Auditor-General's overview

Inquiry into Health Benefits Limited.

In November 2014, Hon Annette King asked me to look into the performance of Health Benefits Limited (HBL), the decision to wind the entity down, what HBL had cost the health sector, and the benefits it had achieved.

After due consideration, I decided to look into the costs and benefits of HBL’s work in the health sector and, where possible, identify lessons that might benefit HBL’s successor and other shared services programmes. This work also looked at:

  • how HBL managed relationships with health sector entities;
  • the approach and processes that HBL used in business cases; and
  • the governance and management arrangements for delivering HBL’s programmes.

HBL’s main role was to prepare national programmes in partnership with the health sector to reduce finance, procurement, and supply chain costs for district health boards (DHBs). Together with the health sector, it was tasked to achieve gross savings of $700 million over the five-year period to 30 June 2016. This was an ambitious target.

By the end of June 2014, HBL had reported total gross savings in the health sector of $301.8 million on behalf of the sector, of which $71 million is attributable directly to HBL. This included $54.1 million of savings from HBL’s first year of operations in 2010/11, which preceded the five-year period covered by the savings target. Actual savings achieved during the first three years of the five-year period were $247.7 million, compared with estimated savings for the first three years of $220 million.

Apart from these savings, a range of other benefits resulted from HBL’s work, such as improvements to DHBs’ data integrity and the sharing of good practice in administrative and support services.

The Finance, Procurement and Supply Chain (FPSC) programme, the most significant piece of work that HBL led, aimed to provide a common financial management system, centralised procurement, and more efficient supply chains for DHBs. The FPSC programme was forecast to provide gross benefits of $503.3 million over five years. By 31 March 2015, the FPSC programme had spent $80 million of a revised budget of $92.1 million and was not yet complete. At that time, the programme was modified with a revised budget of $120 million. Because the programme is still developing, it is too early to assess the level of benefits it will deliver.

The FPSC programme was planned to be complete by November 2014. Difficulties with the programme led to it being substantially paused in May 2014 and re-planned with a later delivery date and changed scope. Several factors contributed to these difficulties, which were also relevant to some other HBL programmes:

  • the programme was ambitious and complex, with many risks;
  • HBL’s communication with DHBs was inadequate;
  • HBL’s board lacked timely and accurate information;
  • HBL had no programme management office or similar function that was responsible for maintaining project management discipline; and
  • although DHBs approved the FPSC business case, some DHBs’ commitment to the programme appears to have been limited.

In response to this situation, HBL’s board made some changes in early 2014 that improved relationships with the health sector and enhanced programme governance and management.

The lessons that could help other public entities better manage new programmes are:

  1. Ensure that programme governance and management are effective.
  2. Establish a clear and efficient decision-making process, particularly when delivering multi-entity programmes.
  3. Governance boards need good-quality information before making significant decisions and must be confident that they have enough information before making a decision to proceed with a programme.
  4. Integrate design and planning. FPSC work streams managed their plans independently, while co-ordinating with other work streams.
  5. Adhere strictly to project control standards.
  6. Do not underestimate the scale of change management effort required to effect significant sector-wide initiatives such as the programmes led by HBL.
  7. Allow enough time and emphasis for programme recruitment.
  8. Have trained staff in place and ready when starting a change programme.
  9. Ensure that communication between parties is open and two way.
  10. Ensure that sector solutions are scalable. Systems put into effect throughout a sector need to be able to be scaled up or down to meet the different needs of differently sized organisations.
  11. Consider fully all tools, including legislative powers, available to achieve successful results.

I thank everyone who contributed to this report, in particular Health Benefits Limited, healthAlliance Limited, the Ministry of Health, the Pharmaceutical Management Agency, DHBs, the HBL Transition Interim Governance Group, NZ Health Partnerships Limited, the Treasury, and Lyne Opinion Limited.

Signature - LP

Lyn Provost
Controller and Auditor General

12 October 2015