Health fund millions get murky

Murray Tilyard
Murray Tilyard
Brian Rousseau
Brian Rousseau
Tony Ryall
Tony Ryall
Richard Thomson
Richard Thomson
Stuart McLauchlan
Stuart McLauchlan
Kevin Hague
Kevin Hague
Annette King
Annette King
Stan Rodger
Stan Rodger

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 issues.

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 board incompetence.

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 commercial negotiation.

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 fly.

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 matter.

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 Rousseau.

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 Tilyard said.

''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 investigate''.

''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 the matter.

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 meeting.

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 wasn't.''

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 health administration.

''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 information.

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 year.

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
South Link Health dispute arises over savings from historic pharmaceutical and laboratory contracts with the then Southern Regional Health Authority from 1995-96 to 2002-03.
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 Health.
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 accountant.
Now: Originally involved $5.3 million; with interest could be about $15 million.


Add a Comment



Our journalists are your neighbours

We are the South's eyes and ears in crucial council meetings, at court hearings, on the sidelines of sporting events and on the frontline of breaking news.

As our region faces uncharted waters in the wake of a global pandemic, Otago Daily Times continues to bring you local stories that matter.

We employ local journalists and photographers to tell your stories, as other outlets cut local coverage in favour of stories told out of Auckland, Wellington and Christchurch.

You can help us continue to bring you local news you can trust by becoming a supporter.

Become a Supporter