Part 3: District health boards and their procurement processes

Inquiry into Waikato District Health Board’s procurement of services from HealthTap.

3.1
In this Part, we describe:

the context in which DHBs operate; and
the rules DHBs are required to follow when procuring goods and services.

The context in which district health boards operate

Requirement for collaboration

3.2
DHBs are Crown entities. Their activities are governed by the Crown Entities Act 2004, the New Zealand Public Health and Disability Act 2000, and associated Regulations, including Regulations about planning.

3.3
DHBs receive public funding to plan, fund, and provide health and disability services for the population of a district. To carry out these functions, they are required to collaborate with, or purchase services from, other providers of health and disability services, such as primary health organisations, general medical practices, and other DHBs.

3.4
Collaboration requirements include working with other DHBs in their region to develop a regional services plan. A regional services plan ensures that DHBs providing services in the same region align their service and capacity planning.

3.5
Waikato DHB operates in the Midland region, so it is expected to work with the other DHBs in the Midland region. When planning services and major information technology projects, Waikato DHB has to plan alongside the Lakes, Tairawhiti, Bay of Plenty, and Taranaki DHBs in relation to their regional services plan.

3.6
Each DHB is governed by a Board comprising a mix of ministerial appointees and publicly elected members. In this report, we refer to the governing body of Waikato DHB as "the Board".

Information services and information technology

3.7
Information technology (IT) presents a particular challenge for the health sector. In 2009, the National Health IT Board was established as a subcommittee of the National Health Board. One of its tasks was creating a national IT plan for the health sector to help address barriers to sharing information between different parts of the health sector and what was seen as a fragmented, organisation-centric approach to health IT investments.

3.8
Both the National Health IT Board and the National Health Board were disestablished in March 2016, and their functions were incorporated into the Ministry of Health. However, at the time of this procurement, DHBs were required to actively support the national IT plan by collaborating on a regional IT plan. DHBs were also required to follow guidelines and advice provided by the National Health IT Board.

3.9
Specific matters for which DHBs needed to get approval from the National Health IT Board were:

any capital expenditure on information technology for amounts more than $500,000; and
storing any "personally identifiable health information" offshore.

The rules that apply to procurement

3.10
When purchasing goods and services, DHBs are required to comply with the Rules.

3.11
The Rules are government standards of good practice for government procurement and incorporate New Zealand's international commitments on government procurement. When the Rules were first introduced, they were not mandatory for DHBs. They became mandatory for DHBs in February 2015, which was during the early stages of the HealthTap procurement.²

3.12
The Rules include a mixture of rules and principles. Combined, the rules and principles are intended to:

guide public organisations to procure responsibly and to achieve public value; and
provide consistent and transparent standards to give everyone confidence in the integrity of government procurement.

3.13
Agencies can be audited for compliance with the Rules, and suppliers have a right to complain if they consider that an agency has not complied with the Rules.

3.14
For the purposes of this report, the main points to note about the Rules are:

As a general rule, the Rules applied to all goods and services purchased by DHBs except for "certain types of health services" (which are defined in the Rules).
The Rules applied to any procurement by a DHB if the value exceeded $100,000.
There was a requirement to openly advertise procurement opportunities, unless one of the specified exemptions applied.
For certain types of procurement, including any type of procurement with an estimated value over the whole-of-life of the contract of $5 million or more, DHBs were required to submit a procurement plan to the Ministry of Business, Innovation and Employment to review and to have regard to any advice or feedback provided by that Ministry on the plan.

2: The version of the Rules that applied to Waikato DHB at the time was the third edition. A fourth edition of the Rules will officially come into force on 1 October 2019. These are to be called the Government Procurement Rules rather than the Government Rules of Sourcing. The fourth edition requires public organisations to have policies in place that incorporate the same principles as the third edition but that also incorporate the Government Procurement Charter. The Charter sets out government expectations of how public organisations should conduct their procurement activity to achieve public value.