Government Reviews Options for New Dunedin Hospital Amid Budget Crisis

Dr. Reti further explained that financial and logistical uncertainties still persist, affecting the hospital's ability to deliver on its original promises of health outcomes.

The New Zealand Government is exploring two options to deliver the New Dunedin Hospital project within its current funding limit, aiming to provide modern healthcare facilities for Dunedin without risking vital upgrades to other regional hospitals. Infrastructure Minister Chris Bishop and Health Minister Dr Shane Reti have expressed concerns that escalating costs at the New Dunedin Hospital could threaten upgrades to hospitals in Whangarei, Nelson, Hawke’s Bay, Palmerston North, and Tauranga.

The hospital was initially budgeted at $1.59 billion under the previous government, with an additional $290 million approved in March 2023 due to rising costs, bringing the total funding to $1.88 billion. However, the projected costs for the hospital are now approaching $3 billion—far exceeding the original estimates of $1.2-$1.4 billion from 2017. This increase could make it one of the most expensive hospitals in the Southern Hemisphere.

"This cost simply cannot be justified when hospitals across New Zealand are crying out for upgrades and new facilities," said Bishop. He and Dr. Reti emphasized that the New Dunedin Hospital project must be brought back within budget to prevent jeopardizing these necessary infrastructure improvements nationwide.

Rust Review Highlights Poor Planning and Management

To address the growing concerns, an independent review of the project, led by Robert Rust, former CEO of Health Infrastructure New South Wales, was commissioned earlier this year. The Rust Review, now publicly released, concluded that delivering the hospital as currently scoped is likely unachievable within the approved budget and noted significant uncertainty regarding the cost of the inpatient building.

Dr Reti further explained that financial and logistical uncertainties still persist, affecting the hospital's ability to deliver on its original promises of health outcomes. “The specifics and scope of the project are still being debated,” he said. In addition, critical associated costs such as pathology labs, refurbishments of existing facilities, and parking infrastructure, estimated at $400 million, had not been accounted for in the original planning.

Key Drivers of Cost Escalation

Several factors have contributed to the ballooning costs, including the hospital's site selection in 2018, which has compounded challenges. Rust's report highlighted issues such as:

High land purchase and demolition costs.

Contaminated ground and complex piling difficulties.

Risks related to flood levels.

A construction site hemmed in by state highways, making it less appealing to contractors and driving up costs.

Since the 2017 business case, the cost per square metre to build the hospital has surged from $10,000 to $30,000—an increase of 200%.

Two Options to Keep the Project on Track

Ministers have now tasked Health NZ with finding solutions to deliver the hospital within the current $1.88 billion budget. Two primary options are being considered:

Revising the Project's Scope and Specifications: This includes reducing the number of floors, delaying the fit-out of some areas until they are needed, and identifying services that can remain in the existing hospital or other local Health NZ facilities.

A Staged Development: This option would see the construction of a new clinical services building on the old hospital site while refurbishing the existing ward tower to address immediate needs.

Officials are expected to provide urgent advice on these options in the coming weeks, as the Government looks to resolve the budget issues while still delivering a functional, fit-for-purpose hospital for Dunedin and the surrounding region.

Broader Implications for New Zealand’s Health Infrastructure

Bishop and Reti stressed the urgency of applying more rigorous oversight to the project, with Bishop adding, “We’re incredibly frustrated by the challenges in delivering these much-needed facilities, just as the people of Dunedin are. But we must take urgent steps to ensure all taxpayers get the value they rightly expect.”

The outcome of this decision will not only affect the future of healthcare in Dunedin but could also shape the trajectory of regional hospital upgrades across New Zealand, ensuring equitable healthcare access for all communities.