Health system reform: ‘Transition Unit’ to spend $18m on consultants this year

The special government unit established to overhaul the country’s health system will spend $18 million, 69 per cent of its $25.96m budget this year, on contractors and consultants, its director has estimated.

In addition, the Transition Unit’s head, Stephen McKernan, confirmed the total outlay on contractors and consultants, from the division’s inception in June, 2020 to Oct 11, 2021, was $10.4m.

The single largest beneficiary of the contractor spending to date is Ernst and Young (EY), where McKernan is a partner.

The figures were released under the provisions of the Official Information Act.

Budget documents show the unit’s funding last year, which also flowed heavily to contractors, was, in part, redirected from “health services funding”.

Of a total budget appropriation for the unit of $13m for 2020/2021, $8m was transferred from Vote Health to the Department of the Prime Minister and Cabinet (DPMC), which houses the unit. The money had been earmarked previously for “DHB fiscal sustainability”. The unit actually spent $10m in the year.

Shane Reti, National’s spokesperson for Health, said the middle of a pandemic was not the time to undertake radical change to a system already struggling operationally.

“The priority for the health system and of the Health Minister should be to manage through this pandemic and to focus on operational needs like ICU beds … we could double our ICU beds in Tairawhiti for the cost of some of these consultants.”

A peer-reviewed research letter in the New Zealand Medical Journal last month noted New Zealand continued to have one of the lowest levels of ICU beds per capita in the OECD (a total of 176 staffed beds, with a further 67 in “surge” capacity).

“My question is, what is the opportunity cost of doing this big overhaul now and, by the way, centralising even more power in Wellington? What are we not able to do because our funds and our focus are going on a big rethink?” Reti said.

The unit was established last year to conceive a major reformation of the country’s health and disability sector. A review of the sector, finalised in 2020, pointed to persistent problems in the current system including budget deficits run by most district health boards (DHBs) and the relatively poor health of some groups, including Māori. Changes planned include the creation of a separate Māori Health Authority and the dissolution of the DHBs.

EY was paid or owed $5.7m by the unit for work to the end of August, 2021, Health Minister Andrew Little confirmed recently in response to parliamentary questions by Reti.

A spokesperson for the unit, set up within the Department of the Prime Minister and Cabinet (DPMC), declined to update the figure outside the OIA process.

Other significant contractors to the unit as of the end of August include Finora Management Ltd ($323,700), owned by Chad Paraone, who was recently made acting chief executive of the interim Māori Health Authority; Sapere Research Group ($244,400), controlled by managing directors Kieran Murray, David Moore and Tony Samuel; Senate Communications ($245,000), part-owned by founding partner Neil Green; Sue Suckling Holdings Ltd ($205,245), Suckling’s eponymous consulting vehicle;and Arkus Communications ($155,200), owned by Karl Ferguson.

In responding to the Herald’s OIA, McKernan wrote that the unit is delivering a programme that is “… big and ambitious and requires significant transformation to the existing overarching health system structures, macro policy, [and] legislative and funding settings.

“It also requires new models of care, new commissioning approaches to be developed, significant change management [and] transition and implementation planning.”

McKernan is a former New Zealand director-general of health; he reports directly to Minister Little.

The rising use and cost of consultants to government was an early concern of Labour ministers following their formation of a government in 2017.

In 2018, State Services Minister Chris Hipkins abolished a cap on public servant numbers because, he said, it had perversely fed an increased reliance on expensive contractors and consultants.

“…This Government wants to see the public service rebuild their in-house capability and invest in permanent and long-term staff, rather than spend millions on temporary contractors,” Hipkins said in press released remarks at the time.

Little said he was not concerned about the split between public servants and contractors in the unit: “The Transition Unit, as its name suggests, is a temporary outfit to assist in establishing the reformed health entities and ministry … following the transition next year, the new entities will have been established.”

The unit’s 2022/2023 budget is set at $10.43m; the group is slated for dissolution thereafter.

The full cost of the health and disability restructure including implementation is projected to reach close to half a billion dollars.

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