Eighty percent of external costs for the health sector transition unit have gone to one consulting firm. David Williams reports

The head of the Department of the Prime Minister and Cabinet is defending consultant costs for the health and disability review transition unit.

Last month, Health Minister Andrew Little announced sweeping reforms for the health system, including scrapping district health boards and the establishment of a new Crown entity, Health NZ, and a Māori Health Authority.

At the announcement, Little said he had been working “at pace” over the preceding months with the health and disability review transition unit, which sits within the Department of the Prime Minister and Cabinet (DPMC).

Figures released to Newsroom under the Official Information Act show external costs for the unit – a blend of public officials, consultants and contractors – reached $2.8 million by the end of February, an almost doubling of the costs from mid-December of $1.49 million.

More than 80 percent of the total, $2.27 million, was paid to Ernst & Young – whose advisory partner Stephen McKernan was the unit’s director. The unit’s next highest contractor, Finora Management Services, part-owned by experienced health executive Chad Paraone, was paid $170,000.

The total budget for the unit is $5 million.

DPMC chief executive Brook Barrington says via email the review was highly complex and done within demanding timeframes. It was undertaken when a significant amount of the public sector, not least the Ministry of Health, was focused on the Covid-19 pandemic.

McKernan, a former director-general of health and chief executive of two district health boards, brought the required skills and experience to the director’s role, Barrington says. He quickly built a team that could work at pace to deliver results.

The transition unit delivered high-quality results, Barrington says, adding: “In the context of the $20 billion investment in vote health, the expertise provided by EY in relation to the future shape of that system has demonstrated value for money.”

“We’re paying consultancy rates for people who are being public servants, and I think it’s a moral issue.” – Robin Gauld

Professor Robin Gauld, director of the University of Otago’s Centre for Health Systems and Technology, says it’s a shame big money’s being spent on people not on the public payroll.

Instead, people who have benefited greatly from working in the public sector are taking their knowledge and selling it back to the public sector at extraordinary rates.

“We’re paying consultancy rates for people who are being public servants, and I think it’s a moral issue.”

In saying that, he backs the outcome of the unit’s work. Gauld compares the Simpson Review, which led to the unit’s establishment, to the draft of a PhD thesis that hadn’t yet been handed to supervisors.

The people within the transition unit are well-skilled and probably did good work. However, Gauld – who co-wrote a paper in 2017 about external consultancies in the health sector – says what’s being produced is not rocket science. It could, and should, be done within the public service, perhaps by a specialist group.

“Instead, this work gets contracted out to consultants, and it is plain wrong.”

Newsroom asked Health Minister Andrew Little if he was comfortable with that level of spending on consultants, and if the public service should be bolstered to do this work.

He responded: “When you are making major change like the health reforms it’s important to get independent, expert advice. Over time, the work undertaken by the health and disability transition unit will be taken over by the relevant health bodies.

“It’s also important to note that the EY team included people with highly specialised expertise, such as Stephen McKernan.”

The OIA response from DPMC teased out other interesting details about the transition unit’s work.

By mid-March, the unit’s “core staff” had risen to 37, 27 of whom were contractors or consultants. Fifteen of them were from EY, or 10.7 full-time equivalent positions.

Specialist contractors included: three people from Senate Communications Ltd, two consultants from economics firm Sapere, a policy and implementation planning advice specialist from NZIER, and three specialist advisors on Māori health, disability support services and governance arrangements.

Beyond “core staff”, six specialist legal advisors from Buddle Findlay provided commercial and employment law advice, costing $50,600 to the end of February.

EY’s McKernan penned the OIA response to Newsroom.

He wrote: “The unit has been working at pace to produce a range of advice on system design options to support a programme of reform. The priorities for the first phase (the response phase) focus heavily on the design of a high-level operating model for the sector; legislation; developing the implementation plan for the reform; and working through funding implications.

“Cabinet invited the Minister of Health to bring forward recommendations for system reform and a plan for implementation for consideration in March.”

Twice Newsroom has asked for the transition unit’s costs. Both times DPMC delayed the response by a month to allow for “consultations”.

David Williams is Newsroom's environment editor, South Island correspondent and investigative writer.

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