20 Nov 2014

Health sector cost-cutting group axed

7:49 pm on 20 November 2014

The hotly debated Health Benefits Limited (HBL) group is to be wound down, and district health boards will be put in charge of a major programme to find $620 million of savings in their sector.

Crown company HBL was given the task in 2010 of finding $700 million of savings in back-office functions of district health boards (DHBs) for re-investment in health.

The new Health Minister, Jonathan Coleman, is signalling a bigger focus on sport and childhood obesity over the next three years.

Health Minister Jonathan Coleman says HBL is to be wound down. Photo: RNZ / Karen Brown

It has already achieved $300 million of that target, according to the Government, but has encountered opposition from unions and DHBs over business cases involving changes to food and catering and linen services in hospitals, and a single financial and IT system for all DHBs.

The changes are designed to use the scale and bulk-buying power of 20 DHBs to generate million of dollars in savings for use elsewhere in health, but unions have worried about job losses and DHBs about the substantial costs involved to them and whether the expected benefits would materialise.

The work went on hold prior to the election, but the new Health Minister, Jonathan Coleman, said recently the work was vital to the health system and should continue. He said the Government was considering options for moving to the implementation stage of the DHB shared services programme.

Dr Coleman has now told Radio New Zealand the Government agrees with a proposal put forward by DHBs to move implementation of the programme to a "vehicle" owned by DHBs. This is healthAlliance, a shared-services agency for the three Auckland DHBs.

"While HBL has made good progress in developing savings plans for DHBs, the responsibility for implementing these business cases needs to sit with DHBs, " said Dr Coleman.

"Now is the right time to consider the organisational options for DHBs to lead the implementation phase of the business cases on finance and procurement, laundry, national IT infrastructure, and food services."

Dr Coleman said healthAlliance employs 600 people, is owned by the northern DHBs and HBL, and has had national-level contracts, so it has capacity and capability to implement the shared services business cases developed by HBL.

hospital bed

Photo: Photo NZ

He said $620 million needs to be saved in back-office areas of DHBs over the next four years, and it is important that the momentum on this work is maintained for that purpose. HBL was never intended to be the "implementing vehicle", he said.

"There is no question there's been some difficulties in the relationship between HBL and the DHBs but we're now moving to a new phase which is focussing on implementation. And that's the important thing, we've got to keep the momentum up and we've got to find the best way to implement these savings across the health system."

Dr Coleman said he would ensure momentum is maintained through a "very tight" master services agreement which will bind DHBs. He has asked Acting Director-General of Health Chai Chuah to establish an interim project governance group to work through the next steps, which will include a due diligence process. A final proposal will then be taken to Cabinet for approval.

"It's expected that HBL will be wound down once the appropriate transitional plans have been agreed. This handover is expected to occur by the end of June 2015."

Canterbury District Health Board clinician Ruth Spearing, who is head of the Canterbury Hospital Medical Staff Association, HBL increased rather than lowered administration costs for her DHB.

Dr Spearing told Checkpoint the South Island boards - through a group known as the South Island Alliance - managed procurement, or joint purchasing, more cheaply before HBL got involved.

"For procurement, for example, in terms of the admin costs of procurement, we were actually paying four times as much for the admin of procurement than we had been when we had our award-winning South Island Alliance team," she said.

"So that kind of indicates 'yes, there was a problem'."

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