1. With this paper I propose that the sanctions presented in Figure 1 below are included in the drafting of the New Zealand Public Health and Disability Bill. The incorporation of these specific sanctions in legislation will support transparency and provide certainty to both the public and Government that the appropriate measures will be taken to ensure the Government's and public's health and disability expectations are achieved over time.

   Figure 1: Proposed Sanctions for Inclusion in Legislation

EXECUTIVE SUMMARY

2. Having a majority elected Board members is a unique variant to the Crown entity model. It will be important that both the elected members and their associated electorates are clear as to the Board's and individual Board member's duties for transparency, particularly where failure against duties results in sanctions. Their duties, therefore, should be included in legislation. The Crown Entity Reform Initiative proposes comprehensive and consistent duties for Crown entity Boards and individual Board members. These will be sufficient for DHB purposes.

3. An incentives structure of rewards and sanctions is used to motivate and promote good performance. Rewards are applied for exceeding performance and expectations, and sanctions are applied for failure against the duty of the Board.

4. I consider that it is not necessary to include provisions for specific rewards in legislation, because rewards are inherent in the regime, which is based on DHBs moving from an initially controlled environment to one with more autonomy. Rewards are also likely to occur at levels below that required in legislation.

5. The incorporation of specific sanctions in the legislation supports transparency. The sanctions also provide certainty to both the public and Government that inferior performance will be sanctioned, and that the appropriate measures will be taken to ensure the Government's and public's expectations are achieved over time. The sanctions in legislation also provide a safety net to protect the Crown's fiscal and other interests in DHBs.

6. These sanctions involve high levels of intervention in the DHBs' governance and operations and would be applied where there is failure at a governance level to resolve a performance problem. They are 'last resort' sanctions that would be applied after less serious sanctions, such as more intrusive monitoring by the Ministry of Health, have not resolved the issue. That is unless the specific situation warrants that a more severe sanction is imposed on the DHB first.

7. The removal of specific functions from a DHB would be used where a DHB has shown a significant inability to meet the expectations of the Minister as set out in the Funding Agreement.

8. The Minister of Health will have the power to direct DHBs, but this power should be balanced with the following checks to ensure that this power is used appropriately:
   1. the Minister of Health shall consult the affected Board(s) as to the direction given in the notice

   2. no direction given by the Minister of Health may require the supply to any person of any information relating to an individual that would enable the identification of the individual concerned

   3. the Minister of Health shall take account of the objectives of the DHB as specified in legislation before issuing a notice of direction

   4. iv. the written notice of direction shall be published in the Gazette and tabled before Parliament as soon as practicable after the direction has been issued. This will make the Minister's direction transparent and give Parliament the opportunity to debate the issue.

9. Notices of direction will be subject to judicial review, as are all ministerial decisions.

10. The appointment of one or more Crown Monitors to the Board will be part of a move to a more intensive monitoring regime. This allows closer scrutiny of the DHBs' decisions. A Crown Monitor would report back to the Minister of Health on the performance of the Board. Crown Monitors will not have voting rights and will not be Board members.

11. In situations where unsatisfactory leadership of the Board results in poor Board and organisational performance it may be appropriate for the Minister to sanction the Board by removing the Chair and/or Deputy Chair. This could be done by either dismissing them from being Board members, or demoting them to be ordinary Board members.

12. In situations where the performance of the Board is under serious question, and the Minister has no confidence in the Board, it may be appropriate for the Minister to sanction the Board by replacing it with a Commissioner.

13. I recommend that specific routine performance reports should be put in the public domain.

14. I recommend that a DHB, or more specifically its populations, should not be sanctioned by merging it with another DHB in response to persistent poor performance. The Minister of Health should, however, have reserve powers drafted into legislation to merge DHBs where there are significant benefits to the local communities in question and the DHBs have not been able to agree.

15. Ministers have sought advice on the rewards and sanctions for District Health Boards (DHBs) [SPH (00) M 9/6 refers]. The purpose of this paper is to inform Ministers' decisions on the specific rewards and sanctions to be included in the New Zealand Public Health and Disability Bill.

16. This report has been approved by the Ad Hoc Ministerial Committee on Health Sector Change for submission to the Cabinet Social Policy and Health Committee.

17. This paper explores the sanctions for inclusion in legislation that the Minister of Health may place on the Boards of the DHBs, in terms of a Board's collective performance in respect of meeting its statutory and other specific performance expectations set out in the Board's Funding Agreement. This paper does not explore explicit sanctions that could be applied against individual Board members. These decisions have already been taken by Cabinet [CAB (00) M 11/1A refers].

18. Advice in this paper expands on Ministers' decisions, and responds to report backs requested by Ministers in the following papers:
    1. Accountability Arrangements for DHBs [SPH (00) M 9/6 refers]

    2. Governance of DHBs [CAB (00) M 11/1A(3) refers].

19. Further advice will be provided to Ministers on the detailed framework for rewards and sanctions by 31 August 2000. This will also include advice on the criteria for applying the rewards and sanctions, and an escalation path for their use.

20. The accountability framework for DHBs will give effect to the accountability relationship between the Board of each DHB and the Minister of Health (on behalf of the Crown) [SPH (00) M 9/6 refers].

21. Officials will develop a detailed framework for rewarding and sanctioning DHB performance, including the criteria for the application of a complete rewards and sanctions framework, by 31 August 2000 [SPH (00) M 9/6 refers]. However, decisions are required now on which rewards and sanctions should be incorporated in the new legislation.

22. The DHBs' environment will initially be highly regulated and prescribed, but will then be progressively relaxed as each DHB moves towards the maximum-envisaged degree of autonomy [CAB (00) M 11/1/A refers]. Ministers have also decided on the broad framework for the levels of autonomy that will be granted to DHBs [SPH (00) M 9/6 refers].

23. The ability to vary the degree of autonomy granted to a DHB, as outlined in Figure 2 below, provides powerful rewards and sanctions to the Minister of Health. However, Government may want increased levels of control over DHBs to achieve its desired outcomes.

    Figure 2: Modes of Autonomy Continuum