Health Minister Shane Reti has replaced Heath NZ–Te Whatu Ora’s board of directors with a commissioner in an effort to halt a projected $1 billion overspend within the agency.
Reti said Health NZ has been exceeding its budget by as much as $130 million a month for the past five months, despite a 6.2% increase in funding included in the May budget.
This overspend would result in an estimated deficit of $1.4 billion by the end of the financial year, if allowed to continue unchecked.
The Minister blamed the Labour government for the cost overrun, which only started this March, saying it stemmed from too much centralisation in the reformed operating model.
Limited oversight of both financial and nonfinancial performance meant directors were unable to identify risks until it was too late, he said.
Lester Levy, a professor of health at AUT, has been tasked with taking over from the board for the next year as a commissioner. This radical move will give Levy sole control of the agency.
“This is the strongest ministerial intervention available under the Pae Ora Act and not a decision I have taken lightly, however the magnitude of the issue requires such action,” Reti said.
Health is the Crown’s second largest area of spending with a near $30 billion budget in the 2024 fiscal year, making it equal to 17.5% of all government spending.
The Commissioner will have to find $1.4 billion of savings from the agency to keep it within the budget set in May this year.
Reti has asked for these savings to come from middle management, as much as possible. He believes there should be just six layers of management, instead of 14.
However, a cabinet paper warned it may not be possible to address all the underlying issues in 12 months and Health NZ could continue to run above its budget in the next financial year.
Over budget or under funded?
Labour leader Chris Hipkins and health spokesperson Ayesha Verrall said the agency was only exceeding its budget because it had been underfunded.
“Let's be clear, this is the government justifying funding cuts because they didn't fund the health system adequately in this year's budget,” Hipkins said.
Verrall said the Health select committee had been told a 2022 multi-year funding deal given to the sector may not be enough due to higher-than-expected inflation and population growth.
In the year ended March 2024, the inflation rate was 4% and the population had grown by 2.5%. This likely meant the Coalition’s 6.2% increase barely matched increased costs.
A cabinet paper said the incoming government was aware of performance issues within Health NZ but the first significant monthly budget overrun was reported in March this year.
“Despite taking immediate steps to constrain areas of overspending and apply cost controls, such as on recruitment, Health NZ’s financial position has continued to deteriorate,” it said.
Minister Reti denied there was a “hiring freeze” at the agency, despite a reference to constraining recruitment in the paper and reports from many frontline workers.
Verrall said that was “completely at odds” with what she had been hearing from frontline health workers over the past eight weeks.
“There are clearly extreme constraints on the amount of frontline staff can be hired,” she said.
Two nurses employed at public hospitals told Interest.co.nz there was a hiring freeze within the agency. One said nurses had been warned jobs would be scarce and that they weren’t allowed to adjust their hours.
Reti said there “hadn’t been a hiring freeze” and hundreds of nurses and doctors had been employed in the past few months. But the cost overruns were due to hiring back-office staff and “outsourced personnel,” he said.
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