Hon David Cunliffe

Hon David Cunliffe

Noting

HR20072241.DHB FINANCIAL PERFORMANCE FOR THE FOUR-MONTH PERIOD ENDED 31 OCTOBER 2007

ACTION REQUIRED

Note the financial performance of DHBs for the four month period ended 31October 2007, and highlight any paragraphs not to be posted on the Ministry’s website.

MINISTRY OF HEALTH RECOMMENDATION

That the Minister notes the DHB sector financial performance for the four-month period ended 31 October 2007 resulted in a net surplus of $6.4M that was $16.9M favourable to plan.

That the Minister forwards a copy of this report to the Minister of Finance.

COMMUNICATIONS

The monthly financial report has attracted limited public interest in the past.

OTHER VIEWS

Nil.

ADVISOR RECOMMENDATION/COMMENT

Health Report: 20072241

DHB FINANCIAL PERFORMANCE FOR THE FOUR-MONTH PERIOD ENDED 31 OCTOBER 2007

Advice

1.This report presents an overview of the financial performance of the District Health Board (DHB) sector for the four-month period ended 31 October 2007 based on data provided by the DHBs in monthly financial templates.

2.20 DHBs had approved District Annual Plans (DAPs) for the 2007/08 financial year at 31 October 2007. The financial aspects of Southland DHB’s DAP are still being evaluated by the Ministry.

Consolidated Statement of Financial Performance ($'000) *
31 October 2007
Year to Date
Actual / Phased Plan / Variance / % Variance **
$ '000 / $ '000 / $ '000
TOTAL REVENUE / 3,579,733 / 3,538,731 / 38,422 / 1.1%
Operating Costs
Personnel Costs / 1,246,622 / 1,248,824 / 2,202 / 0.2%
Outsourced Services / 120,751 / 97,097 / (23,654) / (24.4%)
Clinical Supplies / 304,784 / 307,154 / 2,370 / 0.8%
Infrastructure/Other Supplies / 363,326 / 364,553 / 1,208 / 0.3%
Subtotal / 2,035,482 / 2,017,627 / (17,855) / (0.9%)
Payments to Providers
Personal Health / 1,056,205 / 1,070,648 / 14,629 / 1.4%
Mental Health / 124,814 / 126,233 / 3,546 / 2.8%
Public Health / 2,098 / 1,281 / (816) / (63.7%)
Disability Support Services / 342,413 / 319,647 / (22,765) / (7.1%)
Maori Health / 12,312 / 13,742 / 1,630 / 11.9%
Subtotal / 1,537,841 / 1,531,550 / (6,290) / (0.4%)
TOTAL EXPENSES / 3,573,323 / 3,549,178 / (24,145) / (0.6%)
NET RESULT / 6,410 / (10,447) / 16,857 / 161.4%
FTEs at end of period / 51,231 / 51,993 / 762 / 1.5%
Average FTEs YTD / 50,746 / 51,889 / 1,143 / 2.2%
Avg Annual Cost Per FTE ($) *** / 73,697 / 72,202 / (1,496) / (2.1%)
Case Weighted Discharges - Inpatients / 186,485 / 189,049 / (2,564) / (1.4%)
Case Weighted Discharges - Daypatients / 32,255 / 28,784 / 3,471 / 12.1%
Total Case Weighted Discharges / 218,740 / 217,833 / 907 / 0.4%
Note:
*The table has been compiled from rounded data and may not necessarily cross add.
** 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 average YTD FTEs.

3.The DHB sector financial performance for the four-month period ended 31 October 2007 resulted in a sector surplus of $6.4M that was $16.9M favourable to plan. Average FTEs YTD continue to be below planned levels (2.2%), highlighting the difficulties facing the sector in the recruitment and retention of permanent staff.

4.Once this report has been signed by the Minister it 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 DHB Financial Performance Reports.

Recommendations

The Ministry recommends that you:

(a)noteagreesigninviterefercustomthat the DHB sector financial performance for the four-month period ended 31 October 2007 resulted in a net surplus of $6.4M that was $16.9M favourable to plan. / Yes/No
(b)noteagreesigninviterefercustomthat 20 DHBs currently have approved District Annual Plans for the 2007/08 year. / Yes/No
(c)noteagreesigninviterefercustomthat the Minister is to highlight any paragraphs he does not want to be posted on the Ministry’s website. / Yes/No
(d)refernoteagreesigninvitecustomthis report to the Minister of Finance for his information. / Yes/No

John Hazeldine

Manager, Finance

Sector Accountability Funding

MINISTER’S SIGNATURE:

DATE:

Health Report number: / 20072241 / Action required by:
Minister’s reference
/OIA number: / File Number: / HC07-16-2
Ministry Contact 1: / Name: John Hazeldine
Phone 04 496 2396
Cell 027 271 3218 / Ministry Contact 2: / Name: Bridget Hesketh
Phone 04 496 2409
Cell
Ministry Contact 3 / Name: Graeme Rule
Phone: 04 496 2445
Cell

ENCLOSURE to health REPORT 20072241

Background Information

5.This enclosure provides a summary of the financial performance of the District Health Board (DHB) sector for the four-month period ended31 October 2007 and shows a net surplus for the sector of $6.4M. This is $16.9M favourable to the planned $10.5M deficit.

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

Consolidated Statement of Financial Performance ($'000)
As At 31 October 2007
Year to Date
Actual / Phased Plan / Variance / % Variance *
$ '000 / $ '000 / $ '000
TOTAL REVENUE / 3,579,733 / 3,538,731 / 38,422 / 1.1%
Operating Costs
Personnel Costs / 1,246,622 / 1,248,824 / 2,202 / 0.2%
Outsourced Services / 120,751 / 97,097 / (23,654) / (24.4%)
Clinical Supplies / 304,784 / 307,154 / 2,370 / 0.8%
Infrastructure/Other Supplies / 363,326 / 364,553 / 1,208 / 0.3%
Subtotal / 2,035,482 / 2,017,627 / (17,855) / (0.9%)
Payments to Providers
Personal Health / 1,056,205 / 1,070,648 / 14,629 / 1.4%
Mental Health / 124,814 / 126,233 / 3,546 / 2.8%
Public Health / 2,098 / 1,281 / (816) / (63.7%)
Disability Support Services / 342,413 / 319,647 / (22,765) / (7.1%)
Maori Health / 12,312 / 13,742 / 1,630 / 11.9%
Subtotal / 1,537,841 / 1,531,550 / (6,290) / (0.4%)
TOTAL EXPENSES / 3,573,323 / 3,549,178 / (24,145) / (0.6%)
NET RESULT / 6,410 / (10,447) / 16,857 / 161.4%
FTEs at end of period / 51,231 / 51,993 / 762 / 1.5%
Average FTEs YTD / 50,746 / 51,889 / 1,143 / 2.2%
Avg Annual Cost Per FTE ($) ** / 73,697 / 72,202 / (1,496) / (2.1%)
Case Weighted Discharges - Inpatients / 186,485 / 189,049 / (2,564) / (1.4%)
Case Weighted Discharges - Daypatients / 32,255 / 28,784 / 3,471 / 12.1%
Total Case Weighted Discharges / 218,740 / 217,833 / 907 / 0.4%
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 average YTD FTEs.

7.The above table summarises the Statement of Financial Performance for the sector for the four-month period ended31 October 2007, and is compiled from monthly templates submitted by DHBs.

8.Total Revenue for the period is $38.4M (1.1%) favourable to plan. The favourable variance is primarily due to increased funding being allocated to DHBs for Aged Residential Care (ARC), Home-Based Support Services and rebased Primary Maternity Services funding.

9.Expenditure in Personnel Costs at $1,246.6M is marginally favourable to plan (0.2%). Total Full Time Equivalents (FTE) are 1.5% less than plan, whilst the average consolidated cost per FTE is 2.1% greater than plan.

10.Outsourced Services reflect an unfavourable variance to plan of $23.7M (24.4%). The majority of this unfavourable variance ($13.4M) is attributable to outsourced medical staff (Medical, Nursing, Allied Health and Support Personnel) which is indicative of the inability of the sector to recruit and retain permanent staff. Outsourced Clinical Services are $6.4M unfavourable to plan, whilst outsourced management costs (personnel and contracted services) are unfavourable by $3.9M.

11.Appendix 1 to this report shows the net results by arm for the year to date as at 31 October 2007, as well as the approved full year plans per DHB.

The full year plan for the sector indicates a deficit of $45.0M – this planned deficit excludes Southland DHBs forecast as their DAP has not yet been approved. The deficits are further broken down into
Structural deficits – which refer to operating deficits within the DHB, and
Cyclical deficits – which result from expenditure being included in the current year while the income was included in prior years.
Thirteen DHBs reported operating surpluses.
Eight DHBs reported deficits of which four had planned for deficits.
Six DHBs returned unfavourable variances to plan, of which the following DHBs returned unfavourable variances greater than $1.0M:
Hawke’s Bay DHB reported the largest unfavourable variance of $2.9M due to the non-achievement of planned efficiencies and increasing staff costs.
Canterbury DHB reported an unfavourable variance of $2.4M, due primarily to the recognition of personnel costs relating to the NZNO MECA impact for the first 4 months.
Capital & Coast DHB reported an unfavourable variance of $1.3M, due primarily to increased outsourcing costs to cover vacancies and outsourcing of surgical operations to reduce waiting lists.
Fifteen DHBs returned favourable variances to plan, of which the following DHBs returned favourable variances greater than $2.5M:
Mid Central DHB reported the largest favourable variance of $4.8M, due to delays in the implementation of new services.
Nelson Marlborough DHB reported a favourable variance of $4.2M. The DHB reported that the variance is primarily as a result of expenditure being favourable to plan across the DHB due to delays in the implementation of services.
Lakes DHB reported a favourable variance of $3.0M reported primarily in the Funder arm, with increased devolved revenue being received and delays in the implementation of services. Revenue from the ACC is also greater than planned.
Southland DHB reported a favourable variance of $2.8M due to Personnel costs being less than planned as a result of large FTE vacancies.

12.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).

West Coast DHB is an outlier in the Funder arm distribution of revenue to their own Provider arm as the DHB is “the provider”for the area. There are very few alternative providers for services in the West Coast and therefore the DHB plans and reports much less in terms of payments to other providers.
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.

13.The report reflects both the dollar variance and any shift in expenditure pattern between a DHBs’own Provider arm and other providers. Overall revenues are greater than plan by $28.7M (0.9%). Payments made by the Funder arm are greater than plan to both the DHBs’ own Provider (by $2.8M,0.2%), and to other providers (by $1.8M,0.1%). The increased payment to other providers is primarily due to additional funding made available for Aged Residential Care and Home Based Support services.

14.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 17.4% of revenue to Waikato DHB with the highest surplus at 3.5% of revenue. In dollar terms Capital & Coast DHB reports the highest deficit at $6.5M and the Waikato DHB has the highest surplus at $6.4M.

15.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. Canterbury DHB does, however report all CWD irrespective of funding source.

16.Twelve DHBs are reporting services delivered less than plan, with the following DHBs reporting deliveries less than plan by greater than 10%:

Southland DHB reported a shortfall of 13.1% mainly resulting from low OI/CI volumes being completed against planned.
West Coast DHB reported a shortfall of 12.7%. The WCDHB notes that this is due to staff shortages, and the timing of visiting specialities.

17.The following DHBs outperformed against their plan by greater than 10%:

Wairarapa DHB has outperformed planned levels by 23.2% and notes that this is due in part to increased throughput of procedures with high case weights, and in part to seasonal variation.
Otago DHB outperformed planned levels by 10.2%, this variance is being investigated by the DHB.

18.As detailed in Appendix 5, total FTEs for the four-months are less than planned (762 or 1.5%) for the sector. The shortfall is primarily evident across clinical FTEs (medical, nursing and allied health), further highlighting the difficulties facing the sector in the recruitment and retention of permanent staff.

The following DHBs reported significant variances to plan:
Canterbury DHB – 298 above plan – as the planned data provided by the DHB has not been phased correctly this variance does not necessarily indicate more staff.
Northland DHB – 238 less than plan – due to difficulties in recruiting and retaining staff.
Waikato DHB – 230 less than plan – the DHB is experiencing high staff turnover.
Counties Manukau DHB – 216 less than plan – due to recruiting difficulties and phasing variances.

19.The consolidated cost per FTE, as contained in Appendix 6, is 2.1% greater than the planned cost.

The vast majority of DHBs report total average compensation per FTE within $3,000 of plan. The following DHBs reporting variances in excess of this range:
Waikato DHB reports an average compensation per FTE $6,000 above plan. Expenditure on Medical and Nursing personnel is greater than planned by 4.5%, whilst average FTEs for the year are less than planned.
Northland DHB reports an average compensation per FTE $5,000 above plan due toincreased costs attributable to the retention of staff.
Counties Manukau DHB reports an average compensation per FTE $4,000 above plan due to phasing variances.

20.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.

21.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:

Bay of Plenty DHB reports a $11.9M under spend, primarily due to timing delays in payments, all projects are within agreed timeframes.
Waikato DHB reports an under spend according to plan ($11.8M),attributable to the staging of design work and timing delays on Buildings and Plant.
Nelson Marlborough DHB also shows a large under spend according to plan ($8.5M) due to expenditure having been phased on a 1/12th basis, however all capital projects are within the timeframes set for each project.

CAPITAL CHARGES

22.Appendix 9 details the $11.8M of capital charges incurred for the month of October 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). Payment is due by the 28th of the month, and Appendix 9 is updated as at 24November 2007.

23.Following the receipt of final audited templates from DHBs, a year-end calculation of the Capital Charge due by each DHB has been calculated, and compared to actual payments made during the 2006/07 financial year. The resulting balances have now been charged / credited to the respective DHBs.

24.C&C DHB has queried the calculation of the Capital Charge wash-up for 2006/07; this matter is being followed up with the DHB.

25.The overdue charges reflected against the DHBs have been discussed with the respective DHBs and will be followed up in December 2007.

Implications for REDUCING INEQUALITIES

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

Appendices attached to ‘ENCLOSURE TO HEALTH REPORT 20072241’:

Appendix 1: DHB Net Results by Arm for the four-month period ended 31 October 2007 grouped according to variance to net result.

Appendix 2:DHB Funder Arm Revenue Allocation for the four-month period ended 31 October 2007 separated into paymentstoown Provider and Governance, and payments to Other Providers.

Appendix 3: DHB Provider Arm Results for the four-month period ended 31 October 2007 grouped according to size of DHB.

Appendix 4: CWD’s for the four-month period ended 31 October 2007 grouped according to % variance to planned output.

Appendix 5: Consolidated FTE Numbers by DHB as at 31 October 2007.

Appendix 6: Annualised Average Consolidated Cost per FTE by DHB for the four-month period ended 31 October 2007.

Appendix 7:DHB Balance Sheet as at 31 October 2007, grouped according to size of DHB.

Appendix 8:Capital Expenditure per DHB for the four-month period ended 31 October 2007.

Appendix 9: Outstanding Capital Charges as at 31 October 2007 with DHBs grouped according to current level on the Monitoring Intervention Framework.

Compendium:“One-page” Summary Reports per DHB as at 31 October 2007.

COMPENDIUM

Health Report : 20072241

“One-Page” Summary Reports per DHB

as at 31 October 2007

A “one-page” summary report is intended to reflect key performance variances to plan. The areas covered include:

The actual to planned net performance by each arm and the consolidation
The variance in actual to plan for capital expenditures and equity injections
A variance for key inputs, FTEs, and outputs, case weighted daypatient and inpatient discharges.