DHB GOVERNANCE: DISTRICT HEALTH BOARD COMMITTEES
   

 

HON ANNETTE KING, MINISTER OF HEALTH

MEMORANDUM TO CABINET SOCIAL POLICY AND HEALTH COMMITTEE

COMPOSITION OF DHB BOARDS: DHB EMPLOYEES AND CONFLICTS OF INTEREST

PROPOSAL

  1. This paper proposes that DHB employees should not be able to be members of the DHB Board that employs them because of the unmanageable nature of the conflicts of interest to which they would be subject. The paper does not propose further restrictions on DHB membership for other classes of people who have a relationship with the DHB, because conflicts of interest in those cases are manageable within existing mechanisms.

EXECUTIVE SUMMARY

  1. This paper responds to an invitation that officials provide further information to the Cabinet Social Policy and Health Committee on conflicts of interest in the context of DHB Board membership. Specific advice is provided on the conflicts of interest which would be faced by DHB employees and people who contract with a DHB.

  2. Officials have been steered by the State Services Commission guidelines for Crown Entities which note that for a conflict to prevent Board membership it needs to be unavoidable, serious and so pervasive as to be unmanageable. Conflicts of interest and proposed restrictions on DHB Board membership need to be carefully considered as restrictions will limit the pool of people with knowledge of the health sector who are available for DHB Board membership.

  3. It is concluded that DHB employees should be restricted from being members of the DHB Board which employs them, but that contractors need not be restricted from being a member of a DHB Board with whom they contract.

  4. DHB employees should be restricted because of:

    1. inconsistency with the State Services Commission guidelines which recommend that Board membership should be limited where conflicts would be so pervasive as to be unmanageable

    2. the close 'employment' relationship between a DHB board and the employees of a DHB

    3. the type of decisions which will be made by a DHB board (e.g. strategies affecting conditions of employment for Board employees) and consequently the number of occasions a DHB employee would experience a conflict of interest

    4. the risk that a DHB with employee members will inappropriately favour its own provider arm (especially hospitals) over other providers.

  5. In contrast, contractors should not be restricted because the type of relationship they will have with a DHB (essentially fiscal) is not such that they will face pervasive and ongoing conflicts of interest which will be unmanageable. Decisions over contracts and service agreements, which are the most likely source of conflicts of interest for contractors will be made, in all but a few cases, by the management structure below the DHB Board. In those cases where these issues are escalated to the DHB Board for decision making, provisions have already been agreed by Cabinet to transparently and effectively manage potential conflicts.
BACKGROUND

  1. This report is provided in response to SPH(00)M13/2m which directs officials to undertake further work to define conflicts of interest in the context of DHB membership and report back to the Cabinet Social Policy and Health Committee as soon as possible.

  2. Previous advice to the Cabinet Social Policy and Health Committee has recommended that DHB employees should not be able to be members of the DHB Board which employs them. DHB employees should not be restricted from being members of a DHB Board other than the one which employs them.

  3. It has also been recommended previously that restricting other people who contract with a DHB Board is less critical and would result in a very limited pool of people with knowledge of the health sector being available for DHB Board membership.

  4. This paper provides further advice on the types of conflict of interest that different categories of people may face and the subsequent impacts these will have on the functioning of the Board.

CONFLICTS OF INTEREST

  1. A conflict of interest may take a number of forms. It may be financial or non-financial. It may be direct or indirect. It may be professional or family related. It may arise from involvement as a provider or user of a particular service.

  2. Conflicts of interest cannot be eliminated, especially in boards such as DHBs where some members will need to be familiar with health and disability issues and/or services to ensure effective working. The key points in respect of conflicts of interest are identification, management and DHB Board function.
MANAGEMENT OF CONFLICTS OF INTEREST

  1. Ministers have already made a number of decisions with regard to conflicts of interest:

    1. Prior to being elected a DHB Board: that people declare any conflicts, or potential conflicts, of interest before accepting nomination for election to a DHB Board [CAB(00)M11/1A(30 refers]. In terms of process, this would involve a declaration being made to the returning officer who would make the information public with the names of candidates for election

    2. Emerging conflicts for DHB Board members: that DHB Board members be required to disclose any actual or potential conflict of interest to the Board and not participate in any Board discussion or decision relating to the conflict after the disclosure is made [CAB(00)M11/1A(30 refers], this decision was also noted by Cabinet Social Policy and Health Committee in SPH(00)M13/2

    3. that employees of the Ministry of Health are required to comply with the Public Service Code of Conduct and they may therefore be required to resign their employment if they achieve DHB Board membership [SPH(00)M13/2].

  2. These provisions aim to ensure transparency when people are standing for election. They also aim to ensure that conflicts of interest are effectively managed after election or appointment to a DHB Board and that the probity of DHB Boards is maintained.

  3. It is anticipated that virtually all conflicts of interest that will exist for potential DHB members will be manageable by these mechanisms.

  4. The State Services Commission's "Board Appointment and Induction Guidelines", which apply generally to Crown entity appointments, discuss conflicts of interest in terms of their manageability. For a conflict of interest to prevent Board membership, it would need to be unavoidable, serious, and so pervasive as to be unmanageable. That is, the conflict would affect so many of the board's decisions that the management mechanisms described above are not practical.

  5. Potential conflicts of interest need to be considered in light of the DHB Board functions and the decisions they will be making. Cabinet has previously agreed that the role of the Board is to set strategic direction, appoint the Chief Executive, monitor the performance of the entity and its Chief Executive, ensure compliance with the law, accountability documents and relevant Crown expectations, and maintain appropriate relationships with the Minister of Health, Parliament and the public [CAB(00)M11/1A(3) refers].

  6. Cabinet has also agreed that the Chief Executive will be accountable for all the operations of the DHB (including the hospital and other services it delivers) and be directly accountable to the DHB Board for exercising this function.

  7. Any proposed restrictions upon DHB membership need to be considered very carefully. Restrictions will, by nature, limit the pool of people with knowledge of the health sector available for DHB Board membership.

DHB Board Employees

  1. The only case of conflict of interest that officials consider to be unmanageable in terms of the State Services Commission Guidelines is that faced by employees of a DHB.

  2. Boards will be considering and making decisions on the allocation of resources within the DHB, strategies affecting conditions of employment for Board employees, and the appointment, conditions of employment, and performance of the Board's Chief Executive. For example, it is likely that DHB Boards will be deciding issues such as:

    1. the terms of a collective employment contract for several hundred nurses working in the DHB's hospital

    2. determining the membership of the hospital governance committee

    3. deciding to reduce the scale or scope of their hospital services in favour of enhanced population health services in the community.

  3. DHB employees will (as a result of their intimate relationship with the DHB Board) therefore, have a direct interest in many of the Board's decisions as those decisions impact on them as employees. In order for a DHB employee to manage their conflicts of interest they would need to absent themselves from discussions and decision making on a wide variety of issues. This would result in considerable and ongoing disruption to the normal functioning of the Board.

  4. Allowing a DHB employee to be a member of the DHB Board which employed them would effectively undermine the accountability of the Chief Executive to the Board and weaken the management process. An employee of the Chief Executive could not reasonably also be part of the Board to which the Chief Executive is accountable.

  5. A further issue is ensuring, and demonstrating, that a DHB is not inappropriately biased to favour its own provider arm over other providers who may be better placed to deliver health services and achieve good health outcomes. Preventing DHB employees from being a member of their own governing board would both minimise the risk of hospital dominance over other providers (e.g. Mäori providers and primary care providers) and would transparently demonstrate the Government's commitment to DHB's taking a holistic approach to considering the best interventions to improve the health of their populations.

  6. In proposing that DHB employees be prevented from being members of the DHB Board which employs them, the key concern is the conflicts of interest these people would face and the consequential impact the management of these conflicts would have on the functioning of the Board.

Contractors

  1. Given the types of decisions which will normally be made at the Board level and the types of decisions which will normally be made at the operational-management level of the DHB it is not considered necessary to restrict people who will have a largely fiscal relationship with the DHB from being members of DHB Boards.

  2. Contractors (this term covers self-employed contractors, owners/directors/investors of contracted providers and employees of contracted providers) will not have the same type of ongoing and close relationship with the DHB Board as an employee does. This does not mean that they will never face a conflict of interest and Cabinet has agreed provisions to allow conflicts to be managed in advance and transparently.

  3. Decisions relating to the contracting of services will (in the vast majority of cases) be made at management rather than Board level. Such decisions will include, for example, the detail of a service agreement with an IPA for the delivery of primary care services. However, there may be instances when issues relating to contracting are escalated to the DHB Board for decision making. In those cases any Board members with an interest in the contract will be required to declare their interest and absent themselves from the discussion and decision making relating to the contract. Given that these instances will be the exception, not the rule and should be clearly and unambiguously identifiable, the ongoing disruption to the effective functioning of the Board will be kept to a minimum.

  4. The effect of not restricting contractors from being members of DHB Boards is that the following types of people will, in general, be eligible to be members of DHB Boards:

    1. people employed by NGOs
    2. Mäori providers
    3. general practitioners
    4. practice nurses
    5. rest home owners
    6. members of IPAs
    7. independent midwives.

  5. In turn the following types of people will be restricted from being members of the DHB Board which employs them:

    1. staff in the DHB's hospital
    2. clinical and non-clinical analysts and advisors who work to the Chief Executive
    3. hospital managers
    4. operational staff who manage the contracts of the DHB
    5. support staff for the DHB's committees
    6. DHB administrative staff

    CONCLUSION

    1. In summary, officials have considered the nature and strength of conflicts of interest for DHB Board members who are also DHB employees or contractors. Officials have come to the following conclusions:

      1. the nature of the employment relationship is closer between a DHB employee and the DHB Board than for a contractor;
      2. due to the closer relationship between the DHB employee and the DHB Board and the types of decisions which the DHB Board will be making, there will be a significant number of conflicts of interest which will cause major disruption to the effective functioning of the DHB Board; and
      3. there would be an unworkable and strained relationship between a DHB employee on the DHB Board who is accountable to the Chief Executive as an employee and who is also part of the Board the Chief Executive is accountable to; and
      4. restricting DHB employees from being members of their governing board is consistent with the desire to ensure that DHB's are not biased in favour of their own provider arm over other providers.

    2. Officials recommend that DHB employees should not be eligible for membership on the DHB Board that employs them and should be required to resign if elected. Conflicts of interest for DHB employees will be pervasive and unmanageable and they would be able to participate in very few Board decisions thus compromising the effective functioning of the Board. Officials do not consider that any further restrictions should be imposed. In particular officials do not consider that individuals who contract with DHBs to deliver services (or who are employees, owners or directors of organisations that contract for service delivery) should be excluded from DHB Boards as potential conflicts of interest can be managed through the described process of absenting themselves when conflicts arise.

    CONSULTATION

    1. This paper has been prepared by the Health Sector Development Officials Group led by the Ministry of Health, and including the State Services Commission, CCMAU, the Health Funding Authority, Te Puni Kokiri, DPMC, and The Treasury.

    FINANCIAL IMPLICATIONS

    1. There are no direct financial implications in this paper.

    LEGISLATIVE IMPLICATIONS

    1. Ministers decisions on the proposals in this paper will be captured in the New Zealand Public Health and Disability Bill.

    HUMAN RIGHTS ACT 1993

    1. The proposals in this paper are consistent with the Human Rights Act 1993.

    REGULATORY IMPACT STATEMENT

    1. A regulatory impact statement prepared in accordance with the requirements in CO (98) 5 is attached.

    PUBLICITY

    1. Any publicity on matters related to this paper is being managed as part of the Communications Strategy that forms part of the wider work on health sector change.

    REGULATORY IMPACT STATEMENT

    Objective

    1. This report is provided in response to SPH(00)M13/2m which directs officials to undertake further work to define conflicts of interest in the context of DHB membership and report back to the Cabinet Social Policy and Health Committee as soon as possible.

    2. The policy objective is to ensure that the governance arrangements for DHBs is sound and in particular to ensure that there is a clear process for recognising, declaring and managing conflicts of interest of members of DHB Board members.

      Statement of the problem and the need for action

    3. The particular issue discussed in this report is whether the conflicts of employees are sufficiently pervasive to warrant excluding an employee of a DHB serving on the Board of that same DHB. In addition, is this conflict any more extreme than parties who contract with the DHB (eg a member of an IPA) serving on the DHB Board.

      Feasible options to achieve the desired objectives

      Non-regulatory measures

    4. Non regulatory measures are not applicable. Regulatory measures

    5. It is proposed that the legislation preclude employees of a given DHB also serving on that same DHB Board.

      Statement of the net benefit of this proposal

    6. Officials have considered the nature and strength of conflicts of interest for DHB Board members who are also DHB employees or contractors. Officials have come to the following conclusions:

      1. the nature of the employment relationship is closer between a DHB employee and the DHB Board than for a contractor;
      2. due to the closer relationship between the DHB employee and the DHB Board there will be a significant number of conflicts of interest which will cause major disruption to the effective functioning of the DHB Board; and
      3. there would be an unworkable and strained relationship between a DHB employee on the DHB Board who is accountable to the CEO as an employee yet who is part of the Board the CEO is accountable to. Accordingly, Officials consider that there are net benefits to excluding employees from DHB Boards.

      Consultation

    7. The following agencies were involved in the development of this paper through the Health Sector Development Officials Group (led by the Ministry of Health): Health Funding Authority, Crown Company Monitoring Advisory Unit, Department of Prime Minister and Cabinet, The Treasury, Te Puni Kökiri, and the State Services Commission.

    AT THE MEETING ON 19 JUNE 2000, FOLLOWING REFERENCE FROM THE SOCIAL POLICY AND HEALTH COMMITTEE, CABINET:

    CAB (00) M 20/5

    COMPOSITION OF DHB BOARDS: DHB EMPLOYEES AND CONFLICTS OF INTEREST

    BACKGROUND

    1. noted that on 30 May 2000 the Cabinet Social Policy and Health Committee directed officials to undertake further work to define conflicts of interest in the context of District Health Board membership and report back to SPH as soon as possible [SPH(00)M13/2 refers];
    2. noted that the following decisions have already been made with regard to conflicts of interest:

      1. that people declare any conflicts, or potential conflicts of interest before accepting nomination for election to a DHB board [CAB(00)M11/1A(3) refers];

        that DHB board members be required to disclose any actual or potential conflict of interest to the board and not participate in any Board discussion or decision relating to the conflict after the disclosure is made [CAB(00)M11/1A(3) refers];

        that employees of the Ministry of Health are required to comply with the Public Service Code of Conduct and they may therefore be required to resign their employment if they achieve DHB board membership [CAB(00)M 19/14 refers];

    MANAGEMENT OF CONFLICT OF INTEREST

    1. noted that the State Services Commission's "Board Appointment and Induction Guidelines", which apply generally to Crown entity appointments, discuss conflicts of interest in terms of their manageability. For a conflict of interest to prevent board membership, it would need to be unavoidable, serious, and so pervasive as to be unmanageable. That is, the conflict would affect so many of the board's decisions that management mechanisms are not practical;
    2. agreed that conflicts of interest are manageable by the mechanisms referred to in paragraph (b) above;

    3. agreed that no DHB employee elected to a DHB board, or any other DHB board member with a significant material interest in the affairs of the board, shall sit on any subcommittee with a direct responsibility for the area out of which a conflict of interest might arise;

    4. directed officials to report as soon as possible to the Cabinet Social Policy and Health Committee on how the decisions on the management of conflict of interest set out in this minute will be reflected in legislation applying to the DHBs;

    DHB EMPLOYEES

    1. agreed that DHB employees who are elected to the DHB which employs them will not be required to resign their employment with that DHB;

    CONTRACTORS

    1. agreed that contractors (self-employed contractors, owners/directors/investors of contracted providers and employees of contracted providers) not be restricted from being members of DHBs with which they have a contractual relationship;

    CAMPAIGN EXPENDITURE

      1. agreed in principle, subject to the further work in paragraph (i)(ii) below, that the same maximum limit on campaign expenditure should be applied for DHB elections as is to be applied for local government elections;

      2. directed the Ministry of Health and the Department of Internal Affairs (Local Government), in consultation with other officials as appropriate, to examine the implications of the decision in principle referred to above, and report back to the Cabinet Social Policy and Health Committee as soon as possible.

     

  

 
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