Health NZ and South Seas Healthcare resolve funding dispute

Health New Zealand (Health NZ) and Pacific health provider South Seas Healthcare have resolved a dispute concerning $19.2 million after reaching a final agreement last month.

This information was disclosed to PMN News after Te Whatu Ora/Health NZ conducted several audits related to Covid-19 funding.

Following an audit, South Seas Healthcare was asked to return pandemic funding but defended its spending as essential for maintaining critical services.

Both parties have since come to a satisfactory outcome, although they declined to disclose specific details, citing confidentiality.

Between 1 July 2019 and 31 March 2023, South Seas Healthcare was awarded contracts worth $39.7m from Health NZ. After the Covid pandemic, audits were launched for all providers receiving contracts exceeding $5m.

Health NZ initially sought to recover $19.2m in Covid-19 funding from South Seas Healthcare based on an audit that identified significant financial and operational control issues.

South Seas Healthcare received an interim draft audit report in December 2023, a draft audit report in March 2024, and a final audit report in May.

The final audit report indicated a recoverable surplus of $9.1m and identified a potential surplus of $10.1m.

However, the Ōtara-based clinic disputed the audit findings.

In November, PMN News reported that South Seas Healthcare was considering redundancies due to the ‘funding clawback’.

Following that report, Markerita Poutasi, Health NZ’s National Director of Pacific Health, confirmed that the audit identified “substantial surpluses” that South Seas Healthcare was contractually obligated to repay.

“Significant financial and operational control issues were identified, which our audit report addressed with numerous advisory recommendations to help South Seas Healthcare resolve these challenges,” Poutasi said.

She said South Seas had shown “unusual resistance” to the findings despite having enough opportunities to review and respond to the draft reports.

Unusual operating environment

Lemalu Silao Vaisola Sefo, CEO of South Seas Healthcare, said in a statement on 17 January that the period covered by the audit included an “extremely unusual” operating environment, specifically the response to the pandemic.

South Seas Healthcare was key in mobilising the Pacific community for Covid-19 vaccinations. Photo/South Seas Healthcare - Facebook

“This was not a normal operating environment, it was a response to a public health emergency,” he said.

“Our team worked 24/7 and had to stand up support with very little notice and, in some cases, overnight. The strain on our staff and on our systems was immense, and this is reflected in the report’s findings.”

Lemalu also pointed out that several claims in the audit report were incorrect or lacked context.

He added that the $19.2m figure presented in the report was not credible, and this sentiment was reflected in the final agreement.

“This is, in our view, due to the report having been completed without input or feedback from the South Seas leadership team,” Lemalu said.

Photo/PMN News

In December, when asked about specific details of the financial and operational control issues identified, Poutasi declined to provide specifics, citing commercial sensitivities.

She says the providers are expected to be accountable for the funds received.

Agreement reached

Lemalu said South Seas Healthcare and Health NZ “reached an agreement to resolve the dispute over amounts owed by both parties”.

“The final settlement involved a reconciliation of funds owed by both sides, with South Seas repaying some funds to Health NZ,” he said.

“In hindsight, we accept some of our processes were not as robust as they could have been. However, this was a public health emergency, and in our view, we responded accordingly.

Photo/RNZ Angus Dreaver

“We have taken onboard the report’s recommendations around process improvements and have already implemented many of these.

“As an organisation, we are always open to making improvements so we can better serve our community.

“We have already implemented many of the report’s recommendations. This matter is now closed, and South Seas continues to work with Health NZ to deliver services to our community.”

On 17 January, a spokesperson for Health NZ confirmed that Health NZ and South Seas Healthcare have resolved the audit findings.

“The details [of the resolution] are confidential, but both parties are pleased with the outcome,” the spokesperson said.