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Funding blunder docs reveal rogue Ministry

The DHB funding blunder will not go away, with fresh details raising questions about a rogue Ministry and when exactly the Government knew something was wrong. Shane Cowlishaw reports.

Ministry of Health boss Chai Chuah ignored his Minister’s advice and reassured DHBs they would receive money promised in a funding botch-up, documents reveal.

It follows the cash-strapped DHBs receiving the wrong amounts in this year’s Budget, a mistake that infuriated Health Minister Jonathan Coleman who only found out about it on the day.

A yearly figure of $439 million was awarded to the 20 DHBs, a number that will not change, but $38m was allocated incorrectly with 14 receiving too much.

Now, Treasury documents and internal emails, provided to Labour under the Official Information Act, show:

- Director-General of Health Chai Chuah told several DHB chief executives a week after the Budget they would still get the extra funding, a move that Coleman had not agreed to.

- The Ministry of Health sent a briefing to Coleman at least a week before the Budget advising him that the allocations would be different from the original estimates but he did not receive it as he was overseas.

- Treasury officials were furious at their counterparts at the Ministry about not owning their mistake.

Pressure is mounting on Coleman and the Ministry after a string of unfavourable headlines.

Newshub suggested earlier this week that elective surgery targets may be being propped up with eye injections, while DHBS are still furious over the funding debacle.

Consultancy firm Deloitte has completed an independent review on the Ministry’s procedures following the mistake, but it has yet to be released by Coleman who said he was still considering it but pledged to publish it before the election.

Chuah goes rogue

Coleman was provided with advice from Treasury soon after the mistake was discovered, which advised that the best course of action was to stick with the initial estimates rather than the Ministry’s new figures.

Coleman told Newsroom that to the best of his knowledge, he advised Chuah that this was the course of action he preferred

But it appears that, for an unknown reason, Chuah initially took the opposite approach.

An email conversation on 31 May between Treasury’s health and ACC manager Ben McBridge and Treasury boss Gabriel Makhlouf reveals the Ministry said it had spoken to the Minister who disagreed with Treasury’s advice so they would instead try to find the extra $38m, an approach McBridge described as “highly problematic”.

“It’s contrary to the PBFF formula, gives a windfall gain to some DHBs, is different to the amount that Parliament approved (from $439m to $477m) and creates problems for the future.”

The next day, now a week after the Budget, McBridge emailed again, informing Makhlouf he had spoken to two DHB chief executives who were “highly exercised” by the funding issue after receiving phone calls from Chuah reassuring them that they would receive the extra funding.

This concerned McBridge, who asked Makhlouf what Chuah had told him about his plans.

Makhlouf told McBridge that Chuah had said to him the Ministry was “owning the problem” and would find the extra cash, with about half the shortfall coming from “deficit support funding that would no longer be needed” and the balance from non-departmental expenditure.

“I listened and didn’t agree (or disagree) with anything,” Makhlouf said.

When asked why Chuah had appeared to go rogue, and whether he had been told to take that course of action, Coleman told Newsroom he had not been aware of what Chuah had said and “that’s a question you have to put to Chai”.

There had been conflicting advice from the Ministry and Treasury but Coleman said he had realised the best option was to stick with the original estimates rather than find the extra money.

“That had been an option that the Ministry had floated to me, that they could find the extra thirty-something million, but my immediate reaction to that was how can you, when the picture has been painted of real pressure on health budgets, how can you just pull an extra $30m out of the wazoo that’s lying around, it didn’t sound credible to me.

“Clearly Chai didn’t have the mandate to go out and make those statements, and only he can account for why he may have said that.”

Despite the behaviour, Coleman said Chuah retained his full confidence and he was doing a good job overall – although he would raise the issue when they next met.

“Chai’s not a person who is running rogue every day and coming out of my office and telling people stuff, there’s clearly been some communication issue on this particular matter.”

Newsroom took up the Minister’s suggestion to ask Chuah about his actions, but the Director-General refused an interview request.

The Ministry’s media team provided a written statement from Chai, but it did not address why he had gone against the Minister’s wishes.

“The Ministry had originally planned to take a different approach in how to make the adjustments for DHBs by making up over-allocations through the Ministry’s own operation funds, rather than changing them.

“But after careful consideration, the Ministry decided that updating the DHB budget figures was necessary.”

Labour’s health spokesman David Clark said it was extraordinary Coleman retained confidence in Chuah after what had happened.

“It’s either Chai or the Minister’s failure, it can’t be neither. It’s one or the other, or both, and it might be the Minister should resign because he knew about these things and it’s his failure, it might be Chai should resign. One of them has to be responsible for these fundamental errors that have been made.”

Coleman overseas when report arrived

When news of the blunder broke, Coleman told media that he only found out about the error on Budget day.

But in an aide memoire to Coleman and Finance Minister Steven Joyce, sent on Budget day and marked as sensitive, Treasury notes that it had just received a copy of a report sent by the Ministry of Health to Coleman “prior to 18 May” about the fund allocation, indicating the difference between the Budget and the Ministry’s plans.

It noted that the Ministry’s calculations had used the wrong population data and had not taken into account various technical adjustors that affected the amounts DHBs received, an approach considered “problematic” by Treasury.

Coleman said on the day the report arrived, a week before the Budget, he was on a plane to Canada for an overseas trip that also took in several European stops and did not return until the morning of 25 May.

He said the Ministry should have advised him earlier, but when asked whether such an important issue should have been escalated to him by his office replied that the trip had been “pretty intense”.

The Government has been facing pressure from the health industry about funding. Photo: Lynn Grieveson

Labour health spokesman David Clark said it was preposterous that Coleman had not been advised of the problem while overseas and pointed to either a major cultural issue in his office, or incompetence.

“When the Minister travels he’s not on holiday, this is one of the most fundamental things a Minister is responsible for, the Minister is accountable to Parliament for spending in his portfolio area. It’s an extraordinary situation when the Minister gets the Budget allocations wrong.”

Treasury slams MoH

The documents also highlight the bad blood between the two organisations, which has been simmering for some time.

On Budget day, just hours before Joyce’s speech to media, Treasury and Ministry officials were going back and forth about the mistake.

“Clearly Chai didn’t have the mandate to go out and make those statements, and only he can account for why he may have said that.”

John Marney, Treasury’s principal health advisor, was unhappy with Megan McInnes, the Ministry’s senior advisor, about their inadequate response.

“Hi Megan – as discussed just now, this just doesn’t work. It is now 2 and a half hours before MOF stands up. This doesn’t own the mistake that we alerted you to yesterday afternoon, it doesn’t signal the risks of MOF announcing numbers that you intend to immediately contradict (with no authority), it doesn’t even set out what the changes are,” Marney fumed.

“This didn’t happen because of (sic) there was no funding signal; we don’t normally use a provision allocation for Budget; and we don’t routinely fix it up in OBU (October baseline update). I will send you some comments as soon as I can.”

Separate Treasury documents, also released under the Official Information Act, paint a longstanding picture of simmering tension between the two organisations.

In December last year Treasury advised then-Finance Minister Bill English of problems with the Ministry’s capabilities and behaviour.

“In recent weeks, we’ve seen the re-emergence of past practices from the Ministry that are undermining the hard-won gains to improve the transparency of Vote Health and efforts to improve the financial management governance.”

Examples included the Ministry submitting a paper on health funding pressures directly to the Minister without consulting Treasury, and a lack of communication between parts of the Ministry and its Chief Financial Officer who Treasury said had been either unaware or engaged very late in the process.

Coleman said there had always been tension between the two departments, while Finance Minister Steven Joyce said he had made his expectations clear.