NZ Hospital Deficit Worsens: Health New Zealand Faces Financial Crisis and Management Challenges

Health Minister Dr Shane Reti during a visit to Palmerston North Hospital on Tuesday.（ADELE RYCROFT / STUFF)

 

This afternoon, the health department released over 450 pages of financial reports detailing the massive deficit facing New Zealand hospitals. The reports indicate that the overspend decreased from NZD 163 million in July to NZD 149 million in August. April marked a turning point when Health New Zealand shifted from an expected surplus to a NZD 1.4 billion deficit, prompting the government to promise measures to address the impact on frontline services.

The reports convey a sense of urgency, with Health New Zealand warning of “fundamental deficiencies” that complicate cost control. In the March report, Health New Zealand still forecasted a surplus of NZD 500 million, but by April, Health Minister Shane Reti realized for the first time that the overspending would result in a NZD 1.4 billion deficit. Following this revelation, the board was swiftly dismissed, and Dr. Lester Levy was appointed as a commissioner.

The reports identify three main drivers of the deficit: one-off costs, an unpaid pay equity payment exceeding NZD 400 million, and the write-off of COVID-19 inventory. Additionally, holiday expenditures have contributed to increased costs.

Previous reports indicated that the Treasury and the health ministry became aware in early 2024 of a lack of transparency regarding the financial situation, with Health New Zealand’s budget information for 2024 deemed insufficient. The documents noted that the underlying expenditure run rate deteriorated significantly in April, primarily due to overspending on nursing staff.

CEO Margie Apa pointed out that lower-than-expected staff turnover was a complicating factor, while Lester Levy emphasized that back-office bloat was a key issue. Although Health New Zealand reported a decrease in back-office staff, plans to cut more back-office positions have yet to be determined.

Currently, the agency’s cash hemorrhaging is said to be moderating. Apa stated that they aim to improve cash flow forecasting to better address future challenges.