Part 3: Is regional services planning influencing capital investment?

3.1
In this Part, we discuss our findings about whether regional services plans guide capital investment decisions in the health sector as intended. We discuss whether:

• regions are reaching consensus on capital asset needs and prioritising resources, based on regional ways of working;
• connections between regional services planning and capital investment are clear;
• the approvals procedure is becoming more efficient; and
• enough people with the right skills are available to produce and approve high-quality business cases for capital investment that meet the needs of all decision-makers.

3.2
Capital investment in buildings based on regional services planning is at an early stage. Regional capital committees (RCCs) are being set up to guide regional capital investment. RCCs are beginning to understand the full range of assets held throughout their region, but the links to capital planning are not yet clear.

Using regional ways of working to reach consensus about capital asset needs and prioritising resources

3.3
Regions have put in place RCCs, which allow DHBs to explore opportunities and priorities for capital investment regionally. Much effort is going into creating organisational and governance approaches to support this planning.

3.4
Regions are starting to have discussions (through RCCs) about which capital projects are worthwhile. Some DHB projects have been in the pipeline for up to 10 years, long before the introduction of regional services plans. It is unsurprising that these projects appear to lack a regional perspective.

3.5
There are big demands on capital for major repairs to buildings that are beyond their economic life, to meet seismic standards, and to upgrade them to support modern standards of care. There are tensions between getting on with these repairs and waiting to decide the best use of assets arising from new ways of working (based on clinical pathways and new models of care).

3.6
There is some joint planning of projects needing capital investment. For example, West Coast and Canterbury DHBs worked together on the proposal for Grey Hospital development. However, RCCs are not yet influencing or setting priorities for major investment in buildings based on regional services planning. The Ministry and one of the regions confirmed that the first year's focus on vulnerable services in regional services plans had a limited effect on "bricks and mortar".

3.7
National capital funding that cuts across regions complicates the process of making decisions. Paediatrics, cancer, information technology – and, more recently, HBL's efficiency projects – all place demands on capital funding. The Health Sector Forum heard concerns that DHBs could not afford their share of capital needed for all these projects and initiatives. The NHITB and HBL are investigating ways to spread the upfront investment. The effects of the national initiatives are not always fully reflected in regional plans. For example, one region had only around two-thirds of the information required for NHITB capital investments in its regional plan. This meant that the national picture could not be drawn.

3.8
Cabinet sets a "capital envelope" for the health and disability sector from which the Minister and the Minister of Finance can approve funding. Further funding is possible if a case for it is made to Cabinet, as in the Canterbury hospitals rebuild. Within that framework, each DHB works to its "affordability" amount for capital projects – that is, the amount of money it has to spend or can afford to borrow.

3.9
In 2012, each region was asked to agree a list of intended capital spending for the next 10 years, based on a notional budget for each region. This was CIC's attempt to require DHBs within regions to prioritise. Each region attended a CIC meeting to discuss priorities. The way that those regional spending intentions were agreed does not clearly identify what was omitted or scaled back because of the notional budgetary constraint. Therefore, it is not clear whether regions are making difficult decisions about the future of some of their buildings or challenging traditional models of care.

3.10
Occasionally, the regions have agreed their collective priority (for example, setting up the Taharoto mental health facility in the Northern region). However, the regional lists of intended capital spending generally lack a regional prioritisation or focus. Instead, regional lists look more like a summation of the separate DHB plans.

3.11
Therefore, spending intentions do not yet reflect how regional collaboration on new ways of delivering services might affect the need for new or redeveloped buildings.

Connecting regional services planning and capital investment

3.12
Capital expenditure planning is often taking place before service planning. Some elements of capital planning are done nationally (for example, by HBL and NHITB), and others locally (through DHBs). Regional services planning sits between the two. This means capital planning is a mix of top-down, bottom-up, and somewhere in the middle – all at the same time.

3.13
It is forecast that HBL projects will eventually save money, but there are some short-term capital implications. The improvement projects led by NHITB also have significant capital requirements, and should support service improvements and new ways of working. A DHB asset plan is "bottom up" and influenced by clearly identified changes in service delivery. Regional services planning takes place in the "middle" – and it is here that investment decisions on capital should flow from wider changes in service delivery in the medium and long term. It is worth noting that the regions lack budgets of their own, but need to agree priorities within the overall limits of what DHBs can afford and the overall capital envelope.

3.14
Few projects have been approved recently, so it is difficult to see a strong connection between regional services plans and capital investment. We recognise that the Canterbury earthquakes meant that the period was not typical. The money needed for the rebuild of Canterbury hospitals meant little could be committed for anything else in the last few years.

3.15
Each region will tend to focus on its priorities, but there is also a need to agree national priorities. The CIC is the specialist committee that advises the Minister. The CIC's main role is to approve health capital funding for all projects that cost more than $10 million, irrespective of the source of funding.

3.16
The CIC placed other projects on a slower track until it became clear how much money was going to be needed for the Canterbury hospitals rebuild. Most of the other projects that have advanced have been for buildings that provide district services. These projects include new mental health facilities at Hawkes Bay and Taharoto and the Kaik ura family health centre.

3.17
The plans for Grey Hospital had a distinctly sub-regional flavour, where West Coast and Canterbury DHBs jointly worked on proposals. Exploration of new ways of delivering services, such as telemedicine and shared clinical teams, is under way. This aims to reduce West Coast DHB's risk of isolation and clinical instability, one of the intended effects of regional services planning.

Getting a more effective procedure for approvals

3.18
National decision-making on capital investment linked to regional planning is becoming more effective. However, progress on a National Asset Management Plan has been slow, making it difficult for the CIC to prioritise spending.

3.19
The CIC is helping to ensure that regional opportunities get consideration in new approvals for capital. Before it gives consent for a DHB to prepare a full business case, the CIC considers the DHB's outline proposals. If these proposals lack an expected regional perspective, or consideration of how information technology and new ways of working could lead to changes in requirements, the CIC does not give its support. For example, the CIC asked Nelson-Marlborough DHB to include more on regional working in its recent proposal for surgical beds. Likewise, Canterbury DHB had to include more details on information technology and workforce changes. If DHBs do not co-operate when appropriate, they will not get CIC support to get the capital they want.

3.20
At the time of our audit, the CIC was trying to devise a National Asset Management Plan, but there were gaps in the base information from DHBs and private health care providers. This means that the CIC has to make some assumptions that are not based on solid data when working out future needs. The information used for budgetary purposes is an aggregated list of what capital DHBs would spend if they had the money in the next 10 years. That was not enough detail to support the CIC to set priorities.

3.21
A first attempt at a National Asset Management Plan has been in draft form since 2012, and the Ministry told us an annual update was now part of its work plan. More recently, the CIC asked for help from the Ministry in interpreting the information in the National Asset Management Plan. Work is under way on producing a dashboard report for each DHB, and for each region, to help in the discussion of DHB intentions in November 2013. The CIC has reported some difficulty with trying to agree a long-term capital plan and setting priorities for investment without a long-term service plan for health. For the 2012/13 budget, it evaluated proposals based on a set of assessment criteria to agree a prioritised list.

3.22
The Ministry has told the CIC that there is no appetite for a long-term health sector plan. Without a national level plan, at the time of our audit, the CIC was still deciding how best to help DHBs to prioritise.

Capacity and capability to produce and approve high-quality business cases to meet decision-makers' needs

3.23
In our view, internal capacity and capability within the health sector to put together high-quality business cases is not improving. The needs of decision-makers are not always well met.

3.24
Guidance on producing business cases follows industry best practice it is by necessity complicated and rigorous. Although some DHBs reported that they found it demanding, others valued the challenge it brought to their beliefs and assumptions.

3.25
Meeting the needs of all agencies involved in preparing and approving business cases is difficult. This is because, within the health sector, there are too few people who have the necessary skills for writing business cases. Neither DHBs nor the Ministry have in-depth expertise to project manage large-scale business cases for building projects. This means that they rely heavily on consultants, advisors, and experts.

3.26
On one large project, a lot of duplicated effort could have been avoided if all those with national governance oversight, and the DHB in question, had negotiated an agreed set of requirements for the project. The Ministry learned from this, and tried out a partnership group aimed at improving transparency, providing earlier advice, support, and more rigour in analysing alternatives. West Coast DHB proposals for improvements to Grey and Buller hospitals involved staff from the Treasury, the DHBs, and the Ministry. This approach has the potential to reduce spending on advisors.

3.27
The quality of business cases that the CIC receives is variable, which suggests that consultant involvement does not guarantee a robust analysis of all the options. Consultants can act only on the brief they are given, and may not be up to date with expectations about changing models of care. However, peer review by clinicians from another region has sometimes been used to good effect.

3.28
RCC chairpersons, DHB chairpersons, and other board members might not be able to analyse critically the business cases that they see. They all need to be "smart buyers", supported by appropriate expertise. A lack of suitable analytical skills could result in poor decisions about capital investment and waste and poor use of funding and resources.

3.29
Almost everyone we spoke to mentioned a nationwide lack of people with skills in preparing core business cases and managing and governing projects. This contributed to the delays in preparing good business cases. However, there are varying views about what core capacity is necessary, and where that should be located. Additionally, the unpredictable availability of capital funding makes it difficult to set up core capacity.

3.30
Project management has been a problem. The Ministry made some changes to guidance by learning from other projects. It is tightening up on "scope creep" – projects slipping by small amounts but eventually including far more than originally agreed. It has targeted long project time frames and budgetary inflation.

3.31
In December 2012, the Minister and the Minister of Finance commissioned a working group to look at all aspects of capital planning in health. The scope of the group's work includes financing, decision-making, project management expertise, and asset management skills. This should go some way to addressing the matters raised in this report. However, the review could take some time to finish, and it could take even longer for its recommendations to be acted on.

page top