The Magnetic Imaging Machine case study highlights risk management issues relating to probity of process, record keeping and conflict of interest in the public sector.

Case study: Magnetic Imaging Machine

Source: ANAO Report No.42 1999-2000. Magnetic Resonance Imaging Services – Effectiveness and Probity of the Policy Development Processes and Implementation.

On 12 May 1998, the Government announced, in the 1998-99 Budget context, a measure to constrain diagnostic imaging expenditure under the Medicare benefits arrangements and fund improved access to Magnetic Resonance Imaging (MRI) services. Payment of MRI benefits required registration by providers with the Health Insurance Commission (HIC), which established eligibility against criteria for both the provider of the service and the equipment on which the service was delivered.

Questions were subsequently raised in Parliament about the MRI measures. There have been a number of accusations and suggestions of inappropriate behaviour by various parties involved in the introduction of the MRI measures.

The accusations include that some persons placing orders for machines in the period preceding the Budget had prior access to information to be announced in the Budget, specifically that supply controls would permit eligibility for benefits only on machines ordered by Budget night, thus providing those persons with a significant financial advantage.

One of the key concerns arising in relation to this audit was whether there was a leak of Budget information which led to a pre-Budget rush of orders for MRI machines, some of which seem to have been backdated. There was a meeting on 6 May 1998 between the Minister and College of Radiologists representatives.

Statements were made by College representatives who attended this meeting with the Minister that, although the Minister did not reveal what measures would be in the Budget, there was discussion of the option to include machines on order as at Budget night. All but one have stated that this was initiated by the Minister (the other has indicated that the discussion was initiated by the Minister or the departmental official present).

On the other hand, the Minister, the Minister's adviser and the departmental officer present, dispute the radiologists' recollection of the meeting. They do not recall the specific matter of machines on order being discussed. Against this background, including related developments over the preceding month, the meeting of 6 May 1998 seems to have had some influence on the following surge in orders for machines, either directly or indirectly.

The ANAO found that there were 33 machines ordered in the four working days from 7 May to Budget night 12 May 1998. Prior to this, there had been six ordered in April, seven in March, none in February, and three in January. The surge in orders prior to the Budget compares with a total of some 60 public and private machines operating at that time.

One of the key findings in this audit report was that Commonwealth documentation and maintenance of documents in this situation was not of a standard that adequately supports accountability for policy development and implementation. The audit office found that there was a lack of adequate documentation by the Department of the negotiations with the College of Radiologists. Official records were not taken or maintained of some significant briefings of, and decisions by, the Minister.

Negotiating new policy measures with professional and other organisations presents significant challenges in managing budget sensitive matters, particularly where those involved may gain knowledge or insights which could benefit them financially. The ANAO concluded that the Department's management of the probity arrangements surrounding the negotiations for the MRI measure was not adequate for the circumstances.

The ANAO felt that it was noteworthy that five of the eleven radiologists involved in the negotiations with the Government prior to the Budget were associated with practices that allegedly ordered nine machines prior to the Budget. Whatever the basis for this purchase activity, it would be reasonable to conclude that, if this fact were known in the profession, it would also have had some influence on other radiologists considering purchasing MRI machines.

Risk management issues – Probity of process, record keeping and conflict of interest

Adequate record keeping

It is a fundamental principle of public sector accountability and risk management that adequate records are kept for all decisions that are made. Good record keeping assists in containing public outrage and thus risk by meeting the public sector's accountability and transparency of process obligations. Good records provide contemporaneous information about how decisions were reached, are evidence of probity in the decision making process and can be used to defend against allegations of appearing too political.

It is a serious risk to the perception of conflict of interest and lack of probity in the process when senior attendees at an important meeting do not have records of the meeting. This risk is magnified when these parties subsequently have quite different views of what took place at the meeting, as happened in this case. In addition, it appears that no written records were kept of important Ministerial briefings and meetings. This situation is reminiscent of the Sporting and Cultural Grants program discussed in earlier in this theme.

Ensuring confidentiality of sensitive information

The arrangements for confidentiality in the MRI policy initiative were found by the ANAO to have lacked structure and clarity. As a result, the Department did not achieve a shared understanding of, and commitment to, what was to be treated in confidence and what could reasonably be discussed more openly by the parties involved in the discussions. Some College of Radiologists members did make declarations of their intentions to buy (or replace) machines during the negotiation process but the ANAO found that these statements were not recorded by the Department, weakening their usefulness. This was compounded by the Minister's office forming the impression that conflict of interest agreements had in fact been signed by College members.

Good risk management practices would suggest that parties should have a clear shared understanding of what confidentiality arrangements should be apply to particular information that the parties may discuss. There should also be agreed procedures and processes for declarations of any conflict of interest.

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