Part 4: Initial stages of the procurement process

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

4.1
This Part describes the early stages of the procurement process, from Waikato DHB's initial discussions with HealthTap to the first draft of a contract. It covers events from October 2014 to April 2015.

4.2
The written evidence available for these early interactions between Waikato DHB and HealthTap is limited because few records were available from Waikato DHB. This Part is based largely on the recollections of people we interviewed.

October 2014: The Chair and the Chief Executive first hear about HealthTap

4.3
In October 2014, the Chair and the Chief Executive attended a meeting at the University of Waikato with a professor from Harvard University's School of Public Health.

4.4
Our understanding is that, at the time, Waikato DHB was actively working on a virtual care strategy and had already embarked on some aspects of virtual care. However, the Board had not yet formally approved or endorsed a virtual care strategy.

4.5
The Chair told us that, at the meeting, he mentioned to the professor the challenges Waikato DHB faced in adequately servicing a remote rural population and that the Professor suggested Waikato DHB look at HealthTap as a service that might be able to help.

October/November 2014: The Chair's meeting with HealthTap in the United States

4.6
At some point after this conversation with the professor, in either October or November 2014, the Chair travelled to the United States and, during that trip, met with the Chief Executive of HealthTap. The Chair told us that his meeting with the HealthTap Chief Executive lasted about 45 minutes and that they discussed what HealthTap was doing and what it had achieved.

4.7
The Chair told us that, on his return from the United States, he reported to the Board about his trip, including his visit to HealthTap. He said that this would have been at either the last Board meeting of 2014 or the first meeting of 2015. There were no records of this in the minutes of Board meetings. However, it is possible the Board was briefed informally.

4.8
The Chair also told us that he asked the Chief Executive to "have a look at HealthTap" to see whether it would work for Waikato DHB.

4.9
The Chief Executive was relatively new at the time. He started his role in July 2014 and told us that there was a great sense of urgency at Board level at the time about the problems that needed addressing, such as the growing population, poor access to health services, and Waikato DHB's struggling financial performance. He said he was employed by the Board to make "radical changes" at Waikato DHB. He saw virtual care as one of the tools that could be deployed to bring about the radical change he believed the Board was seeking.

March 2015: The Chief Executive's meeting with HealthTap in the United States

4.10
In early February 2015, the Chair emailed the Chief Executive of HealthTap and proposed a more in-depth discussion between HealthTap and Waikato DHB's Chief Executive. In March 2015, the Chief Executive visited HealthTap's offices in Palo Alto, California.

4.11
We were told that the purpose of this visit was to discuss a potential partnership between Waikato DHB and HealthTap, and to see HealthTap's business culture. This was considered necessary because HealthTap was a start-up company and any deal with Waikato DHB would be the first time that HealthTap had done business with a customer of this size.

4.12
After the Chief Executive's visit, discussions began between HealthTap and Waikato DHB, covering matters such as HealthTap's business model, how HealthTap interacted with its clinicians, and its pricing model. Those discussions were led by the Chief Executive and continued to the point where the parties agreed an in-principle deal, under which Waikato DHB would purchase a license for 2500 users of the HealthTap platform for two years. The cost was US$2,000 for each of the 2500 users.

4.13
The Chief Executive told us that the marketplace for virtual care was not well developed at the time. He said that what he believed was needed was an existing platform that had an established track record and substantial clinical buy-in, and that included:

  • multi-organisational capability that could integrate into consumer-based technology, such as general practitioner clinical practice systems, as well as Waikato DHB's own system, "Health Views";
  • interoperability with local and national health platforms, such as those of the Ministry of Health;
  • the ability to operate on broadband and 4G networks, to be deployed rapidly, and to evolve quickly to meet New Zealand and local conditions;
  • peer review functions;
  • compliance with New Zealand Government IT and information security standards relating to privacy and security of information stored in the cloud; and
  • exit features that would enable Waikato DHB to transfer to another provider if necessary.

4.14
The Chief Executive told us that, in scanning the market, the only supplier that could meet most of these requirements was HealthTap. He said that his expectation at this point was that Waikato DHB would enter into an initial contract with HealthTap for a fixed term of two years. Those two years would be an "exploratory stage", during which Waikato DHB would learn more about what its needs were and what barriers it might face in implementing virtual care.

4.15
The two-year exploratory stage was also intended to give the market time to mature. The intention was to then go back to the market to test what else might have become available in the interim and to "stimulate the market" to respond in a way that would give Waikato DHB more options in the longer term.

Late March 2015: Draft letter of intent

4.16
By late March 2015, a draft letter of intent had been developed. It set out the following terms:

  • The HealthTap platform would be available to be used by Waikato DHB's more than 2500 doctors and affiliated general practitioners.
  • There would be a "full-scale rollout" of the platform from 1 January 2016.
  • Waikato DHB was intended to become the "innovation hub" for Australia and New Zealand for delivering end-to-end virtual care, taking advantage of its early adoption of the HealthTap platform.
  • It was anticipated the parties would enter into a formal agreement some time before 11 May 2015 and likely on 10 April 2015.

4.17
HealthTap emailed a copy of the draft letter of intent to the Chief Executive, who forwarded it to the Chair. Waikato DHB was unable to find a copy of the final signed version in its files. It appears that Waikato DHB never signed the letter of intent. The Chief Executive told us that Waikato DHB never intended to sign the letter.

April 2015: A draft contract

4.18
After the letter of intent was drafted, the chief executives of Waikato DHB and HealthTap met for about three hours at Auckland airport, together with the Chair and Waikato DHB's Chief Information Officer. We have some evidence that they met to discuss the terms of a possible contract and to agree a price in principle. This was sometime in early April 2015.

4.19
On 11 April 2015, HealthTap sent a copy of a draft contract to Waikato DHB. We understand the draft contract was based on HealthTap's standard customer agreement. It included the following key terms:

  • HealthTap would licence Waikato DHB to use the HealthTap platform through the web and mobile apps.
  • The licence would include the right to use some or all of the following components:
    • Scheduling: for use with virtual consultations;
    • Content: which would be used to educate and engage patients;
    • Communication: which would provide a platform for virtual consultations delivered by clinicians;
    • Services: for use with virtual care services (such as medications and diagnostics);
    • Support: which would have patient follow-up and engagement capabilities; and
    • Personal Health Record: which would be integrated with Waikato DHB's health-delivery system.
  • The HealthTap platform would be provided through cloud-based computing and data storage devices specified by HealthTap.
  • HealthTap agreed that it would not supply any other healthcare provider in Australia or New Zealand with the HealthTap platform for a period of six months, which could be extended by negotiation. The granting of this exclusivity period was said to be in support of Waikato DHB's goal of becoming "the innovation hub of the Australia and New Zealand region for the delivery of end-to-end virtual care, and to ensure a well-executed and fully resourced rollout." The exclusivity period did not give Waikato DHB the right to act as a reseller or broker of the HealthTap platform.
  • Waikato DHB would pay a license fee of US$5,250,000 each year of the two-year term of the contract. In the first year of the contract, the licence fee was payable in three instalments, coinciding with three project milestones. The license fee is described as being based on a proxy of US$2100 for each authorised user each year and assumed there would be 2500 "authorised users", meaning general practitioners, clinicians, and other health service providers.
  • A "usage fee" of US$10 was also payable for each completed virtual consultation.
  • These fees did not include any customisation and integration services, which would be billed separately.

4.20
The draft contract records that Waikato DHB asked HealthTap to integrate information from Waikato DHB's electronic health record system into the Personal Health Record part of the HealthTap platform for use by authorised users during virtual consultations with patients. It was noted that this work would require a separate agreement and scope of paid work.

4.21
The draft contract gave Waikato DHB no warranties and no termination rights, and was subject to the laws of the State of California in the United States.

4.22
Correspondence between Waikato DHB and HealthTap at this time shows there was an expectation on the part of HealthTap that the contract would be signed by late April 2015. HealthTap was apparently interested in the idea of announcing its deal with Waikato DHB at a telemedicine conference in Australia at that time, and the Chief Executive of HealthTap had arranged to come to New Zealand to execute the documents at the same time.

Our observations about the initial development of the arrangement with HealthTap

There was a lack of written records of the early stages of the procurement

4.23
Few records were available about the early discussions between Waikato DHB and HealthTap, and how they reached the point of a draft contract.

When HealthTap was first approached, it was unclear how well developed the virtual care strategy was

4.24
From the evidence we have seen, it is not clear when Waikato DHB first approached HealthTap; how well developed Waikato DHB's virtual care strategy was; how widely Waikato DHB had discussed the strategy with other DHBs, clinicians, or primary health providers; or whether the Board had formally endorsed it.

No legal, procurement, or other specialist legal staff were involved in the initial discussions or negotiations with HealthTap

4.25
The early discussions and negotiations about a possible agreement with HealthTap, as described in this Part, were led by the Chair and Chief Executive with some input from the Chief Information Officer. No legal, procurement, or other specialist staff at Waikato DHB were involved.

There was no evidence of any formal planning or risk analysis in the early stages of the procurement process

4.26
Up to this stage of the process:

  • There was little evidence of any of the planning or risk analysis that might typically be expected for a procurement activity of this type and size.
  • There was no business case or procurement plan, no documented identification of needs or market analysis, no identification of internal and external stakeholders, and no documented due diligence of HealthTap as a potential supplier.

There was no evidence of consideration being given to Waikato DHB's procurement or consultation obligations

4.27
There was no evidence that those leading the negotiations with HealthTap had considered either the Rules or Waikato DHB's procurement policy. In particular, there was no evidence that they considered:

  • whether the Rules or Waikato DHB's policy permitted Waikato DHB to approach a potential supplier without openly advertising the procurement opportunity; or
  • whether Waikato DHB needed to consult with any external agencies, such as the Ministry of Business, Innovation and Employment or the National Health IT Board, about the proposed contract with HealthTap.

It was unclear what benefit Waikato DHB would obtain from the exclusivity clause or from having a "first user" advantage

4.28
Both the draft letter of intent and the draft contract included a provision establishing an exclusivity period during which HealthTap agreed that it would not supply any other healthcare provider in Australia or New Zealand with the HealthTap platform. The exclusivity period was stated to be in support of Waikato DHB's goal of becoming "the innovation hub of the Australia and New Zealand region for the delivery of end-to-end virtual care".

4.29
In the documents we were given to review, we did not find any clear explanation of the rationale for the exclusivity period, how this would support Waikato DHB's goal of becoming an innovation hub, or why being an innovation hub was important to the virtual care strategy.

4.30
When we interviewed the Chief Executive, he told us there were three reasons for the exclusivity clause:

  • The first reason was to try to prevent HealthTap from "ratcheting prices up" in Australasia.
  • The second reason was to prevent HealthTap from talking to other DHBs in New Zealand without his knowledge. He said that this was because of the "unique relationship" between Waikato DHB and HealthTap and because he wanted to ensure that Waikato DHB was in control of it.
  • The third reason was because Waikato DHB was already providing services to other DHBs in some areas of virtual care and getting paid for it – for example, in dermatology. The Chief Executive told us that he wanted to make sure that, if other DHBs took up licences to use the HealthTap platform, Waikato DHB – which had paid for the establishment of the HealthTap platform in New Zealand – would get any commercial benefit from other DHBs coming on board.

4.31
Despite this explanation, it remains unclear to us what benefit Waikato DHB was seeking by including the exclusivity clause and whether that benefit was to gain a commercial advantage for itself or to protect the interests of other DHBs that might be interested in the HealthTap platform.