Part 6: The Board's involvement in the procurement process

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

The Chief Executive had delegated authority to negotiate and sign a clinical service contract up to $10 million and to approve capital expenditure up to $1 million with input from the finance and procurement teams in Waikato DHB. Because the proposed contract with HealthTap would exceed the Chief Executive's financial delegation, it needed the Board's approval.

The Chair of the Board had visited HealthTap on an information-gathering exercise and participated in a face-to-face meeting at Auckland airport involving Waikato DHB's and HealthTap's chief executives. He was also provided with copies of the legal advice received on the draft contract. However, it is not clear how much the rest of the Board knew at this point about the proposed virtual care strategy or the specific arrangements with HealthTap.

In this Part, we explain how the Board was made aware of the arrangement and how it responded to it.

24 June 2015: Memorandum on virtual care provided to the Board

A memorandum on virtual care was provided to the Board for discussion at its meeting on 24 June 2015. The memorandum had been prepared by the Chief Executive, which includes a note at the top to explain that the memorandum:

  • was not on the agenda for the meeting but had been included as a supplementary paper because it had not been "worked up" sufficiently at the point the agenda was compiled; and
  • could not be held over until a subsequent meeting as there was an expectation of speed on the part of other interested parties.

The memorandum set out the case for virtual care, including outlining the challenges facing Waikato DHB, the need for an urgent "step change" in service delivery to prepare Waikato DHB for the health needs of the population, and delivery challenges in the next three to five years. The memorandum said that virtual care could:

  • "encourage, enable and enforce greater accountability for health outcomes on to the patients themselves"; and
  • let Waikato DHB "do a great deal more with a great deal less via our current health care delivery capability".

The memorandum explained that:

  • the change required for virtual care had an exploratory stage that would take six months to refine and a further 18 months to embed as a new way of working;
  • there would be a phased approach in which the first six months would be used to refine how to target the change and "drive out the benefits required", and the following 18 months would involve the roll-out of virtual care throughout Waikato DHB "where it is clinically appropriate";
  • the estimated cost of the proposal would be $8.5 million each year for two years ($1 million for clinical change, to be funded by "capital and reprioritisation of operational funding", and $7.5 million for enabling clinical practice and technology);
  • during the first six months, there would be "engagement with medical colleges and the Ministry of Health … to ensure all required wider consultation is completed and any concerns nominated are addressed and resolved"; and
  • after six months, any outstanding issues with the contract or implementing the services would be identified and addressed, and a plan made to roll out virtual care in Waikato DHB.

The memorandum identifies several activities needed to ensure success with the roll-out of virtual care. These were:

  • the need to review and possibly make changes to legislation, both to give assurance to medical staff and to address any medico-legal concerns about practice standards;
  • the need to ensure that the cost savings envisaged as a result of introducing virtual care could be demonstrated (the memorandum states that the cost model would be part of the academic research to guide and validate the change to a virtual care model);
  • the establishment of a partnership with Waikato and Auckland universities to create a new model of study based on virtual care, to ensure that academic rigour was applied to any review of the virtual care model, and to ensure that the new way of working was applicable across clinical practice in New Zealand; and
  • the need to manage issues related to storing patient data on offshore servers.

The memorandum recommended that the Board:

  • note the need to move with urgency to manage the coming clinical delivery challenges for Waikato DHB; and
  • approve the establishment of virtual care as outlined in the memorandum.

Notably, the memorandum does not mention that Waikato DHB had already approached the proposed supplier and a draft contract had been developed.

The memorandum was not discussed at the meeting. However, the minutes of the meeting record:

  • that the Board's views were sought on mobile/virtual care technology and whether Waikato DHB should adopt this delivery model; and
  • that, in response, the Board raised several questions about clinical change management, how the virtual care plan linked with Waikato DHB's strategic plan and priorities, and the urgency to form a relationship with HealthTap.

The Board resolved to receive the memorandum and that an electronic version be provided to Board members for their feedback. It requested that a comprehensive business case be produced.

The minutes do not record whether the Board's decisions were unanimous or whether individual Board members objected.

9 July 2015: The Board held a workshop to discuss virtual care

A few days after the 24 June Board meeting, the Chair emailed Board members to ask them to attend a workshop to discuss virtual care further. He said that the reason for the workshop was to discuss issues and questions that were not addressed by the paper prepared for the 24 June meeting. He also said that, if the Board was to decide to invest in this area, it would need to do so early in the financial year so that there would be time for any savings to be realised and to enable Waikato DHB to meet its budget for the year.

The workshop was held on 9 July 2015. We understand that at least two Board members were unable to attend the workshop. A discussion paper prepared for it contained similar information and rationale for the proposal to the 24 June 2015 memorandum to the Board.

There were no minutes from the workshop or other records of what was discussed. As these events are now some time ago, the Board members we spoke with no longer had a clear recollection of the matters discussed. The Chair told us that he believed the workshop indicated support for further investigation into the use of digital technology and the possible fit of HealthTap's services.

22 July 2015: The Board considered a strategic business case for virtual care

At the next Board meeting on 22 July, the Board was provided with a "Strategic Business Case for Virtual Care".

The business case contained information about the rationale and need for change similar to that in the memorandum and workshop paper that had been previously provided to the Board. It went on to describe specific success criteria, contractual aspects, expected hard and soft benefits, time frames, resource requirements, and risk analysis. It also briefly outlined the rationale for the procurement process. We summarise the main points below.


The targets for the first year included:

  • reducing outpatient visits by 5%;
  • carrying out 1% of all patient outpatient appointments in the patient's home through video-conference facilities;
  • 15% of all identified high-needs patients would be enrolled in the virtual care solution;
  • virtual care would be recognised as a routine part of clinical practice in Waikato DHB; and
  • 10% reduction in the cost of running Waikato DHB's Meade Clinical Centre to deliver outpatient services in the second year of operation of the virtual care enablement project.

Soft benefits

The "soft benefits" included effective access to essential clinical advice in a timely manner from more remote locations, improved staff efficiency and productivity by reducing travel requirements, reduced time and costs for patients by reducing their requirement to travel, and increased access to specialty services for rural patients.


The risks identified included:

  • not achieving the required operational cost savings to fund virtual care;
  • failing to obtain any necessary approvals from bodies such as the Medical Council, the Government Chief Information Officer, and National Health IT Board;
  • engagement with the primary care sector; and
  • unsuccessful change management.


The estimated cost for the "establishment of Virtual Care" was $8.4 million in the first year. Of this amount:

  • $1 million was the cost of clinical change and was to be funded by capital and "reprioritisation of operational funding"; and
  • $7.4 million was for enabling clinical practice and technology to be delivered as a service.

Similar costs were projected for the second year (2016/17). It was expected that most of the costs would be met by operating cost savings in each year (for example, a reduced demand on the emergency department or outpatient services). The expected savings were:

  • $6.9 million in 2015/16; and
  • $7.4 million in 2016/17.

There is no analysis to show how these cost savings were calculated. This differed from the information in the previous papers to the Board, which indicated that operational savings to fund virtual care of $3.5 million would be achieved in 2015/16 and $8.5 million in 2016/17. A small proportion of these costs would be funded from amounts already set aside for telehealth.

The procurement process

The business case included a very short section called "Procurement Compliance". In response to the question "… have you engaged with Procurement to discuss the Procurement activity required to ensure compliance with the Procurement and Contracts Policy?", it stated "Yes" and said:

The process for purchasing the software as a service is based on the fact that for the integrated solution there is one identified supplier, being HealthTap, which has been confirm[ed] by several independent sources such as Forbes.
To minimise risk and in recognition of the fast paced market in this service provision the initial agreement will only be for a period of 24 Months. This will allow the opportunity for market maturity to occur and completive [sic] pressures to be created when the contract is available for review.

The Board's decision about virtual care

According to the minutes of the 22 July meeting, the Board discussed the strategic business case at length and several questions were raised.

These included questions about:

  • whether the legislative framework at that time supported the introduction of the proposed service;
  • whether the proposed financial savings noted in the document were realistic;
  • whether the expenditure was prudent or affordable given Waikato DHB's present position;
  • the effect of foreign currency movements; and
  • whether more complete information was needed to make a decision.

The minutes noted that most of the expenditure would be on "the provision of contracted technology services, presently envisaged to be through a firm known as HealthTap".

According to the minutes of the meeting, the Board:

  • approved "the move towards a virtual care service as a strategic objective of the Waikato DHB";
  • supported the Chief Executive establishing a virtual care service;
  • confirmed that the Chief Executive's financial delegations covered the proposal;
  • supported further negotiations with HealthTap "to determine whether a satisfactory contract could be concluded within the Chief Executive's delegation"; and
  • supported the establishment of a virtual care service based on the HealthTap platform if a satisfactory contract could be concluded.

In providing its approval, the Board requested further detailed reporting on several matters. They were:

  • the progress of negotiations;
  • the scope, benefits, cost, and risks associated with the establishment of the service as it is implemented, which included reporting about:
    • a clear definition of the implementation strategy, including which services the technology will be rolled out to;
    • key performance indicators and deliverables;
    • engagement with the Medical Council, clinicians, and staff;
    • the monitoring mechanism;
    • how issues raised will be addressed; and
    • financial and budgetary impacts; and
  • confirmation that the legislative framework would allow the service to be established as envisaged.

It is unclear from the wording of the minutes whether the Board was anticipating being updated on these matters before the contract was signed or was simply outlining matters it considered needed to be addressed in subsequent contract negotiations.

The minutes record that:

The Chief Executive noted that it was his intention to work with the Chair in making the final decision as to whether or not to commit to the HealthTap proposal as the centrepiece for implementation of the virtual care strategy.

The minutes do not record whether the Board's decisions were unanimous or whether individual Board members objected. We understand from several people that not all of the Board members supported the proposal.

Our observations about the Board's involvement

It is unclear how much the Board knew

When the Chief Executive presented his memorandum to the Board on 24 June 2015, it is unclear how much the Board already knew about the proposed virtual care strategy or the proposed arrangement with HealthTap.

Although the Chair had been aware of the discussions with HealthTap, it is unclear how much the rest of the Board members knew about that process. One Board member told us, for example, that they were not aware that HealthTap was in a start-up phase or Waikato DHB staff had concerns with the procurement process and draft contract.

The business case was a strategic business case, not a procurement business case

For the most part, all of the information provided to the Board – whether in the initial memorandum to the 24 June 2015 Board meeting, the discussion paper prepared for the workshop on 9 July 2015, or the business case presented to the 22 July 2015 Board meeting – focuses on the benefits of virtual care and how a virtual care service would meet the challenges facing Waikato DHB. There is little information in any of the documents provided to the Board about the specific rationale for entering into a contract with HealthTap or the specific services to be acquired from them.

The business case the Board eventually approved was called A strategic business case for virtual care. There is nothing wrong in principle with the business case that was drafted. However, it was a strategic business case written to justify a strategic decision. It was not a business case written to explain and justify a procurement decision.

Therefore, it did not cover any of the matters we would have expected to see covered in a business case to support a procurement, such as an evaluation of costs, benefits, and risks of alternative options, a market analysis and evaluation of price drivers, or an estimate of the whole-of-life cost for the project.

There was no legal or procurement input into the business case

On the evidence we have seen, the legal and procurement specialists at Waikato DHB did not see the business case or have any input into it.

The Board was not fully advised about the contractual and procurement concerns

There is also little discussion in the documents presented to the Board about the contractual and procurement issues that had been identified and that were yet to be resolved. The information presented to the Board shows that those involved in preparing the business case had taken account of some of the concerns Waikato DHB staff raised. However, there was no reference to the advice that had been received about compliance with the Rules.

The need for speed was not properly explained or justified

A theme that appears to underlie the information presented to the Board, but that is never clearly articulated, is the need for Waikato DHB to act quickly.

In his initial memorandum to the Board for the 24 June 2015 Board meeting, for example, the Chief Executive talked about the need for the matter to be considered urgently because there was "an expectation of speed on the part of other interested parties". The memorandum closes by noting the need to "move with urgency to manage the coming clinical delivery challenges for Waikato DHB".

Similarly, in his email of 29 June 2015, the Chair told his colleagues on the Board that, if the Board were to decide to invest in virtual care, it would need to do so early in the financial year so that there would be time for any savings to be realised and to enable Waikato DHB to meet its budget for the year.

We acknowledge that speed and momentum are sometimes an important part of a procurement process. However, we do not accept that a general need to fix a problem urgently necessarily translates into a need to carry out a particular procurement quickly. We are concerned about the emphasis that appears to have been placed on the need for speed in this instance without any clear justification as to why.

In the Chief Executive's memorandum to the Board, it is not clear who the "other interested parties" were, whether their expectation of speed was reasonable, or why that expectation was even relevant to Waikato DHB.

In relation to the anticipated cost savings referred to in the Chair's email, it seems unlikely to us that any cost savings would be realised in full in HealthTap's first year of operation or that, if they were, they would be a factor in enabling Waikato DHB to meet its budget for that year.

The minutes of the 24 June 2015 Board meeting show that the Board clearly had doubts about the need for speed and queried the urgency to form a relationship with HealthTap. Questions the Board asked at its 24 June 2015 meeting and its subsequent meeting on 22 July 2015 all point to concerns about substantive matters that still needed to be resolved. The nature of these concerns – for example, about clinical change management, the implementation strategy, and financial and budgetary impacts – and that they had not yet been resolved, was clearly at odds with any notion of speed.

Given the uncertainties, it is questionable whether the Board should have approved a contract with HealthTap

It is clear from the information provided to the Board that the proposed implementation of virtual care would involve an exploratory stage and that there were some uncertainties and matters that still needed to be resolved, both before a contract was entered into and possibly afterwards. It is likely that this is the reason for the Board's approval being conditional on a satisfactory contract being reached and for the Board requesting reporting on certain matters.

In our view, the Board was right to decline approval for the virtual care proposal when it was first presented without a comprehensive business case.

Given the matters that were still to be resolved after the business case had been presented to them, we question whether the Board was right to give its approval subsequently. We acknowledge that approval was given on a conditional basis and that the decision was not unanimous. However, given the nature of some of the unresolved matters, we question whether the Board should have been more forceful in seeking assurance on those matters before giving approval for a contract with HealthTap.