Lessons to be learnt
Article by Ian Powell, Executive Director - The Specialist, Issue 86, March 2011
March 2011
The controversy over the awarding of the community testing laboratory contract by the three Auckland DHBs (Waitemata, Auckland and Counties Manukau) offers important issues for DHBs and senior medical staff.
In summary, the three DHBs had unsuccessfully approached their then (longstanding) sole provider (Diagnostic MedLab – DML) of GP referral community laboratory tests to reduce annual expenditure which was forecast to increase by 5% per annum. Their next step was to conduct a tender process for a new contract which included the introduction of capped funding and other cost saving measures.
The result was that DML lost the contract to a competing provider, Labtests Auckland (LTA). Both DML and LTA are owned by aggressive and antagonist companies competing for market share in Australia, and now in the much smaller New Zealand market. Increasingly it seems inevitable that one of them will fail here.
The DHBs’ decision led to lengthy litigation. DML succeeded in overturning the decision in the High Court but LTA took a successful case to the Court of Appeal which was upheld by the Supreme Court.
The ASMS was not involved in this because it did not directly involve hospital laboratories. Unlike some DHBs, the three Auckland DHBs wisely did not also put up their hospital laboratories for tender as well, which would have increased their vulnerability. The implementation and transition phases were then prone to considerable controversy and acrimony including serious concerns over patient safety. This led Health Minister Tony Ryall to set up a review of the transition by Graeme Milne and Jens Mueller. Their report, Auckland Region Laboratory Transition Review (September 2010), is a fascinating read which draws on academia (unusual in health system reviews) with many lessons to be learnt.
It notes that the DHBs failed to communicate that there was a sense of urgency. Instead the message was expressed as a desire to create significant laboratory services savings which could be used to improve health services in other areas. Unsurprisingly, because it was couched in this way by the DHBs, it meant that this sense of urgency would not be shared by all parties (not just DML). While the report accepts there was a genuine sense of urgency it notes that the critical group, GPs, were not adequately informed about the mechanics of the change. The DHBs failed to link this tender process into a long-term strategic direction and consequently failed to achieve stakeholder ‘buy-in’.
The report, however, is not uncritical of some key stakeholders, particularly opponents of the DHBs process, who complained that they had not been invited to participate and help in the transition phase. The authors believe the DHBs ensured there was sufficient leadership involvement to signal to all stakeholders the importance of proceeding to improve laboratory performance.
But it does acknowledge that more effort could have been made by the DHBs to involve stakeholders more in the specific planning issues of the transition once the final court order had been made. Instead DHBs were preoccupied in dealing with the mechanics of the transition and a hostile outgoing provider (DML).
The report sharply criticises the DHBs for lack of laboratory expertise (describing it as “thin at best”). This is significant for the writers because they refer to the lack of specifications in the tender document as the “root cause” for many of the transition problems that followed. The DHBs were unaware, for example, of the myriad of services provided by DML that were not specified in the previous contract which then threw LTA into confusion when it picked up the new contract. There should have been stronger medical specialist involvement in the process. The potential conflict of interest in some cases is acknowledged but this is not accepted as an excuse.
But DML is not let off the hook. The report refers to what is called a “venomous” media campaign. It accused DML, as part of its strategy, of not being transparent about factors that might aid a competitor to better understand the market.” This is understandable business behaviour but a bit rough when standards of patient care are at stake. Nevertheless, given the financial stakes and emotional investment of DML in opposing the change, its lack of cooperation in the transition should have been anticipated by the DHBs. LTA also gets a biff from the report. Their representations that they were ready to perform in the start-up were “at best overly enthusiastic and at worst misleading.”
In summary, the reviewers conclude that the transition was initiated by “well-intentioned people who used a narrow platform of short-term/mid-term financial considerations to embark on a complex change of relationships.” As a result damage was done to clinical relationships and public perception of the DHBs. On the other hand, although reduced by the problems with the transition, the DHBs have achieved expected savings of around $10-11 million per annum for the life of the contract. Further, they also conclude that the service is now “considered by most to be efficient and reliable and by some to be superior.”
One final observation which was not in the report deserves mention. For all the legitimate criticisms that can be made of the three Auckland DHBs in this most difficult experience, in contrast with some other DHBs, at least they did not put their hospital laboratories directly at greater risk by also subjecting them to the same tender process. In a country like New Zealand the private sector has a role to play but it can’t be the overall driver of laboratory services, especially hospital testing.
Ian Powell
Executive Director
