The department also suggested running a trial where Otago and Auckland Universities train more doctors, which could avoid the need for significant spending on new infrastructure.
Documents released to the Otago Daily Times under the Official Information Act reveal Treasury, in formal and informal correspondence, expressed a litany of concerns about the Waikato proposal.
Green MP Francisco Hernandez said the documents were "deeply troubling".
"The government pursued an option that Treasury strongly recommended against despite the risks outlined both by Treasury and other parts of the public service.
"This is yet another example of the government disregarding and setting aside good decision-making processes to benefit special interests".
At the start of this year, Treasury officials were analysing the detailed business case (DBC) and cost-benefit analysis (CBA) for the Waikato Medical School proposal.
Internal correspondence suggested Treasury was worried about the lack of options in front of it.
"I think we previously discussed that Otago and Auckland Universities have the capacity to absorb an additional 120 students per year," an adviser said.
"Because of this, it is hard to reconcile (from a purely logical perspective) how building a new medical school is going to be better than any non-build option, if we aren’t facing a capacity constraint."
The Waikato Medical School proposal was promoted on its ability to train more rural GPs, based on the Doctor of Medicine programme from the University of Wollongong.
However, Treasury advisers queried whether it was possible "trialling the new intervention within the existing infrastructure" at Otago or Auckland.
They were also concerned about cost overruns, and one adviser said in an email: "I’m no expert in costing capital projects like these, but given some other majorly wrong costing lately it is a big risk from my perspective.
"This is a huge investment for Crown working with constrained and finite funding available — this is a significant amount of money to seek through Budget allowances."
Even once the Cabinet papers were prepared in April, Treasury’s advice to ministers was "there are key uncertainties that you should note" and the project should be rejected.
This included the fact the final CBA was still "highly sensitive to very uncertain assumptions, namely the propensity to become a general practitioner" and the Cabinet paper did not consider the possibility of cost overruns.
"The final DBC and CBA have addressed the most significant quality issues in previous drafts. Although there are areas that could be further developed, we do not consider further time for redrafting would carry a net benefit."
In moving towards the Waikato option, "broader options" to address New Zealand’s doctor shortage and health workforce objectives had not been considered, Treasury said.
In July, Health Minister Simeon Brown announced Cabinet had approved $82.85million in government funding towards the project, with the university chipping in more than $150m.
Yesterday, he said "Treasury’s advice overlooked that the Waikato Medical School option ranked highest in the benefit-cost analysis and would have ignored the needs of rural communities. This government refused to turn its back on rural and regional New Zealand, recognising how vital it is to increase access to primary care in these areas".
"We are focused on long-term solutions to grow our health workforce, investing in innovative training and education models that will strengthen healthcare delivery for generations to come, especially in the areas that need it most."
Treasury told Universities Minister Dr Shane Reti just days before the announcement "we have outlined our full concerns in previous advice; this focused on the need to consider a broader range of policy options to deal with workforce supply issues, that other proposals to improve retention were likely to provide greater value for money and that there are upside risks to total cost estimates".
"We recommend you instead ask the minister of health to seek broader alternative options to address workforce shortages."
Mr Hernandez said the government should rethink their attachment to the Waikato Medical School.
"There’s still time for the government to go with the most cost-effective and reliable option — one which offers the highest national coverage and supports increasing graduate numbers of Otago and Auckland — instead of pursuing a white elephant project".
Dr Reti deferred comment to Mr Brown’s office.
