5 Extraordinary Revelations From Deloitte's Health NZ Review
The report revealed more from what it omitted, than what it covered
Opinion & Analysis
In September 2024, Deloitte Partner David Lovatt, was contracted by the National Government to help National ostensibly understand “the drivers behind HNZ’s worsening financial performance”.1 i.e. deficit.
The report shows the last version was dated December 2024.
It was formally released this week in March 2025 - with a Newstalk ZB reporter publishing headlines such as “Health NZ was using a single Excel spreadsheet to track $28 billion of public money; report outlines ‘significant concerns’”.
Deloitte’s partner, Lovatt has previously been a voice for business in New Zealand.
During Covid, Lovatt argued:
[Businesses should be able] “to shape and participate or even deliver reforms on behalf of New Zealand”…
“In many areas business would like to be able to participate more and would like to lead.”
That sentiment echoed others such as BusinessNZ chief executive Kirk Hope.
But while the headlines for the Health NZ review pivoted on sensational Excel spreadsheets, the report reveals 5 extraordinary points, that to my personal reading, reveal more questions than answers.
1. The Deloitte report appears to sidestep critical Health NZ context
In its executive summary, Deloitte concludes confidently:
“The decline in financial performance [ i.e. the deficit] in 2023/24 was primarily due to Health NZ losing control of the critical levers that drive financial outcomes.”
Yet the same report appears to downplay and/or ignore what was driving the alleged “deficit” in the first place - Health NZ’s operational needs and National’s budget.
Here’s some context to this -
Successful nursing recruitment drive in Health NZ led to higher costs than budgeted - suggesting at least a degree of underfunding (Newsroom report - Marc Daalder - July 2024) i.e. Nursing costs against 2023/24 budget was driving the ‘worse than budget’ financial outcomes.
Underfunding of Health NZ against budget a real possibility - particularly as the first “unexpected” Health NZ deficits was recorded on the books in March 2024 - driven primarily by staffing and pay equity - and Luxon said he knew of the potential $130m deficit in October 2023.
Historical pay equity settlements2 etc. were noted in Heath NZ’s 2022-23 annual report in December 2023 (Note 26 of HNZ Annual Report - page 287) They contributed to deficits but were again signalled well in advance.3
The report appears to recognise that Health NZ WAS in fact expecting more funding from National but did not receive it - leading to a larger than expected deficit.4
In June 2024, one month after National released their budget, HNZ “revised their year-end forecast to a $528m deficit.”5 after ”the FAC meeting on 24 June 2024 where ”HNZ’s CFO noted HNZ was advised they would not receive $529m of pay equity funding in 2023/24.” (page 17 of Deloitte report)
In July 2024, Mountain Tui reported that all but two Health NZ Directors on the Board had dramatically left/resigned soon after that FAC meeting.
Could it have been related?
Could this all mean - as had been suggested last year by both Labour and newsrooms - that the National government underfunded Health NZ*?
In essence, if an organisation needs $100 to function, given all the various factors, and I provide $80 - a “deficit” is of course what will occur.
If a report then ignores this context - why? Is it scope? Agreed parameters? Interviewees who have been redacted from the report?
And does Deloitte’s report suggest that were systems etc. in place, that the government would have disallowed nursing and operational needs that closed recruitment gaps, and are driven by CCDM (safe staffing models against operational need?)
The report does acknowledge Health NZ nursing recruitment decisions were driven by the CCDM model - i.e. balancing care with workforce for safety - but focuses on costs and technicalities in my reading of it.
2. Deloitte report appears to echo many National government concerns
Deloitte’s report echoes the reasons Shane Reti & Christopher Luxon gave in July 2024 for cutting Health NZ’s budget, as reported last year:
Reti:
"The issues at Health NZ stem from the previous government's mismanaged health reforms, which resulted in an overly centralised operating model, limited oversight of financial and non-financial performance, and fragmented administrative data systems which were unable to identify risks until it was too late."
Never mind that Reti had apparently conjured some of his claims up.
Deloitte’s major conclusions appear somewhat similar in some cases.
For example, its top identified issue is the operating model.
As well as the operating model (echoing Lester Levy and Luxon in July 2024), it calls out inaccurate budgets, ineffective savings plans, and complicated and manual systems etc.
Note: Deloitte acknowledges HNZ’s savings plans on the one hand, but appears to understate or omit potential Health NZ underfunding as a factor
Extraordinarily, the report also frames addressing “recruitment challenges” that were then successfully remediated as an “aggravating factor”.
Deloitte:
[The successful recruitment increase led to] “payroll cost and leave liabilities” increases.
Yes - hiring the nurses it needed led to money being spent by Health NZ.
One has to wonder if Ernst & Young, who were paid to install the new operating model, would like to do a review of this Deloitte report.
And while Deloitte blames the operating model as reducing “the ability to see, plan and respond to risks and events”, Dr Ayesha Verall has previously rejected criticisms, noting last year:
“..One point of recruitment rather than 20 DHBs all competing to recruit staff enabled the government to hire more staff for the health system when the country came out of its Covid-19 response phase.
She said the reforms also helped end the postcode lottery, and allowed infrastructure decisions to be considered across the whole of the system, and ensure there was expertise in place to manage that.”
Given the successful hiring of nurses under Labour after historical recruitment issues, Verrall’s points appears to have credibility.
3. Deloitte assumes the deficit was a “worsening financial performance” - it is when measured against National’s funding - but is there any other context?
In late 2024, Shane Reti and Lester Levy tried unsuccessfully to inflate the 2023/24 financial deficit by attempting to put current year redundancy costs into it.
NZ’s Auditor General stopped them after a whistleblower came forward.
So, the final deficit in 2023/24 came to $722m - well under the $1.4bn deficit6 Reti & Luxon claimed in July last year.
And was used to justify their ‘slash and burn’ of Health NZ.
As summarised by Dr
the $722m deficit for 23/24 though was primarily due to operational needs such as staffing and clinical supplies etc.But even more interestingly, Dr Gray shows that Health NZ’s operational performance in 2023/34 improved by $291m - once you remove one off property revaluation adjustments.
If true, the question arises - does Deloitte consider other factors when assuming the “worsening financial performance” assumption?
And - how much were Deloitte paid for this work?
4. The report outlines the role of “complicated financial reporting systems and spreadsheets” in the deficit - yet appears to ignore real life context and developments
The Deloitte report recognises “diverse and underinvested legacy IT systems” (pg 12) in Health NZ as a problem.
It notes:
“Seamless integration between financial and operational systems is essential for comprehensive data analysis and improved efficiency.” (pg 34)
and,
Certain savings initiatives may have required investment, particularly in IT systems or digital technology, to ACHIEVE savings (pg 36)
Then admits:
The system limitations had been a challenge for DHBs prior to amalgamation, therefore some of the problems such as manual processing were not new and continue to exist. (pg 42)
And
[Health NZ operated with] over 20 payroll environments…….lacked a unified master data file of employee information (page 51)
i..e Deloitte appears to recognise the IT system issues are frequently historical, long ranging, systematic and serious.
Plus they agree, lack of IT investment contributed to Health NZ’s inability to successfully achieve planned savings.
In 2022, Grant Robertson announced a then record investment in Health NZ to address investments in Health NZ infrastructure and hospitals over the next four years.
But Labour lost the election in 2023, and many of these reforms were only partially underway.
Before National and ACT’s more overt slash and burn of our public health system, the government had already scrapped almost $400mn of IT Health investments in May - ignoring warnings this would dramatically kill & set back efforts on systems modernisation, consolidation and improvement.
i.e. It would put at risk the precise problems the Deloitte report hinted at.
In November 2024, the government and HNZ went further - they announced the sacking of almost half of Health digital staff and trashing IT investments and progress that were only part way through.
Deloitte recommended consolidating systems in its report - but does not suggest appropriate resources and budget are needed for that huge task.
Consolidation requires significant investment and time.
Did Deloitte consider the current circumstances and reality in tis report?
Is that relevant to a consulting company’s evaluation?
I have to wonder.
It’s certainly not Deloitte’s job or remit to point out political issues - but it was its jobs to provide recommendations.
But nowhere in the report on systems recommendations (page 60-61) do we see them advise Health NZ - and thereby NZ taxpayers - that investment and resources is pivotal to the success of such recommendations.
It’s also unclear if Deloitte advised the Health NZ on their new “fail early, fail often” IT strategy too - after the government communicated the strategy in light of it slashing ~half of Health NZ’s digital and data positions.
(From the terms of reference it seems unlikely, but how much knowledge transfer did David Lovatt provide his clients, I wonder?)
5. The report does not provide context to the historic underfunding of Health NZ under National*
In the graph below, the blue bars are the National Party’s investment in health - but as health researcher Peter Huskinson noted in NZ Doctor last year.
[National’s May 2024] budget sees the amount of day to day spend per person on health next year at current prices reduce by 3% to $4,686 per person; $143 per person less in real terms.
…[It will] remain below 2023-24 levels in real terms per person for the next 4 years, is well below anything achieved this century in New Zealand or comparable countries.
And as the CTU’s Craig Renney noted this week:
Should Deloitte have provided context?
After all it’s job appeared to be:
“gain a better understanding of the drivers behind HNZ’s worsening financial performance and cash position in the fourth quarter of 2023/24.”
Could investment and clinical (safe staffing) need be a driver, Deloitte?
Conclusion
As a reader, the report led to more questions than answers for me.
I would have liked to see Deloitte recognise that operating model changes often take many years to settle and require resources, budget and focus to complete.
Ripping it up part way is never going to be conducive to positive results.
I would have liked to see Deloitte recognise the so-called deficit within the context of Health NZ’s clinical staffing needs, budget, per capita spend, historic funding norms, and the role of CCDM.
I would have also liked Deloitte to provide more realism to its recommendations.
Without realistic context, the value of any consulting engagement is likely to be limited, in my opinion.
Instead, Deloitte’s statement of responsibility reveals a series of caveats that suggest it was not intended to be comprehensive in nature - or intended to capture items not brought to Deloitte’s attention.
The matters detailed in our report are only those which came to our attention during the course of performing our review and did not necessarily constitute a comprehensive statement of all the weaknesses or issues that exist or actions that might be taken.
Personally, it was a disappointing read.
In the political context, Simeon Brown seemed to use the report as a pretext for more Health NZ changes - releasing the report just after he announced accelerated privatisation involving “long term contracts with the private sector.”
Another modus operandi of this privatisation government.
Disappointing from all parties all round.
Related Videos:
Government has manufactured a crisis to privatise Health
HNZ deficit occurred on National Party’s watch
Luxon lies about nurses pay to Mike Hosking on Newstalk ZB
Related Reading:
Terms of reference for Deloitte: "The purpose of the review is to gain a better understanding of the drivers behind HNZ’s worsening financial performance and cash position in the fourth quarter of 2023/24. “ Deloitte
Te Whatu Ora 2022-23 Annual Report: Note 26 of the Annual report p.288 notes:
Personnel costs are over budget by $1.389 billion with most of this relating to accruals for pay equity settlements completed post balance date ($859m) and, the balance reflects greater than budget expenditure mainly
Holidays Act liability uplift, actuarial valuation of Long Service Leave and Retiring Gratuities, interim pay equity payments, MECAs settled above budgeted assumptions, provision for redundancy and costs for funded initiatives (with funding offsets).
In HNZ’s 2022-23 annual report, Health NZ published the details of this in Notes 23 and 26 (page 287) - noting the one off expenses related to pay equity settlements etc causint a once off deficit.
This also seems consistent with Deloitte’s timeline graph on page 8 that showed the HNZ deficit forecast actaully hinged upon “pay equity funding” from the May 2024 budget
In Deloitte’s report this reference is marked as from the Finance and Audit Committee Agenda and Papers – June 2024 – Standing Items, Page 38
The $1.4bn “deficit crisis” was used by National as justification to bring in Lester Levy, a private healthcare sector Director and proponent of running healthcare as a business, to ‘slash and burn’ through our public health system. The deficit came to $733mn despite attempts by Reti and Levy to allegedly “cook the books”. (action stopped by NZ’s Auditor General).
That's a fantastic deep dive into the report. I seen to remember that the HNZ board flagged to Treasury that there would be a deficit in advance of the deficit but there was some disconnect with Willis not heeding the warning. But that may be misremembered. I thought it was that event that led to Lester Levy being appointed. There's so much context missing in the Delloite report and I really appreciate you doing the hard yards and making it easy to digest.
Once again, the Ferry cancellation is another, the present government has undone cost saving moves by the previous government before those moves could bear fruit. Another example is the cancellation by National (Bill English) of the decision by Labour to not renew the Comalco electricity contract. Cancellation would have created a surplus of hydro electricity leading to reduction of the household power bill and stopped the pernicious government backed programme to promote solar power panels on everyone's roof