Health NZ warned financial control ‘one of the thorniest’ aspects of decentralisation

Source: Radio New Zealand

Health New Zealand (HNZ) has been warned that keeping financial control is “one of the thorniest” aspects of the government’s rapid push to devolution.

The government blamed loss of financial control when it sacked the central agency’s board two years ago.

Health Minister Simeon Brown on Tuesday promised regions and districts would get more say over budgets and hiring from 1 July so that decisions on medical care were made closer to the patient.

Late last year he ordered HNZ to decentralise rapidly, and this week he said, “This is the most significant structural change our government is making to improve how the health system operates.”

But the latest HNZ internal report on devolution said “people capability is an extreme risk” in the finance and operations area, with centralisation diverting resources.

“Many local teams are under-resourced in financial management,” said the report done in January for a new devolution committee.

Brown on Wednesday said there was a “huge” amount of work underway to build back the local leadership disempowered by over-centralisation.

“We are making sure we’ve got the capability around operations, around finance, human resources, all of those things are being looked at.”

The January report by consultants Deloitte laid that out, he said.

The report has not been publicly released though RNZ has seen parts of it.

‘Clearly underpowered’

Former HNZ Te Whatu Ora board chair Rob Campbell expressed serious misgivings.

“They quickly need to get some financial resources into those regions and districts which are clearly underpowered in this respect,” Campbell said on Wednesday. “That’s the first thing they have to do.”

The devolution plan puts executive regional directors in charge of rebuilding the capability but at a time when money was exceedingly tight said the report.

“The financial challenges are going to increase in 2026/27, meaning there will be even more pressure on financial controls to reduce the deficit …. from $200m to breakeven.

“Currently there will be little to no capacity remaining within the baseline next year without significant productivity improvements and prioritisation decisions,” it said.

Campbell said it was an unenviable task.

“They’re being told they’re getting more autonomy. The truth is they’re really not, and they don’t have the money to do that anyway.”

‘Fully coming into effect’ on 1 July

The devolution report contains self-assessments by Health NZ’s various business units showing some progress, and a lot of risks, around devolving key clinical and service decisions back to the four health regions and 20 districts.

One section on “reduced financial visibility” said, “One of the thorniest aspects of devolution is financial control – ‘who holds the purse strings’ and how to prevent overspending or inequities.”

Financial visibility was fragmented across 20 health boards before 2022’s centralisation, then smeared after it by “confusion … and weak controls” at Health NZ Te Whatu Ora. It then began its nosedive towards a forecast billion-dollar-plus deficit.

The centralisation also pulled experience and skills into the centre in Wellington, the report said.

This was compounded by hundreds of cuts to support jobs since 2024 in a savings drive.

The January report outlined “critical” current gaps and “staff churn” in the workforce, such as in data and digital, analysis and finance, that supports the frontline doctors and nurses.

Under a heading ‘Options to accelerate devolution’ it said, “There is a risk of not understanding cost structures or nuances between districts, further compounding the risk that pushing the funding allocation and management of each region and district to the lower levels quickly may result in loss of financial visibility across the sector again.”

It said some fixes might take 18 months to three years.

However, Brown said on Tuesday the changes underway would “ensure a nationally planned, locally and regionally delivered health system, will come into effect on 1 July”.

Hospitals would be able to recruit and deploy staff without central sign-off but with delegated budgets and responsibility to meet targets in the district or region.

On Wednesday Brown reiterated the 1 July delivery date.

The Deloitte report talked about the many initiatives being done by HNZ “to make sure that districts and regions are ready for 1 July when the devolved operating model … is fully coming into effect”, he said.

“Of course there’s risks in changing an operating model but at the same time the last government … left local clinicians not able to make some of the key decisions.”

Globally, health ran better when a devolved operating model split decision-making between national, regional and local levels, Brown said.

New policy on who decides what

The devolution plan depended on four executive regional directors at the top being “best placed to manage performance and build capability, which can vary significantly between districts”.

Already, a new policy on who gets to decide on hiring and firing, and on spending, was being rolled out.

Papers RNZ has seen showed the policy was approved by the board in December.

They showed there must be consultation with the regional or national head of human resources for all hires, or for creating new positions within budget; and to create any new positions outside budget needed “consultation/approval” from either of these heads or from the executive leadership team.

Campbell said, “You start off looking like they’ve got a lot of power, and then when you really read through it, they don’t.

“Even on items that are within budget and full-time equivalent allocations, there is a need for … consultation, and in a hierarchical organisation like this consultation means getting approval.”

The biggest difference was a bigger regional element compared to what HNZ was building at the time he was sacked in 2023 for a political attack on National’s water infrastructure policy.

Yet it was “still very tightly controlled” and regional and district managers were “in a no-win situation”, Campbell said.

‘Divergent approaches’

In addition to lack of finance staff, the January report added “fragmentation” to the hurdles for devolution.

“Without strong governance structures and clear national guardrails, regions and districts risk adopting divergent approaches, weakening system-wide alignment and equity in service delivery,” it said.

Those governance structures were still being set up.

Campbell said good governance meant having a business model everyone grasped. “People throughout the organisation still find it very hard to understand what the responsibility for particular issues is.”

The report said Health NZ had had to build national financial guardrails after its lurch towards a big deficit.

“If HNZ devolves too quickly or carelessly, they risk losing the opportunity to use its current … structure and scale” to address system problems, it said.

On the plus side, devolution could help districts take more responsibility for day-to-day spending and not expect topdown bailouts, citing how Australian state hospitals used to have a “rollercoaster of budget blowouts and rescues”.

Brown’s plan retained the Wellington-based bureaucracy for strategy, planning, policies, standards and system integration.

However, the report said many of the national plans existed in name but “have not yet been developed or published, and the decision-making framework to support accountability is still developing”.

Building districts’ financial capability an ongoing focus – HNZ

Late on Wednesday Health New Zealand told RNZ that according to the Deloitte report the agency’s budgeting, planning, reporting, and performance management disciplines had been strengthened since a review of financial management at the end of 2024.

“These improvements have ‘reduced the risk of a loss of financial control levers’,” it quoted.

Building financial capability of districts and regions was an ongoing focus, said executive national director of strategy performance improvement, Jess Smaling.

“Regions and districts will have clear budgets, and delegated authority to make decisions based on the unique local needs,” she said in a statement.

“Budgets will be based on expected activity to meet those local needs, within the resources available to Health New Zealand.”

A national funding board and human resources oversight committee had been replaced by four regional investment committees and “people and culture committees”, along with a national version of that to consider human resource policies so there was national consistency.

A new national investment committee would make funding decisions above the authority of the four executive regional directors.

“Hiring decisions will be made in the regions and districts, within available budgets,” said Smaling.

Those within existing FTE and budget would only require the approval of the hiring manager’s immediate manager.

Decision-makers using delegated authority had to stay within approved budgets and limits, and comply with Health NZ policies and legislation, she added.

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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand