Database number: 20171025

Security classification:In-Confidence

File number:AD62-14-2017

Action required by:Routine

District Health Board Sector Financial Performance for year to date 31 May2017

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 31 May 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 31 May 2017 show a sector wide unfavourable variance to budget of $40 million for the firstelevenmonths of the financial year.
  1. Six DHBs achieved a breakeven (under $0.2 million unfavourable to budget) or better result to budget at 31 May 2017.
  1. In the previous year, as at 31 May 2016 nine DHBs had results that were unfavourable to budget and the sector result was $25 million unfavourable to budget.
  1. The sector’sunfavourable variance to budget of $40 million is made up of;unfavourable variances for total personnel costs, outsourced services costs and clinical supplies costs offset by favourable variances for revenue, infrastructure costs and payments to other providers.
  1. Capital & Coast DHB’s annual plan is not approved.
  1. The sector year end result forecast as at 31 May 2017 was a $99 million deficit being $40 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, Waikato, Capital & Coast, Hutt Valley, Wairarapaand SouthernDHBsin June2017.
  1. Overall year to date average accrued FTEs were 189 below budget.
  1. Capital expenditure for the year to date was $182 million below budgeted levels with actual expenditure of $523 million against budgeted expenditure of $705million.

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 31 May 2017

Table 1

Year to Date / PreviousYear to Date / Full Year
Actual / Budget / Variance / % Variance / Actual / Budget
$M / $M / $M / $M / $M
TOTAL REVENUE / 14,173 / 14,153 / 20 / 0.1% / 13,666 / 15,452
Personnel Costs / (5,395) / (5,390) / (5) / (0.1%) / (5,184) / (5,887)
Outsourced Personnel Costs / (191) / (115) / (76) / (66.0%) / (166) / (125)
Total Personnel Costs / (5,586) / (5,505) / (81) / (1.5%) / (5,349) / (6,013)
Outsourced Services / (428) / (405) / (22) / (5.5%) / (403) / (443)
Clinical Supplies / (1,262) / (1,229) / (33) / (2.6%) / (1,223) / (1,349)
Infrastructure/Other Supplies / (1,271) / (1,291) / 20 / 1.5% / (1,256) / (1,409)
Total Operating Costs / (8,546) / (8,430) / (116) / (1.4%) / (8,232) / (9,214)
Personal Health / (3,866) / (3,880) / 14 / 0.4% / (3,728) / (4,235)
Mental Health / (405) / (426) / 21 / 5.0% / (405) / (465)
Public Health / (26) / (27) / 1 / 2.3% / (23) / (29)
Disability Support Services / (1,376) / (1,395) / 19 / 1.4% / (1,318) / (1,521)
Maori Health / (41) / (43) / 1 / 2.9% / (39) / (47)
Total Payments to Other Providers / (5,714) / (5,770) / 56 / 1.0% / (5,514) / (6,296)
TOTAL EXPENDITURE / (14,260) / (14,200) / (60) / (0.4%) / (13,746) / (15,510)
NET RESULT / (87) / (47) / (40) / (84.7%) / (80) / (59)
Average Accrued FTEs year to date / 62,750 / 62,940 / 189 / 0.3% / 61,276 / 62,959
  1. Table 1 above shows that the sector’s unfavourable variance to budget of $40 million is made up of unfavourable variances includingtotal personnel costs, outsourced services costs andclinical supplies costsoffset by favourable variances forrevenue,infrastructure costs andpayments to other providers.
  2. The unfavourable variance in total personnel costs of $81million ($60 million unfavourable in
    April 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 May / Variance Apr / Change
Auckland / ($16.2M) / ($8.3M) / -$7.9M
Waikato / ($19.0M) / ($16.9M) / -$2.7M
  1. Auckland DHB reported that the increase in the unfavourable variance in the month was mainly due to an increase in the valuation of staff benefits. 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 $22 million ($16million unfavourable in April 2017). Fifteen DHBs were unfavourable to budget with the following two DHBs having the largest variances:

Table 3

DHB / Variance May / Variance Apr / Change
Lakes / ($3.8M) / ($3.4M) / -$0.4M
Waikato / ($6.5M) / ($5.4M) / -$1.1M
  1. Both DHBs reported the unfavourable outsourced clinical services costs were mainly driven by higher than planned outsourcing of electives and unmet savings.
  1. Clinical supplies costs were unfavourable to budget by $33million ($24million unfavourable in April 2017). SeventeenDHBs are unfavourable to budget with the following three DHBs having the largest variances:

Table 4

DHB / Variance May / Variance Apr / Change
Auckland / ($6.3M) / ($6.1M) / -$0.2M
Hawke’s Bay / ($6.3M) / ($5.4M) / -$0.9M
Waitemata / ($6.1M) / ($4.8M) / -$1.3M
  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 31 May 2017.

Table 5

Note: Capital & CoastDHB’s annual plan isnot approved.

Monitoring Intervention Framework (MIF) activities with DHBs

  1. Auckland DHB – The DHB is currently $3.9 million unfavourable to budget mainly due to higher than budgeted bureau nursing costs and by a mix of cardiovascular volume growth and higher than budgeted theatre costs. In spite of the DHB having favourable variances to budget of $2.5 million over the last two months,its year end result forecast deteriorated in the month by $0.8 million from a $3.3 million surplus to a surplus of $2.5 million. The deterioration in the forecast result was mainly driven by transplant funding being less than budgeted.
  1. Counties Manukua DHB - The DHB is currently $2.1 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 the Ministry 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 also has an issue with higher than budgeted IDF outflows to Auckland DHB which the Ministry will be following up.
  1. Northland DHB - The DHB is currently $2.1 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 reports that it is on track to achieve its forecast result of a $0.9 million deficit ($2.9 million unfavourable to budget) provided the year end IDF wash ups do not negatively impact on it.
  1. Bay of Plenty DHB – The DHB is currently $1.2 million unfavourable to budget mainly due to acute demand being higher than planned (1,024 CWDs over plan) and the impact of the adverse weather event (Cyclone Debbie) earlier in the year that affected the region ($0.2 million costs).
  1. Lakes DHB - The DHB is currently $4.1 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 the Ministry elective targets. The DHB's year end result forecast deteriorated in the month by
    $1.9 million from a $1.3 million deficit to a deficit of $3.2 million. The Ministry met with the DHB on 22 June 2017 to discuss its year end result. The Ministry is currently reviewing the DHB’s MIF status.
  1. Tairawhiti DHB - The DHB is currently $5.9 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 $0.2 million from a $4.8 million deficit to a deficit of $5 million. The Ministry will be meeting with the DHB on 30 June 2017 to discuss the DHB’s year end result and the 2017/18 budget. The Ministry is currently reviewing the DHB’s MIF status.
  1. Waikato DHB - The DHB is currently $7 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 DHB was favourable to budget in the month of May and is on track to achieve their forecast result of breakeven, which is $4.5 million unfavourable to plan. The Ministry met with the DHB on 21 June 2017 to discuss its year end result.
  1. Capital & Coast DHB – The DHB is currently $4.7 million favourable to budget. The Ministry met with the DHB on 15 June 2017 and discussed its year end result and 2017/18 budget. The DHB is currently forecasting a $24 million deficit against a revised plan of a $28 million deficit.
  1. Hawke’s Bay DHB - The DHB is currently $1.5 million unfavourable to budget mainly due to events of previous months including RMO strikes and gastroenteritis outbreak costs. Additional personnel costs were incurred to cover striking doctors and the DHB is incurring additional surgical activity in the wake of the strikes. The DHB reports that it is on track for its revised target surplus of
    $3.5 million.
  1. Hutt Valley DHB - The DHB is currently $1.2 million unfavourable to budget mainly due to outsourced nursing to cover vacancies in mental health, outsourced medical to cover SMO vacancies in Childrens Health, Mental Health and Surgical and higher than budgeted IDF out flows. The DHB's year end result forecast deteriorated in the month by $0.2 million from a $3.5 million deficit to a deficit of $3.7 million. The Ministry met with the DHB on 15 June 2017 to discussits year end result and met with the CEO on 26 June 2017 to discuss the 2017/18 budget.
  1. Wairarapa DHB - The DHB is currently $1.4 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 $0.4 million from a deficit of $2.5 million to a deficit of $2.9 million. The Ministry will be meeting with the DHB on 4 July 2014 to discuss the 2017/18 budget.
  1. Canterbury DHB –The DHB is currently $13.7 million unfavourable to budget mainly due to high acuity in general medicine as well as norovirus in three wards requiring additional staffing, costs associated with the Kaikoura earthquakes and higher than budgeted mental health costs. The Ministry is continuing to correspond with the DHB regarding implementation of the PwC review recommendations and is being supported by Treasury in this regard. The Treasuryhas written to the DHB offering its assistance regarding implementation of the PwC review recommendations.
  1. Nelson Marlborough DHB - The DHB is currently $1.1 million unfavourable to budget mainly due to higher than budget outsourced optometrist costs and Home Support – in between travel spend above budget. The DHB is forecasting a $3.2 million surplus.
  1. South Canterbury DHB - The DHB is currently $1.0 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 was favourable to budget in the month of May and is on track to achieve its forecast result of breakeven.

Year-end result forecast

  1. As at 31 May2017 the DHBsas a sector are forecasting a year-end deficit result of
    $99 million. The following DHBs with unfavourable forecasts; Auckland, Counties Manukau, 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 189below budget

  1. All categories of personnel werefavourable to budget,apart from Nursing personnel which was unfavourable to budget, as follows: Medical personnel (156 FTEs), Nursing personnel (433FTEs unfavourable),Allied Health personnel (253FTEs), Support personnel (61FTEs) and
    Management /Administration (152 FTEs).

Capital expenditure for the year to date was $182 million below budgeted levels with actual expenditure of $523million against budgeted expenditure of $705million

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

END.

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