Security classification:In-ConfidenceHealth Report number: 20180267

File number:AD62-14-2018

Action required by:Routine

District Health Board Sector Financial Performance for year to date 31 January 2018

To: / Hon Dr David Clark, Minister of Health

Overview

The Ministry of Health (the Ministry) monitors and reports several different aspects of District Health Board (DHB) performance including financial performance, non-financial performance, Health Targets and quality indicators.These reports are provided to the Minister of Health on a monthly or quarterly basis.

This report presents an overview of the financial performance of the DHB sector (all twenty DHBs) for the year to date 31 January 2018 based on data and comments provided by the DHBs in monthly financial reporting to the Ministry. The Ministry routinely provides these financial reports to you each month (except July).

The report highlights where the sector or an individual DHB reports a significant variance against financial budgets (as detailed in the DHB’s Annual Plan) or against comparable performance within the sector. Interpretation and analysis of the data provided by the DHBs enables identification of areas of financial pressure and risk as well as best practice within the DHB sector.

This report is provided to the Minister of Finance because of an interest in the associated fiscal risks arising from the DHBs comprising a significant component of the Crown’s balance sheet and operating budget [CAB (00) M19/13 refers].It is provided to other agencies to provide wider information about the health sector and to DHBs who utilise the information to analyse their performance and benchmark their DHB against the sector.

This report and additional financial analysis is placed on the Ministry’s website to enable other agencies and individuals to access DHB financial performance.

Key points

1.DHB financial results for the year to date 31 January 2018 show a sector wide unfavourable variance to budget of $22million for the firstsevenmonths of the financial year.

2.FiveDHBs achieved a breakeven (under $0.2 million unfavourable to budget) or better result to budget as at 31 January 2018.

3.In the previous year, as at 31 January 2017,10 DHBs had results that were unfavourable to budget and the sector result was $19 million unfavourable to budget.

4.The sector’sunfavourable variance to budget of $22 million is made up of unfavourable variances in outsourced personnel costs, outsourced services costs, clinical supplies costs and infrastructure costs. These are offset by favourable variances in revenue and personnel costsand payments to other providers.

5.Fourteen DHB 2017/18 annual plans have been approved as at the date of this report.

6.The sector year-end result forecast as at 31January 2018 was a $186million deficit (the forecast deficit in December 2017 was $178 million) being$43million unfavourable to the targeted budgeted year-end result of $143 million deficit.The targeted budget deteriorated by $3 million in the January month from $140 million due to Northland DHB resubmitting their 2017/18 Annual Plan with a $8 million deficit result which was a deterioration on their original planned result of a $5 million deficit.

7.The Ministry continues to closely monitor DHBs with unfavourable financial results and/or unfavourable trends and is working with them to improve financial performance.

8.Overall year to date average accrued full time equivalent (FTEs) staff were 619below budget.

9.Capital expenditure for the year to date was $117million below budgeted levels with actual expenditure of $202million against budgeted expenditure of $319million.

10.As well as this report, the Ministry produces additional financial information that is provided to The Treasury, DHB Chairs, DHB Chief Executives and DHB Chief Financial Officers. For example, this information includes analysis of specific funder and provider arm financial performance, FTEs and capital expenditure. The full information is subsequently posted on the Ministry’s website.

Recommendations

The Ministry recommends that you:

a) / notethe DHB financial results for the year to date 31 January 2018
b) / refer this report to the Minister of Finance for his information / Yes / No
c) / note that copies of the Health Report and additionalfinancial information are copied to The Treasury (State Sector Performance Branch), DHB Chairs, DHB Chief Executives and DHB Chief Financial Officers
d) / notethat the Health Report and additional financial information 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 January 2018

Table one

Year to Date / PreviousYear to Date / Full Year
Actual / Budget / Variance / % Variance / Actual / Budget
$M / $M / $M / $M / $M
TOTAL REVENUE / 9,442 / 9,410 / 32 / 0.3% / 9,011 / 16,136
Personnel Costs / (3,561) / (3,608) / 47 / 1.3% / (3,399) / (6,220)
Outsourced Personnel Costs / (127) / (78) / (49) / (63.0%) / (119) / (133)
Total Personnel Costs / (3,689) / (3,686) / (2) / (0.1%) / (3,518) / (6,352)
Outsourced Services / (297) / (294) / (3) / (1.1%) / (264) / (503)
Clinical Supplies / (853) / (816) / (37) / (4.5%) / (791) / (1,407)
Infrastructure/Other Supplies / (876) / (858) / (18) / (2.1%) / (831) / (1,459)
Total Operating Costs / (5,714) / (5,654) / (61) / (1.1%) / (5,404) / (9,722)
Personal Health / (2,496) / (2,504) / 9 / 0.3% / (2,471) / (4,288)
Mental Health / (269) / (276) / 7 / 2.4% / (256) / (473)
Public Health / (18) / (18) / 0 / 0.6% / (18) / (30)
Disability Support Services / (1,013) / (1,003) / (10) / (1.0%) / (879) / (1,720)
Māori Health / (26) / (28) / 1 / 4.7% / (27) / (47)
Total Payments to Other Providers / (3,822) / (3,829) / 7 / 0.2% / (3,651)) / (6,558)
TOTAL EXPENDITURE / (9,536) / (9,482) / (54) / (0.6%) / (9,055) / (16,280)
NET RESULT / (94) / (72) / (22) / (30.6%) / (44) / (144)
Average Accrued FTEs year to date / 63,992 / 64,611 / 619 / 1.0% / 62,035 / 64,891
  1. Table oneabove shows that the sector’s unfavourable variance to budget of $22 million is made up of unfavourable variancesinoutsourced personnel costs, outsourced services costs,clinical supplies costs andinfrastructure costs. These areoffset by afavourable variance inrevenue, personnel costs and payments to other providers.
  2. Outsourced personnel costs were unfavourable to budget by $49million ($43million unfavourable in December2017). All DHBs were unfavourable to budget with the following three DHBs having the largest variances:

Table two

DHB / Variance Jan / Variance Dec / Change
Auckland / ($7.2m) / ($6.1m) / -$1.1m
Counties Manukau / ($6.5m) / ($5.7m) / -$0.8m
Waikato / ($8.6m) / ($7.3m) / -$1.3m
  1. Auckland, Counties Manukau and Waikato DHBs outsourced personnel costs unfavourablevariances to budget were offset by favourable variances to budget in personnel costs. Generally DHBs have budgeted on the assumption that outsourced labour will be filled with DHB personnel.
  2. Clinical supplies costs were unfavourable to budget by $37million ($30 million unfavourable in December2017).EighteenDHBs were unfavourable to budget with the following three DHBs having the largest variances:

Table three

DHB / Variance Jan / Variance Dec / Change
Hawke’s Bay / ($4.7m) / ($3.7m) / -$1.0m
Southern / ($5.0m) / ($4.3m) / -$0.7m
Waitemata / ($4.8m) / ($4.0m) / -$0.8m
  1. Hawke’s Bay DHB reported the unfavourable clinical supplies costs were driven by unmet savings.Southern DHB reported the unfavourable clinical supplies costs were driven by higher than planned volumes and/or higher than planned complexityand in part by unmet savings. Waitemata DHB reported the unfavourable clinical supplies costs were driven by higher than planned volumes.
  2. Infrastructure costs were unfavourable to budget by $18 million ($18million unfavourable in December2017).Nine DHBs were unfavourable to budget with the following three DHBs having the largest variances:

Table four

DHB / Variance Jan / Variance Dec / Change
MidCentral / ($3.9m) / ($4.5m) / +$0.6m
Waikato / ($9.3m) / ($7.2m) / -$2.1m
Waitemata / ($7.6m) / ($6.3m) / -$1.3m
  1. MidCentral DHB reportedthe unfavourable infrastructure costs were driven byEnable, under-budgeted housing costs (offset by higher related ACC revenue above), plus repair, maintenance and professional services being higher than budgeted[1].Waikato and Waitemata DHBs reported the unfavourable infrastructure costs were mainly driven by unmet savings.
  2. Five DHBs achieved a breakeven (under $0.2 million unfavourable to budget) or better result to budget as at 31 January 2018 (please refer to Table five).

Table five

*DHBs with unapproved plans are operating with draft budgets

Comments provided fromDHBs with material unfavourable variances (over $1 million) to budget, material forecast changes andperformancemonitoring meetings with DHBs.

  1. Auckland DHB – The DHB was $0.9 million YTD unfavourable to budget which was a $0.3 million improvement on their December 2017 unfavourable result to budget of $1.2 million. The DHB's year end result forecast deteriorated by $3.5million in the September month from breakeven result to a $3.5million deficit against the budgeted year end result of breakeven. The key drivers for the deteriorating forecast are reported as expected lower than planned IDF inflows.
  2. Northland DHB – The DHB was $1.5 million YTD unfavourable to budget which was a $0.1 million improvement on their December 2017 unfavourable result to budget of $1.6 million. The DHB reported that the YTD unfavourable result to budget was mainly due to 16/17 IDF washup of
    $1.1million and current year IDF outflows being higher than budgeted. The DHB's year end result forecast deteriorated by $3.2 million in the November month from a $5.2 million deficit to a
    $8.4 million deficit against the budgeted year end result of a $5.2 million deficit (the DHB recently increased their budgeted deficit to $8.4 million). The key drivers for the deteriorating forecast are reported as expected higher than budgeted costs for outsourced personnel, outsourced clinical services and IDF outflows mainly related to ESPI compliance.
  3. Bay of Plenty DHB – The DHB was $2.7 million YTD unfavourable to budget which was a $1.0 million deterioration on their December 2017 unfavourable result to budget of $1.7 million. The DHB reported that the YTD unfavourable result to budget was mainly due to personnel costs, outsourced clinical service costs and clinical supplies costs being higher than budgeted mainly due to volumes being higher than planned. The DHB's year end result forecast deteriorated by $6.1 million in the January month from a planned deficit of $2.8 million to a deficit of $8.9 million. The DHB reported that $5.7 million of the increased forecast deficit was directly related to higher than planned acute in patient activity and complexity.The DHB reported previously that they were relying on demand reducing over the summer period to improve their financial performance but that this has not occurred. The Ministry will be meeting with the DHB in March 2018 to discuss their financial performance
  4. Tairāwhiti DHB - The DHB was $3.3 million YTD unfavourable to budget which was a $0.6 million deterioration on their December 2017 unfavourable result to budget of $2.7 million. The DHB reported that the YTD unfavourable result to budget was mainly due to personnel costs and clinical supplies costs being higher than budget indicating higher than planned volumes. The DHB's year end result forecast deteriorated by $0.1 million in the January month from a $5.4 million deficit to a $5.5 million deficit against the budgeted year end result of breakeven. The key drivers for the deteriorating forecast are reported as expected higher than budgeted costs for personnel, outsourced personnel, clinical supplies, mental health (driven by demand) and higher than budgeted IDF out flows.
  5. Taranaki DHB - The DHB was $2.3 million YTD unfavourable to budget which was a $0.8 million deterioration on their December 2017 unfavourable result to budget of $1.5 million. The DHB reported that the YTD unfavourable result to budget was mainly due to personnel costs and clinical supplies costs being higher than budgeted due acute volumes being higher than planned. The DHB's year end result forecast remains as per the plan of a $2.0 million deficit.
  6. Hawke’s Bay DHB - The DHB was $1.4 million YTD unfavourable to budget which was a $0.4 million deterioration on their December 2017 unfavourable result to budget of $1.0 million. The DHB's year end result forecast deteriorated in the month by $2.2 million from a surplus of $1.5 million to a deficit of $0.7 million. The key drivers for the deteriorating forecast are reported as expected savings in clinical supplies not being achieved and expected increases in acute demand and complexity requiring the DHB to outsource higher levels of elective procedures. The DHB advises that they are looking at all options to improve their financial performance.
  7. Hutt Valley DHB - The DHB was $0.9 million YTD unfavourable to budget which was a $1.2 million improvement on their December 2017 unfavourable result to budget of $2.1 million. The DHB's year end result forecast improved by $0.8 million in the month from a $5.8 million deficit to a $5 million deficit against a budgeted year end result of $2.1 million deficit.
  8. MidCentral DHB - The DHB was $1.8 million YTD unfavourable to budget which was a $0.1 million deterioration on their December 2017 unfavourable result to budget of $1.7 million. The DHB reported that the YTD unfavourable result to budget was mainly due to personnel costs and clinical supplies costs being higher than budget indicating higher than planned volumes. The DHB's year end result forecast deteriorated by $1.0 million in the December month from a $4.3 million deficit to a $5.3 million deficit against the budgeted year end result of a $3.8 million deficit. The key drivers for the deteriorating forecast are reported as expected higher than budgeted costs for outsourced personnel, outsourced clinical services, clinical supplies and infrastructure driven by demand. The Ministry will be meeting with the DHB on 28 February 2018 to discuss their financial performance.
  9. Wairarapa DHB - The DHB was $0.9 million YTD unfavourable to budget which was a $0.2 million improvement on their December 2017 unfavourable result to budget of $1.1 million. The DHB's year end result forecast deteriorated by $1.2 million in the December month from a $3.9 million deficit to a $5.1 million deficit against the budgeted year end result of a $3.2 million deficit. The key drivers for the deteriorating forecast are reported as expected higher than budgeted costs for personnel, clinical supplies, IDFs and Disability Support Services driven by demand. The Ministry met with the DHB on 14 February 2018 and discussed their financial performance.
  10. Nelson Marlborough DHB - The DHB was $1.4 million YTD unfavourable to budget which was in line with their December 2017 unfavourable result to budget of $1.4 million. The DHB reported that the YTD unfavourable result to budget was mainly due to higher than budgeted clinical supplies costs. The DHB's year end result forecast deteriorated in the month by $1 million from a surplus of
    $3.5 million to a surplus of $2.5 million. The key drivers for the deteriorating forecast are reported as expected savings in clinical supplies not being achieved, higher than budgeted costs for outsourced services and higher than planned levels of IDF outflows.
  11. SouthernDHB - The DHB was $4.4 million YTD unfavourable to budget which was a $0.9 million deterioration on their December 2017 unfavourable result to budget of $3.5 million. The DHB reported that the YTD unfavourable result to budget was mainly due to clinical supplies costs and Disability Support Services costs being higher than budgeted driven by higher than planned volumes. The DHB's year end result forecast deteriorated by $3.6 million in the November month from a
    $14.0 million deficit to a $17.6 million deficit against the budgeted year end result of a $14.0 million deficit. The key drivers for the deteriorating forecast are reported as expected higher than budgeted costs for outsourced clinical services, clinical supplies and Disability Support Services driven by demand. The Ministry met with the DHB on 14 February 2018 and discussed their financial performance.

Full time equivalent Staff (FTEs) - Overall year to date average accrued FTEs were 619below budget

  1. All categories of personnel werefavourable to budget,apart from Medical and Nursing personnel which wereunfavourable to budget, as follows:Medical personnel (95FTEs unfavourable), Nursing personnel (134FTE unfavourable),Allied Health personnel (495FTEs), Support personnel
    (81FTEs) and Management /Administration (273FTEs).
  2. Whilst accrued FTEs are below budget, the funds have been applied to outsourced personnel. Overall year to date accrued FTEs were 1,957 higher compared to the previous year, as at 31 January 2017.

Capital expenditure for the year to date was $117million below budgeted levels with actual expenditure of $202million against budgeted expenditure of $319million

  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]Enable New Zealand is a DHB subsidiary that provides Health and Disability services.