COVER STORY : Ailing DHB Directors - Tony Ryall’s health sector tonic

The directors of New Zealand’s 21 District Health Boards are collectively responsible for delivering the nation’s frequently criticised health services and spending almost $10 billion a year, or 75 percent of the Government’s total health budget. Governance experts say too many DHB directors are simply not up to the task. Now Health Minister Tony Ryall is turning up the heat. But can he, as he puts it, get them to “lift their game”? Jens Mueller and Reg Birchfield report.

By Reg Birchfield & Jens Mueller

New Zealand’s 21 District Health Boards are often large, and always complex businesses. Some of them get and spend more than $1 billion a year, ranking them among the top 50 of the country’s largest enterprises.
And among voters there is probably no more politically sensitive topic than health – except perhaps education. The Government spends $13 billion on all health services, which gobbles up almost 20 percent of its total annual core spend of $65 billion.
There are 231 DHB board members, 11 on each board. Four of the 11 are appointed by the Minister of Health, currently Tony Ryall, the wearer of colourful ties. The other seven directors – the majority – are locally elected. And these elected board members are, say the critics, the problem children on most boards. Too many of them have too few governance skills and little or no experience leading large and complex organisations.
The Minister has called on DHB board members to “raise their game” and is pushing the Ministry of Health to help up-skill struggling directors. “Good governance is critical to our DHBs,” says Ryall. “But they are very complex and very large businesses.” The implication of his comment is; if directors who stand for election to DHB boards don’t have the necessary skills, they should either think again or be prepared to go through a comprehensive learning process.
Some DHBs conduct their own governance performance reviews, but there is no uniformly applied governance standard to provide a comparison of director effectiveness. Ryall has now asked DHBs to make a better fist of evaluating their governance performance “and undertake up-skilling where it is needed”. He has, he told us, directed the Ministry’s governance advisers to “take a much more active role in identifying areas where performance can be improved and to provide assistance to achieve it”.
The Minister’s call for DHBs to “raise their game” is long overdue. Boards are ultimately responsible for both the financial performance and the delivery of this country’s public health services. And on both counts, too many DHBs fail. Ryall wants “improved delivery of health services and better accountability for spending”.
“What we have in DHB governance at the moment is very committed people who are sometimes too narrowly focused on their own experiences or [the interests of their] professional colleagues. There is a clear lack of complex business experience on many of the boards,” he adds.
“We want a stronger focus on outcomes and the leadership [competency] to empower chief executives to achieve better performance in their organisations.”
The DHB model for governing and delivering health services faces some fundamental challenges. Its stakeholders are widely dispersed. Even the largest commercial enterprises can point to a finite list of stakeholders whose aspirations and desires must be considered when making long-term strategic decisions. DHBs, on the other hand, are in the unenviable position of delivering services that affect everyone at some point in their life, which means that most New Zealanders, now or in future, will criticise their performance.
The model begs the question of whether DHB boards can satisfy an enormously varied pot-pourri of needs and wants, and effectively deliver a ‘best for the most’ performance.
The financial implications and life-affecting services that DHBs deliver mean they cannot be compared to other community-dominated boards like those running museums and orchestras. These frequently comprise large groups of interested patrons playing director after having been invited for reasons of personal commitment to the cause. Hobby directors, often endowed with more passion than governance skill, aren’t sufficient to lead and direct multimillion-dollar budgets and deliver complex medical services.
DHB governance is refreshed by an election for seven board members every 36 months. The next elections are in December this year. The remaining four board members are appointed by the Minister who also designates each board’s chair and deputy. Appointed directors can be changed at the Minister’s discretion. Ryall has, almost since he got his feet under the Cabinet table, been appointing new business-savvy directors to DHBs as part of his agenda to upgrade their governance capability. Elected members serve their term at the discretion of their local electorate.
So does this governance model work? And if not, are there plans afoot to change it? After all, if elected members are voted on to boards to represent their local, professional or other specialist communities of interest, do they act in the interests of the DHB as a whole?
Gregor Coster, Manukau District Health Board’s chairman and dean of graduate studies at Auckland University’s Medical School, thinks “DHB boards would benefit from having more members with significant health governance experience and fewer members bringing community only (or other special interest) representation.”
Long-standing health sector chair, director and governance expert Doug Matheson is equally equivocal about the model and what it delivers. Matheson was chair of the Wellington Crown Health Enterprise Establishment Board and deputy commissioner of the Wellington Area Health Board back in 1992. He was then chairman of the Wairarapa Health Enterprise and its successor including the DHB until he retired in 2006. He has unquestionably been one of New Zealand’s most successful health sector directors and is widely respected by both ruling political parties.
DHBs won’t, in his opinion, “reach optimum performance while they have a significant majority of elected members. The [typical] DHB board gets distracted by what are more management matters by elected members who feel they have a responsibility to those who elect them,” he says. “Independence of mind is a fundamental requirement of a [effective] director.”
Matheson believes effective directors and boards must have a common sense of purpose; bring a range of relevant competencies, backgrounds and perspectives to the table; apply these collectively in the interests of the DHB and then reach consensus on board matters. “Individuals can’t have [outside] relationships that compromise their ability to exercise unfettered judgement,” he adds. “A director’s duties, role and responsibilities don’t change because they are appointed or elected by some particular group.”
On the other hand, long-time chair of the Bay of Plenty DHB, Mary Hackett, sees value in elected board members because they “bring a local flavour to boards, which is a positive attribute”.
Whatever critics of the DHB model think, Ryall has no immediate plans to scrap it. “We gave an undertaking [that it would not be changed] before the election and I don’t yet see any need to do that,” he says. “We know there are strengths and weaknesses with a model that includes a democratic element, but we are intent on maintaining it so we must do whatever we can to ensure we support boards to improve their performance.”
Ryall concedes that an elected process delivers a mix of skills and competencies. “You get people with strong community connections, which has some advantages,” he adds. “But we are now in a tighter financial environment and in these complex organisations we need strong financial and governance skills.
“I don’t want to be derogatory about elected people because they enjoy the confidence of their communities and besides – I’m in Parliament and got there the same way,” he chuckles. “It is just that running these larger organisations we need a balance of skills, and that has been lacking.”
The issue of board commitment and competency goes beyond a personal skills set. The Ministry of Health estimates that to be effective, a DHB director must commit at least one and a half days a week to the job. Recently-retired, long-serving Palmerston North DHB chair Ian Wilson has seen “experienced and capable people from various backgrounds fail because they underestimated the high level of dedication, judgement and commitment required to succeed” at a DHB.
Ryall’s commitment to a more transparent approach to delivering better governance has already claimed some victims. He dismissed Otago DHB chairman Richard Thomson over a $16.9 million defrauding of the board by its former IT head, saying he expected accountability from the board. Another DHB director was suspended by his chairman for “acting contrary” to his board’s interests.
Since stepping up to the top job, Ryall has appointed several DHB chairs and directors with substantial experience in leading large, complex, non-health sector multinational organisations. Some have been selected to sit on more than one board to prepare for better cross-DHB cooperation, a process he thinks will deliver “benefits”. Among those benefits he ranks a “reduction in decisions made in a local vacuum and a greater sense of the overall picture for decision makers”.
A new cross-DHB table of comparative performance in six specific categories is a constructive way forward to establish a threshold of good to great performance. The system could, perhaps, be extended to measure the quality of governance by reviewing directors’ skills and contributions and the board’s impact as a whole in supporting the mandated preference of clinical outcomes over administrative complexity.
Board size is another governance issue. Large boards are frequently inefficient decision makers. Coster is one critic who suggests reducing the number of board members from 11 down to perhaps seven. This would, he suggests, “increase efficiency while still allowing for democratic elections”.
Matheson agrees, saying DHB boards of 11 are “too large”. He advocates the use of advisory boards or committees, skilled to address specific and sometimes complex issues. He thinks advisory boards can deliver good advice to DHB boards. “If a board needs specialist professional input it should seek the best independent advice it can get,” he adds. “DHB boards need relevant community and public input. Most of this, however, is [needed] at the management and professional level. An effective advisory board is the best way to address this dimension at the governance level.”
Whether the number of directors is five, seven or nine is, however, probably less important than the issue of getting the proper skills mix to steer each DHB. Wilson thinks cross-DHB cooperative arrangements will prevent the making of “ad hoc service decisions on large asset investments” and believes that the move away from a focus on “narrow sector interests” should be at the heart of the revitalisation of health governance in New Zealand, a sentiment with which Hackett agrees. The new layers of national health governance should, she says, include people with experience in “running complex organisations, and not just people who represent the narrow clinical views from inside the health system”.
Whatever the size, competency and composition of DHB boards, Ryall wants them to focus more diligently on two things. “The first is living within their means,” he says. “The second is on improving the service they provide the public and their patients. We need a much stronger focus from these organisations and we need directors to take a stronger interest in those realities and in supporting their chief executives to deliver on these needs.”
If there are too many directors, are their too many DHBs? Ryall does not, at this stage, look set to tamper with this question either. “All I know is that the first piece of advice I get from DHBs when I travel round the country is ‘amalgamate the DHBs – but not ours’.
“I think we can make greater inroads into improving the productivity of the public health service through improved governance, better management and stronger clinical leadership,” he says. “If we can get all three areas working well we will lift their game.”
He is, he says, happy with outcomes already delivered since his recent round of new board appointments. “I’m pleased with the number of candidates with corporate and health management backgrounds that have stepped up to offer their services. It has brought a much-needed infusion of managerial leadership talent from which everyone else on the DHB boards can learn.
“There are competent people already on DHB boards. The challenge now is to make sure that the public health service can live within its means and, it seems, there are people out there who want to be part of that challenge and are willing to tackle the task.”
Ryall is also convinced that, come the end of his first three years in the job as Health Minister he will have measures to show improvement in health sector governance and management. His indicators of success will include: more elective surgery; faster response in emergency services; better cancer treatment, and better financial control.
“Those will be the markers of a good public health service,” he says. “And enhanced governance can make a real difference in getting all CEOs focused on these outcomes.”
He concedes that up to now, DHB governance has failed to deliver on both financial performance and service delivery. “I have come across DHB directors who think the minister appoints the CEO which is plainly wrong,” he adds.
“I have also encountered governors who think that some of the measures Government uses to hold boards accountable aren’t relevant and that no one takes any notice of them. There is a significant lack of understanding about the importance and relevance of key performance indicators in the sector. That is going to change,” he says with a tone of warning in his voice. “And it is why we are working to improve governance and involving as many skilled and experienced people as possible in the sector.”
Whatever the pros and cons of the DHB governance model, Tony Ryall thinks he can make the most of what he has to work with. “I think we can lift that competency level,” he adds. “We have to.”
There are, however, other health entities feeding off the New Zealand taxpayers’ funding. A change in DHB governance should be a wake-up call for other non-profit, Primary Health Organisations (PHOs) and contracted provider groups. The cascading stream of accountability is unlikely to stop with the DHBs. But that is grist for another story. M

Jens Mueller is a lawyer and governance expert at Waikato Management School. He served as chair/CEO of a large international hospital chain and on other health care businesses. He specialises in governance and strategic advice to health care entities and has worked with many DHBs and affiliated health service providers.

© Copyright NZ Management magazine March 2010

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