Part 4: Health Benefits Limited

Health sector: Results of the 2011/12 audits.

In this Part, we describe HBL's work programme and its reporting of sector savings.

HBL was set up on 30 July 2010 and is a Crown company owned by the Ministers of Health and Finance.

HBL's purpose is to facilitate and lead initiatives that reduce administrative, support, and procurement costs for DHBs. HBL is working with the sector to deliver a target of $700 million of gross savings for DHBs during its first five years.

Work programme

The HBL work programme gained significant momentum during 2011/12, as it made progress with initiatives and business cases – in particular, for the Finance, Procurement, Supply Chain Shared Systems and Services (the FPSC) work stream.

During 2011/12, HBL introduced a shared banking service for DHBs. As at 30 June 2012, five DHBs had joined this service. By December 2012, all but one (Taranaki DHB) had joined the service. The service is managed by HBL and includes a banking "sweep" arrangement, where all DHB bank account balances are brought together into one collective account on a daily basis. This arrangement is expected to provide annual benefits of $4 million for DHBs – for example, by obtaining a more favourable interest return than DHBs would achieve individually or, if a DHB is overdrawn, more favourable borrowing rates.

Other HBL work streams include:

  • facilities management and support services, which includes food and laundry services;
  • collective procurement, working with Pharmac and the National Health Committee to prepare a co-ordinated strategy for procurement of medical devices (for all DHBs);
  • information services;
  • ineligible patients; and
  • HR/workforce management.

As part of its procurement work, HBL has continued the previous arrangement operated collectively by DHBs of negotiating a national insurance policy on behalf of all DHBs. This has been a particular challenge in today's insurance market, and we propose to discuss the sector's achievements in a report to Parliament about insurance later this year.

Finance, Procurement, Supply Chain Shared Systems and Services programme

By the end of 2011/12, HBL had made significant progress with the business case for introducing the FPSC for all DHBs. The first two DHBs are expected to move to the new system by December 2013 and all the rest by December 2014.

The FPSC is forecast to deliver net benefits of about $138 million over five years (from 2012/13) and about $538 million in the 10 years to 2021/22. Once-only implementation costs are estimated at about $87.9 million.9

Implementing the FPSC involves significant change for the sector. Potential effects on DHBs include changes in staff responsibilities, organisational capability, financial or procurement processes, accounting and reporting, and relationships with suppliers.

There will be ongoing risks associated with these changes, including risks to the maintenance of service delivery through the transition, delivery of planned savings and efficiencies, and implementing the project on time and to budget.

Our auditors will continue to consider these and other sector changes when deciding the areas of focus and risk for their annual audits of DHBs and other health sector entities. We are also considering whether we will carry out other work on the effectiveness of these and other sector initiatives.

Reported savings

HBL's goal is to contribute to gross savings of $700 million for DHBs over five years. The gross savings target does not take into account any associated costs in achieving the savings, such as the $87.9 million investment by DHBs to implement the FPSC.

HBL reaches agreement with each DHB on the costs and benefits expected from its initiatives. The reporting of savings is based on (unaudited) returns that DHBs submit to HBL.

HBL reports annual savings based on a sector savings methodology that has been agreed with DHBs. We were told that the methodology is to be reviewed in 2012/13. Under the methodology, savings are categorised as:

  • baseline savings that improve the DHB's net operating result (for example, price reductions and rebates);
  • value-added savings (for example, cost increases avoided); and
  • other procurement and non-procurement savings.

HBL reported total sector savings (since it was formed) of $114.6 million as at 30 June 2012. This was made up of sector savings from initiatives measured by HBL totalling $59.6 million in 2011/12 and $55 million in 2010/11.10

During our audit of HBL, we focused on HBL's ability to transparently measure and report savings against cost savings targets (that is, savings achieved by HBL, DHBs, and all-of-government initiatives). We reviewed the reported performance against the cost savings model. Reported savings to date have been based on returns completed and approved by each DHB. These savings have not been the subject of any quality assurance review by HBL. As part of the audit, HBL acknowledged that it intends to introduce additional controls and procedures to verify savings currently reported by DHBs.

In its 2012 annual report, HBL has disclosed information about the sector savings model and the categories of savings identified above. However, it reported savings in total, rather than breaking down the achievement of savings between categories.

We recommended that HBL further improve the transparency of its measurement and reporting of savings, including:

  • where practicable, estimating and reporting on the associated costs/investments to achieve savings;
  • breaking down reported savings using the three categories identified in the sector methodology – baseline savings, value-added savings, and other procurement savings; and
  • reporting this information transparently for each DHB.

We consider that this will enable better understanding of the nature of the savings reported and provide important benchmarking information so DHBs' national, regional, and individual achievements can be measured over time.

Our auditors will continue to work with HBL and DHBs to ensure that there are more effective quality assurance systems to verify the savings information reported by DHBs and to improve the transparency of the savings model to reflect actual savings.

9: Health Benefits Limited, Annual Report 2012, page 9.

10: Health Benefits Limited, Annual Report 2012, page 2.

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