Ryall: HBL's deadline to save $764m by 2015/16 will be missed

Lisa Owen: The financial officers from these district health boards say that they have lost… they have “severely diminished” confidence in Health Benefits Limited; do you think they’re right to have those concerns?

Tony Ryall: Well those were concerns that were expressed several months ago and they’ve been taken very seriously by Health Benefits Limited and the district health boards. And the Chief Financial Officers and the CEOs are now much more involved in the process and in fact driving the implementation of key parts. The important work that they are doing is making sure that we can harness the power of bulk purchasing and standardisation to free up cash that can be reinvested in front line services. It’s very important work and it’s great that they’re involved.

Health Benefits Limited itself has actually admitted that it hasn’t been as transparent as it should be during this process and I also understand that PricewaterhouseCoopers and Ernst & Young are revising the project. So isn’t that in itself an admission that all is not well?

Well look it’s a pretty difficult area to be working in. If you’ve got to recall where we’ve come from, six or seven years ago you had twenty DHBs who were doing their own procurement and purchasing, and separately it’s rather inefficient. So we’re trying to move to a new environment where there’s much more collaboration. And it does mean people have to change the way they do things. We’re wanting to make sure that that’s done in a very stepwise and sensible way. The CFOs expressed some concerns about the level of engagement with them, they’re now much more involved  and we’re continuing on the path to make sure that we can get those savings to free up cash to put back into front line services. So far DHBs are –

So are you satisfied all is well?

Ah look, I think we’re heading in the right direction. It’s a pretty crunchy thing, it’s pretty big what they’re trying to do. And there’s always going to be people in the system that we’ve got who are going to express some concern about it. But I think we are heading in the right direction. Already HBL and the DHBs have saved over 250-million dollars together through a number of their initiatives, that all goes back into frontline services. So we’re just going to continue that momentum.

So Minister I want to have a look at those numbers. You’ve raised those numbers so let’s take a look at them. By its own projections Health Benefits Limited says it’s going to save 764-million dollars by 2015 and 2016, you mentioned the 213-million that’s already been saved, that leaves 500-million dollars to save in about 18 to 20 months. I mean how is that going to happen?

Ah look, those savings might happen in another year or so after that timeline. As you know the current-

So behind schedule already?

Ah well I think it’s going to take a little bit longer and it’s for very good reason, we want to make sure that the implementation is right. And if it means we have to take a little bit of extra time to do it, then I think that’s better. We want to make sure that the investments come in. If this is an argument about whether it’s going to be 700-million in two years’ time or three years’ time or four years’ time, the real important is to make sure that we get those savings.

But doesn’t that worry you as Minister that it’s already behind schedule? Doesn’t that worry you as Minister?

Well key parts of the programme are running on time and they are delivering the results that we want. But this is quite a complex change, it involved twenty district health boards, there’s a lot of people involved and I think there is benefit in slowing things down in some areas to make sure that we get the savings that people want. And that’s important. If there’s one thing I’ve learnt in 24 years in politics is implementation is vital and that’s why we want to make sure that so much effort is going into ensuring that when these things are rolled out they are rolled out well and we get the savings that people are looking for. And we have to make –

Let’s look at the cost of that implementation Minister. In a letter from a senior DHB manager, a memo, it’s cited that the costs have ballooned from $87 million to $130 million and that the savings have dropped by about a third of the projections. Is that right?

Ah look that’s a very political letter that’s unsigned, undated and it’s being circulated.

Is that right?

Ah no, look you’ve been provided information which actually says that the finance procurement supply chain programme is currently running under budget. But if the DHBs want to invest some more money in the future to maximise and optimise the benefits, then that’s a decision that they would make. I don’t think you can rely on what’s been put out in that memo released…

So your project is on budget?

…released 12 weeks before the election, with a lot of inflammatory language in it.

So your project is on budget? Just to be clear, you are confident that it is on budget?

Well the information I’ve received is it’s operating within budget but they will - the DHBs will have to make a decision about maximising and optimising benefits that they may want to put some more money in. So instead of maybe being 90-million, it might end up being, let me just –

So you are going to ask for money Minister? Just to be clear on this Minister, Health Benefits Limited has told us that it is potentially going to be asking DHBs to contribute more. So are they going to be asked for more and how much more?

Ah that’s up to the DHBs to decide whether they want to invest or not. This is a programme where the current budget is about $90 million to generate savings of about $4-$500 million. If it ends up being maybe a $100 million to generate those $4 or $500 million, look I think it’s worth the DHBs considering the investment. Because it’s a very big change that they are making.

So you can’t guarantee that this project is not going to be blowout. You’re talking about figures of a hundred-million dollars it might cost, so you can’t guarantee that it’s not going to blow out?

This is a big project. I don’t think you’re going to see a blow out on the proportions that this leaked political note that has been getting some media coverage is about.  The DHBs will make a call on whether there are sufficient benefits to make an additional investment in this project. But if this is an argument about spending 90-milion to make 500-million or a hundred million to make 500-million I think you’re missing the point. The point here is that we want to get the 20 DHBs working in a more efficient way and how they buy goods and services so that they can get the power of bulk purchasing. Already working together, Lisa, working together they have saved about 5-million dollars on banking, they’ve saved 6 or 7-million dollars on insurance. And so this makes a lot of sense. Let me give you this example -

No no, let’s… Minister, I want to talk to you about those savings because I’ve looked at two auditor-general reports, a statement of intent from the company itself and actually a report to the select committee. All of those identify the fact that HBL is taking credit for savings that are made from the health boards or that were already in train. So how much of these savings can actually be attributed to Health Benefits Limited and its efforts? How much is its efforts?

Ah look it’s actually a collective effort. What I’m trying to encourage in District Health Boards is a more collaborative effort. So if there is a smart procurement option being used in one or two district health boards then it should be rolled across the rest of the country.

So hang on. Those figures that you were just quoting to me Minister they are not just HBL efforts, that’s everybody’s efforts?

Look they’re everybody’s efforts and that’s why I’m trying to encourage this collective approach and it’s set out in all the  -

Can you single out how much Health Benefits Limited, how much benefit it has brought to the table? How much has it made in savings alone so that we can assess the value of their efforts properly?

Well the fact is HBL doesn’t spend a lot of money buying goods and services, all the savings come back to DHBs. And DHBs also work collectively with HBL on other initiatives. So the figures that are used are the collective effort, where everybody is wanting to use the powers of bulk purchasing and standardisation to deliver benefits for patients. So I don’t think there’s much to be gained by saying who’s generated what, the fact is that the savings should be made so that the services can go into more hips and knees and other elective procedures so New Zealanders. It’s a very sensible strategy that even our critics acknowledge makes a lot of sense to use that bulk purchasing to get the gains that DHBs need. I’ve inherited a –

You talk about your critics there minister. You talk about your critics there minister. Is there a climate of fear around this project because we’re hearing from people that they’ve been told to keep quiet? Is that what you’re seeing, a climate of fear, people unable to speak out about what they feel is wrong?

I don’t think anything could be further from the truth. You’ve seen the memo from the Chief Financial Officers and comments by other people. The fact is that we’re twelve weeks out from a general election, our opponents what to take every opportunity to cause trouble for the government.

So this is politicking? That they’re making this up? That it’s a figment of their imagination?

I can certainly say that when unsigned and undated memos are going around with words like Ponzi scheme in it 12 weeks before an election, that is a political response. My challenge as minister of health is to make sure I work with what was a very inefficient system that we inherited to make sure that DHBs and HBL work together to generate savings. You know we inherited a situation, just as one example, where the 20 district health boards bought non-sterile surgical gloves from 18 suppliers but there are only two manufacturers in the world. So there are real opportunities there to have smart procurement and HBL works cleverly and hard with the DHBs who work very smartly as well. And they are all working to get these procurement gains so that we can deliver that extra money back into front line services for patients. This is a time of change and you’re going to see some criticism, but I think New Zealanders are seeing the benefits and will continue to see them.