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Scheme can’t pay back loans

The Government’s flagship health cost cutting scheme has taken out millions of dollars worth of taxpayer funded loans, despite concerns it could not pay a cent back, new documents reveal.

The final deadline for HBL to pay at least $10.2 million back is now March 31. If the money isn’t paid back, it is likely to be recovered from the already cash strapped budgets of DHBs.

The organisation is now the subject of an investigation by the auditor general.

HBL was set up by former health minister Tony Ryall in 2010 to save DHBs $750 million over six years by establishing shared contracts for key hospital services.

But documents show the group took out an initial $8m «short term credit facility», or a low interest loan, from the Government in July 2013 so it could develop three detailed business cases for its food services and linen and laundry services and its National Infrastructure Platform programmes.

In a June 2013 letter HBL chairman Ted van Arkel told the Government the loan would be an «interim step» while the group worked with both the Ministry of Health and Treasury to establish a «long term capital structure».

Van Arkel said it was expected the three projects would deliver $189.7m in savings across the health sector, once the contracts had been filled. It was proposed the money loaned would be paid back through the successful contract providers, but, failing that, DHBs were liable.

Ryall and Finance Minister Bill English approved the loan, with a deadline for repayment set at April 30, 2014.

But subsequent documents show the HBL board had to ask the Government for an extension, after project delays meant it could not afford to repay its loans.

In an email to English’s economic adviser Simon Carey, Ministry of Health chief financial officer Mike McCarthy warned that if the loan was outstanding at June 30, «we would have a possible legal issue».

«I have now spoken to the [chief financial officer] and interim [chief executive] of HBL, they advise if the loan is not extended they will not be able to make payment as they have insufficient cash reserves and will be insolvent,» he wrote.

On June 24 last year Ryall wrote to van Arkel approving an extension to March 31 this year.

In August, HBL requested the Government lend it more money so it could meet its forecast costs; hoping to increase its $8m debt to $15.1m. Ryall only approved handing the group an extra $2.2m, taking the total loan value to $10.2m.

But a ministerial report shows DHBs were not forewarned of the amount, despite their liability for the loans.

Ryall retired from politics at the election.

HBL is being wound down by Health Minister Jonathan Coleman in June, with its programmes transferred to Auckland regional DHB led services provider HealthAlliance.

Neither the Government nor HBL has been able to provide any information over whether the loan has been, or is being, paid back.

Labour health spokeswoman Annette King said she had been concerned about HBL for more than two years.

«And I’m delighted the the auditor general has agreed to my request for an inquiry.»

In June 2014, a memo between some DHB chief financial officers branded the organisation a ponzi scheme, calling it the biggest threat to the public health system in a generation.

Coleman has said that HBL had delivered $300m in savings. His office has not yet answered questions and a spokesman for van Arkel refused requests for comment.Articles Connexes: