Monday, 7 October 2019

One of Australia’s largest public health networks — Central Adelaide — was a “runaway train”, on track to record a loss of more than $500 million over two years until state administrators stepped in to plug the financial leaks.

Appointing state administrators to turn around a public health network was a first in Australia and a political move deemed risky at the time. But with administrators KordaMentha more than doubling the targeted savings in the first six months, healthcare networks across Australia are now paying attention.

Chris Martin, partner at KordaMentha, said when the company did its diagnostics review of the Central Adelaide Local Health Network — which includes the Royal Adelaide Hospital — in August last year it found the situation was far worse than any of the stakeholders contemplated.

“CALHN had been incurring increasing unfunded deficits, spending significantly more than they had been funded, for many years,” Mr Martin said. He added that the diagnostic report showed that left unabated, CALHN — with an annual operating budget in excess of $2bn — was going to incur a loss of about $274m
in fiscal 2019. It had already reported a $264m loss in 2018.

“It was clearly a bit of a runaway train. Our diagnostic report on it showed an organisation failing in all respects,” Mr Martin said. 

“There had been extraordinary management turnover, which is an indicator of an organisation’s distress. They had 10 CEOs in 10 years.”

CALHN chief executive Lesley Dwyer said KordaMentha’s diagnostic report did not surprise many in the system.

“There weren’t lots of people saying ‘that’s not true’. People were saying ‘that’s what we see and that’s how it feels to work here’,” she said.

The South Australian Liberal government agreed to a three-year turnaround program with the state administrators. The first demand was to improve the financial performance of CALHN by $41m in the six months to June 30. The KordaMentha team more than doubled that target, delivering savings of $105m.

“It’s about bringing some good old-fashioned commercial discipline to a very large public organisation that for many years was let run largely unchecked,” Mr Martin said. He said one of the biggest issues at CALHN was a lack of financial and operating information. Mr Martin said the health network had excessive data but it was not in a useable form.

“When we got involved, there was no budget ... how do you hold an 8000-person organisation to account if there is no budget?” he said.

“Everyone was operating without the information needed to make a decision.

“We very quickly developed an information, evidence and insights team, which worked to get us a single source of the truth on which we could start making decisions and get other people to make decisions.”

Mr Martin added that his approach was that while everyone was entitled to an opinion, there could only be one set of facts.

“We needed to migrate, particularly the doctors, away from making opinion-based decisions to more fact and evidence-based, which they are doing, and that is part of the reason that we are being successful,” he said.

Mr Martin said CALHN’s workforce was intelligent, motivated and responded to evidence.

“Many of the organisations we go into, if there is a blinkered view of reality, it is very difficult to convince them of anything,” he said.

“The great thing about doctors and nurses is, if you give them the facts, they will change their behaviour based on those facts.”

Ms Dwyer said clinicians were not only evidence-driven but also competitive.

She said CALHN’s staff were encouraged to look at an exemplar in Australia.

“All our clinicians and staff understand that in their own household budgets they can’t spend more than they have got,” she said.

“They know by being efficient, it gives us the opportunity to invest in those things that CALHN should be known for, such as clinical research, clinical trials and cutting edge
levels of care.”

Mr Martin said a common view was that putting more money into healthcare would deliver better patient outcomes. But he said in many cases, spending more money on
healthcare was a sign of deteriorating health outcomes.

“We should be trying to do preventive medicine and care in the community, which is far less expensive than in-patient care,” he said.

Mr Martin highlighted that the $105m that had already been saved in CALHN in six months had not compromised patient outcomes — in fact, it improved them.

“Most of the clinical key performance indicators improved, so we showed the organisation that you can deliver better healthcare cheaper,” he said.

The South Australian government’s appointment of state administrators to address the growing issues at CALHN was unusual in the public health setting, according to Mr
Martin.

But he said the government wanted to bring someone in who was industry-agnostic and had deep financial, commercial and turnaround skills.

“The government said to us that many healthcare consultants had a look at CALHN but many of the traditional healthcare consultants were trapped in paradigms or
trapped in their world view and none of them had been able to improve it,” Mr Martin said.

“We build our business around being industry-agnostic. We are very much first principles people.”

Mr Martin said he agreed that consultants could not always make a significant difference, but he said KordaMentha’s role at CALHN was unique because he and Mark Mentha were prepared to take management positions in the organisation via their role as state administrators.

“Board members at CAHLN, who have been involved in public healthcare for many years, say the difference in this case is that we have our hands on the levers,” Mr Martin said.

“We are making management decisions, as opposed to standing by and watching people make bad decisions.”

Mr Martin said by appointing KordaMentha state administrators, the government had allowed him to take a formal management position with formal delegated authority.
“We can effectively say ‘yes’ or ‘no’ to the hiring of certain categories of people and expenditure,” he said.

“It is a very unique way of ensuring we are given the authority we need to make the changes that need to be made.”

Mr Martin said one major issue at CALHN he identified was that the procurement function was out of control. When he took on the administrator role there were more
than 200 people that had authority to spend in excess of $5000. He quickly cut that to three, which included the two state administrators and CALHN’s CEO.

It was also clear that the new Royal Adelaide Hospital, the flagship facility in CALHN, helped expose many of the strains in the health network.

It was one of the most expensive hospitals in the world and was plagued with issues on opening in late 2017. Mr Martin said many hoped that moving into the new building
would fix many of the problems in the network.

“The reality is, it didn’t — it just moved those issues from the old RAH to the new RAH. In some cases the move exposed some of the issues,” he said.

Ms Dwyer highlighted that management time spent focused on the new RAH had added to the list of issues in the local health network to create the “perfect storm”.

“Finances were getting into a worse state, there were workforce issues ... they needed to stabilise and rebuild,” she said.

“It is difficult for people when they are in it to get above it and say all those issues together signal that we are heading for a position that means we now need to do
something quite different.”

Ms Dwyer joined as CEO as the move to turn CALHN’s poor financial performance around began.

“I joined on day zero. My first day was to announce that we went into corporate administration,” Ms Dwyer said.

She said KordaMentha had brought a solutions focus to the network.

“I know health well. I know organisations that have been distressed and what it takes to turn them around. What I didn’t have without KordaMentha was that discipline and
pace that you’d expect in the private sector,” Ms Dwyer said.

She added that while there might be debate between the CALHN team and the state administrators, one thing agreed between all parties was that patient care would never be compromised.

“We always make the decision that is in the best interest of patient care and there is never any debate about that but we might debate the ways to get there,” Ms Dwyer
said.

Mr Martin said his approach to CALHN’s turnaround program was to apply the commercial discipline and financial controls used in the private sector.

“Lots of people know what should be done but few can make it stick. The way you make it stick is through having a series of very difficult conversations and holding
people to account,” he said.

“It’s a more honest conversation about performance and individual behaviours than is often seen in bureaucracy of any kind.”

The three-year remediation program is aimed at getting CALHN to break even and targets $274m in savings.

“I am reasonably confident we will get the money out. But my personal measure of success is that we need to ensure that this organisation is sustainable and self-sufficient when we leave,” Mr Martin said.

He added that he had been fielding calls from large public healthcare networks wanting to know how they pulled $105m out of CALHN in six months.

“There are many public health networks around the country looking at this because there is basically unlimited community demand for public healthcare services,” Mr
Martin said.

“It is getting to the point where the industry recognises that how they have managed things in the past will not get them to where they need to be in the future.”
Ms Dwyer said with the turnaround program in full swing, the network’s leaders had created an expectation that things would be different.

“We need to continue to work at pace with our (turnaround) program because one of the worst things we can do now is not deliver on that change,” she said.
“We have a long way to go yet but we can see that it is starting to really take shape.

“We are now starting to get more people believing that there is a greater ambition. We are one of the largest health services in the land and we should absolutely be one of the best.”
 

This article was originally written by Sarah-Jane Tasker for The Australian.

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