Submission on the Pae Ora (Healthy Futures) Bill

9 December 2021

Dr Deborah Russell MP
Chairperson
Pae Ora Legislation Committee
Parliament Buildings
WELLINGTON

Tēnā koe Dr Russell

SUBMISSION ON THE PAE ORA (Healthy Futures) BILL

Thank you for the opportunity to comment on the Pae Ora (Healthy Futures) Bill (the Bill).

As you know, the Controller and Auditor-General is an independent officer of Parliament. In that role I am responsible for giving Parliament and the public assurance that public entities are operating and accounting for their financial and non-financial performance in keeping with Parliament’s intentions. Fundamental to the role is ensuring that accountability arrangements work to improve trust and confidence in the public sector. That is the lens through which I have considered the Bill.

In essence, public accountability is about public organisations demonstrating to Parliament and the public their competence, reliability, and honesty in their use of public money and other public resources. In my view, improved public accountability should sit alongside improved performance as a driver for any public sector reform. Without appropriate focus on both, there is a risk that changes might improve the way public services are delivered but still fail to earn the buy-in and trust of New Zealanders. The Health reforms provide a once-in-a-generation opportunity to put in place strong, transparent, and modern accountability arrangements for our public health system.

Health New Zealand will easily become the largest entity in the public sector. Although decisions on how functions will be split between health agencies have yet to be made, bringing together the country’s 20 district health boards (DHBs) means that Health New Zealand will likely have a workforce of about 80,000 staff, an estimated annual operating budget of $20 billion, and an asset base of about $24 billion. Between them, Health New Zealand and the Māori Health Authority will run or commission most of New Zealand’s publicly funded health services, giving them responsibility for a significant aspect of New Zealanders’ well-being. In this context strong public accountability arrangements will be critical to the trust and confidence Parliament and the public have in the new system.

Although there are many aspects of the Bill I support, as currently drafted I am concerned that accountability arrangements for the reformed health system may be unclear, confusing, and fragmented.

I have set out my observations and concerns below.

Planning for and demonstrating what success looks like for New Zealanders will be critical

In my view, the characteristics of an effective public accountability system include:

• clear, organised, and agreed lines of accountability;
• a coherent accountability structure from entity to sector to whole of government;
• minimal conflicts, tensions, and overlaps in accountability relationships;
• relevant, meaningful, and trusted performance indicators and reporting; and
• appropriate institutions and processes to support effective accountability arrangements and assurance over these.

I support the emphasis on system-wide direction setting through the Government Policy Statement and the expectation that this will be incorporated into the New Zealand Health Plan (NZ Health Plan). I also see the benefits of having a three-year plan for the delivery of publicly funded services by Health New Zealand and the Māori Health Authority, including planned spending.

Accountability at a community level

Although the Bill introduces locality plans alongside the NZ Health Plan, and introduces monitoring requirements, there are no separate reporting requirements associated with the locality plans. This runs the risk of local expectations being lost in the wider aggregated reporting required for the NZ Health Plan. Monitoring is not an appropriate substitute for effective accountability to Parliament, the public, and Māori. At a local community level there needs to be relevant and accessible reporting, ideally allowing for public debate and feedback.

Potential confusion over which documents drive entity accountabilities and whether entities are individually or jointly accountable

The Bill proposes various accountability plans and reporting that will operate across two different levels:

• Across the system: At this level, plans and reporting include the Government Policy Statement,
  NZ Health Plan, and annual performance reporting and locality plans. They will focus on reporting on the high-level outcomes and objectives across the whole health system that entities are jointly accountable for.
• Entity: At this level, plans and reporting include statements of intent and annual reports. They relate to accountability for organisations’ own objectives in carrying out their individual functions.

In particular, the NZ Health Plan is intended to provide a 3-year costed plan for the delivery of publicly funded services by Health New Zealand and the Māori Health Authority. The plan must set out the key services and activities to be delivered and key performance measures.

The Bill provides for annual reporting against the NZ Health Plan. I am concerned that the information provided in the NZ Health Plan and in reporting against it is likely to overlap with the planning and performance information that entities will be required to provide under the Crown Entities Act 2004.

We see two potential consequences of this overlap. Firstly, in the event of misalignment between documents it is unclear which documents are the authoritative statement of what entities will be individually accountable for. Secondly, in the event of a delivery failure it is unclear whether accountability rests solely with the entity that is accountable for delivery under its statement of performance expectations or applies to all entities that are jointly accountable for the same delivery under the NZ Health Plan.

In my view, more thought needs to be given to the relationship between these various plans and reporting so that it is clear what entities are individually and/or jointly accountable for.

Multiple roles and responsibilities of the Māori Health Authority

The Bill provides for the Māori Health Authority to have a range of roles and responsibilities across different levels of the system, with many of these roles performed jointly with other entities. Roles include:¹

• advise the Minister of Health (also a function of the Ministry of Health);
• co-sign national strategies for Māori;
• approve national plans and settings;
• co-commission of services with Health New Zealand;
• complementary commissioning of Kaupapa Māori and other targeted services for Māori with Health New Zealand;
• monitor performance of Health New Zealand and the health system for Māori (in co-operation with the Ministry and Te Puni Kōkiri); and
• support iwi-Māori partnership boards.

There is potential for conflict between these multiple roles. For example, the Bill states that the Māori Health Authority will develop and implement the NZ Health Plan jointly with Health New Zealand. It will also monitor the performance of the health system² for Māori. If this is intended to be an independent monitoring arrangement (rather than simply good internal management practice), potential conflicts could arise because the Māori Health Authority has responsibility not only for helping to develop the New Zealand Health Plan but also for monitoring aspects of that plan for Māori, including the delivery of health services it has commissioned and is responsible for.

Lack of clarity about whether the Māori Health Authority is a public entity

It is unclear whether the Māori Health Authority will be a public entity for the purposes of the Public Audit Act 2001. To avoid doubt, we suggest that the Bill include a statement that the Māori Health Authority will be a public entity for the purposes of the Public Audit Act 2001, and therefore within the Controller and Auditor-General’s mandate.

No independent assurance over the new accountability requirements

The Bill does not include any independent assurance of the new accountability documents – notably the NZ Health Plan, annual performance reporting against the NZ Health Plan, or the locality plans.

In my view, the Committee could consider whether the Bill should include a requirement (in section 44) for the NZ Health Plan to be audited before submission to Parliament. Such an approach could be comparable to that in the Local Government Act 2002, where the Auditor-General has a role in auditing councils’ long-term plan consultation documents and the long-term plans themselves.

Similar, but separate, consideration could also be given to whether any independent assurance should be required (in section 46) in relation to performance reporting against the NZ Health Plan. It is normal for both financial statements and performance information reported by public entities to be subject to audit. Auditing this information provides assurance that it fairly reflects the performance of the entity.

Transition arrangements

There are also matters related to the transition arrangements that should be clarified.

Final reporting of DHBs

DHBs will be disestablished on the commencement date (1 July 2022). The Bill does not make specific provision for reporting requirements for DHBs on disestablishment. Instead, under the Public Finance Act DHBs will need to provide a final report (prepared on the same basis as an annual report) on disestablishment, although the Minister of Finance may transfer and/or exempt disestablishing entities from certain reporting requirements. However, it is not clear from the Bill what any final report for a DHB is required to include or who will be responsible for signing the associated statement of responsibility. This lack of certainty could cause practical difficulties for preparation and auditing of the final reports.

I recommend considering how DHBs will comply with their obligation to prepare a report on disestablishment. In particular, it would be useful to be clear on the content of the final report and who will be responsible for signing the statement of responsibility.

The Bill also states that DHBs will be disestablished on the commencement date which is 1 July 2022. I recommend the Bill clarifies the financial period covered in final report is up until 30 June 22 and does not include 1 July 22.

Value of assets and liabilities being transferred

It is currently unclear at what value DHB assets and liabilities will transfer to Health New Zealand. This could result in DHBs making adjustments on disestablishment or Health New Zealand making adjustments to valuations which would not be appropriate. I suggest that section 9(1)(a) in Schedule 1 state that “the assets and liabilities of the DHBs will vest in Health New Zealand on the commencement date at their carrying value”.

Shared services

My understanding is that the rights and obligations and recorded assets and liabilities of the seven shared services agencies will be transferred to Health New Zealand when DHBs are disestablished, and that the intention is for those agencies to become business units within Health New Zealand, rather than continuing to operate as separate legal entities.

The Bill does not currently specifically provide for the disestablishment of the shared services agencies. If the intention is for the disestablishment of the shared services agencies to take place at the same time as the disestablishment of DHBs, I recommend that the Bill is amended to provide for this.

Concluding comments

My comments are intended to help ensure that the reform is supported by well-functioning public accountability arrangements.

I consider that, to address the issues I have raised, the accountability arrangements need to be re-evaluated to put in place an effective public accountability system that supports – rather than potentially stifles – the objectives of the reform.

This is particularly relevant in the context of moving from a decentralised to a centralised organisational structure. In my view, there is a risk of the health sector becoming disconnected from those vulnerable communities most reliant on health services, and from New Zealand communities more broadly.

Thank you for the opportunity to make a submission on the Bill. I would also like to appear to present this submission. As my Office does with other submissions on government proposals, we will publish this on our website.

Nāku noa, nā

John Ryan
Controller and Auditor-General

1: Regulatory Impact Statement: Decision on the organisational form of the Maori Health Authority.

2: Health system is defined in the Bill to mean all of the following entities, and includes activities funded by them:

1. the Ministry (including its departmental agencies); and
2. all health entities; and
3. the Mental Health and Wellbeing Commission, the Health and Disability Commissioner, the New Zealand Artificial Limb Service, and the Health Research Council of New Zealand.