Healthcare sector management needs to break away from its obsession with financial information and focus on funding for access.
Health New Zealand recently ‘proactively released’ 454 pages about its financial performance to July 2024. Here is a letter it did not release.
Hon Dr Shane Reti, Minister of Health.
Dear Minister.
We have been deluging you with information about our financial performance. Probably no one understands it all. Certainly you won’t. That is probably, conspiracy theories aside, why you appointed Lester Levy as Commissioner for Health NZ, so you had someone you could consult, although it may be doubted whether even he can understand it all in a three-day working-week.
This letter says that it is all dishonest. To be clear, it is not saying that you, Minister, or anyone else is dishonest. Nor is it saying that the accounts sent to you are dishonest – they conform to the Generally Accepted Accounting Principles (GAAP). It is the system which is dishonest.
You announced that the ‘Government’s goal is for all New Zealanders to have timely access to quality healthcare, to improve life expectancy and quality of life’. We can assure you that from the very beginning Health NZ has had a similar goal.
The June 2024 Government Policy Statement set out five priority areas for the health system.
‘Access – ensuring all New Zealanders have equitable access to the health care services they need, no matter where they live.
‘Timeliness – making sure all New Zealanders can access these services in a prompt and efficient way.
‘Quality – ensuring New Zealand’s health care and services are safe, easy to navigate, understandable and welcoming to users, and are continuously improving.
‘‘Workforce – having a skilled and culturally capable workforce who are accessible, responsive, and supported to deliver safe and effective health care.
‘Infrastructure – ensuring that the health system is resilient and has the digital and physical infrastructure it needs to meet people’s needs now and the future.’
You then identified five access targets (none of which we are currently being attained or likely to be attained with current financing), adding that ‘focusing on the health targets did not mean other areas would be neglected’.
Meanwhile a month earlier, the May 2024 budget, from a totally different part of government, voted Health NZ insufficient funds to deliver those ambitions. It is as if two parts of the government brain are disconnected from one other.
Were they connected, the government would offer a certain amount to Health NZ; we would then come back with an estimate of how much we could deliver with that funding. There would follow a bit of bargaining but ultimately we would all end up with adequate funding for realistic goals, if not your June ones.
That is not how it happens. It is more like an architect being asked to design a five-bedroom home but being offered funding for a two-bedroom one. That is what is meant by the system being dishonest.
The dishonesty distorts the running of the public healthcare sector. Its administration has become obsessed with its finances, while ignoring its healthcare performance. It is evident in the document dump where there are papers describing themselves as reporting ‘performance’, when they are merely dealing with ‘financial performance’. The actual performance of the healthcare system – that is, how well those needing healthcare are being treated – hardly appears.
A June document reported an expected $604m financial deficit for the 2023/4 year. The deficit is made up of $529m of a pay-equity revenue stream which had not been received (presumably an accounting failure), $183m which was about COVID decisions which occurred in earlier years, and $40m of ‘actuarial and writeoffs’. Without these accounting adjustments (and probably some others), Health NZ would have been running a surplus (of over) $148m.
Admittedly there was some ‘operational overspend’ (at least $385m more compared to that planned in March). That means that in those last three months, Health NZ spent another $385m more on healthcare than it planned. Most people would think that was a good thing. But we are so obsessed with the financials that the benefits of any extra care were overlooked.
To be clear, we are not objecting to the application of the GAAP rules (which are probably necessary for government borrowing). The issue is that they should not dominate our thinking about healthcare provision. The law articulated by Don Gilling, a retired professor of accounting, is that the way the system is scored shapes the way the game is played. We should not be scoring healthcare according to the GAAP rules.
I’m afraid, Minister, we have all been trapped by this scoring system. You have said there is a ‘healthcare crisis’. There is not one. Most parts of the healthcare system are working brilliantly once one is inside it. As your ambitions set out, the failure is because people in healthcare need are not getting inside it. That is because Health NZ does not have enough resources. Give us the funds and we’ll meet your ambitions.
What we have is a financing crisis; insufficient funding means that there are too many people who are not getting access to the quality care you say you want. (We don’t know how many; unlike many other affluent nations we do not have a comprehensive survey of healthcare needs.)
That means, Minister, your ambitions, your expectations and your targets are pointless. They will remain so until the government provides the funding to meet them.
In June 2024, Health NZ told you, Minister, that ‘our intention is to take on a savings target of $2 billion in 2024/25 Budget on the premise that ... this is a comparable target to other agencies across government (7% of revenue). ... No frontline clinical employees’ roles will be impacted through the savings target.’
The entire personnel costs of the non-medical employees of Health NZ were about $1.6b last year and the spending on ‘infrastructure and non-clinical supplies’ came to another $1.5b.The statement seems to be proposing to cut those items by two-thirds. It is joking.
The greater part of the $2b reduction is likely to come from financial juggling (consistent with GAAP, of course). It won’t be sustainable, and the following year there will be another financial deficit. In any case, there is going to be the ongoing access deficit, unless the Government fronts up with the required funds. We’ve set out the failures of the current situation bluntly, Minister. You have got to stop talking about a ‘health crisis’ and focus on the funding crisis. Unless you do, the limitations on access to care will continue and your ambitions will remain unrealised.
Yours etc (signature deleted under obscure provision of the OIA).
PS. This letter may not have been sent.
PPS. A balloon fell out of a fog and settled down in the middle of a large green field. The traveller in it asked a bystander where he was.
‘You are in a balloon which is in the middle of a large green field.’
‘You’re an accountant, aren’t you?’
‘How did you know?’
‘Your advice was precise, accurate – and of no bloody use.’
‘That will be $200 plus GST.’