‘Cost increases rather than savings’: Auditor slams Allan government agency

A Victorian agency supposed to reduce public hospitals’ costs reported millions of dollars in estimated savings and benefits that may not actually exist, while some deals increased costs.

A centralised state government agency supposed to reduce public hospitals’ costs cannot show that its work has saved money and benefited services, a damning audit has found.

The government watchdog found HealthShare Victoria reported millions of dollars in estimated savings and benefits that may not actually exist, while some of their deals increased costs.

HSV was designed to capitalise on the public hospital system’s buying power as a group, and negotiate better prices from suppliers in collective agreements.

But a Victorian Auditor-General’s Office report has found a staggering 23 per cent of collective agreements show “estimated cost increases rather than savings”.

The report, tabled in parliament this week, comes as the Allan government prepares to further centralise hospital operations, withthe establishment of health service networks at the end of this month.

Premier Jacinta Allan. Picture: Nadir Kinani

HealthShare Victoria has been held up as a benefit of streamlining services, and its collective agreements were responsible for $1.4bn in spending last financial year.

But the damning VAGO audit found the agency “can not show that its collective agreements” — which lock hospitals into buying specific supplies at a set price — “deliver measurable cost savings and benefits to health services”.

The report says smaller health services submitted the agreements had delivered “more competitive pricing”, while metropolitan services said pharmaceutical costs were down.

But the watchdog found issues with data quality and the agency’s process for calculating benefits made it difficult to accurately quantify its work, and made several recommendations.

“HSV cannot show if it is delivering value for money to Victorian health services,” the report says.

HSV says they delivered more than $200m in estimated savings and benefits last financial year, but the report notes the agency did not verify or track “actual saving and benefits”.

A health department spokeswoman said HealthShare Victoria took on a bigger role during the pandemic but was now back to focusing on “saving costs” and would implement all recommendations from the report.

The agency was supposed to reduce public hospitals’ costs.

The report, which examined data from July 2019 to May 2025, said HSV’s figures “may overstate achieved benefits” and “do not provide an accurate measure of value delivered to health services”.

“HSV continues to report estimates savings and benefits even when health services do not switch to recommended alternatives goods and services due to clinical or operational barriers,” it said.

The report said in one case, HSV identified $4.2 million in “further opportunities for savings and benefits” if health services switched to a “functionally equivalent”, cheaper surgical product. But at least one major health service rejected the change because the items had a higher complication rate.

The audit also revealed several cases where health services had negotiated better contracts than HSV, including a case where a health service buying hospital beds negotiated savings of $450,000.

The report said the estimated savings of the collective agreements also “vary significantly”, noting that their analysis found 23 per cent of agreements estimate “negative” benefits, “which indicates cost increases”.

HSV pointed to factors including inflation and argued costs could have increased even more without their oversight, but the report says they “did not provide evidence to support this”.

The VAGO also found HSV had “significant gaps” in key business processes that help ensure it gets value for money, and criticised their failure to monitor off-contract spending.

The report says HSV did not track health services spending outside of collective agreements, despite identifying $2.5 million in contract leakage during a renegotiation for sterilisation products in 2019.

VAGO also criticised health services and said they lacked robust monitoring on the issue too.

Originally published as ‘Cost increases rather than savings’: Auditor slams Allan government agency