Te Whatu Ora receives hospital pass on building infrastructure

Analysis - A big shake-up in how public hospitals are built allows for private sector investment, but just how - and how much - remains in question.

The say-so on what to build has now shifted from the Health Ministry to Te Whatu Ora, which has set up a new national infrastructure team, with a new approach.

It is trying to fix a system beset by weak planning, cost overruns and delays, epitomised by the crawlingly slow rollout of the $800 million mental health upgrade.

The new approach aims to deliver more certainty, expertise, standardisation, efficiency, performance and capability.

It would also take more money - it "will require a significant investment" in people and processes within Te Whatu Ora, said the central agency, which is in the process of shedding hundreds of bureaucrats' jobs, but will keep on its key infrastructure people.

It would also require more funding for the projects themselves, covering investment in facilities, clinical equipment and digital systems where the backup of underinvestment is put at well over $10 billion.

As hospital passes go, this is a big one for Te Whatu Ora to catch from the ministry.

Its new operating model document keeps the options open; it mentions private sector participation several times. The "full range of investment options" should be considered, including "partnership with the private sector", it said.

There would be clear guidelines to "partner" with the private sector, among others.

"Opportunities for collaboration" over information and resources between the public and private sectors would be identified, it said.

But the government was quick to draw fences around that.

"The private sector partnerships that the operating model refers to, do not refer to public-private partnerships (PPPs)," Minister of Health Ayesha Verrall said in a statement to RNZ on Tuesday.

PPPs set out to build and maintain traditional public assets, like roads, using private partners in a contract typically stretching over two or more decades. They are complex ways of sharing liability and have a patchy track record worldwide.

"This government does not believe that public-private partnerships are an appropriate way to fund health infrastructure," Verrall added.

There might be private participation in providing services like pathology or hospital carparking, she said.

Controversy rekindled recently over the years-old privatisation of most pathology labs, in an industrial dispute between scientists and technicians, and lab group Awanui.

Private sector investment in healthcare has been growing rapidly, globally, often controversially, and in many different forms, as populations age and medical costs rise, spurred on further by post-pandemic pressures to upgrade critical infrastructure. In New Zealand, private radiology clinics have gained investors and been recruiting consultants on $350,000 salaries.

National, ACT and PPPs

The language in Te Whatu Ora's new operating model is open to private investment, but the National Party on Wednesday was not saying it would go that way.

"We're supportive of working with private partners like ACC, the Superannuation Fund, KiwiSaver funds, or other investors, where it makes sense - but we have no specific plans for private funding for hospitals or other health infrastructure at this stage," said infrastructure spokesperson Chris Bishop.

"We expect the Crown will be committing capital for our two major health commitments we've made so far - fully funding Dunedin Hospital and delivering a third medical school."

National's election platform promises there would be a new agency that would explore "the potential for PPPs in the delivery of new infrastructure projects" and be "the gateway for domestic and offshore institutional investors".

The party promised during the 2017 election campaign to use a PPP to build a new Dunedin Hospital, but later the Labour-led government ruled out PPPs for all hospitals, schools and prisons, leaving mostly just roads as likely candidates.

National's likely coalition partner ACT is a PPP fan. In health, it aims to do deals with "large, reputable global infrastructure investment groups".

"PPPs would be used for the refurbishment and upgrades to existing facilities, and would be converted to long-term lease-backs," ACT said in a statement to RNZ on Wednesday.

The cost to repair or replace the 40 or so mostly outdated public hospitals amounted to $14b, it said.

"Maintaining over $20b worth of buildings and infrastructure is not the role of the Ministry of Health, which needs to be focused on medical enhancements and best-practice patient care."

On the public front, Te Whatu Ora had a lot to do to get up to speed, and is on notice to improve planning.

"Poor levels of planning" have characterised projects such as in Taranaki to install more linear accelerators, leading to big cost overruns; failure to anticipate the problems was "not unique to this project", a new Official Information Act response to RNZ said.

The agency had expected by June to have updates on where each infrastructure project was at, and by December to have a management plan in place.

"A comprehensive national picture across infrastructure will enable effective trade-offs when making investment decisions," a Cabinet Priorities Committee paper said.

Within the national infrastructure team would be four regional teams, and one "centre of excellence" for large or complex projects.

The mental health build review showed up a lot of weak work on business cases by hospitals unsure if they would get the funding for their projects.

The fix? "A nationally consistent approach to business case development and the use of agreed design guidelines across the country, will provide consistency and efficiency."

The aim was to lift by next year, from $25m to $50m, the cap on what projects could be signed off on quickly.

Key decisions would be run past Te Whatu Ora's new Capital Investment Committee, comprising a lawyer, a consultant, a property company boss and a former National MP, Amy Adams, plus the agency's chair.

But while Te Whatu Ora said its new approach "aligns with best practice governance guidance" from the Infrastructure Commission Te Waihanga and "responds to Treasury's recommendations", doubts have been expressed already.

The new operating model was light on "detail, actions and timeframes", and concentrated a lot of responsibility on any person running a project, officials in Te Waihanga and the prime minister's department noted.

The Ministry of Health said it shared their concerns, and it gets to do something about it: shorn of its power to vet infrastructure projects, the ministry is newly in charge of monitoring how Te Whatu Ora goes now that it must make the running on building hospitals.