Part 7: Contract negotiations after Board approval

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

The Board's in-principle approval of a virtual care strategy and the potential contract with HealthTap was given on 22 July 2015. The contract with HealthTap was signed two months later on 23 September 2015.

In this Part, we describe:

  • the steps Waikato DHB took during this two-month period to resolve the concerns that had been raised about potential non-compliance with the Rules and some of the other matters that Waikato DHB staff had raised; and
  • some of the changes made to the draft contract.

Attempts to address compliance with the Government Rules of Sourcing

Waikato DHB sought to explore the applicability of the Rules and any exemptions under those Rules to the proposed contract. In our view, robust advice was provided to those driving the procurement.

We did not find any evidence in the documents Waikato DHB gave us explaining what it decided to do in response to the advice it had received about compliance with the Rules. In our view, it is difficult to see how the procurement of the HealthTap platform could be exempt from the requirement for open advertising under the Rules.

Interactions with the National Health IT Board

One of the issues that Waikato DHB staff had raised when they reviewed the draft contract was whether the contract with HealthTap needed the approval of the National Health IT Board. As explained in Part 3, this was because, at the time of this procurement, all DHBs were required to get approval from the National Health IT Board for:

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

In this instance, it appears to have been concluded early on that, because Waikato DHB would be purchasing a licence to use HealthTap, rather than assets, the expenditure would be classed as operating expenditure, so the National Health IT Board's approval was not needed.

However, Waikato DHB did need the National Health IT Board's approval to store "personally identifiable health information" offshore, which would happen using the HealthTap platform because the servers for storing data were located in the United States. Waikato DHB applied for an exemption on 3 December 2015. It was granted on 13 March 2016, subject to several conditions, including that Waikato DHB maintained a copy or back-up of the relevant information in New Zealand.

Although the National Health IT Board's approval was not needed for the contract, the Chair, Chief Executive, and Chief Information Officer of Waikato DHB met with the National Health IT Board in February 2016 to discuss the virtual care strategy and the procurement of the HealthTap platform.

After that meeting, the National Health IT Board wrote to the Chair confirming its ongoing interest in Waikato DHB's virtual care strategy and outlining certain expectations it had with regard to the strategy and Waikato DHB's implementation of the HealthTap platform.

These expectations included:

  • The HealthTap platform would be a trial programme aimed at rural and underserved communities within Waikato DHB's district.
  • A comprehensive evaluation process would be set up to ensure that, at the end of the trial, advantages and disadvantages could be objectively determined, including model of care implications and benefits to patients and general practice, and whether there had been or was likely to be a positive return on investment.
  • The project was a collaborative initiative between Waikato DHB, primary health organisations, general practices, and community services, and the evaluation approach needed to reflect that collaboration.
  • Co-design and co-implementation with community consumer groups, including Māori. This would be a key element of this application.
  • After the trial period, a wider roll-out or further progression of the HealthTap platform would require a business case to be endorsed by the National Health IT Board and approved by central agencies.

The National Health IT Board told Waikato DHB it should provide its first evaluation report by 30 August 2016. This report should include a detailed description of the evaluation criteria, as well as progress to date against selected criteria, followed by updated reports every six months.

However, the National Health IT Board was disestablished shortly afterwards and its functions were absorbed into the Ministry of Health. We were told that the proposed evaluation and reporting on the HealthTap platform did not proceed.

24 September 2015: Contract signed with HealthTap Inc

Waikato DHB and HealthTap entered into a HealthTap License Agreement for the HealthTap Platform as a Service on 24 September 2015. The Chief Executive signed the contract for Waikato DHB.

The final contract included several provisions that appear to have been included to provide greater assurance to Waikato DHB about the standard of service it would receive from HealthTap and to strengthen its rights to enforce performance. These include:

  • a requirement for HealthTap to provide the services in accordance with all applicable New Zealand laws and regulations, and to meet certain service levels documented in a Service Level Agreement;
  • a requirement for HealthTap to ensure that the products and services it provided to Waikato DHB, authorised users, and patients under the contract would be of no less quality and operate with the same functionality as the equivalent commercially available versions of those products and services in the United States;
  • provisions to protect the security of confidential information and Waikato DHB's data, including patient information, and provisions for an annual audit of those measures by an independent party;
  • a "most favoured customer" provision – that is, if HealthTap provided more favourable terms to any other party purchasing equivalent services, HealthTap would match those terms for Waikato DHB;
  • a right for Waikato DHB to terminate the contract immediately if:
    • HealthTap failed to meet the agreed service level for service availability;
    • HealthTap failed to materially meet milestones for the implementation of the SmartHealth service;
    • the services failed to meet standards such that, as a result of HealthTap's failure, any patient was, or was reasonably likely to be, harmed;
    • in certain circumstances, the requirements about data security were not met; and
    • in certain circumstances, by paying an early termination fee; and
  • a requirement for HealthTap, on termination of the contract, to provide reasonable assistance with exit or disengagement as Waikato DHB reasonably requested and, if requested by Waikato DHB during the term of the contract, to work with Waikato DHB to establish, maintain, and test procedures and capabilities to ensure that Waikato DHB's data could be transferred to an alternate service provider if the contract was terminated or expired.

However, it appears that several issues that Waikato DHB staff had raised were not resolved. They were effectively left to be resolved or agreed after the contract was signed. The issues included whether there were any legal or policy impediments to using HealthTap's services in New Zealand.

For example, the contract provided that the parties would work together to further define and document the "clinical service components and requirements relating to the Services", in order to provide further detail and specificity to the health and clinical objectives that the parties wished to achieve under the contract. These clinical service objectives were to be finalised within four weeks of signing the contract. We understand that this did not happen.

The contract also made provision for a 60-day implementation period during which the parties would:

  • investigate and assess the proposed use of the products by patients, including the use of particular project modules and virtual consultation services with non-New Zealand clinicians, taking into consideration compliance with New Zealand laws and health policy; and
  • consider and discuss any practical, operational, or cost implications that might arise as a result of any legal and/or policy considerations.

Waikato DHB was required to notify HealthTap before the end of the implementation period of any services or products it did not, for the time being, wish to activate for patients.

Our observations about the contract negotiations

Some of the concerns about the procurement process and proposed contract were addressed, but some significant areas of risk remained unresolved

As already noted, we consider that those driving this procurement involved Waikato DHB's legal and procurement staff far too late in the process. That said, once advice was received, attempts were made to address the concerns about the procurement process and proposed contract.

Waikato DHB's efforts to justify non-compliance with the Rules were concerning

It appears that Waikato DHB made several attempts to argue that the Rules did not apply or that, if they did apply, an exemption from the open advertising requirement was justified. By not involving the right people early enough, Waikato DHB appears to have got into a difficult situation where it did not want to have to withdraw from a deal it had invested time in negotiating and was close to signing.

However, we are concerned about the amount of effort those in Waikato DHB driving the procurement appear to have gone to try to justify non-compliance with the Rules. Given what the Rules represent – the government's commitment to best practice, and fair and transparent procurement processes – and the aims they are trying to achieve – an effective procurement process, accountability, and value for money – we do not consider it appropriate for a public organisation to attempt to circumvent the Rules or to find reasons not to comply, unless such reasons genuinely exist.

Waikato DHB does not appear to have resolved whether the Rules applied

Despite eventually seeking relevant external advice, Waikato DHB does not appear to have formally resolved whether its decision to directly source the HealthTap platform was permitted under the Rules or, for that matter, whether direct sourcing complied with its own procurement policy. We found no record that it did so. In our view, not only should this matter have been resolved and documented before the contract was signed but it should have been resolved and documented before HealthTap was ever approached.

Waikato DHB's discussion with the National Health IT Board suggests some inconsistencies in the parties' understanding of the project

The National Health IT Board's letter to Waikato DHB after their meeting in February 2016 is of interest in that it shows how the implementation of the HealthTap platform was being presented to and/or seen by an external stakeholder at that time.

Some of the National Health IT Board's observations, as recorded in that letter, are consistent with how the project was presented to the Board – for example, that it was intended to operate initially as a trial and that it was aimed at rural and underserved communities within Waikato DHB's district.

However, others seem inconsistent with what looks like, to this point at least, Waikato DHB's "go it alone" approach – for example, the statement that HealthTap was a "collaborative initiative" between Waikato DHB, primary health organisations, general practices, and community services, and that there would be co-design and co-implementation with community consumer groups, including Māori.

The proposed evaluation process was never established

Waikato DHB's meeting with the National Health IT Board is also of interest because of the recognition it gives to the importance of establishing some form of evaluation process during the trial phase and because of the requirement for Waikato DHB to prepare a further business case, to be endorsed by the National Health IT Board, after the trial period and before any wider roll-out or further progression of the HealthTap platform.

These requirements are consistent with what the Board had been told was the general intention when it gave its in-principle approval to the virtual care strategy and the contract with HealthTap. There are references in the documents presented to the Board to various evaluation-related activities – for example, stakeholders being part of a two-year study, the need for "close integration" with researchers from international universities to ensure safe clinical practice, and 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 that the "... new way of working was applicable across clinical practices in New Zealand".

It is unfortunate that, after the National Health IT Board's functions were absorbed into the Ministry of Health, the evaluation process it recommended was not established. Without this, or some other form of evaluation process, the value of HealthTap as a trial of virtual care in New Zealand is difficult to assess.