Part 1: Introduction

Inquiry into Health Benefits Limited.

Our approach

We commissioned Lyne Opinion Limited, a consultancy firm that provides independent financial opinions, to help us with the work that supports this report. Health Benefits Limited (HBL) gave our consultants unrestricted access to documents, including business cases, working papers, management reports, board papers, and minutes of meetings.

We interviewed staff from HBL, Health Alliance Limited, the Ministry of Health, the Pharmaceutical Management Agency (Pharmac), district health boards (DHBs), and the HBL Transition Interim Governance Group.

We considered the information gathered and drew together our findings.

We paid particular attention to the Finance, Procurement and Supply Chain (FPSC) programme, and the shared banking and insurance services. We did not look in detail at HBL’s other programmes.

Setting up Health Benefits Limited

In 2009, a Ministerial Review Group was set up to provide independent advice on how to address challenges facing the health sector. On 31 July 2009, the Group published a report, Meeting the Challenge: Enhancing Sustainability and the Patient and Consumer Experience within the Current Legislative Framework for Health and Disability Services in New Zealand.

The Ministerial Review Group recommended the creation of “a new Crown Entity to provide shared services to district health boards (DHBs) and reduce the cost of common ‘back office’ functions so that more resources can be shifted to the front-line”. The Group considered that the 20 DHBs could save significant money by reducing the duplication of back-office work.

In December 2009, the Government set up the Shared Services Establishment Board to prepare a business case for creating a national shared services agency. In consultation with the Ministry of Health, the Ministry of Business, Innovation and Employment (MBIE), and other departments, the Shared Services Establishment Board recommended a commercial model, with a company included in Schedule 4 of the Public Finance Act 1989, as the most appropriate vehicle for the shared services agency.

A report for the Shared Services Establishment Board prepared by a consultancy firm in January 2010 estimated that DHBs could achieve total gross savings of $700 million over five years from collective procurement activities. The Shared Services Establishment Board validated the work by the consultancy firm, and identified through its own work that the average value of gross savings would likely be $697 million over a six-year period. These savings would come through a range of initiatives, including shared procurement and rationalised financial management. This work led to a savings target of $700 million over a five-year period.

HBL, an existing Crown-owned company, was reconstituted as the shared services agency.

Health Benefits Limited’s operations

HBL was listed as a Schedule 4A entity in the Public Finance Act 1989. As a Crown-owned company, it was subject to the Companies Act 1993 and the financial management and accountability provisions of the Crown Entities Act 2004. HBL’s shareholders were the Ministers of Finance and Health.

The accountability and legislative framework meant that HBL had:

  • a mix of commercial and non-commercial objectives, although, in practice, it has been able to operate in a commercial manner;
  • Crown input through ministerial ownership and an accountability framework that included preparing a statement of service performance, including reporting against a statement of intent, and an annual report; and
  • flexible ownership arrangements, such as issuing different classes of shares.

HBL’s purpose as set out in its constitution was “…to reduce the costs of District Health Boards (DHBs) by optimising the efficient and effective delivery of administrative, support and procurement services for DHBs”. HBL’s role was to identify, facilitate, and lead initiatives that save money by reducing DHBs’ administrative, support, and procurement costs. HBL was tasked with helping the sector achieve gross savings of $700 million over a five-year period (by 30 June 2016).

HBL provided some shared services directly, but its main role was to prepare national programmes in partnership with the health sector to reduce finance, procurement and supply chain costs for DHBs. The entities that would supply the services would be either pre-existing health sector shared services agencies or third parties.

HBL focused on:

  • services provided directly to DHBs, such as shared banking and insurance arrangements;
  • finance, procurement, and the supply chain and creating a national system and service for these corporate functions;
  • facilities management and support services – focusing on linen, laundry, and food services to hospitals; and
  • information services – specifically setting up a National Infrastructure Platform to provide back-office information technology infrastructure, such as servers and storage systems.

In this report, we discuss:

  • HBL’s costs and savings;
  • the FPSC programme;
  • HBL’s banking and insurance arrangements; and
  • lessons for other public entities.