Central Adelaide Local Health Network inefficiency costs $105m in six months, KordaMentha reveals

The cost of inefficiency at the health network covering the RAH and QEH now has a dollar figure on it, and an eye-watering one at that.

• Central Adelaide health network’s financial woes flagged in 2012
• $112m in health spending wasn’t properly approved
• Consultants’ fee to fix health overspending hits $2m

The cost of inefficiency in the Central Adelaide Local Health Network (CALHN) covering the Royal Adelaide Hospital was $105 million in just six months, according to a preliminary report by forensic accountants KordaMentha.

Their investigation of the network’s ballooning budget blowout shows its costs for health services was running at up to 29 per cent higher than the national benchmark.

“What this shows is that $105 million is being spent on services that do not improve clinical outcomes,” the report states.

“This puts a dollar figure on the money that is being spent on inefficiency.”

Health service activities are converted to National Weighted Activity Units (NWAU) to allow comparison with other services and also national benchmarks.

“For the six-month period to 31 December 2017, CALHN’s cost of delivery per NWAU was calculated to be $6353, which was 29 per cent higher than the (efficiency benchmark) price of $4910,” the report states.

“Over this period CALHN completed 73,160 NWAU of activity, equating to a total unfavourable cost efficiency variance of $105.6 million, being the variance multiplied by the NWAU activity.”

CALHN covers the Queen Elizabeth Hospital and a variety of statewide services such as SA Medical Imaging and SA Pathology, however the report shows the RAH contributed 82 per cent of the total overspend. Picture: Raymond Spencer

CALHN covers the Queen Elizabeth Hospital and a variety of statewide services such as SA Medical Imaging and SA Pathology, however the report shows the RAH contributed 82 per cent of the total overspend.

Health Minister Stephen Wade said: “These cost overruns do not benefit patients, they do not change clinical outcomes, they are taxpayer dollars being wasted on inefficiencies.

“The financial overrun of the hospital is a symptom of the organisational inefficiencies.

“We have seen in recent days examples of more than $100 million being spent on goods and services outside of proper process.

“KordaMentha has found that the former Labor Government knew in 2012 the appalling state of CALHN’s budget yet did nothing.”

Mr Wade said the RAH needs to “refocus and rein in”, noting families know how to live within their budgets.

He warned that it would “take years” to turn around the spending culture in the network.

“Central Adelaide hospitals are consistently underperforming when compared to their interstate peers,” he said.

“We want to ensure that every dollar that we spend lands as close to the patient as possible.”

KordaMentha was brought in to try to deal with CALHN’s growing deficit which was forecast to top $300 million this financial year unless urgent action was taken.

Its final report is expected by the end of the month, and Labor health spokesman Chris Picton predicts its recommendations will result in severe cutbacks to medical services driven by cost rather than care.