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House of Assembly - Fifty-Fourth Parliament, Second Session (54-2)
2020-12-02 Daily Xml
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Motions

KordaMentha

The Hon. S.C. MULLIGHAN (Lee) (11:30): On behalf of the member for Kaurna, I move:

That this house—

(a) notes with alarm that the Auditor-General identified nine different failures regarding the government's hiring of corporate liquidators KordaMentha;

(b) notes the concern raised by the ICAC commissioner about procurement and conflicts of interests within SA Health;

(c) notes the Auditor-General's Report further found health expenses exceeded the budget by $478 million, despite the appointment of KordaMentha;

(d) urges the government to publicly release the full details of all payments made to KordaMentha; and

(e) condemns the government for choosing to spend tens of millions of dollars on corporate liquidators at the same time they are cutting frontline doctors, nurses, paramedics and other frontline staff.

I raise this motion on behalf of the member for Kaurna, who first brought this to the attention of the house some time ago, back in the second half of 2019 after the Auditor-General had released his then annual report for the 2018-19 financial year.

This report came on the back of very significant community concern and concern within the health department about the appointment of corporate liquidators to effectively run the Central Adelaide Local Health Network on behalf of SA Health and, in particular, the way in which these private sector interstate corporate liquidators were appointed to run a public sector agency, and a public sector agency delivering essential public services to the community of South Australia.

No-one has really got to the bottom of why KordaMentha was chosen to the exclusion of everybody else. No-one knows why KordaMentha was chosen to the exclusion of any other consultant who was available, who actually lived in South Australia, who was actually South Australian or, even better perhaps, had some connection to the South Australian health system. We have heard on the grapevine that someone connected to one of the then brand-new health boards appointed by this government thought they had a connection to KordaMentha and hence a contract was awarded.

It is worth bearing in mind that this contract started out uncontested, a direct approach, no market call, and KordaMentha was initially awarded an $880,000 contract. In very short order, that was extended by an extra $1.1 million, then it was extended out to $20 million. So far, the most recent Auditor-General's Report tells us that $32 million has been spent on this uncontested contract to KordaMentha and that the total contract value so far is in excess of $40 million.

What are we getting for the $40 million that KordaMentha is raking in from this extraordinary, outrageous contract? Not only had Health blown its budget by $478 million in the 2018-19 financial year reported on by the Auditor-General but it had exceeded its budget by $547 million in the most recent financial year, the 2019-20 financial year.

Admittedly, just a little over $50 million of that was due to extraordinary COVID-related expenditure, but more than $450 million over budget in SA Health for two years in a row does not sound like pretty good value for money to me. It sounds like KordaMentha have been appointed to this unprecedented, lucrative, uncontested contract and delivered no value for money whatsoever.

If you listen to KordaMentha, if you look at their brief forays into the public eye and what they claim to have delivered, they claim to have sent out an extra $57 million worth of bills to people who owe money to SA Health, and they claim that this is cost saving. That is ridiculous. The fact that this company would come to South Australia and fleece taxpayers of tens of millions of dollars for services that quite clearly are delivering absolutely no value for money whatsoever is outrageous.

Remember the song and dance from those corporate liquidators, from KordaMentha, with what they told South Australians after their initial foray into SA Health. They said that it was the worst corporate culture they had ever experienced and that it was ripe for turnaround. Well, there has not been much turning around, and perhaps the reason why is that they knew that once this direct approach had been made to them they were on a winner.

The nine failings listed by the Auditor-General in his 2019 annual report, the report that was scathing about how KordaMentha was appointed to this lucrative taxpayer-funded contract, are as follows. The first failing was that the decision to appoint KordaMentha through a direct negotiation approach was not evidence based, when it should have been. There was no basis for SA Health going straight to KordaMentha. That was the first failing.

The second one was that phases 1 and 2 of the acquisition, planning and approval process did not contain important information. The acquisition, planning and approval process did not adequately consider future procurement risks, quite clearly procurement risks that have seen a contract blow out from $880,000 to more than $40 million.

There was insufficient evidence of the procurement team's independent assessment of KordaMentha's advice—quite clearly, if KordaMentha is continually recommending that its contract be extended. The next failing was government did not adequately manage the inherent advantage of the incumbent contactor during the next phase of the procurement. That is absolutely true, and the inherent advantage that KordaMentha is wreaking over SA Health is quite clear, coercing them into extending this lucrative taxpayer-funded contract.

Probity planning for the third phase of the contract was inadequate. Management of potential conflicts of interest was not documented or declared, the government did not assess whether deviation from the phase 3 acquisition plan was significant enough to require consideration by the State Procurement Board, and KordaMentha commenced before contracts were signed. How remarkable! Remember, of course, that the staff of these corporate liquidators are exclusively from interstate—no local presence whatsoever—flying in here and staying in hotels, all at taxpayers' expense. They are even flying people in from overseas and having to pay those international flights and hotel costs.

You would think, that out of a $40 million-plus contract, taxpayers would almost be inoculated by now to the outrage that this contract is causing. However, I quote a letter to the editor from as recently as last Friday in the Adelaide Advertiser, which followed the story from last Wednesday in TheAdvertiser that poor old KordaMentha, those struggling corporate liquidators who have already been paid $30 million of taxpayers' funds in South Australia, are having to be compensated $57,737 for costs relating to the cancellation of flights and rental accommodation after their contract was cancelled in April due to the pandemic. Is that not extraordinary, that South Australian taxpayers would have to compensate allegedly experienced corporate liquidators for cancelled flights?

Maybe these experienced corporate liquidators are unfamiliar with booking fully flexible flights and have perhaps overlooked some of the basics of interstate travel. Nonetheless, the outrage at KordaMentha, after pocketing $32 million, saying they needed an extra nearly $60,000 in compensation was not lost on Maureen Goldie of Blackwood, who wrote to The Advertiser:

Advisory firm KordaMentha is being paid millions to oversee costs at the RAH.

On top of that, it is being paid compensation for cancelled flights and rental accommodation during the COVID-19 pandemic.

Meanwhile, local bakeries—for some strange reason treated as takeaways—florists and the like, which were forced to close last week [during the snap lockdown], will have to fight for compensation.

State Health Minister Stephen Wade, please explain.

Ms Goldie, you could not have said it any better. That, I think, is a fair indication of how the public feels about this disgraceful contract. Other than sending out bills to SA Health, what a remarkable turnaround strategy to retain costs! Instead of actually addressing what they see as a dreadful corporate culture and trying to contain costs, they merely seek to bring in more revenue.

These corporate liquidators have gone about one of the biggest flensings of staff in the public sector that we have seen in recent times. They recommended, of course, that hundreds of nurses, hundreds of doctors, hundreds of allied health professionals and other support staff from our hospitals on the frontline be sacked. It was extraordinary that in the middle of the state's response to the coronavirus pandemic, with SA Health leading the fight against this virus, 112 nurses were being sacked from SA Health. It is truly remarkable.

After seeing the budget blown under KordaMentha's watch by $900 million plus over two years, this is what they have to show for it: fewer doctors and fewer nurses on the frontline at the very time when we need all hands on deck during this coronavirus pandemic. Of course, KordaMentha were hoping to come back a little earlier. They had fed a story to the media that they would be returning in short order in mid-October.

They were going to come back, at an extra cost of $4.4 million—that is, $4.4 million on top of the $32 million they have already been paid for no result—and try to save an extra $276 million over three years. I am banking that, after overseeing budget blowouts in excess of $450 million a year for the last two years, we probably would not have too much confidence in these interstate, underachieving corporate liquidators delivering on a $276 million cost saving target.

It is remarkable that these corporate liquidators would choose to continue this contract. I can see, from a purely avaricious perspective, why they might hold that they want to continue this. After winning a $40 million uncontested contract in the public sector—whereas the Auditor-General says there is a clear, inherent advantage that these corporate liquidators have over SA Health officials—I can see from that perspective that they would think, 'Let's keep making hay while the sun shines. Let's keep taking this department and the South Australian taxpayer for a ride.'

You can see, then, perhaps the separation mentality between people who choose to dedicate their careers to working in the public sector, for example, delivering health services to South Australians and those people who choose to accept $40 million uncontested contracts to deliver very poor financial outcomes.

In short, this is a disgraceful contract. There is only one thing worse than setting up these local health boards to devolve executive responsibility for running our hospitals and delivering public health services away from the minister of the day and the leadership of SA Health as a government agency. The only thing worse than that could be further outsourcing that responsibility to corporate liquidators, and particularly corporate liquidators who do not even come from South Australia, who claim that after taking $32 million worth of taxpayers' funds, they need an extra $60,000 worth of compensation.

It is absolutely outrageous, when we have a public health system clearly in need of additional support from this government, a public health system which has continued to experience a ramping crisis and which cannot even answer every 000 phone call made to it. It is a system which presides over a dispute over the delivery of cardiac services at the Women's and Children's Hospital, which has delayed the Women's and Children's Hospital project without the release of a business case, which has delayed and blown out The Queen Elizabeth Hospital project, which has cut 112 nurses during the pandemic and in which health executives are seemingly feel free to email surgeons telling them to say no to elderly patients with multiple conditions seeking surgery.

It is clear that this government should be doing more to support South Australians' access to better health services rather than dedicating tens of millions of dollars of taxpayers' funds to interstate, under-delivering corporate liquidators.

The Hon. J.A.W. GARDNER (Morialta—Minister for Education) (11:45): I am very proud to be part of a government that puts the health and wellbeing of every South Australian as one of the core reasons for the work that we do. The key aspects of our government's record are improvement and enhancement of our healthcare system in South Australia; a reinvestment in services in institutions such as the Modbury Hospital, the Lyell McEwin Hospital, The Queen Elizabeth Hospital; ensuring that our health system is operating as well as it possibly can; the revitalisation of the Repat hospital; the incredibly strong body of work in the Southern Adelaide Local Health Network; and the transformation of health governance by having local boards with far stronger capacity to ensure that the needs of local communities in South Australia are supported for the needs of their area.

The Minister for Health, Stephen Wade, has done a remarkably strong job over the last three years in turning around the legacy of dysfunction and disrepair left by the Labor Party after 16 years in government. It had health minister after health minister and, finally, with the now Leader of the Opposition, that tenure of Transforming Health, overseen when the current shadow health minister was, I think, Chief of Staff, certainly senior adviser to former ministers Hill and Snelling. When we came to government in March 2018, the disrepair in which the Liberal Party found the health system was very poor, very disappointing, not unexpected but potentially even worse than we had feared. It was a financial and organisational mess.

In 2012, the former Labor government was presented with a report that laid out the appalling state of the Central Adelaide Local Health Network budget. It did nothing. After 16 years of Labor's mismanagement, our Central Adelaide Local Health Network, which I think is at the centre of the motion before the house now, needed to refocus and be reined in. In 2018, on coming to government, we launched a responsible road map back to stability and excellence.

KordaMentha's diagnostic review in 2018 identified that the Central Adelaide Local Health Network (CALHN) was suffering from a lack of financial control and reliable information, poor processes and a poor culture. It confirmed the extent of dysfunction in performance monitoring, procurement, planning, improvement capability and risk management. It described an organisation lacking a clear motivating vision or sense of purpose.

The review found that CALHN was operating significantly above the nationally agreed efficient price for acute inpatient hospital servicing. In 2017-18, CALHN was operating at 30 per cent above the National Efficient Price. A massive overspend of $303 million was forecast in CALHN for the 2018-19 year unless urgent and significant corrective action was taken. This poor performance was systemic and unsustainable. It was an extraordinary cost to the taxpayers of South Australia and it was not delivering the health outcomes that the constituents, whom we all are here to serve, deserve.

The diagnostic review also reported that anticipated savings from moving to the new Royal Adelaide Hospital had not been achieved and that in fact costs had increased as a result of the move to the new hospital. Becoming a sustainable health network that offers quality health care and value for the community was the focus for CALHN when it made the bold move to enter administration in late 2018. Since late 2018, CALHN has made huge inroads towards becoming a sustainable and accountable healthcare network.

The CALHN Governing Board has overseen great progress in turning CALHN around and has led the most significant period of change CALHN has ever experienced. The appointment of a new CEO and a refreshed, strengthened and highly focused executive team brought new energy and drive to this challenge. Working with KordaMentha, the CALHN leadership team set about making the change required to become a high quality and sustainable organisation.

A new clinical program structure was introduced in October 2019. This has brought clinical and operational leads together to deliver better patient outcomes and increase collaboration and accountability. It was intentionally designed to be a collaborative multidisciplinary solution to ensure that the patient is always at the centre of what CALHN does. CALHN also introduced new financial delegations and procurement controls to increase oversight of financial expenditure and significantly improved its clinical coding, including clearing a coding backlog to provide greater visibility of activity across CALHN.

These were absolutely necessary reforms to ensure not just sustainability but, more importantly than that, better patient outcomes. Bearing the fruits of this hard work, in its first year of recovery CALHN achieved $57 million in savings, which was $16 million ahead of its target. There has also been improvement in CALHN's National Efficient Price. From operating at a high of 130 per cent of the National Efficient Price in 2017-18, the rate decreased to 124.9 per cent in 2018-19 and 123 per cent by December 2019.

Improvements in the average length of stay have seen a reduction of 13.1 per cent at the Royal Adelaide Hospital, which is linked to improved patient satisfaction and decreased risk of hospital-acquired complications. This reflects that patients are receiving the right care in the right place. In addition, the number of patients impacted by ramping reduced by 56 per cent in August 2020 compared with August 2019.

In mid-March, when the coronavirus pandemic took full force, CALHN moved into an emergency response mode. At that time, administrators KordaMentha and the government agreed to pause the recovery program. While COVID-19 impacted CALHN's recovery, its board and executive team maintained financial controls and demonstrated the capability and capacity required to successfully manage its financial performance in a post-COVID operating environment. This built on significant improvements, led by CALHN in partnership with KordaMentha, in organisational processes and the implementation of a new organisational structure that has vastly improved leadership, collaboration and accountability.

The associated capability uplift, along with improvements in professional governance, leadership and management protocols, has led to improved clinical outcomes and enhanced services for patients, their families and the community. KordaMentha returned in October 2020 in a consulting capacity to focus on initiatives and opportunities to assist in CALHN's evolution and to strengthen its workforce capability and flexibility. It is recognised that there is still work to do, but the means are in place for CALHN to achieve its goals.

Central Adelaide Local Health Network has a clear vision to shape the future of health with world-class care and world-class research. It aims to be one of the top five performing health services in Australia and one of the top 50 performing health services in the world within five years. CALHN achieving a successful turnaround will ensure that its patients receive the world-class care they expect and deserve and that the community receives a sustainable service delivery model. The government will not be supporting this motion.

The Hon. S.C. MULLIGHAN (Lee) (11:54): I thank the member for Morialta for his remarks on this matter, being the member in this place who represents the Minister for Health. I had hoped that we might hear in the member for Morialta's remarks an impassioned defence of the procurement of KordaMentha and some explanation, finally, as to why this rainmaker of a contract was awarded without any market process, directed specifically to one favoured company over every other potential South Australian that could have possibly assisted SA Health with the task in front of it. Of course, we did not hear any of that.

I would also have hoped that there would have been some impassioned defence of the work of KordaMentha, finally telling us what they have actually delivered for the $32 million—or, I should say, $32 million and $60,000 of compensation they needed because they are currently unable to fly in from interstate. All we had was a recitation by the member for Morialta of this $57 million figure the Minister for Health, Stephen Wade, has put out to the media.

That is $57 million of extra bills that have been sent out on the SA Health letterhead to people from whom additional revenue can be recovered. This is not a reduction in annual costs of SA Health. This is not some corporate improvement strategy designed to unclog our emergency departments, which have suffered a ramping crisis for the past two years. This is not $57 million that has been delivered to achieve a 000 call service to ensure that South Australians seeking emergency help from their health services can get through in time.

This is not $57 million that will finally see a resolution of the confusion and the conflict that seems to exist at the Women's and Children's Hospital about the delivery of cardiac services. This is not $57 million that has been shaved from what is no doubt the ballooning cost of the impending Women's and Children's Hospital development. It is definitely not $57 million that is being saved from The Queen Elizabeth Hospital upgrade because, as we know, the delay under this government of more than two years to that project has added a delay construction cost of $50 million. An additional $50 million has been added to the project because of this delay and it will now cost in excess of $300 million.

Perhaps what the member for Morialta could have referred to was that some money has presumably been saved from the hundreds of doctors and nurses who have been sacked from the Central Adelaide Local Health Network, and the hundreds of allied health professionals and other support staff who have been sacked, many of whom have been sacked in the middle of a global pandemic, just when you would have thought we would greatly need their help and support.

I am really concerned about what this KordaMentha contract represents for this current government. Somebody—presumably, as we have been told, a member of one of these new hospital boards—has dreamed up the idea of ringing a mate who is a corporate liquidator from interstate and getting them a lucrative taxpayer-funded contract in SA Health, which has been extended from $880,000 to in excess of $40 million.

What does that say about procurement controls? What does that say about corporate governance under this government? What does that say about accountability under this government? The member for Morialta spruiks the benefits of having local hospital boards. Local hospital boards have delivered us two health blowouts in excess of $450 million per financial year back to back. That is what those hospital boards have delivered.

If you ask the Auditor-General, who is responsible for financial management within the Health portfolio—is it the health minister, is it the Chief Executive of SA Health or is it the board in control of a hospital's operations?—there is no definitive answer. So for this government: tick, mission accomplished. No-one can finally be held accountable for these $450 million blowouts. And in the middle of it is a corporate liquidator enjoying a $40 million contract. Shame on those opposite.

The house divided on the motion:

Ayes 21

Noes 22

Majority 1

AYES
Bedford, F.E. Bell, T.S. Bettison, Z.L.
Bignell, L.W.K. Boyer, B.I. Brock, G.G.
Brown, M.E. (teller) Close, S.E. Cook, N.F.
Gee, J.P. Hildyard, K.A. Hughes, E.J.
Koutsantonis, A. Malinauskas, P. Michaels, A.
Mullighan, S.C. Odenwalder, L.K. Piccolo, A.
Stinson, J.M. Szakacs, J.K. Wortley, D.
NOES
Basham, D.K.B. Chapman, V.A. Cregan, D.
Ellis, F.J. Gardner, J.A.W. (teller) Harvey, R.M.
Knoll, S.K. Luethen, P. Marshall, S.S.
McBride, N. Murray, S. Patterson, S.J.R.
Pederick, A.S. Pisoni, D.G. Power, C.
Sanderson, R. Speirs, D.J. Tarzia, V.A.
Treloar, P.A. van Holst Pellekaan, D.C. Whetstone, T.J.
Wingard, C.L.
PAIRS
Picton, C.J. Cowdrey, M.J.

Motion thus negatived.

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