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Lucas warns of "urgent corrective action" for new health blowout

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Treasurer Rob Lucas has thrown Labor a curveball on day one of budget estimates hearings, revealing an independent audit of the state’s largest health network predicts a budget blowout of more than $300 million in the current financial year – but he is refusing to release the report.

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Corporate advisory firm KordaMentha has been undertaking a review of the Central Adelaide Local Health Network (CALHN), which oversees the Royal Adelaide and Queen Elizabeth Hospitals as well as various statewide agencies including SA Pathology and SA Medical Imaging.

Lucas, who fronted the Liberal Government’s first estimates hearing this morning while Premier Steven Marshall was concurrently grilled in a separate hearing, told parliament “new information has now been provided to the government” since he handed down his budget this month.

“We have now received the first of what will be two reports from KordaMentha,” Lucas said.

“Their advice is that they are now forecasting – and this report was received in the last week or so – a massive overspending of $303 million in CALHN, including statewide clinical services, for 2018-19 unless urgent corrective action is taken.”

He quoted the report as saying that “absent significant and immediate intervention we forecast that CALHN’s 2018-19 financial performance will be a circa $375 million deficit, equating to a $274 million unfavourable variance to budget”.

“On a consolidated basis, including statewide clinical services, we forecast a deficit of $421 million, representing a $303 million unfavourable variance.”

But Lucas refused to release the full report, citing cabinet confidentiality.

Opposition Leader Peter Malinauskas, who was health minister in the former Labor government, told reporters “we now know as a matter of fact that the Government has in its hands a report by KordaMentha”.

“We’re asking for that report to be released… and if they’re not going to release that report it’s appropriate to ask why not?” he said.

“Does it call for cuts to nurses? Does it call for dramatic cuts to doctors? He’s quoting from it, but he’s deliberately not releasing it.”

Asked whether he took responsibility for the culture of overspend at CALHN, Malinauskas said it was “difficult to comment on selective quotes from Rob Lucas when he’s not releasing the full report”.

“My number one priority as Health Minister was making sure patients were getting the care they deserved,” he said.

Lucas denied clinical staff were in the gun, telling reporters it was “a complete furphy”.

“We gave a promise there would be no sacking of doctors and nurses [and] we won’t be using any excuse, including a KordaMentha report, to break specific election promises,” he said.

He refused to release the KordaMentha missive, saying “we’re waiting for the final report”.

However, while he said the final decision would fall to Health Minister Stephen Wade, he suggested the final report wouldn’t be publicly released either.

“It’s more unlikely than likely that we’ll release either of the reports,” he said.

“It’s quite detailed, it’s quite specific and it’s gone to cabinet for consideration.”

Lucas has already flagged that radiology and pathology services could be privatised if their financial performance did not improve.

He told parliament KordaMentha “also reported to the Government in their report that the anticipated savings which the former government claimed from moving to the new Royal Adelaide Hospital had not been achieved”.

“In fact, costs had increased as a result of the move to the new hospital,” he said.

“I think some of the more damning aspects of KordaMentha’s report… relates to the attitude of CALHN and those within it to financial controls and accountability.”

He again quoted the report as saying: “There is a systemic and widespread breakdown and lack of respect for financial controls and performance accountability… even when systemic breakdowns in controls have been identified, limited or no action has been taken. There is an absence of departmental individual accountability to deliver against budgets and performance KPIs, there is little commitment to reducing costs with a range of staff openly refuting the importance of cost containment, inadequate training has been provided to budget owners.”

Lucas said his view was that “the savings tasks outlined for health by the former government in the [2017-18] Mid-Year Budget Review were unachievable, and they were, of course, helping manufacture surpluses in the forward estimate years, because health very rarely ever achieved the savings tasks that have been outlined for them”.

Lucas’s budget contained an extra $730 million for CALHN over the next four years, as part of a planned $800 million, five-year bailout.

“KordaMentha will come to the Government in the very near future with specific recommendations for the government, and the health minister in particular, to take,” he said.

“It is clearly in the best interests of the budget and the people of SA that urgent corrective remedial action is taken.”

The revelations prompted a heated exchange with Shadow Treasurer Stephen Mullighan, who argued Lucas was being “deliberately disingenuous” because the budget papers showed an estimated discrepancy of just $98 million.

You have overstated it by a factor of four, according to your budget papers,” Mullighan said.

“I am also a little perturbed by the discrepancy, given that minutes released to me under freedom of information from the Under Treasurer to you, Mr Lucas, said, ‘The CALHN deficit is overstated for a number of reasons when you look at the portfolio position as a whole’.”

Lucas replied that the KordaMentha report was “outlining the situation as it exists today for financial year 2018‑19”.

“It is their estimate of where we are now in 2018-19… not a historical look at 2017-18,” he said.

“I would [also] invite the member to go out to the community and say, ‘The problem is really only $98 million. It is not $250 million,’ and see where he gets with that sort of an argument.”

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