Part 2: Conflicts of interest in district health boards

2.1
In this Part, we discuss:

• what DHBs are;
• particular conflict of interest rules that apply to DHBs; and
• types of conflicts of interest that commonly arise at DHBs.

District health boards

2.2
A DHB is a Crown entity constituted under the Act. There are 21 DHBs in New Zealand.

2.3
A DHB is governed by a board, which is made up of publicly elected members and government-appointed members. A board must have a community and public health advisory committee, a disability support advisory committee, and a hospital advisory committee (the statutory committees), and it may have other committees.

2.4
Using mostly government funding, a DHB provides, or funds the provision of, health services and disability support services within a particular geographical area. This means that, for a certain locality, some services are provided to patients directly by a DHB through its clinical and other staff (such as at a public hospital). Some other services are provided by private or community-based organisations (such as by a privately owned clinic or a primary health organisation), under a contractual arrangement with a DHB, with funding that has been provided by that DHB. These two roles are often respectively called the “provider” and “funder” roles of DHBs.

2.5
The three Auckland DHBs are large organisations. They each employ more than 5000 staff, and each year they each receive in the vicinity of $1 billion in revenue. They each serve communities of more than 400,000 people.

2.6
The DHBs also have some subsidiaries. Most relevant to this audit, the three Auckland DHBs own Northern DHB Support Agency Limited, which helps coordinate or carries out some projects or activities where the three Auckland DHBs wish to work together. The Counties Manukau DHB and the Waitemata DHB own HealthAlliance NZ Limited (HealthAlliance), which among other things handles much of their purchasing of equipment and consumables.

Particular conflict of interest rules that apply to district health boards

Statutory rules

2.7
For DHBs, there are some specific statutory rules that apply to board and committee members, especially for meetings.¹

2.8
Before appointment or election, a prospective member must disclose to the Minister of Health or electoral officer (or to the board, in the case of a committee member) all conflicts of interest that they have, or are likely to have, in matters relating to the DHB. The statement must be incorporated into the interests register, along with subsequent changes to matters in that statement. A person who fails to disclose a material conflict of interest before accepting nomination as a candidate for election is disqualified from membership of the board. A board member of a publicly owned health and disability organisation may not be appointed to a statutory committee that is likely to regularly advise on matters relating to transactions in which the person is interested.

2.9
A member who is interested in a transaction of the DHB must disclose the nature of the interest to the board or committee.² The disclosure must be recorded in the minutes and in the interests register. The member must not take part in any deliberation or decision of the board or committee relating to the transaction; nor sign related documents.

2.10
However, there are partial waiver powers. The other members of the board or committee may decide to permit the member to participate in the board’s or committee's deliberations (but not its decision) about the transaction. Certain matters about the permission must be recorded in the minutes.

2.11
Also, the Minister of Health may waive or modify the prohibition on participation for particular board members, transactions, or classes of transactions. A copy of any such waiver or modification must be presented to the House of Representatives.³

2.12
A member who fails to comply with these provisions may be removed from office.

2.13
A person who performs or exercises functions, duties, or powers of the board that have been formally delegated to them must consider whether they have any conflicts of interest, and if so must disclose them to the board.

2.14
The Act does not require DHBs to maintain a register of ongoing personal interests of members or staff (although a DHB may do so as a matter of policy). Rather, the matters that the Act requires to be recorded in the "interests register" are members’ declared conflicts of interest in particular matters.⁴

Other relevant rules

2.15
Like all public entities, DHBs are also subject to the general common law rules that require procedural fairness in public decision-making.⁵

2.16
Many clinical staff of a DHB will be bound by codes of conduct and ethical standards set and enforced by their own professional regulatory bodies.⁶ In general, we consider that the expectations in such publications are consistent with other relevant rules and expectations (including our expectations) about conflicts of interest.

2.17
The State Services Commissioner’s new code of conduct of the State Services (Standards of Integrity and Conduct) will apply to DHBs from 30 November 2007. The Ministry of Health also provides some other guidance for DHBs.

2.18
DHBs may have internal policies and procedures for dealing with conflicts of interest (see Part 3). One common procedure is to require senior staff and members to regularly record various types of ongoing personal interests in an interests register. This can be an effective tool to make it easier to identify and manage particular conflicts of interests when they arise, but it is not the same as disclosing conflicts of interest. (We discuss the use of interests registers, and the difference between disclosing interests and disclosing conflicts of interest, in Part 6.)

Types of conflicts of interest that commonly arise at district health boards

2.19
Managing conflicts of interest can be especially difficult in DHBs.

2.20
Straightforward examples of a conflict of interest often include a person being in a position where they can influence or make a decision to employ a relative, award a contract to a company in which they have a financial interest, or offer a grant to an organisation to which they belong. These situations can occur anywhere in the public sector, including within DHBs, but are generally fairly easy to identify and manage.

2.21
However, several types of conflict of interest are quite specific to – and widespread within – the DHB sector, and are not always easy to manage. In part, this is because of three structural characteristics of the sector:

• Many board and committee members (especially elected members) may have those roles because they have a strong personal or professional interest in the health system, perhaps through operating or working for an organisation that receives funding from a DHB.
• Commercial product suppliers, especially pharmaceutical companies, are widely regarded as having a strong influence on the health system.
• Many senior clinicians, particularly specialist doctors, work part-time in the public sector (that is, as an employee of a DHB) and part-time in private practice.

2.22
These characteristics give rise to a number of situations or risks where interests may come into conflict. We encountered these frequently during our audit.

2.23
In the following paragraphs we discuss the types of situations or risks that these characteristics can create.

Board and committee members

2.24
It is fairly common for a board or committee member to work for (or own or operate) an external organisation that is funded by a DHB to provide health services. Examples include primary health organisations, pharmacies, laboratories, aged care organisations, mental health care organisations, and oral health organisations. The DHB board or committee may need to make decisions or recommendations that affect those services. The decisions might be quite specific to a contractual relationship with that particular provider, or might be at a high strategic level about, say, the relative priorities of different types of services that are competing for a limited pool of funding. Decisions at quite a high level can have flow-on effects that will ultimately affect the amount of funding a particular service provider will receive.

2.25
Also, a member may be at risk of being accused of bias if they act as a forceful advocate for, or representative of, a particular profession, health issue, or section of the community. Sometimes, holding or expressing strong views can reach the point where it is regarded as prejudice or predetermination for or against a person or issue.

2.26
These situations are difficult because it is generally desirable to have people involved in governance who have some knowledge or expertise that is of use to the DHB, and to include people who can contribute the perspectives of the various different stakeholders in the health system. Part of the rationale for having private and community health providers funded locally by DHBs is to promote local consultation, collaboration, and co-ordination. DHB boards are partly democratically elected, and it is common for the public to elect health professionals to DHB boards.

2.27
However, this makes it more likely that people involved in DHB decision-making will be placed in a difficult position through having a strong personal or professional stake in some matters that the DHB has to decide. A member’s personal or professional expertise in the health system may make them a highly valued and effective member, but that same expertise may also mean they have conflicts of interest from time to time.

Involvement with commercial product suppliers

2.28
Many of the major commercial suppliers of medical equipment, consumables, and pharmaceuticals are large multinational companies. Traditionally, to help market their products, such companies fund such activities as sponsorship, research, grants, hospitality, and gifts aimed at individuals working in healthcare (or indeed at an organisation as a whole). These activities can include sponsoring conferences or training events, funding travel for people to attend conferences or to study new products, funding or sponsoring particular clinical programmes or staff, corporate-box entertainment, dinners, and inexpensive giveaways such as pens.

2.29
Often, individual clinicians are the targets of these activities. They may receive some form of funding, hospitality, or gifts in the course of their work for a DHB. If they also work in private practice, they may receive such items in that capacity.

2.30
Some of this marketing is aimed at influencing the prescribing practices of clinicians for individual patients. That is a matter that professional ethics publications warn doctors to be careful about.

2.31
DHBs also make major purchasing decisions about equipment, consumables, and pharmaceuticals. Clinicians (or other DHB staff) who are involved in helping to make (or advise on) these decisions may be perceived as biased if they have received funding, hospitality, or gifts from a potential supplier.

2.32
These situations are difficult because at least some of these activities are legitimate and useful. Commercial funding is often a significant and valued source of funding for some DHB activities. Without it, some services may not be able to be provided and some medical research may not occur. In addition, ongoing professional education is necessary and important for clinicians. These issues are also difficult because marketing often aims to influence people subconsciously, so an individual will often genuinely believe that their professional judgement and objectivity has not been improperly affected. But clinicians and other DHB staff risk being accused of receiving inducements or rewards in the implicit expectation that they will favour a particular supplier when making decisions or offering advice in the course of their work.

Senior clinicians and private practice

2.33
Having clinicians who work concurrently in both the public and private sectors is an inherent and long-standing feature of the health system. We do not suggest that this is wrong. DHBs enjoy the benefit of expert professionals who they might otherwise struggle to attract and retain. But it means that clinicians are sometimes placed in a difficult position.

2.34
Specialist doctors may be involved in helping to make (or advise on) DHB decisions about whether or how to contract out to private providers some or all of a DHB’s services in a particular area, or about the ongoing management of the relationship with a private provider. A doctor may have a conflict of interest if they also work for an existing or potential private provider of such services (especially if they are an owner or operator of that provider).

2.35
Similar issues may arise where a doctor is involved in DHB decision-making about the purchase of equipment, consumables, or pharmaceuticals if the doctor also has an established and close business relationship with a particular supplier through their private practice (or if through their private practice they have already developed a strong preference for a particular brand of product).

2.36
These situations are difficult. Even where the doctors are not the main decision-makers, or not closely involved in controlling the decision-making process, it may still be necessary or highly desirable in the interests of sound and informed decision-making for the DHB to seek the input of its expert clinical staff who are most closely involved in the area. The clinicians may have valuable advice to offer, or they may reasonably expect to be consulted. Yet, in highly specialised areas, it may be unavoidable that most or all of those DHB staff are also connected, in their personal capacity, to a potential alternative provider of the service or product.

2.37
In addition, specialist doctors who work part-time for a DHB and part-time in private practice may face conflicts of interest when working with patients. They may be faced with situations where they have the opportunity to:

• encourage a patient to seek surgery or other treatment at the doctor’s private practice (or discourage them from attempting to use the DHB), in cases where the treatment could or should reasonably be undertaken at the DHB;
• encourage a patient to use the doctor’s own private practice, in cases where the patient needs to be referred to private practice but where there are other possible private providers whom the patient should also be informed about; or
• conduct their work at the DHB in such a way that there is always too much work for the DHB to handle at any given time, so that there are continually cases that need to be transferred to the private sector.

2.38
Conversely, a doctor could attempt to fast-track a private patient into a DHB facility for treatment, ahead of other patients. Although this situation does not directly involve personal benefit for the doctor’s private practice, it could be seen as allowing favouritism to influence a DHB’s operations.

2.39
These issues are difficult, in part because the doctor-patient relationship is largely conducted in a personal and confidential way. This is quite proper, but it also means that these risks are difficult to assess or manage.

2.40
Doctors have strong ethical obligations, which they generally take very seriously. Doctors also generally strongly believe that their advice and decisions are always in their patient’s best interests, because of their ethical obligation to do their best for their patient and to provide their patient with access to the necessary care and the ability to make informed decisions. Their good faith in this respect is usually not questionable, but it can sometimes mean that the doctor may not appreciate how the situation could appear to an outside observer. They may be unable to see that certain advice can also appear as if it is intended to benefit the doctor personally.

2.41
Also, because doctors rely to a large extent on their own individual judgement, exercised professionally and independently, they are sometimes less receptive to guidance or instructions from non-clinical managers and are sometimes less concerned about their organisation’s administrative requirements.

Other issues

2.42
A DHB employee (whether a clinician, administrator, or other staff member) may be elected as a board member of the DHB. This is permitted by the Act. However, it can create risks if the board considers matters that may directly affect the employee. This should not normally be a significant problem, because employment matters are usually left to the chief executive to manage and matters relating to employment agreements are often delegated to others to negotiate on a national basis. Also, it might create an uncomfortable situation if the performance of the chief executive is being assessed by a body that includes one of their subordinates.

2.43
Sometimes, when a DHB is deciding which provider to fund for delivery of a particular service, one of the potential providers belongs to, or is part of, the DHB. This risks creating an organisational conflict of interest, where other potential providers might question the ability of the DHB to make a fair decision. It may be unavoidable, because of the DHBs’ combined funder and provider roles, although the roles of particular individuals might have to be segregated as much as is practicable.

2.44
Some people who work in the health system are also involved in external expert advisory organisations, professional regulatory or training organisations, community or advocacy organisations, or other public sector organisations. Sometimes, the activities or interests of that other organisation may overlap with the person’s work at a DHB in a way that could divide their loyalties and so create a conflict of interest.

2.45
Clinicians generally have a strong sense of their professional and ethical duty to act in the best interests of their patients. Occasionally, this may lead to their feeling obliged to resist, perhaps even publicly, something that their DHB is doing, which could create a conflict between their professional obligations and their obligations to their employer.

2.46
In the situations described in this Part, it is often not easy to decide where to draw the line between acceptable and unacceptable behaviour.

1: See sections 6, 21, and 29, clauses 6 and 17 of Schedule 2, clauses 36-39 of Schedule 3, and clauses 6 and 38-39 of Schedule 4 of the Act. Section 31 of the Crown Entities Act 2004 also applies to appointed board members, and sections 53 and 59 of that Act apply to all board members. Sections 62-72 of the Crown Entities Act do not apply to DHBs, but may apply to their subsidiary companies.

2: See the Glossary for the definitions of the terms "transaction" and "interested in a transaction". The definitions come from the Act, and are broad.

3: For committees, this power can be exercised by the board, rather than the Minister of Health. The board must provide a copy of the notice to the Minister.

4: The Act does not always use the exact phrase “conflict of interest” in this context, but that is the effect of the relevant provisions. The Act says that when a member is “interested in a transaction” of a DHB, they must disclose “the nature of the interest” to the board, and the disclosure must be recorded in the minutes and “entered in a separate interests register maintained for the purpose”. (See the Glossary, paragraph 2.18, and Part 6.)

5: These rules were applied in the Diagnostic Medlab case. The effect is that the statutory rules are not exhaustive. It may be possible to comply with the statutory provisions yet still be found to have acted unfairly in an administrative law sense.

6: See, for example, the New Zealand Medical Association’s Code of Ethics (2002); St George, Ian (ed) (2007), Cole’s Medical Practice in New Zealand, New Zealand Medical Council, Wellington, Foreword and Chapter 20; and guidance published by organisations such as the Royal Australasian College of Physicians and the Royal Australasian College of Surgeons.