Ministers alarmed by extent of hospital cuts

An artist’s impression of the new Dunedin Hospital. PHOTO: ODT FILES
An artist’s impression of the new Dunedin Hospital. PHOTO: ODT FILES
Government ministers were alarmed at the unexpected extent of the redesign work needed to slice $90 million from the new Dunedin hospital just 10 weeks before announcing the cuts last December.

Ministers were concerned about the cost and time delays this would entail, according to an email from a Parliament staff member to Te Whatu Ora Health New Zealand (HNZ) project leaders seeking options and assurances.

When former health minister Andrew Little and Finance Minister Grant Robertson were provided with value management responses earlier last year in an effort to address a $200 million budget blowout, they were advised to endorse an option expected to cut $89 million from the inpatient building.

This was expected to delay the opening of the building by less than three months, but the delay is now almost a year, the Otago Daily Times reported last week.

They also had to make more cuts than anticipated to achieve their savings goal, and dip into project contingency funds.

Dated October 10, the email from the Parliament staff member was released under the Official Information Act and indicates that the ministers had cold feet when faced with the "substantial" redesign.

"When ministers were looking for some scaling, they did not have in mind that this would require redesign at the level proposed," the email said.

Ministers believed a "design lite" option to keep cuts to $35 million merited a serious look.

Ministers were "very clear they cannot have a situation where there is a loss of beds", and how pathology services would be delivered was also an issue.

The concerns were raised following a report to the ministers in September stating the plan they agreed on to save an indicated $89 million in March 2022 was no longer possible.

Ministers had believed that it was the best option to address the price increase as it would avoid a major redesign.

The amount was to have been achieved by third-party funding for the interprofessional learning centre, facade value engineering, a reduction in major medical equipment and removal of the staff-focused pavilion building and link bridges.

This was predicted to save $17 million, $15 million, $10 million and about $60 million respectively, although if one bridge was allowed to remain this would reduce savings by $11 million.

However, the September document warned value management activities had since had led to the discovery further design changes were needed.

"It became clear that the approach outlined to joint ministers would not yield the savings as envisaged," it said.

Additional cutbacks had been proposed, such a reduction of pathology space and the removal of 24 psychogeriatric inpatient beds and 32 inpatient beds.

Some of these were rolled back in response to a clinical impact statement by HNZ Southern, in which it gave its "strong opinion" any reduction in scope was "ill advised".

The September report said the 32 inpatient beds and 12 psychogeriatric beds would be reinstated, but noted this was still 12 fewer than the business case.

Additional costs would be funded from the design contingency, but the costs were redacted in the report.

While $90 million could be saved, this option increased programme, operational, clinical and stakeholder risks, the report said.

It was unusual for such a high level of cost saving to be required so far into design work.

"Given market uncertainty it is still not known whether the savings and additional budget allocated will be sufficient to cover escalation risk, and further funding in the future may be required."