Revelations of exit payments are contained in a narrative-busting, clean audit. David Williams reports
Four departing Canterbury DHB executives, including the former chief executive, received exit payments, an Audit NZ report reveals.
The health board – the South Island’s largest employer and a $1.98 billion business – was rocked last year after seven of its 11-strong executive team walked within six weeks, after an uncomfortable standoff with its board over budget cuts.
The DHB’s deficit last year was $243.4 million, which displeased the Health Minister, while its budgeted deficit in the financial year just finished is $145 million.
(The term deficit is pejorative, but a different view is offered by health systems expert Dr Robin Gauld, pro-vice chancellor and dean of the Otago Business School. “The DHBs are providing more services than they’re funded for, so they wind up in this situation of being underfunded, or having a so-called deficit.”)
The Audit NZ report to the board said payments were made to four of the executive team who left the DHB between July and October last year. The auditors’ review included whether “payments were based on sound decisions to settle, and appropriate mediation had occurred as relevant”. All were found to be above board.
No quantum was mentioned, but there is the suggestion the “hurt and humiliation” payment to former chief executive David Meates, who only served a one month notice period, was of reasonable size.
The Audit NZ report said any payments over $10,000 are likely to attract the attention of the tax department, IRD. “In general, it would be difficult to convince the IRD that any payments over $30,000 were not at least partially taxable.”
It was recommended the DHB consider a voluntary disclosure to the IRD.
“The employee had a genuine grievance.” – Canterbury DHB management
DHB management countered with comments contained within the report. “Canterbury DHB’s position is that the employee had a genuine grievance and that the amount paid was reasonable based on the hurt and humiliation suffered by the employee.”
Meates refused to comment. In an emailed statement, his replacement, Dr Peter Bramley, said: “The details of the matters you refer to are private to the individuals involved. We won’t be commenting on private employment matters.”
Sarah Dalton, executive director of the Association of Salaried Medical Specialists, says it shouldn’t have got to the point at which the executive leadership team (ELT) was imploding.
“If the board had been a little more positively engaged with the clinical voice, particularly – which doesn’t pertain to the ELT members that left – but if they’d had a bit more of an ability to listen to that clinical voice it might not have ended up where it did.”
Board chair Sir John Hansen, Bramley, and other DHB executives (many in acting roles) addressed the Health Select Committee for its annual review in March.
Bramley said the departure of executives gave the organisation great pause. “But we’ve also refocused particularly around our areas of financial performance and built in some rigour around both forecast budget and savings programmes.”
Hansen added: “In actual fact there may well be some savings around it.” (Green Party list MP Eugenie Sage took umbrage at that statement.)
The board chair said he’d been involved in the situation involving the departed chief executive, Meates. “That is a matter that’s all been put through State Services Commission and there has been nothing other than what was a contractual entitlement in that.”
Simon Watts, the National MP for North Shore, signalled he wanted to ask a supplementary question. “I think that was answered,” he said. “I was just going to ask what, if any, restructuring or redundancy costs were paid out by the DHB in regards to the exiting of executive members.”
More broadly, the fact Audit NZ’s audit is relatively unremarkable is, in some ways, remarkable.
The narrative from the Health Ministry and Crown monitor Lester Levy, in particular, has been the DHB’s ballooning deficits are down to poor financial management. Levy said last August more than 50 per cent of the deficit was the result of operational overspending – primarily on staffing costs.
The Health Ministry – which has a long history of bad blood with Canterbury DHB – and Treasury briefed ministers in July last year that DHB’s management didn’t seem to be genuinely working on improving its financial position.
But many independent checks and reviews have given the DHB a clean bill of financial health. In 2018, former ACC boss Garry Wilson concluded “at an operational level the CDHB probably performs quite well and cost-effectively when compared with other DHBs”.
The DHB’s latest annual report notes audit fees for financial statements were $255,000. The audit is carried out on behalf of the Auditor-General, and are broader then private sector audits to ensure public money is being spent wisely.
Audit NZ rated Canterbury’s financial information systems and controls, and management control environment, as “good”. It said of the DHB’s financial constraints, it had been significantly impacted by the rebuild phase after the Canterbury earthquakes of 2010 and 2011.
Levy tells Newsroom there was no analysis of this conclusion “so I am unable to pass comment on what they have said”. (He adds the quakes were devastating for Canterbury and Christchurch, and very challenging and disruptive for the DHB. On many occasions he’s acknowledged the outstanding way the DHB responded.)
The DHB’s annual report listed reasons why its deficit was $243.4 million last year, compared to a budgeted deficit of $180.5 million. They included: receiving $16.9 million of additional funding to cover Covid-19 pandemic costs of $34 million; and a $66 million provision for compliance with the Holidays Act.
Significant delays and budget overruns dogged the new $525 million acute services building, Waipapa, opened last November. Audit NZ said this raised uncertainty about the building’s transfer value.
Newsroom asked the DHB about the reasons for its deficit. Chief executive Bramley said it continued to deal with many factors beyond its control, including the aftermath of the earthquakes. “The factors that have contributed to the DHB’s financial position over the past ten years include the outsourcing of surgery due to a loss of facilities, while new ones are built.”
These statements seem to gel with those of Meates, rather than Levy.
In a blog post, Ian Powell, former head of the Association of Salaried Medical Specialists, suggested Levy, who has described the DHB’s finances as being in terrible shape, tried to contest Audit NZ’s assessment, which raises a serious ethical issue.
Powell notes over the past decade, audits have placed Canterbury as the highest-rated DHB or in the top quartile. “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.”
Battle of the stats
Levy is unmoved in his criticism of the DHB. He lists 16 points to back his unchanged view that “operational overspending” is largely to blame for the deficit.
A slew of statistics are among them – many of which jar with Meates’ outgoing newsletter to staff.
For example, Levy tells Newsroom: “In the period 2009/10 to 2019/20 the DHB’s population based funding grew more than twice the rate of its population growth.”
But Meates said Canterbury’s share of population-based funding had dropped from 11.1 percent to 10.73 percent since 2014/15.
(Wilson, the former ACC boss who reported on Canterbury DHB in 2018, described population-based funding as a “black box”.)
Meates put $178 million of its annual deficit down to: earthquake-related depreciation ($35 million); earthquake/insurance-related capital costs ($23 million); decline in Canterbury’s funding share ($60 million), and delays in the delivery of Waipapa and other facility-related inefficiencies ($60 million).
Depreciation is based on the value and useful life of an asset – so when a damaged building is repaired, the value increases, and so does the depreciation cost. “We pay $50m more each year in depreciation charges than a similar sized DHB,” Meates told staff.
Levy tells Newsroom the DHB’s interest, depreciation and capital charges, as a percentage of total “revenue”, are higher than average compared to other large DHBs – “although at least one of these is almost at the same level”. “The incremental impact does not adequately explain why the Canterbury District Health Board has the largest deficit (by a very big margin) across the DHB sector.”
He suggests the real demon is staff costs, representing two-thirds of “all revenue growth” from 2014/15 to 2019/20. Fundamentally, Canterbury has a higher deficit because of expenditure growth “excluding interest, depreciation and capital charge costs, relative to revenue”, Levy says.
But such simplistic assessments don’t factor in negotiated, legally binding pay increases to staff. Or contractually agreed increases to the likes of general practitioners, pharmacies and rest homes.
At the board meeting in July last year, Carolyn Gullery, the planning, funding and decision support executive director, who has since left, explained depreciation in the 2012 business case for Waipapa was $52 million, and at that time had risen to $85 million. The capital charge, a levy on Government capital investments, went from a budget of $27 million to $50 million.
(At that meeting, Levy criticised staff for providing crucial papers to the board too late, and with insufficient detail.)
Dalton, of the Association of Salaried Medical Specialists, says rebuilds are affecting all DHBs and “it stuffs their budgets”. “There’s systemic and, I think, knowing underfunding of health and this has been going on for not just years but decades. Now we’re at the pointy end both in terms of the condition of the building stock and facilities, and actually staffing as well.”
Bramley, the DHB chief executive, says $28 million of savings had been realised by the end of June through its deficit reduction programme, called Accelerating Our Future. Its focus isn’t on cutting services but improving what it already provides, and delivering them more efficiently, he says.
“No services provided by the DHB have been ‘cut’ as a result of the deficit reduction programme.”
In saying that, some facilities in its new hospital building, like children’s emergency facilities, won’t be staffed.
Dalton says some of Canterbury DHB’s savings make sense – like not paying for software licences that aren’t being used, or barely are. That’s saved “a bit more than loose change”.
What her union is concerned about is the inability to fund necessary services, She points to pathology services, which are spread over several locations. “We’re very concerned about the negative impact it’s having both on the ability for necessary diagnostic work to be done but also the timeliness of that work.”
Leadership ructions at Canterbury come at a time of turmoil and change in health. The Government has announced it is scrapping DHBs. Midwives have walked off the job to strike, hospital nurses have voted to strike after rejecting a pay offer, and Dalton’s union has had a series of stop-work meetings.
Several hospital emergency departments, including Christchurch’s, have been issued with provisional improvement notices, with dire warnings if staffing levels don’t improve.
The pressure has been too much for some, with many experienced staff choosing to leave. The situation has been exacerbated by problems with immigration clearances for migrants.
A report from May last year said New Zealand has the highest proportion of migrant nurses in the OECD, and the second-highest proportion of overseas-trained doctors.