GUEST BLOG: Ian Powell – How not to rebuild public hospitals

On 23 May BusinessDesk published my article arguing that the Government’s health restructuring (specifically the abolition of district health boards – DHBs) had distracted it from addressing four crises.

These were severe workforce shortages, major capital works, leadership culture (top-down managerialism), and medicines supply which had been inherited in 2017 from the previous National led government.

The consequence of this distraction was major leadership neglect: Distracted health leadership means leadership neglect of crises. In this blog I delve into one of these four crises – major capital works, largely hospital rebuilds and redevelopment which are funded separately from operational spending.

Process based on centralised short-term thinking

Overall public hospitals are suffering from aging infrastructure. Unfortunately this is in no small part because in general they are not sufficiently designed sustainably for the long-term. The cause of this failure is due to a process based on institutionalised short-term and short-sighted thinking by the ultimate key decision-makers in central government.

In a nutshell this leads to badly underestimated future hospital demand because of an assumed (and unproven) ‘magic bullet’ (fabricated by so-called new ‘models of care’ sloganizing) that will reduce this demand.

Under the National-led government (2008-2017) the main rebuilding was in Canterbury with a new outpatient facility in Burwood and extensive earthquake devastation repairs. However, the process was very slow, highly centralised and fiscally punitive.

Hospital rebuilding slow, highly centralised and fiscally punitive


The process began with a DHB preparing a business case for a recommended hospital rebuild which would then be considered by the health ministry. After going back and forth, the final business case would then go to a small government-appointed Capital Investment Committee, located in Treasury, which would eventually make a recommendation to cabinet.

This appeared straightforward but not so. My experience was that DHBs would extensively engage with medical specialists and other relevant health professionals on the design and capacity of the proposed rebuild.

This engagement was critical because if the rebuild was to be sustainable, including environmentally, it had to make good clinical sense and be clinically safe for patients and staff.

To prepare a good business case the DHB also had to understand well the demography and health status of its population. It was essential to plan not only for the current patient demand for the hospital facility but also what this demand would be for future years.

DHBs were well-placed to analyse this because knowing their geographically defined populations was central to their statutory responsibilities. Again my experience was that DHBs did this well.

Preparing the business case was challenging requiring much time, effort and collaboration. It should have been the most difficult stage of the process. But it wasn’t. Subsequent engagement with the Ministry of Health was much more difficult, particularly because of its top-down leadership culture and failing to know what they didn’t know.

Misplaced and dangerous view

The impact of successive governments continuing to fund DHBs at a level below the costs they were required to meet was severe on hospital rebuilds. This was largely due to factors beyond DHBs’ control such as worsening social determinants of health (for example, poor housing, low incomes and limited educational opportunities).

These social determinants significantly increase chronic illnesses and acute hospital demand. Social determinants are also big health cost drivers including being a major contributer to DHB deficits.

But, worse than this, there was a misplaced and dangerous view that senior health ministry officials knew more about what was required for the rebuild than those who managed and worked in or close to the hospital. The opposite was the case.

This process meant that the business case had to be downsized significantly, sometimes arbitrarily, but only after much protracted unsatisfactory and corrosive argument behind closed doors. Ultimately the small Capital Investment Committee then did its business from its position of remoteness before recommending to cabinet.

The DHB played the key role in developing the original business case. Thereafter it became increasingly marginalised both in its revision downwards and the eventual rebuilding.

Rubbing salt into the wounds was that, when it eventually proceeded, rebuilding was project-managed by the health ministry (to repeat, with less relevant experience and expertise than those who designed the original business case).

A classic case

A classic case was the new acute services block (Waipapa) at Christchurch Hospital. Canterbury DHB submitted the business just before the devastating 2011 earthquake. Building was project-managed by the health ministry rather than the DHB.

There is a strong argument for a level of national oversight of major capital works but not at the expense of greater local experience and not involving micro-management. Further, each new rebuild needs to be mindful of what other hospitals close by and further away provide. No hospital is an island.

As a consequence, the Waipapa block was not completed until a decade after the original business case was submitted to the health ministry (some, but not most, of this delay was due to difficulties within the construction industry).

New acute services block at Christchurch (Waipapa) dragged out for a decade

New acute services block at Christchurch (Waipapa) dragged out for a decade

If this was not a sufficient indictment of excessive centralised control then consider the following. By the time it was completed the new building had insufficient capacity to meet the known existing patient demand, let alone the estimated future demand.

Making things worse was the impact of the punitive government imposed capital charge required to be paid by DHBs for major capital works. For much of this time the annual charge was running at 6% when inflation was around 1-2%. While mitigated a little by former Minister of Health David Clark, the capital charge continues despite the Auditor-General’s advice that it was of no benefit.

Making the situation more unfair was that in Canterbury the capital charge application was not confined to government funding. It was also imposed on rebuilding that the DHB itself funded. This involved much of the earthquake damage repair work.

The Labour government has committed to addressing rundown hospital infrastructure. It began with a prompt recognition of the need to address the crisis at Counties Manukau DHB’s Middlemore Hospital due to primarily to poor construction. David Clark’s national assets (infrastructure) register was a good initiative because it brought out into the open the direness of the situation nationally.


Health Minister David Clark’s national assets register a good initiative but…

But government is not moving to address the main process causes of the capital works crisis. Addressing it will inevitably take time. But the process takes far too long because it is excessively centralised while those responsible for approving and project-managing hospital rebuilds have less relevant experience and expertise than those developing business cases.

The net result is that rebuilds fall short of ensuring the capacity to meet existing and future patient demand leading to a shorter life before the next rebuild, than would otherwise be the case.

Looking ahead: likely outcomes

Christchurch’s massive earthquake rebuilds might be the most extreme manifestation of these crisis causes. But they are still being repeated more recently beginning with the major rebuild at Dunedin (business cases were being drafted in the late 2000s) but also followed by other public hospitals in Whangarei, Hawke’s Bay and Palmerston North.

The abolition of DHBs and their replacement with the new monolith Health New Zealand (HNZ) on 1 July is only likely to worsen the problems presently facing these rebuilds and those to follow.

The process is likely to become even more centralised and the opportunity for those behind closed doors to argue for a better outcome (as DHBs presently endeavour to do) will become much more difficult than now.

To the extent that the process is centralised it might be quicker. But that will because there will not be a DHB knowing its demographic trends well to develop an initial business case and then argue as forcefully as possible for it behind closed doors.

Under a more centralised top-down process the likely outcome might be quicker but also rebuilding hospitals sustainable for the short-term at best rather than the long-term.

If HNZ does not grasp the severity of this risk and adapt the decision-making process accordingly, it will simply make worse the present unsatisfactory process that is largely responsible for the major capital works crisis in Aotearoa’s public hospitals.

Rob Campbell, interim chair of Health NZ: hospital construction an opportunity for him to prove the value of HNZ


HNZ’s interim board chair Rob Campbell is enthusiastic about HNZ’s potential for improving the effectiveness of the health system. Turning around the approach to hospital construction to one that its strongly clinically engaged and led in design and capacity and reflects known and anticipated health needs would help prove sceptics and doubters (of which there are many) wrong.

No pressure Rob!

Ian Powell was Executive Director of the Association of Salaried Medical Specialists, the professional union representing senior doctors and dentists in New Zealand, for over 30 years, until December 2019. He is now a health systems, labour market, and political commentator living in the small river estuary community of Otaihanga (the place by the tide). First published at Otaihanga Second Opinion

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