHBs included planning and funding, operational performance, and oversight of infrastructure and capital projects. Arrowsmith quickly generated much concern among many DHBs who found her style aggressive and narrowly focussed on short-sighted savings. CDHB’s unique circumstances meant that it bore the brunt of this style and narrow focus.

Arrowsmith was one of three major appointments that were critical to this adversarial shift. Another was the appointment in December 2019 of Sir John Hansen as CDHB Chair. In contrast to his predecessors Wood and Solomon, those behind the adversarial shift now had a Board Chair receptive to the Chuah objective. But the most significant of the three was the appointment of Lester Levy as Crown Monitor in June 2019.

Smear campaign: CDHB’s financial management

The post-election attack on the senior management team’s financial management came from the Ministry (initially through Arrowsmith), Crown Monitor Lester Levy, and the health section of Treasury. But the facts say something different and render the attack to be nothing less than a smear campaign.

1 Treasury’s Investor Confidence Rating

The Treasury has an independent process called the Investor Confidence Rating (ICR) for independently assessing the capability of DHBs and other public sector agencies to run and manage assets and capital projects. For 2016 Canterbury DHB was assessed as a ‘B’ which was the second highest ranked DHB (Counties Manukau, whose new Chair Lester Levy was attacking its financial management, scored an ‘A’).

According to releases under the Official Information Act the Health Ministry attempted to overturn CDHB’s ICR assessment (or alternatively have it not published) because it was contrary to what it had been advising the Government. The resilient CDHB senior management forced the issue leading to the results being confirmed and released. Information obtained under the Act also highlighted that even within Treasury there was a challenge to the position being taken by its own health section and the Health Ministry on the basis that the facts were not supporting it. This is part of what then Board Chair Sir Mark Solomon received a public apology for from the then Treasury chief executive.

The ICR process was again undertaken three years later (2019). Once again CDHB achieved a ‘B’ rating which this time was the highest of all the 20 DHBs.

2. PricewaterhouseCoopers

In 2015 PwC was commissioned to review CDHB’s financial position. In its first report published in December 2015 led then Health Minister Jonathan Coleman to conclude that CDHB was in a “relativity stable financial position.”

PwC noted that CDHB was operating at a $50 million surplus before having to consider its earthquake rebuild. Capital charge costs generated by the rebuild were likely to increase by 85% over the next six years which would drive bottom-line financial performance. PwC also acknowledged the financial impact of increased mental health demand. The PwC review and Ministry attempts to misrepresent it were fully discussed in Part One of this series.

3. Audit NZ

Audit NZ are the Crown auditors. This responsibility includes ensuring that audit results are tabled in Parliament. It is independent of crown agencies and departments. If one can’t trust Audit NZ’s financial audits, who can you trust?

Over the past decade of its audits Canterbury was either the highest rated DHB or in the top quartile of DHBs. Given that no other DHB (or other organisation outside Canterbury) had gone through a decade of natural disasters beginning with earthquakes, this is an impressive performance. It was rated ‘Good’ for both ‘Management control environment’ and ‘Financial information systems and controls’ for each of the 2016-17, 2017-18 and 2018-19 financial years.  For ‘Performance information and associated systems and controls’ CDHB was rated ‘Very Good’ for each of these same years.

The audit for the 2019-20 financial year is yet to be published but it appears that CDHB’s high ratings continue. This is reinforced by reliable accounts that Crown Monitor Lester Levy, who described CDHB’s finances as being in a “terrible shape”, tried to contest Audit NZ’s assessment. This behaviour raises a serious ethical issue of appropriateness for a crown monitor.

If Audit NZ’s 2019-20 audit of CDHB finances is consistent with previous years, then surely those who have been blackening the reputations of the previous senior management team (and continue to do so) will need to reconsider their positions and the Government reassess their appropriateness to continue in their roles. If Audit NZ doesn’t bow to Levy’s pressure (there is no reason to believe that it will) then his credibility is in tatters.

4. Wilson review

The Wilson review that led to the Way Forward Report discussed above raised no concerns about senior management’s financial acumen and recognised that the root of CDHB’s financial challenge was the earthquake recovery response.

Lester Levy

Dr Lester Levy was a high profile supporter of the then National government’s so-called ‘health reforms’ of the 1990s in which public hospitals became state-owned companies governed by both the Companies and Commerce Acts. They were expected to compete both with each other and the private sector. It is now generally recognised as a failure because it clashed with the cooperative way in which a universal health system producing a public good rather than commercial commodity needed to work. It ended with the Public Health and Disability Act 2000 which included the establishment of DHBs.

In July 1993 Levy became the first inaugural chief executive of what was then called South Auckland Health (subsequently subsumed by Counties Manukau DHB in 2001). It has to been said that, notwithstanding a discernible modesty deficit, at this time I saw no sign of the adversarial behaviour that was subsequently experienced at Canterbury (it was, however, experienced in Counties Manukau in 2017 and known about in the Health Ministry).

I found Levy congenial, engaging and genuinely wanting to make a difference. In South Auckland he had inherited the legacy of a negative suffocating leadership culture and quickly turned it around into a more liberating and innovative environment. He also supported renal physicians in a public dispute over access to dialysis treatment even though it involved conflict with then Health Minister Jenny Shipley.

Subsequently Levy worked predominantly in different positions in the private health sector until the return of a National-led government in late 2008. Then his rollercoaster began. In June 2009 Health Minister Tony Ryall appointed him Chair of Waitemata DHB.  This was followed by his Ministerial appointments as Deputy Chair of Health Benefits Ltd in 2010 (interestingly his HBL involvement is omitted from his Wikipedia coverage), Deputy Chair of Health Alliance (shared service agency of the four northern DHBs), Chair of Auckland DHB in December 2010, Chair of the Health Research Council in January 2016, and Chair of Counties Manukau DHB in December 2016.

While Deputy Chair of Health Alliance Levy had argued that some funding should be transferred from Northland, Waitemata and Counties Manukau DHBs to Auckland DHB. The purported argument for this was that Auckland received many patient referrals from the other three DHBs. However, this was already handled by an officially recognised mechanism called inter-district transfers. The counter-view was that he wanted to reduce Auckland DHB’s rapidly rising deficit. Both Northland and Counties Manukau refused.

Crown Monitor appointment

Had Labour’s health spokesperson (and former health minister) Annette King decided not to retire from politics in 2017 she would have been the Health Minister instead of David Clark in the new Labour led government. In opposition she had been open about her intention, should she became minister, to require all Board Chairs to forward letters of resignation. She would then decide which resignations to accept and which not to. Levy’s (and some others) would have been accepted.

However, although aware of King’s firm position, incoming Health Minister David Clark took a different approach. Clark was aware of serious concerns with Levy’s leadership of the three Auckland DHBs. This included plummeting workforce morale at Counties Manukau in 2017. His way of resolving it was to successfully encourage Levy to join a small group to review the Health Ministry’s relationships particularly with DHBs chaired by Sir Brian Roche but requiring him to stand down from all three DHB Chair positions. It has been suggested that prior to Clark’s initiative Levy requested that he enable a statutory amendment allowing Levy to continue as Waitemata Chair beyond the limit of three terms but that this was rejected.

In June 2019 Health Minister David Clark appointed Levy Crown Monitor for CDHB. In February this year Minister Little reappointed him. What is a crown monitor? The Health Minister under the Public Health and Disability Act 2000 has the authority to appoint a crown monitor “for the purpose of assisting in improving the performance of a DHB”.

Crown Monitors aren’t formally Board members but are required to observe, assist the Board in understanding Government’s wishes and policies, and to advise the Minister on what he or she is observing. Crown monitors are generally appointed on the recommendation of the Health Ministry to DHBs that have serious financial performance concerns. Currently there are crown monitors at Waikato, Canterbury and Southern DHBs.

The decision to appoint Levy as CDHB crown monitor came as a big surprise for many in the health system. In an earlier phone conversation I had with Minister Clark on unrelated matters the latter indicated that he wouldn’t be appointing Levy to any further positions. He may have based this on reports that Levy hadn’t rated high on the assiduous scale when on the Roche chaired review group.

Consequently Clark’s change of position was puzzling. However, it is now widely understood within many of those in health system leadership that the recommendation to Clark to appoint Levy crown monitor was developed by Director-General Bloomfield and EY senior partner Stephen McKernan (subsequently McKernan was appointed head of the transition implementation unit reporting directly to the Prime Minister). As the most politically inexperienced health minister for several decades Clark would have found it difficult to reject a recommendation from two people he trusted and respected.

When McKernan was Director-General in the late 2000s Bloomfield was one of his senior officials. The two had a respectful and trusting relationship; if not a mentor for Bloomfield McKernan was close to being one. McKernan’s promotion of Levy was surprising because he was known by several people to be very critical of his leadership attributes particularly since he left the public health system in the late 1990s.

It is clear that Levy wasn’t appointed crown monitor for his financial acumen. Rather he was appointed to deal with a clash of leadership cultures and to help achieve what former Director-General Chuah had tried so hard to do. In this context Levy was a brilliant appointment.

There was a pattern in his appointment as the Chair of the three metro Auckland DHBs that made what subsequently happened in Canterbury predictable. Levy’s style was simple but effective. First, he would promote a narrative that the DHB he had become chair of was a disaster that it had to be rescued from. Second, he was the rescuer. The outcome was that each of the three chief executives soon departed. This was his attractiveness as a crown monitor.

The Canterbury outcome was now predictable. With the support of Arrowsmith in Canterbury reinforced by a new CDHB Chair aligned to the Ministry rather that his senior management team Levy attacked the financial acumen of Meates and his senior colleagues. McKernan’s EY consultants were engaged to do a hatchet job based on a blatant misuse of nurse staffing data in order to deepen this attack.

Levy’s financial leadership in the Auckland DHBs

Dr Michael Gousmett (Adjunct Fellow, School of Humanities and Creative Arts at Canterbury University and with over 30 years’ experience as a company secretary in the manufacturing and retail sectors) has researched Lester Levy’s financial leadership in the Auckland DHBs for a group of health professionals leading to an article published online by the influential Tuesday Club in Christchurch in March this year.

Gousmett’s assessment should be seen in the context of both the financial acumen attributed to Levy while chair of the three Auckland DHBs and his attributing to CDHB’s former senior management team blame for its deficit level rather than the earthquake recovery. His assessment included the surplus or deficit for the financial year ended 30 June immediately before Levy assumed the Chair in each of the three DHBs to the end of the financial year (2018) following him standing down from all these positions on 24 January 2018.

His figures are based on official DHB operational financial results before comprehensive income. In 2008 Waitemata had a surplus of $4,639,000. By 2018 this healthy surplus had become a deficit which then dramatically increased to $126,289,000 in 2019. In 2009 Auckland had a surplus of $306,000. By 2018 Auckland was still in surplus but, by 2019, it recorded a massive deficit of $232,366,000. In 2015 Counties Manukau had a surplus of $2,870,000. By 2018 there was a total reversal with a $22,223,000 deficit ballooning out to $152,819,000 in 2019. The 2019 deficits included errors (not attributable to the DHBs) in the application of the Holidays Act to public holidays which Government has agreed to fund separately. This amount would be in the vicinity of 40% of each deficit.

Gousmett asks why were these DHBs that had surpluses when he commenced as Chair, were reporting operating deficits after Levy resigned. For Gousmett the test was did Levy’s leadership result in a legacy of improved financial performance by the three Auckland DHB.  As the 2020 financial reports were not available, based on the 2019 reports as the benchmark, Gousmett concluded that the “answer would appear to be no.”

There are two points that can be made about Levy’s financial management based on Gousmett’s assessment. First, the Health Ministry was fully aware of the deficit growth in the three DHBs while Levy was their Chair. The Ministry wasn’t prepared to judge Levy by the same yardstick as it judged CDHB’s senior management team.

Second, the deficit growth under Levy was largely driven by factors beyond his and the DHBs control such as acute admissions increasing at a higher rate than population growth and sustained government underfunding. However, if senior management is to be blamed for Canterbury’s increasing deficit, then Levy should be equally blamed for the deficit growth in his three DHBs when he was Chair. This is especially the case when there was no earthquake devastation in metro Auckland and consequential massive rebuilding need. Unlike Canterbury, the three Auckland DHBs didn’t face high depreciation costs because they had to demolish 44 buildings and repair other buildings that don’t increase their life and also, unlike Canterbury, didn’t have to outsource the equivalent of 10 operating theatres worth of activity every day (Monday-Friday) due to the failure of the Ministry to deliver the Christchurch Hospital rebuild.

Why and the future

It is difficult to be definitive about why, after the hopefulness of the consensus reached in 2018, the darkness of 2011-17 returned and got darker. It was more than Levy, Arrowsmith and Hansen. They were means to an end albeit willingly and with Levy at least enthusiastically. It appears to rest primarily with McKernan and Bloomfield with the former the biggest beneficiary.

The motivation is unclear other than intolerance to an alternative leadership culture courageous enough to challenged flawed top-down decision-making and a DHB able to demonstrate through the use of integrated data systems its performance. However, one can only be worried about the ethics that led to EY business consultants ending up being the biggest winner. This deserves further investigation.

One consequence of this increased darkness was that it shone a light on the leadership culture that can be expected under the Government’s intended restructuring of the health system including the abolition of DHBs. Key players in the dealing to of CDHB’s engagement based leadership culture, including those from EY business consultants, are influential drivers of this bureaucratic centralist restructuring.

Short of an epiphany it is highly likely that the dominant leadership culture in this new restructuring system will be command and control which, among other things, contributes to serious decision-making errors. The ability of DHBs to push back on ill-considered command and control decisions will be removed because they are to be abolished.

To conclude with a touch of irony Health Minister Andrew Little is known to be highly impressed by Auckland DHB’s new Chief Finance Officer Justine White. CDHB’s Chief Finance Officer was a key part of the senior management team attacked by Levy for poor financial management. That person was Justine White. In February Little reappointed Levy crown monitor for CDHB. Words like egg, running and face readily come to mind.

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 Democracy Project.