Ministerial Statements — Southern District Health Board—Replacement of Board

I wish to make a ministerial statement, under Standing Order 356, relating to the replacement of the board of Southern District Health Board with a commissioner and a team of deputy commissioners. On 28 May I wrote to the chair of the Southern District Health Board indicating that over the past months I had become increasingly concerned with the deterioration in Southern District Health Board’s financial performance. I stated that I was considering replacing the board and appointing a commissioner under section 31 of the New Zealand Public Health and Disability Act 2000. I have carefully considered the board’s response, and I have today informed the chair that I will be replacing the board with a commissioner and a team of deputy commissioners.

My decision is based on the need for a new approach to the district health board’s longstanding financial issues and the need to help move Southern District Health Board to a more sustainable position over time. Deficits have been a feature of Southern District Health Board’s performance for some years, but that situation has worsened considerably over the course of the past financial year. The district health board is forecasting a final deficit of $27 million for the current financial year. That figure has, effectively, doubled in the last 6 months. The district health board has also forecast that its deficit position will further increase in 2015-16 to between $30 million and $42 million. This accounts for over half of the combined deficit of all 20 district health boards. This is a situation that can no longer continue.

Over time a number of steps have been taken to drive improvement, including the appointment of a Crown monitor and intensive monitoring by the Ministry of Health. The board and senior management have worked to address financial issues, and nearly all options available to Ministers have been tried over the years. The Crown monitor has advised that the changes required to lift the district health board’s performance are significant. Since it became public that I have written to Southern District Health Board I note that the Labour Party’s health spokesperson has indicated her support for the installation of a commissioner. I welcome that support, and note that political opponents are attempting to shift the discussion to the adequacy of the population-based funding formula and a debate on the merits or otherwise of the amalgamation of the Southland and Otago district health boards in 2010.

In regard to the population-based funding formula, all district health boards are funded according to the same formula and have been since the early 2000s. In a tight fiscal environment all district health boards are expected to exercise sound stewardship, but no other district health board has failed to control its finances like Southern District Health Board has. In regard to the amalgamation of the Southland and Otago district health boards, although it was a challenging exercise, the Government’s expectation is that any issues impacting on financial performance should now be on a clear path to resolution.

The Government is committed to the redevelopment of Dunedin Hospital and the provision of high-quality health services to all the people of the southern region. Southern District Health Board recently published its strategic plan outlining how it will deliver those services. Based on the board’s history of failing to deliver on annual planned expectations, I have lost confidence that the current governance arrangements are fit for addressing the challenges that the district health board faces. Kathy Grant has been appointed as commissioner, and takes up the role from 9 a.m. tomorrow, 18 June. Mrs Grant is a local lawyer and community leader with significant business and governance experience and a proven track record in turning round struggling organisations. After discussions with Mrs Grant, she has indicated that she intends to appoint Graham Crombie and Richard Thomson as deputies. A third deputy, with a strong clinical background, is expected to be announced later this month.

Mr Crombie is a Dunedin local. He has a strong background in accountancy, with a proven record in high-level assessments of the sustainability of health organisations. He also has lengthy governance experience. Mr Richard Thomson will also be an important part of the commission’s turn-round team. He is a local businessman and has a longstanding commitment to improving southern health services. He will be able to provide key insights into Southern District Health Board. Mr Thomson was chair of Otago District Health Board from 2001 to 2009 and has continued as a Southern District Health Board member since 2009. He is currently serving his second term on Dunedin City Council. The commissioner team will bring together a mix of strong financial, governance, and clinical skills.

The turn-round for Southern District Health Board is not expected to happen quickly. It is going to be hard work. I would like to thank the outgoing board for its work to date. My decision is not intended to devalue its efforts and achievements. However, I believe this decision is the right one to ensure long-term sustainability and the delivery of quality health services to the people of Otago and Southland.

Given years of deficits and months of adverse publicity, perhaps the most surprising thing about the Minister’s announcement today that he is considering replacing the board is that it has taken him so long to reach a decision. I think the politics have dictated the timing. Until now the Government has maintained a facade of arms-length operation, despite appointing five out of 12 board members, including the chair, and despite having a Crown monitor on the board for nearly 6 years. That Government watchdog has been reporting to the Minister the whole time and has a direct line to the Minister. Any remaining impression of ministerial distance from decision making is sacrificed with the appointment of this commissioner—perhaps it was becoming a little implausible anyway.

I cautiously welcome the appointment of Kathy Grant and Graham Crombie and Richard Thomson respectively. They are well respected locally, and I hope that they can succeed where the Minister has failed until now. The odds, of course, will be stacked against them. Fixing the district health board will not be easy. The cultural challenges are well canvassed. Some departments have worked well together since the merger; others have not. But, of course, one of the big elephants in the room is funding. The Minister can wish that away, but the inquiry that he has launched into the funding model is so narrow that it is, clearly, there only to dismiss media interest, and nothing more.

The funding issues will not go away. The Southern District Health Board trains a health workforce for the rest of the country, and that appears to be inadequately compensated for. It takes longer to treat patients when teaching students at the same time. It has the largest geographic area of any district health board, and yet it does not have the largest funding component. It also has older buildings, and that forces older, less-efficient styles of operation that involve more staff time. The Minister must address concerns about the funding model. It was introduced by Labour about 10 years ago. It is time that it was fully and properly reviewed.

The glacial progress towards a hospital rebuild should bother us all. The Minister needs to commit to a full tertiary hospital with level 6 status. So far he has ducked for cover on that one. Already the hospital has lost accreditation for the training of intensive care unit specialists. A Beca Group report late last year said that Dunedin Hospital’s outdated ward and operating theatre layouts were in need of replacement. That means that a refit will not do it. It is prohibitively expensive to do that. There is asbestos in the buildings. The layout is no longer suitable for modern operating, and refitting the old building would not be a wise use of capital.

Urgency is needed. The Minister has let time frames slip. The previous Minister said a business case would be at Cabinet this year; the Minister has said the end of this year. The district health board has said the background will not be done even by the end of this year. There will be no comfort in the South until the Minister commits—and has a sod turned, before his term of Government is out—to rebuilding that full tertiary hospital at level 6 standard.

People in the South, like people across New Zealand, deserve affordable access to decent health-care. It is something that every Kiwi should be able to count on. This Government has continued to fund health care below the rate of inflation. Our health care services are suffering. This Minister no longer has anywhere to hide. With the appointment of this commissioner, the fate of the Southern District Health Board is tied tightly to his success in his portfolio.

The Green Party is glad that this issue is finally being looked at. The Green Party has raised this issue, including allegations of fraud, a number of times over the course of the last year in questions to the Minister of Health of the time. Unfortunately, the Minister refused to engage proactively, which is a shame and which is why we are in this situation today. The Government has dropped the ball in the past on the Southern District Health Board, especially when it wrote to the Ministry of Health’s audit and compliance unit in December 2010 seeking an investigation and recommendation. It took over 3 years for the Minister to respond.

It would seem that the problems for this board began when the Otago and Southland district health boards merged 5 years ago. We hope that this is an opportunity to look at the funding model for the region. It is an incredibly large area to serve, and we need to ensure that the people in the area are getting adequate and optimal health-care. We do have concerns that replacing the whole board with one person is less democratic than the oversight of an elected board, but we do think it is time for this issue, finally, to be looked at. This is an opportunity to look at the wider issue, and the most important thing here is that the quality of service for people in the area is not affected.

New Zealand First believes that the health Minister’s appointment of a commissioner to run the Southern District Health Board basically demonstrates a belated ability to manage New Zealand’s health services. The Southern District Health Board has been under Government monitoring since 2010, and yet it has still been allowed to reach a $27 million deficit this year. That is set to increase to $42 million in 2016. If Southern District Health Board’s financial state is due to board mismanagement, why has Minister Coleman allowed the board to remain in control until now? The reality is that Southern District Health Board has a range of very specific needs—a large geographic region, an ageing population, and high rates of bowel cancer—that the population-based funding formula employed by the Minister just does not cater for. Rather than admit that he has failed to appropriately fund southern health services, Minister Coleman has chosen to blame the board.

Southern health services have already been cut to the bone by the board. Appointing a commissioner to find more savings will ensure health services across the district are stretched beyond breaking point. We would urge patient care to be the focus of every decision made. When money is the focus, it is too easy for patients and the people who care for them to be sidelined. We see no way that a $27 million deficit that is predicted to increase can be brought under control without affecting the delivery of safe and high-quality public health services and the health of thousands.

It is time to clean the slate on this particular issue. We hope that the commissioner can succeed and that health services do not deteriorate in the short term.

I just want to reassure the people of Otago and Southland that this is about delivering sustainable services over the long term, and the public deserve nothing less. As I have said, the financial situation in the Southern District Health Board just could not continue, and that is why today’s announcement has been made. It has been carefully considered, and it is the right course of action.

On the point of decisiveness, well, it does not really come any more decisive than installing a commissioner. And to our political opponents, I am very grateful that across the House people are supporting this decision, but I would note that if I had removed the board in the first couple of weeks you would have had something considerable to say about that.

There has been a lot of money go into the Southern District Health Board—$135 million extra over the last 7 years and a huge increase in the number of doctors and nurses. As to the argument that a deficit indicates underfunding, Labour left a combined district health board deficit of $150 million; we have got that down to $50 million. So, by that argument, you would say that it was actually Labour that was underfunding. But the point is that a deficit actually indicates that the money available is not being allocated correctly.

In regard to the population-based funding formula, that has been the system that has always been used. What I would say is the Government has a very high level of confidence in this team. They are local people, they have got the right set of complementary skills, and I know that the Government and the House will wish them well. It is a tough task, and they need all the support they can get to get the job done, but there is no question that a new approach to the Southern District Health Board’s issues is required, and that is what I have announced today.