Fixing Te Whatu Ora: ‘Exceptional burden on one individual’, says Treasury 

“’Lester’s advent’ as board chair is described by Treasury as a one-off opportunity for Te Whatu Ora to ‘bring out its dead’”

An “exceptional burden on one individual”; that’s how Treasury officials describe health minister Shane Reti’s proposal to dissolve the board of Te Whatu Ora and make board chair Lester Levy the commissioner. 

The comment is made in a Cabinet briefing paper (8 July) from Treasury included in a recent release of documents, many with significant redactions. The paper notes that by seeking Cabinet’s agreement to his proposal to dissolve the board of Te Whatu Ora and appoint Professor Levy as commissioner, Dr Reti will signal to the public how serious the problems at the agency are and give Professor Levy a strong public mandate to make significant changes to the entity.  

“It will also, however, place an exceptional burden on one individual.” 

In the event, Professor Levy did not go it alone. The announcement of his elevation to commissioner was made on 24 July, and on 1 August, Dr Reti announced two deputy commissioners — the only remaining Te Whatu Ora board member Roger Jarrold, recently appointed for his financial expertise, and Ken Whelan, who had been appointed Crown observer to the board last December. Then, in September, Kylie Clegg became the third deputy commissioner.

But, by and large, Treasury papers paint the rejigged governance of Te Whatu Ora as pretty much a one-man band, with significant expectations placed on Professor Levy.  

Treasury officials’ comments on the agenda of a health joint ministers’ meeting (18 June) note that “Lester’s advent” as board chair is described as a one-off opportunity for Te Whatu Ora to “bring out its dead”, that is, be frank with ministers and officials about the nature and scale of the agency's challenges. 

“Based on our observations to date, frank sharing of problems up the line in HNZ may require some organisational culture change at HNZ (at board and management levels). We are confident that Lester will lead this culture change from the top. He himself has been clear to Minister Reti and DPMC (Department of Prime Minister and Cabinet) that significant structural and behavioural change is required at HNZ. We are also confident that Lester understands HNZ’s role as an agent of the Crown and appreciates that its interests, by definition, align with those of ministers.” 

The desire for a plan out of the financial quagmire in which Te Whatu Ora finds itself is palpable. 

The 8 July paper acknowledges that details of Professor Levy’s change plan “are still vague”. At this stage, he had only been board chair for just over a month. 

What’s more, there is an acknowledgement that a plan will not land fully formed. 

“The change plan is also likely to be iterated over time, rather than set now for the full year ahead, as the situation is dynamic, and each month will reveal new risks and opportunities.” 

An earlier paper (14 June), an aide mémoire ahead of the health joint ministers’ meeting on 18 June, reported that the Ministry of Health and Treasury “understands the incoming chair intends to implement a series of 60- or 90-day plans across the business, and to shift away from the highly centralised model to a regional structure with four regional HR and finance teams reporting to a single regional leader responsible for overseeing a budget (both costs and revenue).” 

The regional changes have happened with the appointment of four regional deputy chief executives.  

Despite the difficulties in devising a plan, Dr Reti reports to Cabinet that Professor Levy has committed to achieving annual milestones for the five health targets agreed upon by Cabinet in March “within the available funding”. 

The paper states: “He [Professor Levy] intends his proposed cost-control measures to have the dual effect of taking cost out and increasing output, thus significantly lifting system productivity – as is necessary to keep the health system affordable over the medium to long term.

“These are the right goals. But achieving them will be extremely hard. HNZ and its predecessor agencies have a poor track record of delivering expected savings. The entity’s internal controls are weak, morale is low, clinicians’ expectations of autonomy are high, and the relationship between national office and the front line is generally bad.  

“While we agree with Dr Levy that strong leadership, genuine, thoughtful engagement, and visible positive change can turn the situation around, we would not want ministers to underestimate the size of the challenge or the amount of difficulty and resistance likely to manifest over the next six months.” 

The 20 papers released by Treasury last Friday afternoon come three weeks after Te Whatu Ora itself released 454 pages of documents relating to its financial position. 

The Treasury release provides details of briefings between January and July this year to health and finance ministers and to Te Whatu Ora. 

In a briefing paper (1 July), before the commissioner announcement, Treasury officials welcome Professor Levy’s “bullish” approach.  

That approach, to seek $2 billion of savings from Te Whatu Ora baselines with an expectation that about $1.4 billion of these will eventuate – “with no negative impact on front-line services, including no redundancies of insourced clinical staff” – [their bolding not mine] is deemed “warranted” but with the rider that it will be a huge undertaking to take $1.4 billion out of the system within 12 months. “Delivery of this will rely on an organisation that was unable to find $540 million in planned savings this financial year.” 

Treasury officials warn of the prospect of Te Whatu Ora drawing on its balance sheet to meet costs it cannot fund from baseline savings and reprioritisation. Thanks to a healthy balance sheet, this would be manageable in the short term, but the agency would eventually need cash injections, like its predecessor DHBs.  

“Our hope and belief is, however, that Lester, supported by a new board, will be able to return HNZ to a breakeven operating position before it exhausts its balance sheet.” 

Nevertheless, Treasury recommends that ministers ensure they have seen a “detailed, credible plan” before pledging their unqualified support. 

Should Professor Levy fail in his undertaking, then the forecast goes something like this (14 June paper): “If the current trends and trajectory were to continue unabated, Health NZ indicates that it will need to use all, or nearly all, of the cost pressure uplift it received at Budget 2024 (which was intended to pay for inflation costs and price and volume uplifts throughout the year) to meet the cost of existing staff. 

“This means that, unless it can significantly restructure its cost base, Health NZ will only be able to meet cost increases (including price uplifts to primary care contracts and wage increases in employment agreements) via running down its balance sheet due to running an operating deficit (which would buy it at most about another 12 months without causing cashflow problems) or receiving additional funding from the centre.  

“The latter will be exceptionally challenging in the current fiscal environment.” 

Ultimately, while the papers reveal numerous concerns about the reporting of financial data by Te Whatu Ora, Treasury officials note that reporting from the new agency is better than that received from DHBs.