Database number: 20162090

Security classification:In-Confidence

File number:AD62-14-2016

Action required by:Routine

District Health Board Sector Financial Performance for year to date 30 November2016

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 November2016
  • 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 November 2016 show a sector wide unfavourable variance to budget of $14 million for the firstfive months of the financial year.
  1. Fourteen DHBs achieved a breakeven (under $0.2 million unfavourable to budget) or better result to budget at 30 November 2016.
  1. In the previous year, as at 30 November 2015, ten DHBs had results that were unfavourable to budget and the sector result was $7 million unfavourable to budget.
  1. The sector’s unfavourable variance to budget of $14 million is made up of unfavourable variances for total personnel costs, outsourced services costs, clinical supplies costs and infrastructure costs offset by favourable variances for revenue and payments to other providers.
  1. The sector year-end result forecast as at 30 November 2016 was a $52 million deficit being
    $18 million unfavourable to the targeted budgeted year-end result of a $34 million deficit. We are still working with Canterbury and Capital & Coast DHBs to finalise their Annual Plans.
  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. During the past month, the Ministrywill have met the following DHBs to discuss their financial performance:
    Lakes, Waikato, Capital & Coast,MidCentral and Southern.
  1. Overall YTD average accrued FTEs were 664 below budget.
  1. Capital expenditure for the year to date was $75 million below budgeted levels with actual expenditure of $361 million against budgeted expenditure of $436 million.

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 November 2016

Table 1

Year to Date / Previous / Full Year
Actual / Budget / Variance / % Variance / Year to Date Actual / Budget[1]
$M / $M / $M / $M / $M
TOTAL REVENUE / 6,439 / 6,431 / 8 / 0.1% / 6,186 / 15,436
Personnel Costs / (2,412) / (2,423) / 11 / 0.5% / (2,308) / (5,875)
Outsourced Personnel Costs / (86) / (50) / (36) / (71.0%) / (74) / (120)
Total Personnel Costs / (2,497) / (2,473) / (24) / (1.0%) / (2,382) / (5,995)
Outsourced Services / (189) / (184) / (5) / (2.8%) / (179) / (438)
Clinical Supplies / (576) / (562) / (13) / (2.3%) / (572) / (1,350)
Infrastructure/Other Supplies / (600) / (598) / (2) / (0.3%) / (571) / (1,411)
Total Operating Costs / (3,862) / (3,818) / (44) / (1.2%) / (3,704) / (9,194)
Personal Health / (1,764) / (1,767) / 3 / 0.2% / (1,702) / (4,231)
Mental Health / (183) / (194) / 11 / 5.5% / (187) / (463)
Public Health / (13) / (12) / (1) / (5.0%) / (11) / (29)
Disability Support Services / (626) / (635) / 9 / 1.4% / (599) / (1,524)
Maori Health / (19) / (20) / 1 / 2.7% / (18) / (47)
Total Payments to Other Providers / (2,605) / (2,627) / 22 / 0.9% / (2,517) / (6,292)
TOTAL EXPENDITURE / (6,467) / (6,445) / (22) / (0.3%) / (6,220) / (15,486)
NET RESULT / (28) / (14) / (14) / (101.5%) / (35) / (50)
Average Accrued FTEs year to date / 62,124 / 62,788 / 664 / 1.1% / 61,124 / 62,882
  1. Table 1 above shows that the sector’s unfavourable variance to budget of $14 million is made up of unfavourable variances including total personnel costs, outsourced services costs, clinical supplies costs andinfrastructure costs offset by favourable variances for revenue andpayments to other providers.
  1. The unfavourable variance in total personnel costs of $24 million ($15 million unfavourable in October2016) was driven by 10 DHBs having unfavourable variances for total personnel costs with the followingtwo DHBs having the largest variances:

Table 2

DHB / Variance Nov / Variance Oct / Change
Canterbury / ($7.5M) / ($6.0M) / -$1.5M
Waikato / ($10.1M) / ($7.1M) / -$3.0M
  1. The majority of the DHBs reported volumes above budget and cover for vacancies as the key drivers for unfavourable variances in personnel costs. Canterbury DHB reported personnel costs were higher than previous months due to the Canterbury regional statutory holiday, as well as MECA settlements. Waikato DHBreported that the unfavourable total personnel costs were mainly driven by nursing budgeted vacancy savings not being achieved andnursing annual leave movement running unfavourable together with higher than planned use of locums within medical personnel to cover vacancies.
  1. Clinical supplies costs were unfavourable to budget by $13million ($9 million unfavourable in October 2016). Eighteen DHBs are unfavourable to budget with the following three DHBs having the largest variances:

Table 3

DHB / Variance Nov / Variance Oct / Change
Auckland / ($2.8M) / ($2.4M) / -$0.4M
Waikato / ($2.0M) / ($1.3M) / -$0.7M
Hawke’s Bay / ($2.9M) / ($3.3M) / +$0.4M
  1. Auckland DHB reported that the unfavourable clinical supplies costs were mainly driven by higher surgical instrument costs associated with theatre volumes and high-cost pharmaceuticals.
    Waikato DHB is forecasting that clinical supplies will be around $0.5 million favourable at year-end. This due to a number of factors primarily the expected increase in hospital pharmacy rebates, continuation of current savings around blood and expected savings over the Christmas closure period. Hawke’s Bay DHB reported its unfavourable clinical supplies costs were driven by unmet savings which are expected to recover later in the year.
  1. Fourteen DHBs achieved a breakeven (under $0.2 million unfavourable to budget) or better result to budget at 30 November 2016.

Table 4

Note: Canterbury and Capital & Coast DHBs’ draft annual plan are not finalised and therefore the current budgeted year-end result may not be appropriate targets to measure performance against.

Monitoring Intervention Framework (MIF) activities with DHBs’

  1. Auckland DHB – The DHB is currently $5.6 million unfavourable to budget mainly due to elective activity being lower than budgeted and planned savings taking longer to be realised. The DHB is confident that they will return to budget by year-end provided their savings programme returns to track. The DHB continues to work with the other Northern Region DHBs on the IDF pricing issue. The Ministry is not currently confident the DHB will achieve its forecast, and will be following up with the DHB to discuss their progress in returning to budget.
  1. Lakes DHB - The DHB is currently $1.9 million unfavourable to budget mainly due to high use of medical locums and volume related cost overruns in outsourced services. The DHB's year-end result forecast improved in the month by $0.1 million from a deficit of $1.2 million to a deficit of
    $1.1 million. The Ministry met with the DHB on 21 December 2016 and discussed the DHB's savings efficiencies plan that they recently provided to the Ministry. The Ministry will be reviewing the DHB’s MIF status and is considering other options to assist the DHB’s financial improvement.
  1. Tairawhiti DHB - The DHB is currently $1.1 million unfavourable to budget mainly due to nursing personnel costs being higher than budgeted. It also has a low cash position but has, to date, not accepted the option of deficit support. The Ministry will be writing to the DHB with regards to its acceptance of deficit support. We intend to discuss the DHB’s financial performance and deficit support with its Audit Committee in early 2017.
  1. Waikato DHB - The DHB is currently $4.7 million unfavourable to budget due to a variety of reasons including nursing costs being unfavourable to budget. The Ministry met with the DHB on 21 December 2016 and discussed the DHB's financial performance.
  1. Capital & Coast DHB - The DHB is currently $2 million unfavourable to budget due to a number of reasons including unexpected costs such as increased professional fees from unbudgeted legal and consultant fees relating to copper pipe issues and payroll and service reviews. The Ministry met with the DHB on 2 December 2016 and discussed its financial performance and the finalisation of its 2016/17 Annual Plan. The Ministry will be downgrading the DHB’s MIF status from intensive–remedial to intensive-deteriorating and will be meeting with the DHB Chair in early 2017.
  1. Hutt Valley DHB – The DHB’s financial performance appears to be stabilising. The Ministry will be writing to the DHB advising that their MIF status will be upgraded from intensive-deteriorating to intensive-remedial.
  1. MidCentral DHB - The DHB is currently $1.6 million unfavourable to budget mainly due to the higher than budgeted locum usage and higher than budgeted nursing bureau costs to cover
    one-to-one patient care. The Ministry met with the DHB on 9 December 2016 and discussed their financial performance and their deteriorating year-end result forecast. The Ministry will continue to monitor the DHB’s financial performance closely and may consider downgrading the DHB’s MIF status dependent on the DHB’s second quarter financial result. We are also considering other options to assist the DHB’s financial improvement.
  1. Canterbury DHB - The DHB is currently $0.2 million favourable to the unapproved budget of a
    $42 million deficit. The DHB reported that the favourable variance is mainly due to higher than budgeted revenue and lower than budgeted interest and depreciation costs due to the delay in the transfer of Burwood Hospital. The Ministry continues to work with the DHB to finalise their 2016/17 Annual Plan through the PwC financial review process. The DHB is forecasting a year-end result of a $37.5 million deficit. If the budgeted result of $38.5 million deficit noted in the PwC report was used we estimate that the DHB would be $0.2 million unfavourable year to date.

Year-end result forecast

  1. As at 30 November 2016 the DHBs as a sector are forecasting a year-end deficit result of
    $52 million. The following DHBs with unfavourable forecasts; Lakes, Capital & Coast, Hutt Valley, MidCentral and Wairarapa 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 664below budget

  1. All categories of personnel werefavourable to budget apart from Nursing personnel which was in line with budget as follows: Medical personnel (344 FTEs), Nursing personnel (85 FTEs unfavourable),Allied Health personnel (245 FTEs), Support personnel (43FTEs) and
    Management /Administration (116 FTEs).

Capital expenditure for the year to date was $75 million below budgeted levels with actual expenditure of $361million against budgeted expenditure of $436million

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

END.

Page 1 of 6

[1]The budgeted year-end result of $50 million deficit noted above is a preliminary one subject to the approvalof Canterbury and Capital & Coast Annual Plans.