Policy - Report



Health ReportDHB Sector Financial Performance for the year to 31 May 2019Date due to MO:N/AAction required by:N/ASecurity level:IN CONFIDENCEHealth Report number:20191174To:Hon Dr David Clark, Minister of HealthCopy to:Hon Grant Robertson, Minister of FinanceContact for telephone discussionNamePositionTelephoneMichelle ArrowsmithDeputy Director-General, DHB Performance, Support and Infrastructure021 572 584Fergus WelshChief Financial Officer, Corporate Services021 550 410Action for Private SecretariesReturn the signed report to the Ministry of Health.Forward copy of report to Minister of Finance. Date dispatched to MO:DHB Sector Financial Performance for the year to 31 May 2019Purpose of reportThis report provides an overview of the financial performance of the district health board (DHB) sector for the year to 31 May 2019.The commentary is based on data and inquiries to and responses from DHBs, as part of their monthly financial reporting to the Ministry of Health. The report highlights where the sector or an individual DHB reports a significant variance against their Annual Plan financial budgets and provides information on sector wide issues with financial implications.This report is also provided to the Minister of Finance because of his interest in the associated fiscal risks arising from DHBs, which are a significant component of the Crown’s balance sheet and operating budget [CAB (00) M19/13 refers].Key pointsDHB financial results for the year to date 31 May 2019 show:A sector wide deficit of $423 million after 11 months of the financial year, or a $99 million unfavourable variance to budget. This is an increase on the April year to date deficit of $112 million (a 36 percent increase). At the same period last year the sector reported a $204 million deficit, ending the year on a net deficit of $257 million.The sector’s unfavourable variance to budget is due to personnel/outsourced personnel costs, outsourced service costs, clinical supplies costs, infrastructure costs, and payments to other providers. This is offset by a favourable revenue variance against a budget of $232 million (from additional revenue not known or agreed at the time of Annual Plan budget preparation; for example, additional funding associated with the Nurses MECA, offset by unfavourable expenditure across most expense types against a budget of $331 million.DHBs are forecasting a $508 million deficit to 30 June 2019, after accounting for one off costs not included in the Annual Plan budgets. Before allowing for these one-off costs, the DHBs forecast year end deficit is $406 million. The forecast one off costs are expected to be conservative, as a number of DHBs have not included provisions for non-compliance with the Holidays Act costs, or any anticipated impairment cost for the National Oracle Solution (NOS).Six DHBs achieved a result close to budget (under $0.2 million unfavourable to budget) or an improved result to budget as at 31 May 2019.Overall, across the sector there were 322 lower than planned Full Time Equivalents (FTEs) compared to the previous month, but this is 2,670 higher than the same period last year. DHBs’ capital expenditure for the year to date reported actual expenditure of $375 million against budgeted expenditure of $597 million.Seventeen DHB 2018/19 Annual Plans have been approved as of 31 May 2019. Three plans (Canterbury, Counties Manukau and Waikato DHBs) have not been approved with their budgets included in this report based on their draft plans.You and the Director-General of Health have made your expectations for DHB financial performance very clear through a number of direct engagements with DHB Chairs and Chief Executives, especially those with particular financial challenges such as Canterbury, Waikato and Counties Manukau DHBs.The Ministry continues to closely monitor DHBs with unfavourable financial results/trends and is working with them to improve current financial performance through Monitoring Intervention Framework (MIF) performance discussions, targeted assistance and establishing recovery plans.RecommendationsThe Ministry recommends that you:a)note this report is specifically for the purpose of informing the Ministers of Health and Finance, of the current financial performance and arising issues of the DHB sector to 31 May 2019b)c)refer this report to the Minister of Finance for his informationnote this report will be published on the Ministry’s websiteYes / NoMichelle ArrowsmithHon Dr David ClarkDeputy Director-GeneralMinister of HealthDHB Performance, Support and InfrastructureDate:Fergus WelshChief Financial OfficerCorporate ServicesOperating ResultsThe Ministry has received the DHB financial performance results for the year to 31 May 2019. Table one below shows:a sector wide deficit of $423 million after eleven months of the financial year, or a $99 million unfavourable variance to budget. At the same period last year the sector reported a $204 million deficit, ending the year on a net deficit of $257 million.A net deficit represented by a favourable revenue variance against budget of $232 million, offset by unfavourable expenditure against budget of $331 million.The average monthly spend to date is $1.467 billion per month. To meet the full year expense budget, expenditure would need to reduce to $1.096 billion (or 75 percent of the average spend for the past 11 months) for the final month. Based on the current expenditure run rate and the current forecast, this level of lower spend for June 2019 is unlikely to occur.Table OneDHB Sector Financial Results YTD to 31 May 2019-177800262255Consolidated Revenue, Expenditure, Net Result, FTEsPersonnel costs were unfavourable to budget by $87 million across 18 DHBs, - Canterbury and Waitemata DHBs had the largest variances. Canterbury DHB reported this was due to a combination of impacts including the Mosque terrorist attacks, the outpatient building flood, and the earlier start to seasonal influenza. Waitemata DHB reported this was due to higher than budgeted nursing costs, MECA settlements and actuarial valuations greater than plan.Outsourced personnel costs were unfavourable to budget by $85 million across 19 DHBs - Auckland and Waikato DHBs had the largest variances. Auckland DHB’s unfavourable variance was partly offset by a favourable variance in personnel costs. Waikato DHB reported this was mainly due to nursing personnel (employed and outsourced) costs, and a higher level of mental health inpatient services. Across the sector there were 322 lower than planned FTEs compared to the previous month, but this is 2,670 higher than the same period last year. The increase in FTEs is driven by a range of factors (some of which are funded) - collective agreements and associated roster changes for nurses and junior doctors, increased demand from demographic growth, mental health services, national bowel screening, filing of vacancies, and bringing outsourced functions back in-house. Most categories of personnel numbers were favourable to budget, apart from nursing personnel; medical personnel (211 FTEs favourable), nursing personnel (605 FTEs unfavourable), allied health personnel (476 FTEs favourable), support personnel (58 FTEs favourable) and management/administration (183 FTEs favourable).Had DHBs recruited to the planned FTEs this would have seen a higher than reported net deficit to date, which is likely to result in a greater year end net deficit position if the increase in staffing in outsourced personnel is not reduced.Clinical supplies costs were unfavourable to budget by $63 million across 13 DHBs - Auckland, Hawke’s Bay and Southern DHBs had the largest variances; mainly driven by higher than budgeted costs for pharmaceuticals.Payments to other provider costs were unfavourable to budget by $52 million across 16 DHBs, - Canterbury, Counties Manukau and Waitemata DHBs had the largest variances mainly due to:pharmaceuticals in Canterbury DHBinter-district flows in Counties Manukau DHBpharmaceuticals and price adjusters in Waitemata DHBSix DHBs achieved a result close to budget (under $0.2 million unfavourable to budget), or an improved result to budget, as at 31 May 2019 (see second column in table two).Table Two DHB Financial Results YTD to 31 May 2019Net Surpluses / (Deficits)DHBs are forecasting a $508 million deficit to 30 June 2019. This has deteriorated by$109 million since the previous month and is driven by forecasting one off costs including:provisions for non-compliance with the Holidays Act costs; andthe impairment cost for the National Oracle Solution (NOS).The forecast year end position can be broken down to the following:These forecasts are expected to be conservative, as a number of DHBs are still to include some of the above adjustments. We estimate the additional year end NOS costs will add approximately $14 million, resulting in at least a $522 million year end deficit position.Appendix One provides a further breakdown of the one-off costs that DHBs have recorded to date, and will impact on the forecast deficit to 30 June 2019. The table identifies which DHBs have included in their forecast, May returns any impact of the RDA strike costs, expected increases in the Holidays Act provisions and additional NOS costs. The DHBs yet to provide a forecast for these one-off costs, will be considering the implications for the auditing process of their 30 June 2019 financial statements and accounting estimates.Not reflected in these forecasts, is the possible impact of the $55 million asset transferred from Health Benefits Ltd to NZ Health Partnerships Limited (NZHPL) which will be reviewed during the year end process, with the likelihood of further costs for DHBs using or intending to use the system.Capital ExpenditureDHBs’ capital expenditure for the year to date was an actual expenditure of $375 million against a budgeted expenditure of $597 million. The total $222 million underspend largely consists of underspends of $58 million in Buildings and Plant, $102 million in Clinical Equipment and $53 million in Information Technology and Software. Historically, the sector has tended to be below budgeted capital expenditure levels, which is mostly driven by delays in project’s commencing. In the same period last year, DHBs reported underspends of $10 million in Buildings and Plant, $88 million in Clinical Equipment and $87 million in Information Technology and Software.LiquidityThe DHBs manage a shared banking and treasury service through a cash offset arrangement with Bank of New Zealand. Individual DHBs can go overdrawn on any day provided there are surplus funds held by other DHBs, so the net balance is positive. A significant decrease in the total sector cash over a number of years, primarily driven by unfunded deficits, is likely to result in early 2019/20 cash offsets arrangements being breached based on current forecasts.The Ministry and Treasury have been working closely with NZHPL to develop options to manage forecast breaches from July 2019. After joint advice provided to Ministers (HR20191004 and T2019/1529 refers) the sector received $141.911 million equity deficit support in June 2019. This will alleviate the short term pressure on the DHB cash offset arrangement for June 2019. The Ministry and Treasury will continue to monitor the sector’s cash balances in 2019/20.MonitoringThe Ministry regularly meets with DHBs to discuss their financial performance. In addition, the Ministry hosted the annual DHB Strategic Conversation meetings for all 20 DHBs during May and June 2019. The meetings covered DHB challenges and how to improve sustainability and financial performance. Attendees included DHB Executive Leadership Team members, relevant Board members, Ministry Executive Leadership Team members and other relevant staff. For DHBs with a Monitoring and Intervention Framework (MIF) status (other than Standard) formal meetings were held in May/June 2019. This included Southern, Waikato, Wairarapa and Counties Manukau DHBs. This was supplemented by frequent engagement with these DHBs, including:working with Waikato DHB through its Resource Review Group, with a focus on key areas of cost growth in 2018/19, notably increases in FTEs, and payments to other providersensuring Southern DHB develops a good financial recovery planworking with Canterbury DHB and EY to develop an operational plan and work programmeproviding advisory support to Counties Manukau DHB; andproviding financial advisory support to Wairarapa DHB from the Ministry’s General Manager Sector Quality and Advice. The Ministry is in regular communication with the Crown Monitor for Canterbury, Counties Manukau and Waikato DHBs.In addition, the Ministry is in regular engagement with Whanganui and Hawke’s Bay DHBs on their financial performance.ENDS.Appendix One ................
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