Ref. No.: 20070444

HEALTH REPORT
Subject: / DHB FINANCIAL PERFORMANCE FOR THE EIGHT MONTH PERIOD ENDED 28 FEBRUARY 2007
Date: / 30 March2007 / File Ref: / HC07-16-2
Attention: / Hon Pete Hodgson (Minister of Health)
Copy to: / DHB Chairs and DHB Chief Executives
Treasury – State Sector Performance Branch
Crown Health Financing Agency
Department of Prime Minister and Cabinet
Deputy Commissioner, States Service Commission
Director-General of Health
Deputy Director-General Corporate & Information Services

PURPOSE OF HEALTH REPORT

This report presents a summary of the financial performance of the District Health Board (DHB) sector for the eight month period ended 28 February 2007.

TIMING IMPLICATIONS

Priority:
/ Routine / Semi-Urgent
(5 Days) / Urgent
(3 Days) / 24 Hour

Executive summary

The DHB sector financial performance for the eight month period ended 28 February 2007 resulted in a sector surplus of $10.9M compared to a planned deficit of $31.3M. This represented a $42.2M favourable variance against plan.

20 DHBs have approved District Annual Plans (DAPs) for the 2006/07 financial year. Auckland DHB does not yet have an approved plan. In consolidating and reporting sector wide phased plan information the Ministry of Health (the Ministry) has used the values from the 20 approved plans and the most recent submission from Auckland DHB.

financial implications

Nil

COMMUNICATIONS

Once this report has been signed by the Minster the report will be posted on the Ministry website, exclusive of any paragraphs containing free and frank advice. The address at the Ministry’s website for locating this information is as follows: and select Reports.

Recommendations

The recommendations are that you:

(a)note that the DHB sector financial performance for the eight month period ended 28 February 2007 resulted in a net surplus of $10.9M that was $42.2M favourable to plan / Yes/No
(b)note that 20 out of 21 DHBs currently have approved District Annual Plans for the 2006/07 year. / Yes/No
(c)note that the Minister is to highlight any paragraphs he does not want to be posted on the Ministry’s website / Yes/No
(d)refer this report to the Minister of Finance for his information / Yes/No

Anthony Hill

Deputy Director-General

DHB Funding & Performance

MINISTER’S SIGNATURE:

DATE:

Contact for telephone discussion (if required)

Name / Position / Telephone
Direct LineAfter Hours / Suggested First Contact
John Hazeldine / Finance Manager / 04 496 2396 / 027 271 3218 / 1
Bridget Hesketh / DHB Financial Monitoring – Team Leader / 04 496 2409 / 2
Graeme Rule / DHB Financial Monitoring – Senior Advisor / 04 496 2445 / 3

REPORT

Background Information

1.This report provides a summary of the District Health Board (DHB) sector financial performance for the eight month period ended 28 February 2007 and shows a net year to date (YTD)surplus for the sector of $10.9M. This is $42.2M favourable to the planned $31.3M deficit.

2.Tables and appendices have been compiled from rounded data and may not necessarily cross add.

Consolidated Statement of Financial Performance ($'000)
28 February 2007 / 3 / 2
Year to Date / Full Year
Actual / Phased Plan / Variance / % Variance * / Plan
$ '000 / $ '000 / $ '000 / $ '000
TOTAL REVENUE / 6,556,269 / 6,411,125 / 145,145 / 2.3% / 9,654,903
Operating Costs
Personnel Costs / 2,312,429 / 2,314,265 / 1,836 / 0.1% / 3,490,290
Outsourced Services / 202,091 / 164,842 / (37,249) / (22.6%) / 247,043
Clinical Supplies / 559,792 / 552,056 / (7,736) / (1.4%) / 833,721
Infrastructure/Other Supplies / 682,393 / 683,443 / 1,049 / 0.2% / 1,002,368
Subtotal / 3,756,706 / 3,714,606 / (42,100) / (1.1%) / 5,573,422
Payments to Providers
Personal Health / 1,902,612 / 1,836,775 / (65,838) / (3.6%) / 2,767,362
Mental Health / 255,567 / 263,967 / 8,401 / 3.2% / 403,407
Public Health / 2,847 / 1,531 / (1,316) / (86.0%) / 2,279
Disability Support Services / 602,845 / 600,284 / (2,561) / (0.4%) / 900,810
Maori Health / 24,790 / 25,221 / 432 / 1.7% / 37,882
Subtotal / 2,788,661 / 2,727,779 / (60,883) / (2.2%) / 4,111,740
TOTAL EXPENSES / 6,545,367 / 6,442,384 / (102,983) / (1.6%) / 9,685,162
NET RESULT / 10,902 / (31,260) / 42,162 / (134.9%) / (30,259)
FTEs at end of period / 49,813 / 49,927 / 114 / 0.2% / 49,903
Avg Annual Cost Per FTE ($) ** / 70,089 / 69,558 / (531) / (0.8%) / 69,941
Case Weighted Discharges - Inpatients / 345,904 / 350,097 / (4,193) / (1.2%) / 529,311
Case Weighted Discharges - Daypatients / 57,310 / 50,389 / 6,920 / 13.7% / 76,609
Total Case Weighted Discharges *** / 403,214 / 400,486 / 2,728 / 0.7% / 605,920
Note:
* The % column shows the year to date variance as a percentage of phased plan.
** The cost per FTE is calculated by annualising YTD Personnel Costs divided by the month end FTEs.
*** Figures provided in the monthly financial templates. West Coast DHB data has been removed.

3.The above table summarises the Statement of Financial Performance for the sector for the eight month period ended 28 February 2007.

4.Total Revenue for the period is $145.1M (2.3%) favourable to plan. This is due mostly to additional revenue received by the sector for the government rollout of lower fees for the 45-64 age group.

5.Expenditure in Personnel Costs at $2,312.4M is marginally favourable to plan (0.1%). Total Full Time Equivalents (FTE) are 0.2% less than plan, whilst the average consolidated cost per FTEis in line with plan.

6.Outsourced Services reflect a significant unfavourable variance to plan of $37.2M (22.6%),with the most noteworthy unfavourable variances in Outsourced Medical ($22.1M) and Nursing ($5.2M) Personnel which is indicative of the increasing costs for medical personnel across the sector. Outsourced Management and Administrative personnel is also unfavourable to plan by $5.4M.

7.Appendix 1 to this report shows the net results by arm for each DHB year to date as at 28 February 2007.

  • Eleven DHBs reported operating surpluses.
  • Ten DHBs reported deficits of which eight had planned for deficits.
  • Five DHBs returned unfavourable variances to plan.
  • Capital & Coast DHB reported the largest unfavourable variance at $6.7M. The unfavourable variance is primarily in the Provider arm ($9.5M), offset by a favourable variance in the Funder arm ($2.9M). The main contributors to the unfavourable variance in the Provider arm results from revenue being less than planned ($3.4M), unfavourable variances in personnel costs ($1.0M) and outsourced services ($3.1M). The DHB is experiencing difficulties in implementing the initiatives highlighted in their DAP, specifically in the achievement of medical and surgical IDF targets, and are indicating an operating deficit for the current year. The Ministry is working with the DHB to ensure the success of the initiatives.
  • West Coast DHB also reported a significantly unfavourable variance of $2.0M,reported primarily in the Provider arm ($2.9M unfavourable); this variance is due mainly to outsourced medical personnel ($1.8M unfavourable) as the DHB has extreme difficulty in recruiting and retaining medical staff and is highly dependant on the use of more expensive locums. Most of the savings planned by the DHB are dealing with underlying causes looking at the longer term and are represented in the draft Secondary Care Plan and will not come to fruition before June 2007. The DHB is currently forecasting a deficit of $3.5M, and the Ministry will continue to work with the DHB in their efforts to reduce the deficit.
  • Tairawhiti DHB reported an unfavourable variance of $1.1M, reported in the Provider arm. Outsourced services are unfavourable to plan ($0.7M) due to the cost of additional locums to provide extra clinics and operating sessions to improve performance against ESPI's, and partly due to the escalating costs of outsourcing. The DHB is currently forecasting a deficit of $2.1M, against a planned deficit of $0.4M.
  • Sixteen DHBs returned favourable variances to plan.
  • Otago DHB reported a favourable variance of $6.9M. This has resulted from increased revenue ($2.9M favourable to plan) and total expenditure which was also favourable to plan ($4.0M), primarily in IT Systems ($2.3M) and Provider payments being $1.5M less than planned.
  • Waikato DHB reported a surplus of $11.1M against a planned surplus of $4.4M (a favourable variance of $6.7M). This improvement in net result is due the Funder continuing to perform better than planned
  • Each of the 10 DHBs who have cyclical deficits approved in their DAPs are reporting favourable variances YTD indicating that they have not spent their prior year surpluses, with the following five reporting significant surpluses against planned deficits YTD:
  • Nelson Marlborough DHB reported the highest favourable variance ($10.8M). The significant under spend is due to delays with the implementation of new services, and expenditure on capital items which will come in under plan. It is expected that this surplus will reduce over the remaining months of the year, specifically with the settlement of SMO and RMO contracts and the nurses MECA.
  • Waitemata DHB reported a favourable variance of $5.5M. The DHB maintains that $5.0M of the variance relates to timing differences regarding the recognition of revenue and related costs.
  • Southland DHB reported a favourable variance of $4.2M. The year end forecast is for a surplus of $1.2M including a Mental Health under spend of $0.8M, so the YTD result is expected to track back down
  • Mid Central DHB reported a favourable variance of $3.6M due to delays in the implementation of various initiatives. A number of projects have recently been recommended for approval by the Board which will have an impact on the surplus generated thus far.
  • Lakes DHB reported a favourable variance of $2.9M due to YTD revenue being $2.7M favourable, of which revenue from ACC was $1.0M favourable.

8.Appendix 2 separately presents the results of the Funder arm payments to its own Provider and Governance arms, and payments to other providers. Payments to other providers include payments for IDF Outflows. On average DHBs distribute slightly more than 50% of their Funder arm to other providers (inclusive of IDF outflows).

9.This report reflects both the dollar variance and any shift in expenditure pattern between a DHBs’own Provider arm and other providers. Overall both revenues to and payments made by the Funder arm exceed plan, revenues by $136.3M (2.3%), payments to the DHBs’ own Provider arm by $20.2M (0.7%), and payments to other providers by $60.9M (2.2%). The increased revenue being indicated by the DHBs is in line with the additional funding for PHO’s.

  • West Coast DHB is an outlier in the Funder arm distribution of revenue to their own Provider arm. However, West Coast DHB plan and report much less because the DHB is “the provider”for the area. There are very few alternative providers for services in the West Coast.
  • The tertiary DHBs also appear to be outliers (with approximately 60% being paid to their provider), however if the impact of IDF outflows is excluded, of which they have very little, the tertiary DHBs are more in line with the sector.

10.Appendix 3 shows Provider arm expenses as a percentage of revenue. This allows for comparison of cost structures on a common basis. DHBs individually analyse results to identify potential strengths and weaknesses against other DHBs of comparable size and communities of interest. Within the Provider arm net results range from West Coast DHB with the highest deficit at 16.7% of revenue to OtagoDHB with the highest surplus at 3.8% of revenue. In dollar terms Auckland DHB reports the highest deficit at $34.7M and the OtagoDHB has the highest surplus at $6.5M. The majority of DHBs are reflecting deficits against their Provider arms; however this is offset by surpluses being carried against the Funder arms.

11.Appendix 4 shows the case-weighted discharges (CWD) for each DHB for the period, as reported in their templates. CWDs are a measure of volume but only reflect inpatient activity in the Provider arm which is approximately 40% to 45% of total activity. They do not measure community services, such as Primary Health, or non-inpatient activities. West Coast DHB has yet to report CWD information for this year.

12.Of the 20 DHBs, for which CWD data is available, only six are reporting services delivered less than plan, with Waikato DHB reporting the highest percentage shortfall of 9.7%.

  • Waikato DHB reported that the lower than planned volumes are in part due to a closure of a theatre for refurbishment over the Christmas period, industrial action and the later start to the Neurosurgery unit than planned.

13. One DHB outperformed plan by greater than 10%, as detailed below:

  • Waitemata (10.1%) DHB confirmed continuing high medical admissions and ECC attendances due to the cold weather, with discharges above both planned and previous year levels.

14.As detailed in Appendix 5, total FTEs for the eight months are marginally below planning (114, or 0.2%) YTD for the sector. This indicates that the anomaly reported on last month (where the sector was 3% below planning) was indicative of the effect of annual leave on the reporting of FTE data. The DHBs are also undertaking an investigation of the effects the new definition has on the reporting of FTEs.

  • Counties Manukau and Waitemata DHBs continue to report significantly more Medical Staff than planned. These variances are caused by the change in actual reporting to the new definition of FTEs. This change is also impacting the Annualized Average Consolidated Cost Per FTE in Appendix 6. DHBs have been requested to recast their planned FTEs as the cause of their variance is the change to the new definition of FTEs.
  • The significant variance in Canterbury DHB (675 FTEs less than planned) has been queried with the DHB who are currently investigating and will provide an explanation for next month’s report.

15.The consolidated cost per FTE, as contained in Appendix 6, is inline with the planned cost.

  • The vast majority of DHBs report total average compensation per FTE within $3,000 of plan, with the following three DHBs reporting variances in excess of this range:
  • Tairawhiti DHB reports an average compensation per FTE $5,000 above plan and this variance is indicative of conservative planning data being used, as the actual costs are inline with the rest of the small DHBs.
  • Canterbury DHB reports an average compensation per FTE $4,000 above plan, although this could be related to the issue highlighted above, and will be followed up in the March 2007 reporting.
  • Nelson Marlborough DHB reports an average compensation per FTE $4,000 below plan, however the DHB is of the opinion that this will be more in line once new settlements have been achieved for the SMO and RMO collective agreements and the MECA for the Nursing staff.
  • If Counties Manukau and Waitemata DHBs are excluded from the calculation, for reasons as discussed above, the average cost variance of the sectorfor Medical FTEs reflects an average compensation $7,000 above plan.

16.Appendix 7 reflects an abbreviated Balance Sheet, and was requested specifically by the DHBs in order to facilitate analysis. The appendix further provides ratios which allow the DHBs to analyse results against other DHBs of comparable size and communities of interest.

  • Interest Cover Ratio indicates the DHBs ability to cover its interest payments.
  • Debt / (Debt + Equity) reflects the total borrowings of the DHB measured against the total borrowings plus Crown equity.
  • Current Ratio (excluding Employee Costs) provides an indication of the DHBs ability to cover its short term debt. A current ratio of 1:1 is an accepted norm.
  • Equity / Total Assets reflects the total Crown equity against the total assets held by the DHB.
  • Fixed Assets / Total Assets reflects the total fixed assets against the total assets held by the DHB.

Whilst some of these ratios are also utilised by the Crown Health Financing Agency (CHFA) they approach them from a lenders perspective, and as such the results may differ.

17.Appendix 8 provides a summary of Capital Expenditure per DHB to track actual expenditure.

  • The following DHBs reflect an under spend greater than $5.0M YTD:
  • Waikato DHB shows the largest under spend according to plan ($14.0M), due to the budget being phased on a 1/12th basis.
  • Counties Manukau DHB also shows a large under spend according to plan ($14.0M). Phase 2 of the CMDHB is nearing completion and final charges are anticipated.
  • Nelson Marlborough DHB also shows a large under spend according to plan ($9.2M), due to the budget being phased on a 1/12th basis. All planned capital projects are, however, within the time frames set for each project.
  • Auckland DHB reflects a $6.3M under spend primarily in IT systems. The DHB has indicated that this under spend is due to a lack of resources to implement the planned projects and this may lead to an under spend this year.
  • Whanganui DHB reports a $5.4M under spend. The variance in part reflects delays with the Health Services Redesign projectas the DHB has been under review by the MOH.
  • Waitemata DHB reports a $5.3M under spend. The DHB states that this is purely due to timing and that they will meet planby June 2007.
  • The following DHB reflects an overspend greater than $5.0M YTD:
  • Capital & Coast DHB shows the largest overspend according to plan ($6.9M) due to overspend on Land and Buildings; however this is a timing problem and will not affect the total planned expenditure for the year.

SECTOR ISSUES

New Zealand Equivalents to International Financial Reporting Standards

18.New Zealandequivalents to International Reporting Standards (NZ IFRS) are to be adopted by the sector from 1 July 2007, with an opening balance sheet and comparative figures required from 1 July 2006. A combined DHB/Ministry working group, including the OAG and Treasury, has been investigating the impact on the sector and developing a consistent approach for adoption. A template was issued to the sector for completion, and data is now being received and analysed by the Ministry. Audited NZ IFRS opening balance sheets for 2006/07 were received from DHBs in December 2006, and a consolidated audited return filed with Treasury. The Ministry is now filingmonthly NZIFRS returns with Treasury.

CAPITAL CHARGES

19.Appendix 9 details the $8.7M of capital charges incurred for the month of February 2007. Invoices for capital charges are issued to DHB’s monthly, and paid monthly (for DHBs on Intensive Monitoring and Performance Watch) or quarterly (for DHBs on Standard Monitoring).

20.The issues surrounding the 05/06 wash up have now been resolved and payment of the outstanding $1.1M is due by 28 April 2007.

21.The $3.5M of capital charges overdue as at 28th February 2007 should be paid by 28March 2007.

Implications for REDUCING INEQUALITIES

22.There are no implications identified in this report for reducing inequalities.

Appendices attached to this report:

Appendix 1: DHB Net Results by Arm for the eight month period ended 28 February 2007 grouped according to variance to net result.

Appendix 2:DHB Funder Arm Revenue Allocation for the eight month period ended 28 February 2007 separated into paymentstoown Provider and Governance, and payments to Other Providers.