Database number: 20170868

Security classification:In-Confidence

File number:AD62-14-2017

Action required by:Routine

District Health Board Sector Financial Performance for year to date 30 April 2017

To: / Hon Dr Jonathan Coleman, Minister of Health

Purpose

To advise the Minister:

  • the year to date financial results of the District Health Board (DHB) sector as at 30 April 2017
  • the actions the Ministry of Health (the Ministry) is undertaking to address financial issues with DHBs’ whose results are unfavourable.

Key points

  1. DHB financial results for the year to date 30 April 2017 show a sector wide unfavourable variance to budget of $38 million for the firsttenmonths of the financial year.
  1. Six DHBs achieved a breakeven (under $0.2 million unfavourable to budget) or better result to budget at 30 April 2017.
  1. In the previous year, as at 30 April 2016 ten DHBs had results that were unfavourable to budget and the sector result was $63 million unfavourable to budget.
  1. The sector’sunfavourable variance to budget of $38 million is made up of;revenue,total personnel costs, outsourced services costs and clinical supplies costs offset by favourable variances for infrastructure costs and payments to other providers.
  1. Capital & Coast DHB annual plan is not approved, please refer to the recent weekly report item.
  1. The sector year end result forecast as at 30 April 2017 was a $95 million deficit being $36 million unfavourable to the targeted budgeted year end result of $59 million deficit.
  1. The Ministry continues to closely monitor DHBs with unfavourable financial results and/or unfavourable trends and is working with them to improve financial performance. The Ministry met withLakes, Tairawhiti, Capital & Coast and Waikato DHBs in May 2017.
  1. Overall year to date average accrued FTEs were 329 below budget.
  1. Capital expenditure for the year to date was $169 million below budgeted levels with actual expenditure of $489 million against budgeted expenditure of $658million.

Recommendations

The Ministry recommends that you:

a) / Refer this report to the Minister of Finance for his information / Yes / No
b) / Note the Health Report and associated schedules are copied to the Treasury (State Sector Performance Branch), DHB Chairs and DHB Chief Executives
c) / Note the detailed schedules associated with this report are copied to DHB Chief Financial Officers who utilise the information to analyse their performance and benchmark their DHB against the sector
d) / Note the Health Report and associated schedules are published on the Ministry of Health website.

Jill LaneMinister’s signature

Director

Service CommissioningDate:

District Health Board Sector Financial Performance for
year to date 30 April 2017

Table 1

Year to Date / PreviousYear to Date / Full Year
Actual / Budget / Variance / % Variance / Actual / Budget[1]
$M / $M / $M / $M / $M
TOTAL REVENUE / 12,859 / 12,865 / (6) / (0.0%) / 12,399 / 15,452
Personnel Costs / (4,873) / (4,880) / 7 / 0.1% / (4,873) / (5,887)
Outsourced Personnel Costs / (171) / (104) / (67) / (64.0%) / (171) / (125)
Total Personnel Costs / (5,045) / (4,984) / (60) / (1.2%) / (4,845) / (6,013)
Outsourced Services / (386) / (368) / (18) / (5.0%) / (364) / (443)
Clinical Supplies / (1,133) / (1,109) / (24) / (2.2%) / (1,108) / (1,349)
Infrastructure/Other Supplies / (1,162) / (1,175) / 13 / 1.1% / (1,133) / (1,409)
Total Operating Costs / (7,726) / (7,637) / (89) / (1.2%) / (7,450) / (9,214)
Personal Health / (3,511) / (3,524) / 12 / 0.4% / (3,397) / (4,235)
Mental Health / (363) / (387) / 24 / 6.2% / (362) / (465)
Public Health / (24) / (24) / 0 / 0.6% / (20) / (29)
Disability Support Services / (1,247) / (1,267) / 20 / 1.5% / (1,198) / (1,521)
Maori Health / (38) / (39) / 1 / 2.8% / (35) / (47)
Total Payments to Other Providers / (5,184) / (5,241) / 57 / 1.1% / (5,012) / (6,296)
TOTAL EXPENDITURE / (12,910) / (12,877) / (32) / (0.2%) / (12,462) / (15,510)
NET RESULT / (51) / (12) / (38) / (+100%) / (63) / (59)
Average Accrued FTEs year to date / 62,591 / 62,920 / 329 / 0.5% / 61,157 / 62,959
  1. Table 1 above shows that the sector’s unfavourable variance to budget of $38 million is made up of unfavourable variances includingrevenue, total personnel costs, outsourced services costs andclinical supplies costsoffset by favourable variances forinfrastructure costs andpayments to other providers.
  2. The unfavourable variance in total personnel costs of $60 million ($50 million unfavourable in March 2017) was driven by nineteen DHBs having unfavourable variances for total personnel costs with the followingtwo DHBs having the largest variances:

Table 2

DHB / Variance Apr / Variance Mar / Change
Auckland / ($8.3M) / ($8.4M) / +$0.1M
Waikato / ($16.9M) / ($14.2M) / -$2.7M
  1. Auckland DHB reported personnel costs were higher than budget mainly driven by Bureau Nursing costs being higher than budgeted. Waikato DHBreported that the unfavourable total personnel costs were mainly driven by nursing budgeted vacancy savings not being achieved and nursing annual leave movement running unfavourable, higher than planned use of locums within medical personnel to cover vacancies and higher than planned use of contractors.
  1. Outsourced clinical services costs were unfavourable to budget by $16 million ($13 million unfavourable in March 2017). Fifteen DHBs are unfavourable to budget with the following two DHBs having the largest variances:

Table 3

DHB / Variance Apr / Variance Mar / Change
Lakes / ($3.4M) / ($3.3M) / -$0.1M
Waikato / ($5.4M) / ($2.9M) / -$2.5M
  1. Both DHBs reported the unfavourable outsourced clinical services costs was mainly driven by higher than planned outsourcing of electives and unmet savings.
  1. Clinical supplies costs were unfavourable to budget by $24million ($29million unfavourable in March 2017). SeventeenDHBs are unfavourable to budget with the following three DHBs having the largest variances:

Table 4

DHB / Variance Apr / Variance Mar / Change
Auckland / ($6.1M) / ($7.4M) / +$1.3M
Hawke’s Bay / ($5.4M) / ($4.7M) / -$0.7M
Waitemata / ($4.8M) / ($4.0M) / -$0.8M
  1. Auckland DHB reported the unfavourable clinical supplies costs were mainly driven by high transplant activity with high drug and consumables costs, cardiology and cardiothoracic patients with high blood costs and target savings not being achieved. Hawke’s Bay and Waitemata DHBsreported their unfavourable clinical supplies costs were driven in part by unmet savings.
  1. Six DHBs achieved a breakeven (under $0.2 million unfavourable to budget) or better result to budget at 30 April 2017.

Table 5

Note: Capital & CoastDHB’s annual planisstill subject to approval.

Monitoring Intervention Framework (MIF) activities with DHBs

  1. Auckland DHB – The DHB is currently $5.4 million unfavourable to budget mainly due to revenue being lower than budget resulting from lower than planned elective activity and lower than budgeted interest income. The unfavourable outsourced personnel costs are driven by higher than budgeted bureau nursing costs and the unfavourable clinical supplies costs were driven by a mix of cardiovascular volume growth and higher than budgeted theatre costs. The DHB continues to work with the other Northern Region DHBs on the IDF pricing issue. The Ministry is working with the DHB on their progress in returning to budget.
  1. Counties Manukua DHB - The DHB is currently $0.9 million unfavourable to budget mainly due to higher than budgeted outsourced personnel costs to cover key vacancies (e.g. Mental Health and Anaesthetic Technicians) and to meet MoH targets (e.g. gastro, renal, MRI), cover for high acute demand and catch up on electives following the RMO strikes earlier in the year. The DHB's year end result forecast deteriorated in the month by $4 million from a surplus of $4.5 million to a surplus of $0.5 million driven by an expected unfavourable IDF year-end wash up.
  1. Northland DHB - The DHB is currently $1.6 million unfavourable to budget mainly due to the RMO strikes earlier in the year, larger than budgeted cancer treatment volumes, acute medical and surgical activity and efforts to maintain ESPI compliance. The DHB's year end result forecast deteriorated in the month by $0.1 million from a deficit of $0.8 million to a deficit of $0.9 million. The Ministry will be meeting with the DHB in June 2017 to discuss their likely year end result and the risks around this.
  2. Bay of Plenty DHB – The DHB is currently $0.4 million unfavourable to budget mainly due to acute demand being higher than planned and the impact of the recent adverse weather event (Cyclone Debbie) that affected the region.
  3. Lakes DHB - The DHB is currently $2.8 million unfavourable to budget mainly due to high use of medical locums to cover annual leave and higher than planned outsourced clinical services to meet MoH targets. The DHB's year end result forecast improved in the month by $0.7 million from a
    $2 million deficit to a deficit of $1.3 million. The Ministry met with the DHB on the 23 May 2017 and discussed the improved year end result expectation and the risks around it. The Ministry is currently reviewing the DHB’s MIF status.
  1. Tairawhiti DHB - The DHB is currently $5.3 million unfavourable to budget mainly due to nursing personnel costs and outsourced medical personnel costs being higher than budget. The DHB's year end result forecast deteriorated in the month by $0.1 million from a $4.7 million deficit to a deficit of $4.8 million. The Ministry met with the DHB on 26 May 2017 and discussed their likely year end result and the risks around this. The Ministry is currently reviewing the DHB’s MIF status.
  2. Waikato DHB - The DHB is currently $10 million unfavourable to budget due to budgeted nursing vacancy savings not being achieved and higher than planned use of locums within medical personnel to cover vacancies. Outsourced clinical service costs were unfavourable to budget due to higher than budgeted outsourcing of electives and unmet savings. The Ministry met with the DHB on 23 May 2017 and discussed the DHB’s likely year end result and the risks around this. The DHB is working towards a breakeven result but have signalled that there are risks around this.
  3. Capital & Coast DHB – The DHB is currently $2.7 million favourable to budget. The Ministry met with the DHB on 9 May 2017 and discussed their expectation that a better result than the forecast $28 million deficit was achievable given the DHB’s financial position as at March 2017. The DHB subsequently improved their year end result forecast by $4 million to a $24 million deficit.
  4. Hawke’s Bay DHB - The DHB is currently $1.9 million unfavourable to budget mainly due to events of previous months including RMO strikes and gastroenteritis outbreak costs. The DHB's year end result forecast deteriorated in the month by $1 million from a surplus of $4.5 million to a surplus of $3.5 million driven by the crystallisation of the gastroenteritis outbreak costs.
  5. Hutt Valley DHB - The DHB is currently $0.9 million unfavourable to budget mainly due to outsourced nursing to cover vacancies in mental health, outsourced medical to cover SMO vacancies in mental health and surgical and higher than budgeted IDF out flows (principally a one off neonatal long stay case). The Ministry will be meeting with the DHB in June 2017 to discuss their likely year end result and the risks around this.
  6. Wairarapa DHB - The DHB is currently $1.3 million unfavourable to budget mainly due to unbudgeted additional SMO's and Health Care Assistants recruited, additional unbudgeted outsourced orthopaedic work, additional unbudgeted mental health bed nights and IDF outflow for a specific patient at Starship Hospital. The DHB's year end result forecast deteriorated in the month by $0.2 million from a deficit of $2.3 million to a deficit of $2.5 million. The Ministry will be meeting with the DHB in June 2017 to discuss their likely year end result and the risks around this.
  7. Canterbury DHB –The DHB is currently $11.4 million unfavourable to budget mainly due to higher than budgeted leave costs, costs associated with the Kaikoura earthquakes and higher than budgeted mental health costs. The DHB's year end result forecast deteriorated in the month by $4.2 million from a deficit of $45.3 million to a deficit of $49.4 million. The DHB reported that the deteriorating result forecast was mainly due to increased community pharmacy spend and reduced PHARMAC rebates receivable, increased surgical outsourcing to comply with ESPI targets and the impact of the Kaikoura earthquakes. We are continuing to correspond with the DHB regarding implementation of the PwC review recommendations. We are being supported by Treasury in this regard who have written to the DHB offering their assistance regarding implementation of the PwC review recommendations.
  8. Nelson Marlborough DHB - The DHB is currently $1 million unfavourable to budget mainly due to higher than budget outsourced optometrist costs and Home Support- in between travel spend above budget.
  9. South Canterbury DHB - The DHB is currently $1.3 million unfavourable to budget mainly due to higher than budgeted hospital pharmaceuticals, implants & prostheses, DSS Home Support-IBT spend above budget and increased IDF outflows in relation to high cost patients to Canterbury and Capital & Coast DHBs. The DHB's year end result forecast deteriorated in the month by
    $0.4 million from a surplus of $0.4 million to breakeven.

Year-end result forecast

  1. As at 30 April2017 the DHBs as a sector are forecasting a year-end deficit result of
    $95 million. The following DHBs with unfavourable forecasts; Auckland, Northland, Bay of Plenty, Lakes, Tairawhiti, Waikato, Hawkes Bay, Hutt Valley, Wairarapa,Nelson Marlborough, South Canterburyand West Coast are being addressed as part of the normal monitoring processes. Canterbury DHB is being engaged as part of the PwC review process.

Full time equivalents (FTEs) - Overall year to date average accrued FTEs were 326below budget

  1. All categories of personnel werefavourable to budget,apart from Nursing personnel which was unfavourable to budget, as follows: Medical personnel (180 FTEs), Nursing personnel (385FTEs unfavourable),Allied Health personnel (285FTEs), Support personnel (61FTEs) and
    Management /Administration (187 FTEs).

Capital expenditure for the year to date was $169 million below budgeted levels with actual expenditure of $489million against budgeted expenditure of $658 million

  1. Historically the sector has tended to be below budgeted capital expenditure levels driven by delays in project commencement.

END.

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[1]The budgeted year-end result of $59 million deficit noted above is a preliminary one subject to the approvalof Capital & CoastDHBAnnual Plan.