Healthcare of New Zealand Limited v Capital and Coast District Health Board

[2012] NZHC 3417

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2011-485-1998 [2012] NZHC 3417

IN THE MATTER OF     Judicature Amendment Act 1972

AND

IN THE MATTER OF     New Zealand Public Health and Disability

Act 2000

BETWEEN  HEALTHCARE OF NEW ZEALAND LIMITED

Plaintiff

ANDCAPITAL AND COAST DISTRICT HEALTH BOARD

Defendant

Hearing:         24 and 25 September 2012

Counsel:         A Butler and P Hume for the Plaintiff

C Browne and K Webster for the Defendant

Judgment:      14 December 2012

JUDGMENT OF MALLON J

Contents

Introduction ....................................................................................................................................... [1] Statutory framework......................................................................................................................... [5] Background to the challenged decisions ........................................................................................ [14]

The services .................................................................................................................................. [14] Need for CCDHB to make savings ............................................................................................... [17] Work carried out by the HOP team .............................................................................................. [22] Drafting of annual plan ................................................................................................................ [37] The RFP is posted......................................................................................................................... [47] NHB approval of Annual Plan...................................................................................................... [52]

Healthcare questions on RFP ....................................................................................................... [56]

Minister approves Annual Plan .................................................................................................... [60] CCDHB responds to Healthcare’s questions ................................................................................ [62] Evaluation of RFP proposals........................................................................................................ [70] Board approval of selected providers ........................................................................................... [74] Outcome of RFP ........................................................................................................................... [79] Subsequent events ......................................................................................................................... [84] Evidence re effect on service levels .............................................................................................. [88] A) Expert analysis ........................................................................................................................ [89]

HEALTHCARE OF NEW ZEALAND LIMITED v CAPITAL AND COAST DISTRICT HEALTH BOARD HC WN CIV 2011-485-1998 [14 December 2012]

B) Number of clients ..................................................................................................................... [95] C) Complaints .............................................................................................................................. [97] Scope of judicial review in this context.......................................................................................... [99]

Statutory power of decision .......................................................................................................... [99] “Hard look” approach ............................................................................................................... [106] A “strict” approach .....................................................................................................................[115]

First ground: breach of statutory requirements .........................................................................[116]

Insufficient information to Minister .............................................................................................[116] Strong link................................................................................................................................... [126] No response to Healthcare’s concerns ........................................................................................ [131] Inevitable reduction in service levels ......................................................................................... [135]

Second ground: unreasonableness .............................................................................................. [143] Result .............................................................................................................................................. [149]

Introduction

[1]      This  judicial  review  proceeding  concerns  the  Capital  and  Coast  District Health   Board’s   (“CCDHB”)  process   when   contracting  for  the  provision   of community care services for older people in 2011.  In response to financial pressures the CCDHB, as the funder of health services in the region, sought to achieve savings in “home-based support services” (discussed further below).  It sought to do so by changing its contracting model and by conducting a Request for Proposal Process (an “RFP”) under which the providers of those services would be reduced from three to two.

[2]      Healthcare  of  New  Zealand  Limited  (“Healthcare”)  was  an  incumbent provider of home-based support services at the time of the RFP.   It submitted a proposal to provide services but was unsuccessful.   Healthcare considers that the reduced funding made available by the CCDHB under the RFP meant that there would be a reduced level of home-based support services provided.  It says that in effect there were service level “cuts by stealth” which ought to have been consulted upon had it been understood that this was the reality of what was proposed.   It submits that the CCDHB’s process was unlawful because the CCDHB did not carry out sufficient analysis or provide sufficient information to the Minister to enable the Minister to determine whether the changed contracting model and reduced funding was a significant change in respect of which consultation should take place.

[3]      The CCDHB “decisions” challenged are the drafting and finalising of the CCDHB’s annual plan (through which the Minister is informed of proposed changes to services and pursuant to which the RFP was conducted), the release of the RFP and the entry of contracts pursuant to the RFP.  Healthcare’s application for review relies on two grounds:

(a)       breach of the statutory requirements; and

(b)      unreasonableness.

[4]      Healthcare no longer seeks to set aside the existing contracts the CCDHB entered into pursuant to the RFP.  It seeks declarations that the CCDHB’s decisions it challenges were unlawful.  It considers that declaratory relief will be of assistance in future decisions.

Statutory framework

[5]      The CCDHB is one of 20 district health boards (“DHBs”) established by the New Zealand Public Health and Disability Act 2000 (“the NZPHD Act”).1     The purpose of the NZPHD Act  is,  amongst  other things,  to  provide for the public funding and provision of health services and disability support services in order to achieve various objectives, including:2

(i)       the improvement, promotion, and protection of their health:

(ii)      the promotion of the inclusion and participation in society and independence of people with disabilities:

(iii)     the best care or support for those in need of services:

These objectives are “to be pursued to the extent that they are reasonably achievable

within the funding provided.”3

[6]      Consistent with the overall objectives of the NZPHD Act, DHBs have broad objectives in relation to its resident population4 which include:5

(a)       to   improve,   promote,   and   protect   the   health   of   people   and communities;

...

(ba)      to seek the optimum arrangement for the most effective and efficient delivery of health services in order to meet local, regional, and national needs;

(c)       to promote effective care or support for those in need of personal health services or disability support services;

1      New Zealand Public Health and Disability Act 2000 (NZPHD Act), s 19, Schedule 1.

2      Section 3(1).

3      Section 3(2).

4      Each DHB represents a geographical area within New Zealand as set out in Schedule 1.

5      Section 22(1).

...

(g)       to exhibit a sense of social responsibility by having regard to the interests of the people to whom it provides, or for whom it arranges the provision of, services;

(h)       to  foster  community participation  in health  improvement,  and  in planning for the provision of services and for significant changes to the provision of services;

(i)       to uphold the ethical and quality standards commonly expected of providers of services and of public sector organisations;

...

[7]      A DHB is required6  to pursue its objectives in accordance with its annual plans,7 its statement of intent and any directions or requirements from the Minister.8

For the purpose of pursuing its objectives, a DHB has various functions which include, most relevantly for present purposes, a function “to ensure the provision of services for its resident population”.9    In accordance with that function, and if permitted to do so by its annual plan and in accordance with that plan, it may negotiate and enter into service agreements (under which DHBs agree to provide money to a person in return for that person providing services or arranging the provision of services).10    If it enters into a service agreement it must monitor the

performance of the other party under that agreement.11

[8]      Section 38 of the NZPHD Act sets out requirements in relation to DHB annual plans.  This includes that a DHB “must comply” with any requirements in relation to its annual plan stated in regulations.12   The annual plan is finalised once the Minister is satisfied that the requirements of s 38 are met and it is signed by the

Minister.13  The annual plan is to be publicly available.14

6      Section 22(2).

7      Required by s 38.

8      Given under section 33, 33A or 33B of this Act, or section 103 of the Crown Entities Act 2004, or under section 107 of the Crown Entities Act 2004.

9      New Zealand Public Health and Disability Act 2000, s 23(1).

10     Section 25.

11     Section 25(3).

12     Section 38(3).

13     Section 38(4).

14     Section 38(7).

[9]      There are regulations that relate to annual plans.  Regulation 8 of the New Zealand Public Health and Disability (Planning) Regulations 2011 (“the Planning Regulations”) provides:

8        Content of DHB annual plan

A DHB annual plan must include the following:

...

(c)       a strong explanation of the link between-

(i)       funding, key actions, and outputs; and

(ii)      expected impacts and outcomes;

...

(f)       key actions and outputs, linked to funding, that the DHB will deliver in order to meet Government priorities and health targets, including the DHB’s performance targets for all measures within the performance monitoring framework:

[10]     Regulation 9 of the Planning Regulations provides that:

9        Procedural requirements for preparation of DHB annual plan

(1)       A DHB that is preparing a DHB annual plan must consult with the public in relation to the plan if the Minister considers that—

(a)      the plan proposes changes to services, including to service eligibility, access, or the way services are provided; and

(b)      the  proposed  changes  will  have  a  significant  impact  on recipients of services, their caregivers, or providers.

(2)       Before the Minister and a DHB agrees on the DHB’s annual plan, the chief executive and the chairperson of the board of the DHB must agree to and sign the plan on behalf of the DHB.

[11]     The present s 38 and the associated regulations came into force in 2011. They replaced s 40 under which the DHBs made the decision whether there was a significant change requiring consultation.   Under the new provisions that is the Minister’s decision.  In practice the Minister is assisted by the National Health Board (“the NHB”) (a non-statutory advisory body).

[12]     In January 2011 the Ministry released to the DHBs a paper titled “Service

Change – Rules, Principles and Processes for District Health Boards” (the “Service

Change Paper”). The Service Change Paper describes how DHBs and the NHB were to manage the proposals, the impact  of service change and public consultation. Under the process set out in that paper, when a DHB proposes to include actions in its annual plan that triggers the protocol for service change, the DHB is required to discuss the proposals with the NHB relationship manager.  The relationship manager advises whether notification and approval in principle from the Minister is required. The NHB liaises with the Minister’s office.  The NHB may advise the DHB that the proposed actions are not to proceed, or that the DHB is to prepare information for noting to the Minister, or that the proposal requires the Minister’s prior approval.  If the proposal requires the Minister’s prior approval then the proposed change is sent to the Minister with all the information required to inform the Minister’s decision. Once the Minister has made a decision on the proposed change, the NHB communicates the Minister’s decision to the DHB in writing.

[13]     Information  on  service  changes  was  also  provided  in  the  Ministry’s “operational policy framework 2011/2012”, section 4 of which dealt with service changes.  Amongst other things, this section said that it was mandatory that DHBs engage at an early stage with their NHB relationship manager to discuss a proposed service change and adhere to the Planning Regulations.   In addition DHBs were provided with guidance in preparing annual plans for 2011/12 in the form of a document “Annual Plan Guidance” dated December 2010.   In relation to service changes the guidance was that the annual plan should provide “a high level explanation that gives confidence the changes will deliver benefits.”

Background to the challenged decisions

The services

[14]     The services are called “home-based support services”.  They are provided to people in the home to help keep them functioning in the home and community.  They are typically, but not exclusively, provided to the elderly.  They cover support with personal cares (e.g., showering or toileting), housework (e.g., vacuuming, washing up, tidying up) and community interactions (e.g., shopping, networking in the community).

[15]     The CCDHB enters into contracts  with providers of home-based support services.  Prior to the contracting process at issue here, Healthcare was one of three providers to the CCDHB for home-based support services.  It was the provider for approximately 40 per cent of the total number of CCDHB clients.   Prior to 2011, when the RFP was issued and the new contracts were entered into, the CCDHB’s funding level for home-based support services was approximately $13 million per year of which Healthcare’s share was $5.4 million.

[16]     Prior to the contracting process at issue here, the CCDHB contracts with the providers were based on a “fee-for-service” model.  Client demand was managed by threshold eligibility criteria applied by an independent care co-ordination centre (“CCC”), which then assigned clients to providers.  Under this model:

(a)       the CCC undertook the client assessments;

(b)the  provider  was  required  to  undertake  a  limited  degree  of  care management;

(c)       the    provider’s   support    workers    did   not    require    any   specific

qualifications; and

(d)the  provider’s  non-nursing  staff  were  able  to  undertake  care-and- service planning.

Need for CCDHB to make savings

[17]     The background to the new contracts was the need for the CCDHB to make savings.  It had a history of operating with a significant financial deficit (the amount by which its expenditure exceeded its funding) and the largest deficit proportionate to revenue of all the DHBs.  For the financial year ended 30 June 2008, its annual deficit was $40.7 million.  In the financial year ending 30 June 2011, its deficit was

$31.6 million.  Its annual plan forecast a deficit of $20 million for the year ended 30

June 2012. A financial break-even point was not forecast to occur until 2013/14.

[18]     The CCDHB had entered into a Recovery Plan with the Ministry of Health (“the Ministry”) for the years 2008 to 2014.15     The Recovery Plan committed to achieve savings from planning and funding of $10 million in 2010/2011 and $14.7 million (cumulative) in the 2011/2012 year.   One of the ways that this was to be achieved was through identifying savings to be made from the review of contracts by the funding arm of the CCDHB (which purchases services from third parties).  Aged

care was an area identified as one in which significant financial pressure was being felt.

[19]     In accordance with the Recovery Plan, CCDHB management went about identifying possible areas in which savings could be made.   At the beginning of

2010, it was  estimated  that $1.5 million could be saved in the 2011/2012  year through achieving efficiencies across the health  of older people services (which includes residential care and community care services).   The thinking at this time was presented to and approved by the CCDHB Board in February 2010 in the form of a paper called DHB Efficiencies 2010/2011.   The paper noted that further assessments of the risks and impact would be undertaken once discussions with providers were concluded.  The process intended to be followed was to engage with the relevant sector to develop and discuss proposed changes.

[20]     At a CCDHB Board meeting on 3 March 2010, the Board was informed that a review was underway to improve the financial efficiencies across the community care system.  A subsequent Board paper dated 2 June 2010 outlined the savings plan for health of older people services in the 2010/2011 year.  The paper sought approval from  the  Board  to  proceed  with  “significant  changes  to  our  community  and residential care models” to achieve the proposed savings.  The identified initiatives to obtain savings in relation to the health of older people were:

1.        Means   testing  client   access   to  low  level   home   management

(housekeeping) assistance;

2.Capping the DHB’s expenditure on In-home Packages of Care for individuals with independent means;

15     A Recovery Plan was also in place prior to these years.

3.Moving away from a model of universal application of restorative approaches, to one where only those who are most likely to benefit from restorative assistance are targeted; and

4.Reviewing the district’s contracting model around packages of care, to reduce cost and leverage benefit from regional approaches to our Integrated Community Care services.

[21]     The paper set out a table with more detail concerning the initiatives and the projected savings from them.  The review of the contracting model is most relevant to this proceeding.  At this time management was contemplating an hourly fee for a service pricing model.   It was estimated that a change to the contracting model would save $1.2 million.   The means testing initiative was estimated to achieve annual savings of $600,000, capping expenditure for individuals with independent means was estimated to achieve $150,000 saving, and the refined targeting of restorative packages of care initiative was estimated to achieve savings of $400,000. The Board approved the proposed initiatives in the paper.   Having received that approval, management worked on developing the initiatives.

Work carried out by the HOP team

[22]     In the second half of 2010 a health of older people team (“the HOP team”) was set up by CCDHB management to identify the feasibility of achieving the proposed savings targets.   Through a series of meetings, the HOP team identified areas where further work was needed. These areas were:

(a)      how the CCDHB contracted costs compared with other DHBs who achieved similar outcomes from home-based support services contracts;

(b)where there might be efficiencies to be gained by eliminating current areas of duplication and otherwise improving processes;

(c)      what the CCDHB might be prepared to trade off within the model of care to achieve the savings targets; and

(d)whether there was a better model for contracting services that would provide future cost constraining opportunities.

[23]     In relation to the first of those matters, the HOP team took the amount that the CCDHB was paying on average per hour and compared that to the medium amount being paid per hour for similar services at other DHBs in the region.  From this, the HOP team was of the view that the CCDHB expenditure on the services was higher than the other DHBs in the region. The HOP team considered from this that it was likely that the CCDHB would be able to purchase the same services as it was currently purchasing for less.   The HOP team multiplied the differences by the relevant population and concluded that efficiencies in excess of $1 million should be available.   The HOP team considered, on the basis of this comparison, that the CCDHB  should  be  able  to  reduce  the  cost  while  maintaining  current  service coverage and delivery.

[24]     The HOP team decided to work with the providers and the CCC to identify how savings could be achieved.  The evidence of Mr Skipage, the senior member of the HOP team, was that it was looking for proposals that the provider market could sustain.   Four workshops were held between November 2010 and January 2011. Representatives from the then current providers, Presbyterian Support Central (“PSC”), Access  Homehealth  Ltd  (“Access”),  Healthcare  and  the  Nurse  Maude organisation (the provider of the CCC) attended the workshops.

[25]     Mr Skipage’s evidence is that at the first workshop, the CCDHB advised the providers that it was intending to go to RFP for the services.   He says that the providers were advised that the CCDHB would be using the process to achieve savings in the home-based support services portfolio of between $1 million and

$2 million as a contribution to the CCDHB’s overall deficit reduction programme. The HOP team explained that it had not yet made a decision on how to achieve the savings, but that it was hoped that through the workshop sessions the HOP team and the providers would mutually identify some of the savings opportunities available.

[26]     Mr Skipage says that early on in the workshops a matter that was discussed was the duplication of client assessments.  The CCC carried out threshold eligibility

and client assessments, determined allocation of packages of care and later carried out re-assessments to determine if there should be changes to the allocated services. In the unit service pricing model, under which the present contracts operated, the CCC’s  role in  the assessment  process  was  necessary as  a  gatekeeper  to  ensure services were limited to those allocated according to need and that the providers did not over supply at their election.  However the providers were also required to carry out client assessments in order to develop for each client a written plan of care and service.

[27]     The workshops discussed where the assessment should take place.  The HOP team considered providers were in the best position to assess client need routinely and to make adjustments to client’s service packages as it was the providers who were interacting with clients whenever they provided the services.  The HOP team considered  that  efficiencies  would  result  if  the  duplication  of  assessment  was removed and carried out solely by the providers.   However, if the CCC was no longer going to carry out client assessments and act as a gatekeeper, the service model would need to be changed to remove the risk of over-servicing.

[28]     As a result, consideration was given to a bulk funding arrangement to protect the  CCDHB  from  provider-driven  over-servicing.    It  was  recognised  that  bulk funding would carry the risk of under-servicing as providers would want to limit the services provided so as to minimise their costs against a fixed income.   It was therefore recognised that measures would need to be put into place to protect against this. Appropriate measures to reduce this risk were considered to include:

(a)       maintaining the use of an international, objective assessment tool, interRAI to determine the level of service required;

(b)the CCC determining whether clients were entitled to any services at all;

(c)       the CCC acting as regular monitor and auditor; and

(d)providers only carrying out assessments of non-complex clients to begin with.

[29]     The HOP team explored other potential options to achieve savings with the workshop participants but identified potential problems with these alternatives.   In the end the HOP team concluded that a bulk funded arrangement, incorporating needs assessment at provider level, was the best option.  It was considered that this would  act  as  a  cost  constraint  by  incentivising  providers  to  be  more  adept  at “flexing” service to match actual real-time client need.   It would also allow the providers to be more innovative with the provision of services so that they could provide services more efficiently.

[30]     The HOP team also considered that reducing the number of providers would enable the services to be provided more efficiently.  On the basis of the HOP team’s “collective knowledge and experience” Mr Skipage’s evidence is that the HOP team considered that moving from three providers to two would enable the providers to better manage human resources and travel costs through improved economies of scale, to reduce costs through reduced administrative and management function, and to utilise the higher cost specialist roles more efficiently.

[31]     Mr Skipage’s evidence is that:

By the final workshop, we had signalled to the participants that the HOP team’s current thinking was to hold an RFP under which proposals would be sought from providers to deliver the same Services under a bulk funded contract.   The providers, not the CCC, would carry out the service level assessments for non complex clients and the number of providers would be reduced from three to two.   There was general agreement from the participants in the workshops that this was a viable option to enable CCDHB to reduce its costs in funding the Services by giving the providers an opportunity to deliver the Services more efficiently.  None of the providers, including HCNZ, raised any concerns with the proposed model of contract and service delivery.

[32]     There is a conflict in the evidence as to whether the HOP team referred to the savings that it desired to achieve.  Mr Skipage’s evidence was as follows:

I recall discussing with the participants that the funding to be allocated by the RFP would represent $1.6 million less than the budgeted figure for the current service in 2011-2012.  The providers were aware from the beginning

of  the  workshops  that  CCDHB  was  looking  to  save  between  $1  and

$2 million.  The discussion of the specific figure of $1.6 million occurred in the later phase of the workshops.  None of the providers indicated that the

proposed RFP service would be unsustainable or that they would not be

prepared to make a proposal on the indicated basis.

[33]     In contrast, Ms Schumacher, who attended the workshops for Healthcare, does not recall the CCDHB being so explicit about the amount of savings they were hoping to achieve.   She said that the CCDHB made it clear to Healthcare that no additional funding would be available, but she did not understand this to mean that funding would be reduced.  She says that she “never saw an actual figure tabled and a reduction in funding was not discussed.”

[34]     Mr Skipage’s evidence is that in order to be assured that the providers were not just agreeing to the proposal because they were all in the room together at the workshops, the HOP team visited each of the providers to discuss what was proposed and to tease out any concerns.  Healthcare did not raise any concerns at this time. Mr Skipage  says  that  he  was  clear  that  Healthcare  understood  that  it  was  not proposed that the providers would be paid any more to undertake the assessments but that the providers would be able to make efficiencies in the provision of services through the move to bulk funding and the reduction of providers to two.

[35]     The HOP team also had meetings with representative community groups, Grey Power and Age Concern.  Mr Skipage’s evidence is that no negative feedback to what was proposed was received.

[36]     CCDHB management provided a further paper to the CCDHB Board for its

4 February 2011 meeting.  This paper updated the Board on management’s view on how to make the savings. The paper identified a likely consolidation of providers for health of older people services.  It contemplated a RFP later that year.  Management considered that the initiative would allow for savings of $1.7 million in the 2011/12 year.   The Board approved the efficiencies paper and expected management to go ahead with the initiative.

Drafting of annual plan

[37]     At the same time as the work on the proposals in relation to health of older people services  was  being  carried  out,  management  was  drafting the  CCDHB’s annual  plan.    This  was  to  be  the  first  annual  plan  under  s 38  as  amended. Mr Skipage was responsible for co-ordinating and drafting the CCDHB 2011/2012 annual plan.  An initial draft of the 2011/2012 annual plan was prepared and went to the CCDHB Board meeting held on 27 January 2011.   The service coverage and change section of that draft was not completed at this time, because management was awaiting the CCDHB Board’s decision on the savings proposal made to the Board for the February 2011 meeting.   With the Board’s approval of the savings proposals  made  in  the  efficiencies  paper  at  the  4  February  2011  meeting, management were able to complete the service coverage and change section in the annual plan.

[38]     In   accordance   with   the   process   under   the   Service   Change   Paper,16

Mr Skipage says that at an early stage the CCDHB was liaising with NHB on the proposed savings and potential service changes.   He says that in early February management provided its NHB relationship manager with a copy of the efficiencies paper that had gone to the Board meeting that month.   He said that they also had meetings with the NHB relationship manager in late February and March 2011 to discuss service changes in the proposed annual plan, including the health of older people RFP.

[39]     A further draft of the annual plan was prepared.  At section 6.2.1 of the draft an outline of the proposed changes to health of older people was inserted.  Under this section the draft stated:

6.2.1    Health of Older People

The DHB is working hard to improve the care we provide to people in the community by focussing on two key areas of service quality and delivery improvement:

16 Refer above at [12].

(a)       The redevelopment of the model of care for home care services, ensuring clients have timely and appropriate access to the range of in home assistance and care they need;

(b)       The   way   we   purchase   those   services   from   community   care providers, ensuring the DHB gets better value for money through the way we contract, and better services for patients through the assessment and allocation processes, and the performance delivery systems.

We have worked collaboratively with the Package of Care providers over the past 6 months to determine how the future service reconfigurations should occur, and how we can move to a less expensive and better quality service model.

The current model of care around community health services incorporated a broad restorative approach which was based on some assumptions that more investment  up  front  in  older  people’s  independence  keeps  them  out  of hospital longer and costs the health sector less.

This premise still holds true for many older people living at home.  However recent evaluation has shown that the broad application of this approach to the whole population resulted in some unnecessary allocation of services that in some cases was actually burdensome and unwanted by clients.

The way we originally priced and contracted for the restorative approach was intended to reduce the number of carers going into an individual’s home, therefore providing a more holistic service approach to the individuals.  In fact, the range of people going into client’s homes did not reduce, and the model has resulted in significant repetition in assessment processes between Care Coordination and Service Providers, and the pricing mechanism has encouraged poor resource utilisation by providers based on packages of care that allocate services beyond the identified need of the clients.

The DHB has run a series of 6 major workshops with providers over the past

6 months to relook at the model and refocus the service provision.  This has been a truly collaborative approach where providers have genuinely shared their experience with the model and their thoughts about its improvement.

The DHB will be undertaking an open RFP process in respect to the re- contracting of services in March 2011. A new service model and contracting structure will be in place by 1 October 2011.

Overall, it is not17  anticipated clients will experience a much more stream- lined, and less burdensome process of assessment.  All clients will receive a targeted mix of services that best meet both their needs and their personal goals for well-being and independence.  This may mean that in some cases, clients will receive access to a wider range of services, and in others some of the additional supports put in place around unattainable goals are removed.

[40]     Mr Skipage’s  evidence  is  that  this  draft  was  submitted  to  the  NHB  on

25 March 2011 for feedback.  The same draft was also put before the CCDHB Board

17     The “not” appears to be a typographical error although Healthcare queries whether it was.

at its 1 April 2011 meeting for its feedback.  At this meeting, the CCDHB Board “noted” the draft, and was informed that a copy had been provided to the Ministry and feedback was expected via the NHB.

[41]     Healthcare makes the point that the draft at this stage did not refer to a shift to a bulk funding model, did not provide any price modelling information to show the Minister the specific areas in which savings might be made, and did not quantify the savings that were estimated to arise.  Mr Skipage’s evidence is that meetings with the NHB carried on throughout the process of drafting the annual plan.  He says that in these meetings:

... CCDHB advised NHB that the RFP proposed a reduction from three providers to two, that assessment for non-complex clients would be carried out by the providers, instead of CCC, and that it involved a move to bulk- finding.  We explained that these measures were expected [to] create a potential for efficiencies which would enable providers to make collective savings to sustain a funding reduction of $1.6 million.  We indicated that the change was not expected to reduce the level of services to the population as the RFP required clients to be assessed on their level of need, as they always have been, in accordance with interRAI.

[42]     Feedback on the draft annual plan was received from the Ministry via a letter from NHB dated 29 April 2011.   In relation to service changes the NHB simply recorded that the changes “are currently being considered by the NHB to determine if Ministerial involvement is required” and that the CCDHB’s NHB relationship manager would be in contact to discuss these.

[43]     The draft of the annual plan was revised and a further draft was submitted to the NHB on 20 May 2011.   Section 6.2.1 remained unchanged from the previous draft.  The NHB provided feedback on that draft on 26 May 2011.  As before, the feedback on the service changes was that they were being considered by the NHB to determine if Ministerial involvement was required.

[44]     The draft submitted to the NHB on 20 May 2011 also went to the CCDHB Board for its 3 June 2011 meeting.  The paper to the Board explained that comment from the Minister of Health was expected in the week of 13 June 2011 and that the final document was expected to be submitted on 20 June 2011. As there was no time to  bring  the  final  draft  before  the  Board  before  the  due  date  of  20 June  2011,

management requested that the Board delegate to the Chair and Deputy Chair of the

Board final approval of the annual plan.   In accordance with that request, at the

3 June 2011 meeting the Board resolved to endorse the annual plan and to authorise the Chair and Deputy Chair, on behalf of the Board, to approve it.

[45]     Mr Skipage’s evidence is that, after the 3 June 2011 Board meeting, he was one of the CCDHB management who worked with the NHB relationship manager to finalise the document.  He says that during these discussions the NHB advised them that no consultation was required on the proposed changes to health of older people contracts.  He says that the NHB indicated that they considered the RFP to be part of the normal procurement process for the CCDHB.  Mr Skipage’s evidence is that the final version was approved and signed by the Chair “in June 2011” and that it was then sent to the Ministry for approval.

[46]     The evidence of Dr Virginia Hope, the Chair of the CCDHB, is consistent with this evidence.  She says that when management provided to her and the Deputy Chair of the CCDHB Board the final version of the annual plan for approval, they were told that the NHB had advised that no consultation was required on the change in the way that the CCDHB would contract for health of older people community care services.   She and the Deputy Chair indicated their approval by signing the annual plan.

The RFP is posted

[47]     Having received feedback from the NHB, the HOP team proceeded to post

the RFP on the Government’s electronic tendering service (“GETS”) on 24 June

2011. This was replaced with a new version on 27 June 2011. The RFP set out that:

(a)       the proposal was to re-contract for community support services within a constrained 2011/12 financial envelope;

(b)the request outlined “the proposed approach to achieve the savings target”;

(c)      the proposed contracting model change was to reduce the number of providers from three to two with each provider having the capability of providing services to 50 per cent of “clients”;

(d)the aim was to “improve service efficiencies by reducing some of the administration  burden  and  the  quality of  services  to  non-complex clients by removing duplication of effort with client assessments, care planning, reviews and reassessments”;

(e)      there “is no additional funding available other than that which may be appropriate over time due to population growth”;

(f)      the “initial funding approach will be established as a bulk funding arrangement” with case weighted adjustment and population growth with referrals allocated on a proportional basis;

(g)“case  mix  allocations  are  currently  being  developed  by Auckland University  and   it   is   recognised   that   weightings   developed   by November 2011 may be provisional however they are expected to be sufficiently robust to support a model that ensures a relatively even distribution of case mix.  This can be achieved by allocating referrals to providers on a proportional basis”;

(h)a “modest contingency pool is intended to cover high cost service users (outliers) and also to allow for casemix adjustments” with the “detailed  mechanics  of  this”  to  be  negotiated  with  successful providers.

[48]     The RFP also set out a table of service volumes.  This was divided into five levels of client and by region (Kapiti, Porirua and Wellington).  This table showed the total service volumes as being 3,482.

[49]     As to price the RFP said this:

Price

It is expected that providers will include a comprehensive break down of the price as part of their proposal.   Restorative home and community support packages of care per support need level should be itemised, as should an hourly rate for the delivery of personal assistance.  C&CDHB reserves the right to negotiate with short listed providers to achieve a level of price standardisation should this be appropriate following the initial phase of the tender process.

C&CDHB is working to an existing budget cap of $11M pa for the delivery of this service.

[50]     Mr Skipage explains how the HOP team decided on the amount of funding to be offered under the RFP.  He says:

This was done by taking the amount that was budgeted to be paid to the providers for the Services in the 2011/12 if no changes were made, which was $13.1 million, and reducing it by $0.6 million to account for sustainable savings from 2010/11 initiatives.  This then reduced forecasted expenditure to $12.6 m.   We then reduced this amount by $1.6 million which gave us

$11 million.  The fact that the contracts under the RFP would start part way through the financial year meant the CCDHB’s expenditure for 2011/12 was

$11.5 million.

The holding of a competitive RFP would enable potential providers to make proposals showing CCDHB how they would deliver the services for the

$11 million  funding allocated.  As a result of the benchmarking information and  the  provider  workshops,  CCDHB   management  thought  that  the reduction of $1.6 million in funding would enable the successful providers to

deliver a sustainable service.  The RFP would provide further assurance of that  and  would  indicate which  of the  potential  providers  were  likely to

manage the funding best and provide the best value to the DHB and end users.

[51]     As to term the RFP said this:

Term of Contract

The  intention  is  to  establish  three  year  contracts  and  work  with  the successful providers and others as part of a service level alliance to further develop the delivery and funding model for the service.  Decision making in the service level alliance will be by consensus and will require transparency from providers in relation to service delivery and financial results.

NHB approval of Annual Plan

[52]     By letter dated 28  June  2011  the NHB wrote  to  the CCDHB about  the CCDHB’s proposed service changes.  In relation to contracts for the health of older people the response was as follows:

Support with NHB Conditions

Description of intended Service Change  Outcome of NHB Review

Health of Older People contracts reconfiguration for service efficiency and:

a) allocate previous years unused funding into initiatives  and  savings  (estimated  savings  is

$0.40M for 2011/12)

b)  negotiate more efficient prices for community day care activity (estimated savings is $0.05M for 2011/12)

c)   reduce funding through changing the provider for home help packages (estimated savings is

$0.90M for 2011/12).

d)  overall reconfiguration of services for efficiency and targeted at those who can benefit estimated savings is $1.75M for 2011/12).

Support this change conditionally.

Evaluated by the RM and HOP team.  Outcome – changing model of care that  will improve and streamline overall service delivery.  Includes re- contracting for improved services and more efficient prices.   No planned impact on patient eligibility, access or service cover.

[53]     The NHB letter of 28 June 2011 explained that where a significant service change was assessed “to have considerable risk to the Minister associated with it the NHB will seek the advice of the Minister about whether there is a need for the DHB to consult in the first instance.”  The letter also explained that “support with NHB conditions” (which applied to the Health of Older People contracts)  meant that “there is a significant Service Change which has an associated level of risk but meets the Service Change approval criteria”.

[54]     The conditions of the NHB support were explained as being:

the Relationship Manager will be notified throughout implementation of the Service Change

the DHB has a robust implementation plan in place including plans for:

- Risk Management

- Transition

- Communications

if the Service Change plan is altered by the DHB, they will notify the Relationship Manager and await further comment/analysis before proceeding

there will be no reduction to access of the service provided any interim services will be well managed.

If changes are made to the process/product after support has been given then the DHB must contact their Relationship Manager and notify them of the changes.

[55]     Mr Skipage’s evidence is that this response confirmed the advice they had

previously received from the NHB that there was no requirement to consult.

Healthcare questions on RFP

[56]     Mr Hausmann, who is the managing director of Healthcare, says that, when Healthcare reviewed the RFP, it was immediately struck by what appeared to be a funding error.   Healthcare noted that the proposed services model placed more obligations on the service provider, with the same or increasing numbers of clients, but at a significantly decreased level of funding.  Tenderers were to provide detailed pricing to provide services to 3,482 clients at a funding level of $11 million per year which was $2 million less than the existing funding level of $13 million.

[57]     Mr Hausmann’s evidence is that in order to ascertain whether or not the CCDHB had made a funding error, Healthcare emailed the CCDHB on 30 June 2011 to confirm the funding level.   That email raised “points of clarification” which included:

Price – Under this heading on Page 14 of the tender document, it states that C&CDHB is working to an existing budget cap of $11m for the delivery of this service.  Can you confirm whether the $11m equates to 50% of the total funding for Home and Community Support Packages i.e. $11m funding cap for each provider (excluding the contingency pool as mention[ed] on page

14)?

[58]     Healthcare says that the CCDHB had provided insufficient information to enable Healthcare to accurately price its tender under the RFP.  In particular, there was no indication as to the amount of contingency funds available (and in what circumstances) and there was uncertainty as to the total number of support workers

that would be required to meet the case mix identified in the RFP.  Therefore, by email dated 7 July 2011, Healthcare attached a list of questions relating to the RFP. These questions included a request for clarification of the volumes of clients and hours of service per level; whether there would be any additional funding transferred from the CCC to providers as providers would be undertaking non-complex assessments; and whether the CCDHB anticipated that it would have the ability to provide one-off establishment funding for the transition to the non-complex assessments.

[59]    There was a discussion between Healthcare and CCDHB representatives “regarding the funding” followed by a further email, dated 9 July 2011, in which Healthcare sought further information.   In that email Healthcare requested that the CCDHB complete a breakdown of current weekly hours, future number of clients and future weekly hours for each level of client group.  It said that this information would enable Healthcare “to model the cost and the appropriate discharge process for clients for the proposed 35% reduction by the DHB in services” and to “model the cost structure to support the mix of clients”.

Minister approves Annual Plan

[60]     On 11 July 2011 the Minister of Health approved the annual plan.   The annual plan, as approved, set out a table of the priority primary care actions that was the focus for the CCDHB in 2011/2012.   This included the redevelopment of the community packages of care service delivery model in respect of health of older people to deliver “higher quality and more cost effective services”.   Performance would be improved through:

(a)       more cost effective delivery of service;

(b)      better targeting of restorative packages of care;

(c)       reduced duplication in the regular needs assessment process;

(d)de-centralising   care   planning   so   that   plans   are   developed   in collaboration with primary care and/or hospital discharge.

[61]     The annual plan set out some information  about the population of older people in the district.  The CCDHB “65 plus” population was projected to increase by 59 per cent between 2011 and 2026.  The baseline number of clients receiving community  package  of  care  services  was  said  to  be  3,805  and  the  target  for

2011/2012 “> 3,805”.  The service coverage and service change section in respect of health of older people in the annual plan was as per the 25 March 2011 draft set out above.18

CCDHB responds to Healthcare’s questions

[62]     The  CCDHB  provided  written  responses  to  Healthcare’s  7 July  2011 questions at some point during the RFP process.   Its response to the request for clarification of the volumes of clients and hours of service was:

We are expecting provider bids to be based on client volumes as outlined in the RFP. You should assume these have been delivered appropriately.

[63]     Its response to whether there would be any additional funding for the transfer of non-complex assessments from the CCC was:

The DHB has been informed by the three current providers that duplication assessment occurs across the provider assessment and the CCC assessment processes.  It is anticipated that there are likely to be operational efficiencies for providers if they perform the non-complex assessment function and care management.  Any additional funding for effort is likely to be on a one-off basis for skill development and training.   This will be determined by the outcome of the RFP and maybe negotiated with the successful tenderers.

[64]     Its response to whether there would be one-off establishment funding the

CCDHB responded:

[W]e anticipate the majority of non-complex clients will have current assessments.

18     There were minor changes only: “we” in the draft was replaced with “the DHB” and the “not”

(apparently a typographical error) in the last paragraph was removed.

[65]     The CCDHB responded to Healthcare’s 9 July 2011 points of clarification by email dated 12 July 2011.  It said that “the DHB is not proposing a 35% reduction in services, please could you outline your assumptions for this statement.”  In response to the request for current weekly hours the CCDHB said “we are expecting provider bids to be based on client volumes as outlined in the RFP.  You should assume that these have been delivered appropriately.”    In response to the request  for future number of clients and future weekly hours, the CCDHB responded “funding for volume growth can be negotiated in 2012/13.”

[66]     Mr  Hausmann’s  evidence  is  that  the  numbers  did  not  make  sense  to Healthcare.  Healthcare therefore continued to raise this with the CCDHB.  By email dated 13 July 2011 Healthcare said this:

Thanks also for confirming that there is not a reduction in funding for home and community support packages.   Sorry that is our mistake.   Our analyst was trying to understand the volumes relative to the funding on page 14 in the RFP relative to the funding amount of the $11m.  It appears from their initial analysis that there were service volume cuts planned given the funding budget of $11m.  Please see below our initial first up analysis based on client group  and  potential  volume  of  services  by  client  level  based  on  our Auckland experience.

[67]     Healthcare’s email set out its analysis that, based on total number of clients of

3,482, funding of $23,829,951 would be required. The email then said:

This  determines  a  funding  level  required  much  higher  than  the  budget outlined in the RFP of $11m.   If the number of clients is not materially changing  and  the  service  levels  by  client  group  appropriate  (based  on ADHB) then there remains a significant difference which we are still trying [to] determine.  We want to provide the relevant analysis and funding that makes sense based on the client mix in the tender document.   We would really appreciate your feedback on our assumptions relative to the above, and thought that our meeting on the 18th would be the ideal forum to do this.

[68]     I was not referred to evidence about what, if anything, was discussed at a meeting on 18 July 2011.  However the CCDHB did respond by a notice posted on GETS on 14 July 2011.  The notice advised that the total service volume stated in the RFP related to “total annual volumes” but “2,500 clients receive community support services at any given time”.   The notice also advised that the lodging of pricing information and support of proposals had been extended to 29 July 2011.

[69]     Mr Hausmann says that even at this level, Healthcare considered the funding of  the  proposed  services  model  to  be  too  low  and  that  Healthcare  remained concerned that clients who relied on home support services would lose out.  He says that Healthcare was also concerned that there was a risk that there would be pressure on the providers to manage their budget and focus only on complex clients’ needs to the detriment of non-complex clients.  He says that despite Healthcare’s misgivings, and in the hope of being able to engage in constructive discussion on these concerns, Healthcare submitted its tender to the CCDHB on 20 July 2011.  This did not include pricing.  It submitted its pricing on 2 August 2011 and, with that pricing, it stated:

We submit that our price for 50% of the total Restorative Home and Community Support service contract is $5.5m per annum assuming that we will work transparently with the CCDHB to determine the case mix and substitution of existing services with innovative service responses as per our proposal.

Evaluation of RFP proposals

[70]     The CCDHB received seven proposals from potential providers.  Six of those proposals met the RFP requirements.   CCDHB management established two evaluation panels, Mr Skipage being a common member of both panels, to review the RFP proposals and to make recommendations:

(a)      The first panel focused on service delivery and quality.  It focused on how  well  the  providers  were  able  to  describe  the  service  to  be provided and assessed whether the provider could provide service sustainability and quality.  Mr Skipage described the process that the service delivery and quality panel went through to assess the RFP proposals.

(b)The second panel was established to review the financial information provided by each applicant in terms of the sustainability of service and the strength of the organisation.

[71]     Mr Skipage  described  the  process  that  the  financial  review  panel  went through.   The panel evaluated the RFP proposals against a set of criteria which included, amongst others:

(a)      Price – whether the services were to be provided within the amount proposed under the RFP.

(b)Rationale (pricing within the bulk funding arrangement) – whether the proposal provided sufficient information on the party’s indicative cost structure to give the panel confidence that the party could provide the required service to the estimated number of clients for the allocated price.

(c)      Potential for additional cost – the extent of the risk that if something changed and the costs increased, where the risk would lie (with the CCDHB or with the provider).

[72]     The two ultimately successful providers were Access and PSC (as discussed below).  In relation to those providers and Healthcare, Mr Skipage’s evidence is that the financial panel’s views were:

(a)      Access provided its financial assumptions in its proposals and gave sufficient details for the panel to be confident that it was able to provide  the  service  sustainably  within  the  price  allocated.     In particular it  provided a  projected cost  structure which  reduced  its estimated cost or service to an hourly rate, including a margin for reinvestment; it allocated its assumed share of the client populations by complexity of service and calculated a weighted average cost; and it applied the projected number of service hours across all levels.

(b)PSC also provided sufficient information for the panel to be satisfied that  it  could  provide  the  services  sustainably  within  the  price specified.  In particular it set out its pricing assumptions; it broke the estimated population up into service levels and provided a weekly

cost per service user for each level and what it calculated to be the total cost per client group per week from which it derived a yearly cost over all levels; it backed up these calculations with its projected labour costs setting out weekly cost per service user for each level based  on  costing  for  direct  labour,  non-direct  labour,  non-labour, return and overheads; and it provided an overall financial analysis showing that its estimated costs for the proposed service were within the price provided.

(c)      Healthcare did not produce the same confidence that it could provide the required services for the price allocated.  In particular, Healthcare was reluctant to confirm that it would provide the service for the available $5.5 million per provider and it did not provide an overall financial analysis of a kind which Access and PSC provided.

[73]     Mr Skipage says that the financial panel therefore considered that Healthcare carried  the  highest  risk  of  being  a  contracted  party  that  would  seek  additional funding from the CCDHB to maintain the current level of service.  Mr Skipage says that  similar  concerns  with  Healthcare’s  tender  were  also  present  in  the  service delivery and quality panel’s analysis.  He says that Healthcare’s presentation to the panel did not alleviate these concerns.  In summary, he says that the service delivery and  quality  panel’s  view  was  that  Healthcare  gave  little  indication  that  it  had seriously contemplated restructuring its service delivery to achieve savings and efficiency.

Board approval of selected providers

[74]     At the end of the evaluations, the providers were listed in order of preference. At  this  stage  the  order  was  Lifewise,  Access  and  PSC.    Management  needed approval from the Board to enter into contracts with the two providers that it wished

to select.19   On 5 August 2011 CCDHB management sought approval from the Board

19     It was unusual for the CCDHB Board to approve purchasing contracts because most decisions to contract are made under authorisation, delegated and approved by the Board within specific parameters. However these contracts fell outside the existing delegations.

to enter into contracts with Lifewise and Access.   The Board had not received a paper in advance of its 5 August 2011 meeting because this meeting was soon after the RFP closing date.  Dr Hope’s evidence is that, because of this, the Board declined to give approval at the 5 August 2011 meeting to management’s recommendation so as to allow the Board members time to consider the material presented and also to obtain further information.

[75]     The CCDHB Board held a special meeting on 16 August 2011 to consider the RFP contracts.  The material provided to the Board, as summarised in the CCDHB submissions, set out the following:

(i)        The contracted service  would be  able to be provided  within the financial envelope as efficiencies by providers were expected from reduced duplication of assessments and a more flexible approach to adapting client care packages to meet clients’ changing needs.

(ii)       Moving from three providers to two and moving to a bulk funding arrangement allowed the providers to identify more innovative and flexible ways of meeting clients’ needs.

(iii)      While  there  might  be  increases  and  decreases  in  the  service provision to clients at an individual level, there would be no change in service provision at the population level, under the new arrangements.  The criteria to be met for the provision of service and the level of service provided would still be determined by an international, objective assessment tool called interRAI.

[76]     At this 16 August 2011 meeting, the CCDHB Board resolved to adjourn the meeting to another special meeting on 2 September 2011 to consider the matter further.  This was because of a misunderstanding about how an abstaining vote was to be recorded.

[77]     On 29 August 2011 the Chairs of the three incumbent providers (Access, Healthcare and PSC) wrote a joint letter to the CCDHB requesting clarification on the RFP process.  The letter noted that despite Board meetings on 5 and 16 August

2011 the Board was still in deliberation, a decision had not been made and further information was to be considered. The letter said:

We recognise that the Board has the decision making rights in this matter. However the outcome of this RFP has very significant implications for the incumbent   providers   in   regard   to   investment,   staffing   and   services

continuity.  Accordingly we are seeking clarification as to the process being undertaken and the nature of the further information being sought.

We request a meeting with you and your Board to discuss and clarify the matters of concern to the Board.

[78]     By the time of the 2 September 2011 meeting, management had amended its recommendations so that, if either Access or Lifewise withdrew from the process or were unable to deliver the services in the timeframe, management would negotiate with the third ranked provider, PSC.  At the 2 September 2011 meeting the CCDHB Board passed, by a majority, a motion authorising the entry into contracts with two of the three most preferred providers proposed, with authority to enter into the final contracts delegated to the chief executive.

Outcome of RFP

[79]     On  5 September  2011  the  CCDHB  advised  Healthcare  that  it  had  been unsuccessful and that the successful tenders were Access and Lifewise.

[80]     By letter dated 6 September 2011 Healthcare responded setting out a number of concerns with the RFP. This included the following:

As a further example of our concerns as to the accuracy of this RFP process we highlight to you the inaccuracies of the RFP in regards to the funding and associated services levels.  In the 2010/11 financial year the audited accounts of the three incumbent providers demonstrate that the C&CDHB funded

$13m of services.   The RFP proposes a funding level of $11.0m on a per annum basis moving forward.  All three incumbent providers engaged with the DHB management during the RFP process to express our concerns as the new service model costs approximately 15% more due to the additional service and training requirements for providers.  This implies service cuts of

26% will be required.  Unlike other DHBs it is unlikely this is achievable as all clients receiving services were re-assessed last year and service volumes were cut at that time.  DHB management has written to us indicating that no service  volumes  cuts  are  contemplated.    If  this  is  the  case,  then  the C&CDHB will need to possibly increase funding to approximately $15m or is the selection of not for profit providers deliberate with the objective of expecting the funding gap to be addressed through charitable means?

[81]     Further  letters  were  sent  by  Healthcare  and  its  solicitors  on  7,  9,  and

15 September 2011 further setting out its concerns.

[82]     On 19 September 2011 Healthcare was informed that Lifewise was no longer a preferred provider, and that PSC had been substituted as a preferred provider. Mr Skipage’s evidence explains that management had been unable to conclude an acceptable  contract  with  Lifewise.    Lifewise  had  not  provided  services  in  the CCDHB region previously, its proposal had been based on assumptions regarding the transition of staff from the unsuccessful incumbents and those assumptions did not appear well founded.

[83]     Agreements were executed with Access and PSC  in accordance with the CCDHB Board’s decision on 23 September 2011.  The term of the agreements was three years. The agreements included:

(a)       provider quality specifications;

(b)audit provisions pursuant to which the CCDHB could audit the quality of services provided and the financial position of the provider;

(c)       requirements to develop plans on the basis of need and to deliver

services that met a client’s individual assess needs;

(d)access to service provisions under which the CCC would determine eligibility for all clients, complex clients would be assessed under the interRAI tool and non-complex clients would be assessed using “the Contract Assessment”;

(e)      an ability to vary the contract “[i]n the event there is a significant increase in volume and case mix which results in circumstances that render the ongoing provision of services unsustainable”.

Subsequent events

[84]     Healthcare’s contract with the CCDHB was due to expire on 31 October

2011.  There was correspondence between the CCDHB and Healthcare regarding an extension of the contract which, in the event, was extended to 14 November 2011.

[85]     On 3 October 2011 Healthcare initiated two sets of proceedings:

(a)      Healthcare applied to the Employment Relations Authority seeking a declaration that, in accordance with Part 6A of the Employment Relations Act 2000 (the vulnerable worker provisions), both Access and PSC take on Healthcare’s employees where applicable, on the same terms of employment as those employees currently enjoyed with Healthcare, with those employees’ annual leave entitlement also transferring across to Access and PSC; and

(b)Healthcare commenced  this judicial review proceeding and sought interim orders seeking to prohibit the CCDHB from taking further steps under the RFP.

[86]     The immediate issues in respect of both proceedings were dealt with on

14 October 2011:

(a)       In the ERA proceeding consent orders were made on that date.

(b)The application for interim orders in the judicial review proceeding was also heard on that date.  The Court declined to grant the interim relief because it would put the CCDHB in breach of its contracts with Access and PSC.

[87]     On 14 November 2011 Healthcare’s contract with the CCDHB ended and its

workers and clients transitioned across to Access and PSC.

Evidence re effect on service levels

[88]   Healthcare’s view throughout the RFP was that reduced funding would inevitably mean reduced service levels.   It considers that evidence it has obtained subsequently bears this out. This evidence takes the form of:

(a)       expert analysis;

(b)      information on the number of clients receiving services; and

(c)       complaints made by clients.

A) Expert analysis

[89]     Healthcare engaged David Moore to assess the cost structure underlying the reduced $2 million funding for a 50 per cent share of home-based support services under the RFP.  Mr Moore has accounting and health economics qualifications.  He has health sector experience through various positions, including as a director of the Transitional Health Authority, as a director of the Crown Health Financing Agency, as co-chief executive of the Health Funding Authority’s Personal Health operating group and as general manager and then a director of PHARMAC between 1993 and

2010.

[90]     Mr  Moore’s  analysis  is  that  labour  costs  make  up  the  bulk  of  costs  in providing home-based support services at approximately 76 per cent.  His evidence is  that  there  can  be  only  minor  efficiency  gains  from  reducing  the  number  of providers from three to two.   He tested Healthcare’s pricing model to determine whether, under all favourable assumptions, existing service levels could be sustained without a reduction in hours of service.   His analysis is that, even with these favourable assumptions, a breakeven point cannot be reached.

[91]     His analysis is that the “best case” result implies that breaking even within the available funding would likely require a reduction in hours per client or, potentially, a significantly different mix of client complexity than that suggested in the RFP.  One of the favourable assumptions (that frontline care workers will be paid at the minimum hourly wage rather than the wage paid by Healthcare) was not practical, given the vulnerable worker provisions under the ERA.   With this component  removed,  Mr  Moore’s  analysis  is  that  there  would  be  a  loss  of

$1.67 million.   Mr Moore assessed whether productivity gains could make up the deficit.   Given the labour-intensive nature of home-based support services, he concludes that it is not realistic to rely on such gains.  He concludes that there would

necessarily be a material change in service levels.  He estimates that service hours would have to reduce by 22 per cent.

[92]     Mr Smith, a management systems accountant at Healthcare, calculated the cumulative cost of the changes proposed in the new services model (involving a higher training standard, devolved assessment processes and a greater need for supervisory intervention).  Mr Moore notes that these other costs could worsen his calculations.

[93]     Mr Moore concludes that there is a service change and a clear risk of under- servicing.   He gives community laboratory services and pharmaceuticals as two services where efficiencies can be identified without service change.  In the case of community laboratory services that is because there is considerable fixed capacity and a change from two laboratories to one yields a considerable one-off gain as over- capacity is better utilised.  In the case of pharmaceuticals that is because the margin over costs of goods may be around 99 per cent.  In home care services, the work is labour intensive and the margins are slim.

[94]     The  CCDHB’s  response  to  this  evidence  is  that  the  Healthcare  expert evidence is after the event and based entirely on Healthcare’s cost model.  It says that the better evidence of what is achievable is that Access and PSC submitted tenders on the basis of the indicated available funding and the CCDHB’s evaluation of those tenders provided the CCDHB with confidence that the service could be provided within the price indicated.

B) Number of clients

[95]      Healthcare  sought   information   from   the   CCDHB  under  the  Official

Information Act which it says shows a reduction in service levels since the CCDHB

concluded its contracts with Access and PSC.  From the information released by the

CCDHB it has prepared the following table:

Range             Nov-11           Apr-12           May-12           Jun-12           Reduction (comparison of Nov and June)

Non- complex clients

1169               1003               979                967                -202

Complex         1270               1275               1274               1211               -59

Total               2439               2278               2253               2178               -261

[96]     The CCDHB objects to the information in the table because the May and June  figures  were  not  included  in  the  affidavits  filed  in  this  proceeding.    The CCDHB says that the November figures are CCC’s figures and relate to allocation. The April, May and June figures are Access and PSC derived and they relate to persons receiving services.  The CCDHB submits that making providers responsible for assessment and providing an economic incentive to reduce services strictly to the level required by the interRAI assessment would be expected to change the number of persons receiving services compared with the previous uncapped fee for service model.  The CCDHB also submits that some of the reduction in numbers will be the result of means testing which was introduced.  Noting these points and raising other queries about the numbers, the CCDHB says that this is raw data and there is no affidavit from anyone who has discussed the data and drawn proper conclusions from it.

C) Complaints

[97]     Healthcare has received complaints about services under the new contracts, from clients as well as service workers.   It sets out what it describes as being a sample of complaints received by Healthcare in June and July 2012 as follows:

(a)       From ... the daughter of a client of PSC whose father opted to be transferred  to  PSC  rather  than Access  due  to  his  experience  of ongoing service delivery issues with Access.

(b)       From ... the son of a client of PSC, who describes the unsatisfactory, unsafe and unprofessional practices of PSC carers when bringing his

mother home from a rest home and the progress that has been made after she switched to Healthcare as her provider.

(c)       From ... a client of Access, who describes her impression that both Access and PSC are treating their clients with contempt and “not going all out to bat for them”, as they ought to.

(d)       From ... a client of PSC, who describes being told that housework is not part of her package of care as stated with PSC, and the lack of communication about her care.

(e)       From ... the husband of a client of Access, who describes lack of communication from Access and support workers not showing up.

(f)       From ... a service worker employed by Healthcare who worked with PSC for three months after Healthcare lost [the] CCDHB contract, before she resigned due to the lack of communication from PSC and lack of support staff to respond to clients’ needs.   [She] describes being disgusted with the way that PSC clients were being treated and states that PSC is not equipped to deal with the high needs clients transitioned to it.  Further, [she] notes that although staff were told that there would be no job losses due to the transition, the area has lost  an  occupational  therapist  and  a  physiotherapist  and  neither Access nor PSC seem to have replacements for either of these professionals.

[98]     The CCDHB submits that, although Healthcare describes these complaints as “a sample”, no other complaints have been disclosed by Healthcare.  It submits that the number of complaints is small relative to the number of clients transferred (40 per cent of all service users at least).   It notes that the first and second complaint relates to issues with services either prior to the new contracts or with services outside the contracts.   It submits that there were early problems with Access and PSC’s lack of knowledge about the levels of training which former Healthcare employees had received.  It also says that the complaints reflect individual service issues of the kind that can occur in the provision of these services, especially in transition.

Scope of judicial review in this context

[99]     Healthcare has two grounds on which it seeks relief.  The first ground is for alleged breach of the statutory requirements.    The second ground is for unreasonableness.  Both grounds relate to the CCDHB’s annual plan and the decision to release the RFP and enter into contracts pursuant to it.

Statutory power of decision

[100]   Healthcare says that the CCDHB did not comply with its statutory obligations because:

(a)      it did not sufficiently inform the Minister of the scale of the changes it was proposing in its annual plan;

(b)it did not provide a strong explanation of the link between funding cuts and the likely outcome of reduced services in its annual plan;

(c)      it did not amend its annual plan on releasing its RFP proposing those funding cuts, nor on learning from Healthcare that such cuts would entail a reduction in services; and

(d)it entered into contracts under its RFP which will reduce services levels, which is not in accordance with the approach as stated in the RFP.

[101]   The CCDHB was exercising a statutory power when entering into contracts with Access and PSC.   As such it was required to comply with its statutory obligations in the exercise of that power.  The power in s 25 of the NZPHD Act to enter into contracts is broadly framed.  The CCDHB was empowered to negotiate and enter into service agreements as part of its function to ensure that its population were provided with health services.  That power was to be exercised to promote the broad objectives of a DHB (e.g. promoting health, seeking effective and efficient

delivery of health services and upholding quality standards).20   The power was also

subject to the requirement that the service agreements be permitted by and in accordance with the annual plan and approved by the NHA.

20     See Unison Networks Ltd v Commerce Commission [2007] NZSC 74, [2008] 1 NZLR 42 at [50] and [53] for a statement of general principle on acting within the authority conferred by Parliament and exercising a broadly framed discretion to promote the policy and objects of the relevant legislation.

[102]   Healthcare’s challenge in the main is not, however, that the contracts were outside the power under s 25.  There is no basis for suggesting that they were not entered into for purposes outside the DHB’s objectives.   The contracts were also permitted by and in accordance with the annual plan in that the plan specifically referred  to  the  proposed  RFP  pursuant  to  which  a  new  services  model  and contracting structure would be put in place.  Healthcare’s challenge to the contracts is that they were not in accordance with the plan because they would result in service level changes which was not the basis on which the new contracting model was put forward in the plan.

[103]   Apart from that, Healthcare’s challenge centres not on the contracting power, but on the CCDHB’s actions in relation to the annual plan.  Specifically it challenges the “decision” to provide the Minister with a proposed plan, the “decision” to release the plan, and the “decision” not to amend the plan.  Framed in this way, these are not reviewable statutory powers of decision.  They are steps in a process which lead to an annual plan which is approved by the Minister, to which the DHB is a party, and which is then publically available.  It is not until the annual plan is finalised in this way that it might impact upon the rights of people or their eligibility to receive a

benefit.21

[104]   The CCDHB says that Healthcare’s challenge is a collateral attack on the Minister’s decision to approve the plan and the Minister is not a party to the proceeding.  That submission raises whether a DHB’s actions in relation to its annual plans  are  reviewable  (or  whether  it  is  only  the  Minister’s  approval  that  is reviewable).   I proceed on the basis that a DHB’s decision to sign an annual plan (signifying its agreement to the Minister approval plan) is reviewable because it is the DHB that has the obligations in relation to preparing its content  and, once approved, it is the DHB’s plan.  The annual plan provides the planning framework under which the DHB will make its decisions and so may affect people’s rights or their eligibility to receive a benefit.  I also proceed on this basis because the CCDHB

did not make any detailed submissions that review was not available, but instead

(c)      the CCDHB intended that all clients would receive a targeted mix of services that best met their needs and well-being and independence goals.

[125]   This was the high level plan.  It did not refer to estimated savings and bulk funding but Mr Skipage’s evidence is that this information was provided to the NHB in meetings.   His evidence is also that the CCDHB did not expect there to be a reduced level of service as “the RFP required clients to be assessed on their level of

need as they always have been, in accordance with interRAI”.  His evidence is also

41     Refer above at [12]-[13].

that the NHB was informed that assessments for non-complex clients would be carried out by the providers.42   It is apparent that some high level information about where savings were expected to be achieved was provided from the NHB’s advice that the proposal was supported with conditions.43     The CCDHB might have supported their analysis with modelling.  That would have required input from the providers which could have been sought.  But it was also open to the CCDHB not to carry out this modelling and to rely on the market to respond to the viability of its proposal through the RFP process.  If the NHB had concerns about the absence of modelling, it had the opportunity to raise that with the CCDHB through the Service Change process.  To the extent that the NHB may have had any concerns that the CCDHB’s plan to save money while maintaining service levels, its conditions addressed this.  Ongoing communication with the NHB was required and there was to be “no reduction to access of the service provided”.44   The information provided by the CCDHB was adequate for its purpose.  There was no breach of any statutory obligation in this respect.

Strong link

[126]   Healthcare submits that the CCDHB’s “decision” to release the annual plan breached reg 8(c) of the Planning Regulations because it did not contain a strong explanation of the link between funding and outcomes in respect of home-based support services.

[127]   Healthcare says that this was because there was no reference in the annual plan to the shift to a bulk funding model, nor was there any price modelling information provided by the CCDHB to show the Minister the specific areas in which the necessary savings might be made.    It says that the CCDHB did not quantify the savings that were estimated to arise from contract reconfiguration.  Nor was there any discussion of how more cost effective delivery could be achieved in the face of an aging population.   It says that the figures used internally by the

CCDHB as estimates of efficiencies were no more than “guesstimates” not supported

42 Refer above at [41].

43     Refer above at [52]-[53].

44 Refer above at [54].

by any modelling or quantitative or qualitative analysis.   It says that all of this is surprising given the emphasis on accountability in the NHB’s guidance and other documents.    It  submits  that  a  “strong  explanation”  of  the  CCDHB’s  proposed changes would have required, as a minimum, a statement of the level of funding proposed as against what had previously been made available, an explanation of how (if there is a shortfall between the proposed and previous figures) that shortfall would be made up, and the analysis that had gone into supporting that conclusion.

[128] The CCDHB says that the annual plan provided a sufficiently strong explanation of the link between funding and output.   It says that annual plans are high level documents and the explanation provided was sufficient for the NHB’s support and the Minister’s approval.   It also says that its statement of expected impacts and outcomes accurately stated the CCDHB’s expectations.

[129]   I agree with the CCDHB’s submission.   A DHB is required to include a strong explanation of the link between funding and outcomes but the Planning Regulations provide no further specificity as to what that will require.  The annual plan referred to the redevelopment of the service delivery model to deliver “higher quality  and  more  cost  effective  services”.     It  set  out  in  general  terms  how

performance would be improved.45    It referred to the intended RFP and that it was

intended that clients would receive a targeted mix of services that best met their needs and goals.46

[130]   This information was accurate as to what was proposed.  The NHB is better placed than this Court to determine if the Minister should have more detailed information than this.  It can do this via the discussions between the CCDHB and the NHB relationship manager.  As counsel for the CCDHB puts it, the annual plan is “the output of an approval process” and provides a “high level reflection” of what has gone on before in the planning and approval process.  Through the publication of the annual plan the public are provided with an overview of what is intended – importantly, in this case, that the contract model was changing so as to provide more

cost-effective services that best met clients’ needs and goals.  In my view a “strong

45 Refer at [60] above.

46 Refer at [39] above.

explanation of the link” does not require the sort of detail that Healthcare submits.

There was no breach of the CCDHB’s statutory obligation in this respect.

No response to Healthcare’s concerns

[131]   Healthcare submits that the CCDHB’s decision not to amend the annual plan after it was finalised breached the statutory requirements.  It says that this is because the NHB approved the annual plan on the condition that there would be no change in service levels.  It says the proposed changes to home-based support services would have a significant impact on services.  It says that this was for three reasons.  First, overall  funding  was  cut.    Secondly,  bulk  funding  placed  the  financial  risk  on providers in circumstances where an aging population would equate to an increased need for services.  Thirdly, obligations on services providers would be increased to include CCC functions with no corresponding CCC funding to be made available to providers for this new function.   Healthcare refers to its experience as the largest supplier of home-based support services and the work it was involved in when the Auckland DHB remodelled how these services were to be provided.  It says that it made its concerns about sustainability known to the CCDHB and, despite this, the CCDHB did not amend its annual plan to authorise a reduced level of services.

[132]   The CCDHB says that the annual plan and the RFP were consistent and developed contemporaneously.  It says that it was not required to change its view on expected effect to conform with that of an unsuccessful proposer.

[133]   I agree with the CCDHB.  The annual plan was approved on the basis that, and in accordance with the CCDHB’s intentions, there would be no reduction in service levels with the proposed changes.   Healthcare says that it was concerned about the level of funding in the RFP but its communications with the CCDHB were initially framed as clarifications and requests for more detail so that it could model the cost structure to support the mix of clients.47     When Healthcare provided its modelling which showed a “significant difference” between funding and support packages it became apparent to the CCDHB that Healthcare’s model was based on

an incorrect volume of clients.   It clarified this by advising that 2,500 clients (not

47     Refer above at [57]-[59].

3,482) received the services at any given time.48  After this Healthcare does not seem to have raised any further concerns.  It submitted its tender, albeit on the assumption that it would “work transparently with the CCDHB to determine the case mix and substitution of existing services with innovative service responses”.49

[134]   The evidence falls far short of showing that the CCDHB must have known, as a result of Healthcare’s concerns, that the RFP at the stated funding level, would result in a reduction of services.  The RFP required tenderers to provide services to those entitled to them for the funding level provided.  The CCDHB was entitled to proceed on the basis that the response to the RFP would inform it whether or not the approach  proposed in the RFP was  a viable one.   There was no breach of the CCDHB’s statutory obligations in proceeding with the RFP, which was set out in the annual plan and consistent with it.

Inevitable reduction in service levels

[135]   Healthcare submits that, if the annual plan is found to have conformed with the statutory requirements, the CCDHB’s decision to release the RFP, and to enter into contracts pursuant to the RFP was not in accordance with the CCDHB’s annual plan.  It submits that this is because the RFP resulted in contracts under which there would be a reduction in services that was not authorised by the annual plan.

[136]   Healthcare  submits  that,  because  the  CCDHB  had  conducted  no  price modelling of its own, it had no frame of reference by which it could determine whether or not other tenders would in fact be sustainable.  It refers to the absence in the contracts of any specification of the hours to be achieved which it says, under a bulk funding model, will allow providers to effectively reduce the number of people (particularly in the non-complex category) accessing the services and the absence of any detail about the contingency pool.  It submits that other CCDHB Board members appeared  to  have  concerns  with  the  sustainability  of  the  RFP,  since  motions approving  contracts  under  the  RFP  were  rejected  twice,  before  finally  being

approved  by  a  6:3  margin.    It  submits  that  the  decision  not  to  proceed  with

48 Refer above at [68].

49 Refer above at [69].

Lifewise’s tender is evidence of the unsustainability of the contracts.  It refers to the analysis of Mr Moore, the information about the number of clients now receiving services and the complaints it has received, as further evidence of this.  In short, the complaint under this head is like the preceding one except that it focuses on what Healthcare sees as the inevitable outcome of what was proposed rather than the concerns that Healthcare raised.

[137]   The  CCDHB  says  that  the  contracts  resulting  from  the  RFP require  the provision of the same services to those entitled to receive them and do not allow for a reduction in service levels in that sense.  The contracts also provide for a variation if there is a significant increase in volume and case mix.  The services received by individuals were to be assessed on the same standard as previously.  Two providers committed to providing those services and the evaluation panel’s assessment of those tenders provided the CCDHB with sufficient comfort about that.  Service levels, in the sense of those entitled to services receiving services in accordance with a needs assessment, were not expected to reduce and there is no proper evidence that they have reduced.

[138]   I agree with the CCDHB’s submission.  That Healthcare had concerns about the  viability  of  the  funding  does  not  mean  that  other  providers  had  the  same concerns.  The letter from the three incumbent providers on 29 August 2011 was a concern about the delay in the CCDHB reaching its decision, and not expressed as a concern  about  viability.50      The  idea  which  had  emerged  through  the  workshop process was that if providers had control of the assessment for non-complex clients, the system could operate more effectively.  Clients’ needs would be better matched to services at the time they were required and the incentive for over-servicing would

be addressed.  Moving to two providers would also produce some efficiencies (for example,  administrative  overhead  and  better  utilisation  of  higher  qualified  staff which otherwise all three providers would have).  Although Mr Moore’s evidence supports Healthcare’s views of the matter, the evidence does not show that PSC and Access could not provide the required level of services for the funding provided. The data about service levels subsequent to the new contracts with Access and PSC

is too limited to draw safe conclusions at this point in time.  The same can be said of

50 Refer above at [77].

the complaints.  Lifewise was not an incumbent provider and may not have been able to achieve the efficiencies that Access and PSC considered they could.

[139]   A similar issue arose in Lab Tests.51   In that case it was submitted by one of the parties to the litigation that the consultation obligations under the then s 40 were triggered because outputs had changed.   The submission was that the DHBs were looking to reduce the amount of money that they spent on community laboratory services and this necessarily affected that output.  Money could be saved through a reduction of the number of collection centres and of personnel but this would necessarily lead to a reduction in services.   In addition it was submitted that the move toward greater GP collections had the effect of transferring costs to GPs.  The

Court of Appeal rejected this submission stating:52

It cannot be the case that where a DHB sets out to achieve savings or to limit expenditure, while at the same time maintaining existing service standards, it is obliged to consult its resident population.

[140]   The Court of Appeal considered that the obligation to consult depended on whether a DHB was proposing significant changes to a service viewed objectively. It said:53

Here  the  ARDHBs  were  seeking  the  same  service  specifications,  but delivered at a lesser price.  Ultimately they had to make a judgment as to the capacity of particular tenderers to meet the contractual service specifications, which they did.

[141]   The Court of Appeal said:54

Third, on the face of it, the ARDHBs were attempting to contract for the same service specifications as those in the DML contract but at a lower price, as the Judge said.  They did not know what was possible in terms of cost savings as they did not know the relevant cost structure, what interest there would be in tendering, or what the nature of any tenders would be. The whole point of the RFP process was to see what would be offered and how expenditure  could  be  limited  without  compromising  service.     If  the ARDHBs’ intention was indeed to contract for the same level of service specification, and if that was the effect of the contract which they entered into, we do not consider that a statutory obligation to consult was triggered. We now expand on this.

51     Lab Tests Auckland Ltd v Auckland District Health Board, above n 28.

52 At [319].

53 At [332].

54     At [316]

[142]   Although  the issue in  that  case was  whether the DHBs  were obliged  to consult, the same answer to Healthcare’s complaint under this heading applies.  The annual plan intended that there be no reduction in service levels.  It was approved on that condition.  The RFP required providers to enter into contracts that required this. The contracts were in accordance with the annual plan.   CCC remains the access point to services and providers are required to meet assessed needs.  If a reduction in services in fact occurs, in that there are older people that are not having their home support needs met, that should become apparent through the audits and (possibly) continued and unaddressed complaints.  The CCDHB’s position was that there was to be no change in eligibility, access or cover and the provider contracted to provide this.   The CCDHB and/or the providers will have to respond in some way if it transpires that assessed needs are not being met on the funding provided.  But there is no error requiring the Court’s intervention on a judicial review application in this respect when the intention is that services that are needed will be met.

Second ground:  unreasonableness

[143]   Healthcare submits that the CCDHB’s decisions (to circulate the draft annual plan to the Minister, to approve the final annual plan, to release its RFP, and to enter into contracts pursuant to its RFP) were “unreasonable”.  That is, that they were so unreasonable that no reasonable decision maker in the CCDHB’s position would have made them.  Healthcare submits that this is because:

(a)      the CCDHB had no reasonable basis to conclude that services could be delivered at pre-RFP levels at a reduced level of funding with a more expensive services model.

(b)the CCDHB had no reasonable basis to disregard Healthcare’s stated concerns as to the adequacy of funding and sustainability of services, and to proceed to conclude contracts under the RFP.

[144]   Healthcare’s submissions are essentially the same as under the first cause of action.  It submits that the CCDHB’s decisions were unreasonable because they were based on insufficient evidence.  The CCDHB did not have any basis to assert that

savings  from  proposed  efficiencies  of  $1.6 million  were  attainable  without  a reduction in service levels.  The CCDHB did not evaluate the effect on services of allocating needs assessment functions to the providers of home-based support services, without compensating them for that additional role.  The CCDHB did not have any measure to ensure that services, delivered under a bulk funded model would be delivered to the same level as prior to the RFP.   The CCDHB did not address the issues raised by Healthcare as to service/price modelling during the RFP process and concluded contracts under an unamended RFP.

[145]   These submissions are rejected by the CCDHB on similar grounds as are set out above.  It says that it was not unreasonable to conclude that the required services could be provided at reduced cost and to conclude contracts with the other two incumbent providers despite Healthcare’s assertions about the adequacy of funding. I agree.   I consider that the following extract from the CCDHB’s submissions correctly answers Healthcare’s submissions on unreasonableness:

The intended reduction in funding and contract model was rationally based: (i)          Benchmarking  indicated  that  CCDHB  was  paying  more  than

$1 million more than surrounding DHBs for similar services.

(ii)      Two appropriately motivated providers, with potential for flexibility in service delivery, were likely to achieve the required levels of service for less funding than the current providers received on an uncapped fee for service basis.

(iii)      Reconfiguration of the services as proposed had been discussed with incumbent   providers   and   service   user   representatives   without dissent.   The discussions had included the proposed change in responsibility for routine assessments.

(iv)      Thought  had  been  given  to  reducing  the  present  risk  of  over- servicing and managing the future risk of under-servicing, with the result that bulk funding was combined with independent monitoring of assessment performance against an objective standard.

(v)       CCDHB’s assessment did not require it to build its own detailed cost of services model.  As the services were provided by third parties, it lacked the information to do that.

...

The assessments made at the time of the issue of the RFP were not displaced by anything which occurred subsequently:

(a)       A number of potential providers of the required services (including the plaintiff and the other two incumbent providers) responded to the RFP, seeking one of the two contracts to provide the services for the funding offered.

(b)       None of the respondents suggested that the required services could not be provided for the funding offered, although Healthcare’s proposal was qualified and not convincing in that regard.   While CCDHB had cause to doubt that Healthcare could provide the required services for the offered funding using its operational model, it had no reason to conclude that Healthcare’s operational model was the only possible model and that the proposals by the other two (ultimately successful) incumbents should be rejected.

(c)       Statements by Healthcare that the offered level of funding rendered the provision of the contracted services unsustainable emerged only when it learned that it was not a preferred provider.

(d)       It  was  rational  to  dismiss  those  late,  self-serving  contentions  in favour of the contractual commitments entered into by the other two incumbent providers who had provided proposals which had been evaluated as credible by two evaluation panels.

(e)       At  no  time  did  CCDHB  have  a  rational  basis  to  abandon  the approved  Annual   Plan   and   to   stop   the   process   of   securing replacement contracts for those which were about to expire, in order to effect a necessary reduction in expenditure.

[146]   I consider that (c) overstates the position a little because Healthcare did have concerns about the funding prior to submitting its proposal.55   However the CCDHB advised Healthcare that it was working off incorrect client numbers and, after that, Healthcare’s  concerns  that  the  contract  was  unsustainable  were  only  strongly asserted and articulated after Healthcare learned that it was unsuccessful.   I also acknowledge Healthcare’s submission that the benchmarking with other DHBs (referred to at (i) above) may not have been comparing “apples with apples”.56   But the benchmarking indicated, at least at a general level, that savings ought to be able to be made. The answer to whether they could be was in the response to the tenders.

[147]   In Lab Tests one of the pleaded grounds for judicial review was that the

DHBs had acted irrationally and/or arbitrarily.  In support of this ground, there was

55     The CCDHB says the reduced funding was made known in the workshops. Healthcare disputes this but, in any case, it does seem that at the time of the RFP Healthcare was uncertain about the level of funding proposed and had concerns about it.

56     DHBs may have different budgets for what the CCDHB includes as components of home-based support services, there may be regional variations in some of the costs and there is reference in the evidence to the Hutt Valley DHB contracts being more lucrative.

affidavit  evidence  from  a  Canadian  laboratory  expert  that  there  would  be  an inevitable drop in levels of service.  It was submitted that the Lab Tests contract was financially unviable and that in due course the DHBs would be forced to pay Lab Tests  more  or  the  contract  would  have  to  be  abandoned.    The  DHBs  and  the successful tenderer did not accept these points.   In rejecting this ground, the High Court noted the entirely reasonable desire of the DHBs to find ways to reduce community laboratory service costs.  In light of the conflicting evidence about what could be achieved, the High Court concluded that it was not established that the decision to award the contract to Lab Tests was one which no reasonable authority could have reached. This finding was not appealed to the Court of Appeal.

[148]   As in Lab Tests, the inability of Healthcare to provide the service using its existing methodology and costings does not establish the inability of other providers to  do  so.    The  Healthcare  expert  evidence  is  after  the  event  and  based  on Healthcare’s cost model.   It is an insufficient basis on which to conclude that the CCDHB acted “unreasonably” (that is, that it was so unreasonable that no reasonable DHB would have made those decisions) in its proposal to remodel the home-based support contracts, to proceed to an RFP with the level of funding proposed and to accept the proposals from Access and PSC submitted pursuant to it.

Result

[149]   Healthcare has not established either of its grounds for relief.   Healthcare submits that its judicial review application was about whether the CCDHB “should be transparent about decisions it makes which affect the most vulnerable members of our community.”  In my view the CCDHB was transparent.  As stated in its annual plan, it intended to achieve “more cost effective services” through its new service delivery model without reducing levels of service where they were needed.   The CCDHB complied with its statutory obligations in relation to its annual plan, in issuing the RFP and entering into contracts pursuant to that RFP in respect of home- based support services in seeking to achieve its stated plan.  Whether it might have done more (for example, in carrying out modelling or in engaging further with providers) so as to be better informed in advance of the RFP is not the test.   Its decisions in this respect were reasonable in that they were rationally based and borne

out by the proposals it received.  The declarations sought are therefore declined and

Healthcare’s application for judicial review is dismissed.

[150]   Costs should follow the event.   If the parties are unable to agree on the calculation of costs  in  accordance with the High  Court Rules they may submit memoranda (limited to no more than three pages each) on the issues in dispute within two months of the date of this judgment.

Mallon J

Solicitors:

Russell McVeagh, Wellington

Wilson Harle, Auckland