I spoke to Ben Davis from 4BC’s Drive program yesterday afternoon about the Auditor-General’s report on the Beattie Government’s decision in 2006 to build three new hospitals, including the Lady Cilento Children’s Hospital and new hospitals on the Gold and Sunshine Coasts. It turns out that the hospitals ended up costing around $5 billion when completed, compared with the initial cost estimate provided by the Government of around $3 billion.
The problem appears to have been that the initial cost estimates were prepared in a hurry, possibly based on incomplete specifications of the projects and out-of-date or inappropriate cost data. As the announcement was made in the lead up to an election, the Government might have been too excited about the electoral appeal of the hospitals to do the detailed analysis that is generally expected before committing billions of dollars. Unfortunately, once the election announcement was made and a public expectation was created,the Cabinet would have felt unable to stop the project, had it wanted to, once it saw more realistic cost estimates in the business cases eventually prepared by Queensland Health.
Ben asked me about the comments former Premier Beattie made earlier in the day, which reportedly included the comment that you can’t expect detailed business cases for hospitals because they’re not built to make money but to treat people. I told Ben I thought this was a distraction from the real issue. The debate isn’t over whether hospitals should be run as private businesses, but rather whether the Government should have done more work assessing the costs and benefits of the new hospitals before committing to build them. Clearly it could have and should have. “Business case” is now a generic term for an assessment of the merits of any project or investment, not necessarily a business investment designed to make money. Business cases could have been prepared for the hospitals with more reasonable cost estimates than the Government announced, after the appropriate advice from construction cost experts was obtained, of course. These business cases could have contained an assessment of whether the three hospitals were the most cost-effective means of meeting anticipated future community needs.
Governments can make very bad decisions when they haven’t done the proper analysis. It’s possible that, if the Government had known the hospitals would cost $2 billion more than expected, Queensland Health would have looked for other options for meeting the identified needs in the community. The hospitals decision reminded me somewhat of the Rudd Government’s decision to build the $40 billion plus National Broadband Network, a project that was heavily criticised for being committed to without a proper business case and cost-benefit analysis.
Where there are billions of dollars at stake, the Government has an even clearer obligation to the community to crunch the numbers before making any decision. While Governments often do the right thing, and there are guidelines and expectations in place for the preparation of business cases in many jurisdictions (e.g. see Queensland’s Project Assurance Framework), Governments sometimes bypass the usual processes, alas, so they can score quick political points.