Who knew what and when? Questions are being asked since it
was revealed recently the Southern District Health Board has
known about the possibility of a health funds fraud for more
than three years. Health reporter Eileen Goodwin examines the
A bureaucratic torpor seemed to settle on a
multimillion-dollar dispute once southern health officials
referred it to the Ministry of Health a few years ago.
Now, the lid has been partly lifted, with allegations of
political cover-up, bureaucratic stonewalling, and health
Reviving memories of Michael Swann defrauding the Otago
District Health Board of $16.9 million, it has aroused
sensitivity in the South about the health board potentially
taking flack for another big health fraud.
South Link Health (SLH), the Dunedin-based independent
practitioner association at the heart of the dispute, insists
it has spent the money on approved programmes, and has no
case to answer, either commercially or criminally.
And the Ministry of Health maintains it did not know until
this year the dispute might involve fraud, and has been
trying to help the board resolve the matter through
Last month, the Southern District Health Board engaged a
forensic accountant to sift through what former Labour MP
Stan Rodger calls a ''fiendishly complex'' matter. Mr Rodger
was part of failed efforts to mediate the dispute, claimed
now to involve about $15 million.
Tasked with resolving a historic South Island-wide wrangle
from the days GP associations were allowed to use savings
from health contracts for other approved services, the
Southern District Health Board finally referred the matter to
the ministry's audit and compliance unit in December 2010.
Dunedin-based freelance journalist and former Otago Daily
Times health reporter Elspeth McLean tried to find out
from officials what progress had been made, but could not
access background documents or even basic information.
''I believe there is a public interest in knowing what has
gone on in the handling of this dispute. Regardless of
whether fraud was involved, the dispute is about millions of
dollars of public money,'' Mrs McLean said.
Seemingly endless delay also frustrated board member Richard
Thomson, who last year told the Auditor-general. The
Auditor-general then warned about possible fraud in a
management letter to the health board in November 2013, which
alerted Health Minister Tony Ryall. Mr Ryall said he met the
Auditor-general as soon as possible to discuss the concerns.
Mr Thomson said the board referred the matter to the ministry
because Mr Ryall did not want it taken through the courts;
with an ''immense sense of frustration'' Mr Thomson watched
as the ministry seemingly did nothing.
It was not until last week's health select committee meeting
- when the board revealed it knew more than three years ago
the dispute could involve fraud - that allegations started to
Mr Ryall has faced questions in Parliament about what he
knew, and maintains he was not aware of the fraud possibility
until November 2013. He has denied an accusation in
Parliament he sought to water down an Audit Office report on
The existence of the legal advice was revealed by a question
from Green MP Kevin Hague, who as a former West Coast
District Health Board chief executive was acquainted with the
dispute. Before referring it to national health authorities,
the southern board tried and failed to resolve the matter
through mediation with South Link Health and its executive
director Dr Murray Tilyard.
Dr Tilyard, a health entrepreneur and southern general
practice leader, expressed shock and surprise when the fraud
legal advice was revealed last week.
Public comments from SLH prompted reaction from former
Southern District Health Board chief executive Brian
Mr Rousseau contacted the ODT to disclose the
existence of a letter from SLH in 2010 that asked for the
retraction of a suggestion of fraud from the written record
of mediation. It was retracted verbally during mediation, but
the board rejected a request to change the written record, Dr
Tilyard said when asked to clarify the issue.
Dr Tilyard acknowledged he had forgotten that letter, but
pointed out the contention that prompted it did not come from
legal advice, but was the view of a consultant who previously
worked for the health board.
It could be likened to advice from a ''bush lawyer'', Dr
''Fraud allegations are very serious, and you must have
substance before you just spout off like that,'' SLH lawyer
Frazer Barton added.
Dr Tilyard blames organisational issues at the health board
for the fact the matter has never been closed.
Mr Rousseau, contacted for clarification, confirmed SLH was
not privy to the existence of the legal advice that prompted
the board to escalate the matter.
Mr Rousseau, who now lives in Adelaide, also questioned
public statements of then Crown monitor Stuart McLauchlan,
who denied knowledge of the fraud possibility, about which he
would have had to tell the Government.
Mr McLauchlan maintained this week that as far as he was
concerned, the dispute was purely commercial. Mr Rousseau
viewed the fraud allegations as a ''red herring'', and
believed SLH still had the money, and should spend it on
approved primary health care programmes.
Mr Rousseau said: ''It was only at the point, late in 2010,
when Dr Tilyard said the money had all been spent, that I
said: 'Well hold on a second, this could be serious', and
hence came to the conclusion it needed to be handed over to
the audit and compliance unit of the National Health Board to
''My personal view is that the money does exist.''
Mr Rousseau said Mr Ryall advised him that taking the matter
through the courts would cost a lot of money, and negotiation
was the preferred route. This was before the 2010 legal
advice, and in response, Mr Ryall said yesterday ''civil
action for a breach of contract is very expensive, and my
advice to boards considering civil action would be to
consider or try for mediation or arbitration first''.
''If anyone raised with me allegations of fraud, I would take
action,'' Mr Ryall said.
When mediation failed, and having obtained legal advice in
November 2010, the matter was referred to the National Health
Board, a unit in the Ministry of Health.
''We were chasing them all the time, and there was little or
no activity happening.''
''They said that if we handed it over to them, then they
would investigate,'' Mr Rousseau said.
Mr Rousseau did not accept SLH's insistence it had evidence
it spent the money on approved programmes.
''If the money exists - and I believe it does - then it's got
to be agreed on where that money is spent, on health
programmes for the people of the South Island.
''I've always had a view that the money was sitting in the
[SLH] education trust,'' a suggestion SLH rejected this week.
Mr Rousseau left the board in September 2011, and successor
Carole Heatly has not been keen to discuss efforts to resolve
She declined to confirm when the board engaged a forensic
accountant and a brief written statement yesterday said: ''We
are intending to continue to work through the recovery of
public funds. This is a commercially sensitive issue and we
will not be discussing it publicly while we progress it''.
The ODT believes the decision to engage a forensic
accountant was approved by board members behind closed doors
on February 5, two weeks before the health select committee
Mr Rodger, of Mosgiel, said he read huge amounts of
documentation, a ''quagmire of detail'', to prepare to run
mediation between the parties in October 2010.
''It was perceived as an advance to have Tilyard and Rousseau
in the same room ... they hadn't met up much on it, and it
was thought that this was going to be an advance.
Potentially, it could have been, but in the event it
Nothing Mr Rodger had viewed indicated fraud, and he believed
the only solution now was arbitration if a commercial
settlement could not be reached.
Relating to the days of the Southern Regional Health
Authority, a now defunct body, the dispute turned on the
interpretation of old contracts from an erstwhile era of
''You have the difficulty that the institutions were gone,
and [the parties] each had a bundle of papers that they were
placing emphasis on particular parts of.
''As time goes by, it just gets more difficult.''
The dispute seemed to have been put in the ''too hard heap''
by senior officials.
The apparent inertia of the Ministry of Health was ''just
another chapter in these extraordinary delays'' that
characterised the ''unique'' situation, Mr Rodger said.
Mrs McLean, who started pursuing the story as an ODT
reporter and continued to chase it after her departure, said
her request early last year to the health board for reports
written since 2000 on the dispute was refused, and the
Ministry of Health has also not been prepared to divulge much
The dispute was dealt with by a team in the National Health
Board, a unit set up within the ministry in 2009 to improve
health sector performance.
''I requested these reports because I did not believe that
releasing them would prejudice the investigation of the
dispute by the National Health Board because it presumably
had already had this information for two years at that point.
''In mid-May, I complained to the Ombudsman about the
refusals by the DHB related to this - and later the National
Health Board. I was advised by the Ombudsman's office on
November 18 last year that due to the volume of work that the
office still had on hand, it had not been able to allocate my
file to an investigator.
''My frustration with the situation led me to ask the office
of the Auditor-general in early December 2013 whether it had
an interest in ensuring the matter was investigated and
resolved, which resulted in its concerns being made public,''
Mrs McLean said.
One of the official excuses given to Mrs McLean for long
delays was the earthquake disruption to the audit and
compliance team's office in Christchurch, which sounded a bit
like ''a dog ate my homework'' to Mr Hague, the Green's
health spokesman. Mr Hague seems likely to continue his
pursuit of Mr Ryall in questions next week when Parliament
resumes after a week's recess.
''It is just not credible that, in the immediate wake of the
[Michael] Swann fraud about which the minister was so
concerned, nobody from the DHB, the Ministry of Health or the
others who knew thought to tell the minister.
''I maintain that he absolutely did know that SLH was
considered to have misused public funds and that
negotiation/mediation was going nowhere, and that he made it
clear to the DHB that he did not want legal channels
pursued,'' Mr Hague said.
National Health Board acting national director Michael
Hundleby, asked to comment on criticism the ministry had been
less than forthcoming about the dispute's progress, said in a
statement that was due to its ''commercial'' nature.
''While the negotiations have been under way, the National
Health Board has been unable [to] release information
publicly, or comment, given this could prejudice the
commercial negotiations and the attempt to settle the dispute
between the parties involved.''
He said the Ministry of Health did not receive the 2010 legal
advice that suggested it might not be a commercial dispute
until earlier this year.
It has been suggested Dr Tilyard is too close to Mr Ryall, a
claim disputed by Dr Tilyard in an interview last week. Dr
Tilyard said he probably had more meetings with former Health
Minister Annette King, who criticised the pair's relationship
when it emerged last week Mr Ryall consulted Dr Tilyard on
whom to appoint health board chairman. Ms King said yesterday
the issue was the fact Mr Ryall consulted the head of an
organisation locked in dispute with the health board about
who should be chairman of the health board.
Dr Tilyard believed SLH was being ''used somewhat'' as an
election year political football by Opposition MPs.
SLH and associated entities are a Dunedin health success
story, particularly for developing primary care IT tools.
Since it was set up in 2010, subsidiary entity South Link
Health Services has bought equity stakes or outright
ownership of general practices, while SLH itself had more
than 500 GP members.
Dr Tilyard has been a general practice leader, his roles
including board member of the Southern Primary Health
Organisation since its inception until he was voted off last
His having many roles in health has brought some criticism
about potential conflicts of interest, but New Zealand was
small, and conflicts of interest in health were inevitable
but manageable, he said.
Mr Thomson said Dr Tilyard was the ''tireless, innovative
face of SLH'', but it was time the organisation, including
directors and former directors, asked itself some tough
questions about the disputed funds.
Mr Thomson said he had documents that contradicted SLH's
version of events.
''There are many more documents I could ask questions about.
However, I have deliberately limited my concerns to documents
that I have sourced myself and not received in the course of
my board duties.''
How events unfolded
2003: South Link Health dispute arises over savings from
historic pharmaceutical and laboratory contracts with the
then Southern Regional Health Authority from 1995-96 to
2010: After failed attempts at mediation, Southern
District Health Board receives legal advice the row might
involve fraud. The matter is passed to Ministry of
November 2013: Auditor-general alerts Health Minister
Tony Ryall the dispute might involve fraud, after board
member Richard Thomson alerted Auditor-general.
February 2014: Southern DHB chairman Joe Butterfield
tells health select committee legal advice in 2010 warned the
dispute might involve fraud. The board engages forensic
Now: Originally involved $5.3 million; with interest
could be about $15 million.