EY became the consultancy of choice for DHBs. David Williams follows the money

It was a quiet start.

In 2014, Capital & Coast and Counties Manukau district health boards spent $329,000 on health work by the New Zealand arm of consultancy EY, which changed its name the year before from Ernst & Young. The following year, four DHBs paid the firm a similarly modest $290,000.

Then things took off.

In 2015, the New Zealand arm of EY, the London-based multinational firm, swallowed Health Partners Consulting Group, headed by well-known industry figure Stephen McKernan, a former director-general of health.

In the following six financial years, up to last year, 15 DHBs had paid EY a further $13.2 million, for a total of $13.8 million over eight years, peaking at $3.1 million in 2019. (The total, which excludes auditing and Holidays Act compliance work, is likely to be higher as some DHB provided GST-exclusive figures.)

Counties Manukau paid the most: $2.9 million. Another four paid over $1 million: Waikato ($1.9 million), Bay of Plenty ($1.5 million), Canterbury and Waitematā ($1.1 million each).

Because of their relatively small populations, Nelson Marlborough ($972,000, or $6.03 per person), and Taranaki ($718,945, or $5.77 per person) topped the per capita chart. But Bay of Plenty, home to about 264,000 people, was right behind at $5.76 per person.

Not all work was won through competitive tender. And there’s at least another $400,000 of work underway for the Southern DHB, and the three Auckland DHBs and Northland.

Only five DHBs – Hawke’s Bay, Tairāwhiti, Wairarapa, Whanganui, and West Coast – didn’t use the firm. (Work done for Hutt Valley in 2019 was paid for by Capital & Coast.)

The rise in EY’s health services business rose steeply after the arrival of Stephen McKernan. Photo: Supplied

Spending on EY adds to a worrying picture of DHB spending on external contractors and consultants, which a University of Otago study estimated reached $430 million in the three years to 2019.

The situation raises questions about our health system.

“The big question is around the sums of money that are going out into a consultancy which could be invested within the health sector itself,” says Professor Robin Gauld, director of the University of Otago’s Centre for Health Systems and Technology, and one of the study’s authors.

“There’s a huge amount of money that could be going into developing public sector capacity, to be providing strategy and intelligence and business analytics, whatever else that it is that they’re providing. And it would be money that’s going into building institutional knowledge and putting information into the public sphere, as opposed to developing it outside the public sphere and holding it outside of the public sphere.”

Not everyone agrees with Gauld, of course. Some would say it’s costly to staff an in-house unit within the public health sector, whereas a consultancy can do brave, bold and controversial work from arm’s length, and do it quickly.

Tim Tenbensel, an Associate Professor of Health Systems at University of Auckland, says there are often good reasons for DHBs not using in-house expertise.

“One part of the story would be that when Tony Ryall was Minister he was intent on reducing spending on health sector management, which meant a good deal of internal management capability was lost over those years,” he says, adding that he suspects many went to work for consultancies, like EY.

In March, Tenbensel told RNZ years of reforms and tight budgets at DHBs had encouraged short-termism that discouraged capacity building. “It’s difficult to tell whether it’s expensive because if you’re just drawing on this capacity for one contract a year, or one or two months’ work, versus having that expertise in-house it might be actually better value for money to contract out.”

With DHBs being scrapped, and the establishment of interim versions of Health New Zealand and the Māori Health Authority, it’s a crucial time to consider health spending.

(This overhaul is something EY’s McKernan, an Oceania advisory partner and government & public sector lead, is deeply ingrained in, as head of the health and disability review transition unit – work that has earned EY more than $2 million.)

However, Gauld, who is also dean of Otago University’s Business School, expects large sums to continue to be funnelled into external consultancies, which are often multinationals.

“We are just characteristic of what’s been going on globally in developed economies,” he says. “I don’t think it’s going to go away.”

The people now steering the revamped health system hail from some of the DHBs that used EY the most.

Fepulea’l Margia Apa, the chief executive of “interim” Health NZ, is the former boss of Counties Manukau DHB, while Vui Mark Goshe, a Health NZ board member, chairs that DHB. Sharon Shea, co-chair of the Māori Health Authority and a Health NZ board member, is former chair of the Bay of Plenty DHB.

Health Minister Andrew Little says: “Large health services are complex organisations and often benefit from external advice and assistance. It is often needed to challenge thinking and bring fresh perspectives within groups with established hierarchies and long-standing relationships

“It is likely organisations like Health NZ and the Māori Health Authority will be able to develop their own depth of expertise but I expect they will still benefit from external advice periodically.”

EY was twice asked to comment for this story. Katie Byrne, EY’s NZ external communications manager, says: “I’m afraid we do not comment on client matters.”

Newsroom asked the country’s 20 DHBs for the information about EY’s services last November. Our clarification with Canterbury DHB only trickled in last month, six weeks after the initial response.

The responses show the breadth of EY services provided.

A $170,000 project on Auckland DHB’s transplant service capacity, for example. Or a series of projects for Counties Manukau’s South Auckland Social Wellbeing Board initiative that cost more than $1 million over four years.

At Capital & Coast, more than $200,000 was spent improving its mental health, addiction and intellectual disability services.

About $900,000 of EY work billed to Nelson-Marlborough between 2017 and 2020 related to Nelson Hospital’s redevelopment, specifically the “indicative business case and models of care programme”.

In Otago and Southland, after a bumbling review of primary birthing facilities by the Southern DHB, EY conducted a “maternity strategy post-implementation review”, costing almost $130,000.

The firm is working on two projects, costing an estimated $130,000, related to the new Dunedin Hospital.

Meanwhile, Bay of Plenty’s strategic health services plan, an initial piece of work costing $346,000, snowballed into a series of projects that ultimately saw $1.5 million paid to EY.

For Gauld, who researches health consultants, the amount paid to EY over eight financial years isn’t surprising. But as a taxpayer, as someone paying for public service, it gives him a sense of unease.

It’s no criticism of individuals, he says, and you can’t blame the firms, who hire skilled individuals, for taking the work. But the model involves individuals getting paid “a heck of a lot”.

Junior staff billed out at really high rates, $250-an-hour-plus, while someone like McKernan – “probably, goodness knows, $1000-an-hour or something”.

“What’s the bonus at the end of the year? It’s eyewatering stuff to the average member of the public.”

Newsroom asked the biggest-spending DHBs why they chose EY, and if taxpayers were getting value for money. Comments arrived via emailed statements.

Counties Manukau, the biggest spender, didn’t provide comment by publication deadline.

Waitematā DHB’s chief financial officer Robert Paine says it engaged EY – which demonstrated experience in health management and health systems – using competitive tender processes.

“EY provided a robust framework for identifying, evaluating and implementing a financial sustainability programme which has saved the DHB $16 million per annum.

“In addition, together with the other Northern Region DHBs, we engaged EY to provide advice and support for a number of regional information system projects.”

Asked if it used competitive tendering processes, Waikato DHB’s executive director of finance, property & infrastructure and supply, Mark Cawthorne, said it followed Government “procurement processes” – which presumably is not the same.

Cawthorne said the DHB uses specialist support when appropriate, on a case-by-case basis. He went on that it had “no reason to consider, in these historical incidences, that it did not receive appropriate outcomes from the work undertaken”.

In Bay of Plenty, the development of its strategic health service plan, won by EY via a competitive process, became the gateway to “intrinsically linked” work, including the business cases for large capital projects.

Bay of Plenty’s executive director of development and commercial services Jeff Hodson called EY a “valued partner” in key projects in recent years, including its long term investment plan and strategic health services plan, and writing a variety of business cases, including for

“One of the reasons we have been working with EY is due to their specific expertise in undertaking similar work for other DHBs. The projects they have assisted us with are large and complex pieces of work which the DHB does not have the internal capacity and capability to undertake. Their expertise and experience in these areas has proved invaluable.”

As reported by Newsroom in March, Minister Little appointed a Crown monitor to Bay of Plenty DHB last year over numerous concerns – “financial performance, acute demand, workforce retention and management, and some key areas of service delivery, such as colonoscopy services”.

While DHB spending on EY has been almost ubiquitous, it’s notable the three Auckland DHBs were big users of the firm.

Lester Levy was appointed chair of Waitematā in 2009, Auckland the following year, and Counties Manukau in later 2016. He resigned all three positions in January 2018, a few months before serious infrastructure issues at Middlemore Hospital made national headlines.

In June 2019, Levy was appointed Crown monitor of Canterbury DHB. A hardening of attitudes by the board, which demanded drastic spending cuts, sparked an exodus of executives two years ago.

Health commentator Ian Powell, a former executive director of the Association of Salaried Medical Specialists, has written about how EY’s report into the DHB’s accelerated savings plan, delivered in August 2020, contained “glaring errors”, and was a “hatchet job” that ignored the findings of previous reports.

Newsroom put questions to Levy via the Health Ministry and Canterbury DHB, but didn’t receive a response by publication deadline.

Canterbury DHB’s chief executive, Dr Peter Bramley, said its use of professional services firms is not limited to EY, and procurement is generally via an all-of-government panel, at pre-agreed terms and rates.

“We review the quality and value of each piece of work delivered by various consultants and we are comfortable that we receive value from the work they do.”

It’s that value for taxpayers’ money that concerns Gauld, of University of Otago. Sometimes it’s hard to find – he says it’s difficult to discern the impact of something like strategy work.

As the scrapping of DHBs draws nearer, Gauld focuses on questions of public accountability and institutional knowledge.

“And whether this is, at the end of the day, the way in which we want the health sector to be working in the country. I think it’s the big question.”

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

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