Ref. No.: 20062378
HEALTH REPORTSubject: / DHB FINANCIAL PERFORMANCE FOR THE Four month period ENDED 31 October 2006
Date: / 06 December 2006 / File Ref: / HC07-16-2
Attention: / Hon Pete Hodgson (Minister of Health)
Copy to: / DHB Chairs and DHB Chief Executives
Treasury – Social Policy Branch
Crown Health Financing Agency
Department of Prime Minister and Cabinet
Deputy Commissioner, States Service Commission
(Tony Hartevelt)
Director–General of Health (Stephen McKernan)
Deputy Director-General Corporate & Information Services (Debbie Chin)
PURPOSE OF HEALTH REPORT
This report presents a summary of the financial performance of the District Health Board (DHB) sector for the four month period ended 31 October 2006.
TIMING IMPLICATIONS
Priority:
/ Routine / Semi-Urgent(5 Days) / Urgent
(3 Days) / 24 Hour
/ þ
Executive summary
The DHB sector financial performance for the four month period ended 31 October 2006 resulted in a sector deficit of $3.6M compared to a planned deficit of $20.1M. This represented a $16.5M favourable variance against plan.
20 DHBs have approved District Annual Plans (DAPs) for the 2006/07 financial year. Auckland DHB does not yet have an approved plan. In consolidating and reporting sector wide phased plan information the Ministry of Health (the Ministry) has used the values from the 20 approved plans and the most recent submission from the DHB yet to have its plan approved.
financial implications
Nil
COMMUNICATIONS
Once this report has been signed by the Minster the report 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: http://www.moh.govt.nz/moh.nsf/ea6005dc347e7bd44c2566a40079ae6f/c1c19059084186dccc256d43007bad4f?OpenDocument
Recommendations
The recommendations are that you:
(a) note that the DHB sector financial performance for the four month period ended 31 October 2006 resulted in a net deficit of $3.6M that was $16.5M favourable to plan / Yes/No(b) note that 20 out of 21 DHBs currently have approved District Annual Plans for the 2006/07 year. / Yes/No
(c) note that the Minister is to highlight any paragraphs he does not want to be posted on the Ministry’s website / Yes/No
(d) refer this report to the Minister of Finance for his information / Yes/No
1
Ref. No.: 20062378
Anthony Hill
Deputy Director-General
DHB Funding & Performance
MINISTER’S SIGNATURE:
DATE:
Contact for telephone discussion (if required)
Name / Position / TelephoneDirect Line After Hours / Suggested First Contact
John Hazeldine / Finance Manager / 04 496 2396 / 027 271 3218 / 1
Bridget Hesketh / DHB Financial Monitoring – Team Leader / 04 496 2409 / 2
Graeme Rule / DHB Financial Monitoring – Senior Advisor / 04 496 2445 / 3
REPORT
Background Information
1. This report provides a summary of the District Health Board (DHB) sector financial performance for the four month period ended 31 October 2006 and shows a net year to date (YTD) deficit for the sector of $3.6M. This is $16.5M favourable to the planned $20.1M deficit.
2. Tables and appendices have been compiled from rounded data and may not necessarily cross add.
Consolidated Statement of Financial Performance ($'000)31 October 2006 / 3 / 2
Year to Date / Full Year
Actual / Phased Plan / Variance / % Variance * / Plan
$ '000 / $ '000 / $ '000 / $ '000
TOTAL REVENUE / 3,274,014 / 3,211,915 / 62,098 / 1.9% / 9,625,602
Operating Costs
Personnel Costs / 1,155,648 / 1,159,318 / 3,669 / 0.3% / 3,494,684
Outsourced Services / 100,823 / 82,900 / (17,924) / (21.6%) / 246,820
Clinical Supplies / 286,658 / 279,308 / (7,350) / (2.6%) / 834,163
Infrastructure/Other Supplies / 346,558 / 343,057 / (3,500) / (1.0%) / 1,002,765
Subtotal / 1,889,687 / 1,864,583 / (25,104) / (1.3%) / 5,578,432
Payments to Providers
Personal Health / 947,720 / 921,910 / (25,810) / (2.8%) / 2,760,425
Mental Health / 124,235 / 131,705 / 7,470 / 5.7% / 405,520
Public Health / 1,358 / 766 / (592) / (77.3%) / 2,279
Disability Support Services / 302,390 / 300,497 / (1,893) / (0.6%) / 900,810
Maori Health / 12,200 / 12,598 / 398 / 3.2% / 37,878
Subtotal / 1,387,902 / 1,367,476 / (20,427) / (1.5%) / 4,106,912
TOTAL EXPENSES / 3,277,590 / 3,232,059 / (45,531) / (1.4%) / 9,685,344
NET RESULT / (3,576) / (20,143) / 16,568 / (82.2%) / (59,742)
FTEs at end of period / 49,477 / 49,887 / 410 / 0.8% / 49,838
Avg Annual Cost Per FTE ($) ** / 70,019 / 69,707 / (312) / (0.4%) / 70,121
Case Weighted Discharges - Inpatients / 181,058 / 181,763 / (705) / (0.4%) / 528,776
Case Weighted Discharges - Daypatients / 30,425 / 26,149 / 4,275 / 16.3% / 76,515
Total Case Weighted Discharges *** / 211,483 / 207,913 / 3,570 / 1.7% / 605,292
Note:
* The % column shows the year to date variance as a percentage of phased plan
** Cost Per FTE is based on YTD Personnel Costs annualised and FTEs as at current month end
*** Figures provided in the monthly financial templates. West Coast DHB data has been removed.
3. The above table summarises the Statement of Financial Performance for the sector for the four month period ended 31 October 2006.
4. Total Revenue for the period is $62.5M (1.9%) favourable to plan. This is due mostly to additional revenue received by the sector for the government rollout of lower fees for the 45-64 age group.
5. Expenditure in Personnel Costs at $1,155.6M is in line with the plan. FTEs are 410 (0.8%) lower than plan, however the average consolidated cost per FTE is slightly unfavourable to plan, an excess of 0.4%. There does not appear to be a trade-off with Outsourced Services as these reflect a significant unfavourable variance to plan of $17.9M (21.6%),with the most significant unfavourable variances in Outsourced Medical ($10.2M) and Nursing ($3.3M) Personnel.
6. Appendix 1 to this report shows the net results by arm for each DHB year to date as at 31 October 2006.
· Eleven DHBs reported operating surpluses.
· Ten DHBs reported deficits of which six had planned for deficits.
· Fifteen DHBs returned favourable variances to plan with Nelson Marlborough DHB reporting the highest favourable variance ($5.1M).
· Capital & Coast DHB reported the largest unfavourable variance of $1.8M. The unfavourable variance is primarily in the Provider arm ($4.1M). This unfavourable variance results from revenue being less than planned, and unfavourable variances in personnel costs ($1.1M) and outsourced services ($1.6M).
· West Coast DHB also reported a significantly unfavourable variance of $1.6M reported primarily in the Provider arm ($1.5M unfavourable); this variance is due mainly to outsourced medical personnel ($1.1M unfavourable) as the DHB has extreme difficulty in recruiting and retaining medical staff and is highly dependant on the use of more expensive locums. The DHB is currently forecasting a deficit of $3.9M; a deficit recovery plan is to be presented to their Board at their December meeting.
7. 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. This report reflects both the dollar variance and any shift in expenditure pattern between a DHBs’ own Provider arm and other providers. Overall both revenues to and payments made by the Funder arm exceed plan, revenues by $52.8M (1.8%), payments to the DHBs’ own Provider arm by $11.4M (0.8%), and payments to other providers by $20.8M (1.5%).
8. West Coast DHB is an outlier in the Funder arm distribution of revenue to their own Provider arm. On average DHBs distribute slightly more than 50% of their Funder arm to other providers (inclusive of IDF outflows). However, West Coast DHB plan and report much less because the DHB is “the provider” for the area. There are very few alternative providers for services in the West Coast. At first glance Auckland also appears to be an outlier. Excluding the impact of IDF outflows, for which Auckland has very little, brings Auckland more in line with the sector.
9. 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 17.2% to Nelson Marlborough DHB with the highest surplus at 2.6%. In dollar terms Auckland DHB reports the highest deficit of $15.6M and the Otago DHB has the highest surplus of $2.0M.
10. 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. West Coast DHB has yet to report CWD information.
11. Of the 20 DHBs, for which CWD data is available, only six are reporting services delivered less than plan, with Counties Manukau reporting the highest percentage shortfall of 5.2% (1,115). Four DHBs outperformed plan by greater than 10%, as detailed below:
· Hawke’s Bay DHB (10.3%) has changed definitions for counting patients seen in the Acute Assessment Unit. These patients are now included in the count of discharges. Although acute and elective services are above plan, the majority of the increase is attributed to this change in procedure. The DHB has been requested to alter their plan in line with the changes.
· Northland DHB (16.1%) notes that during August and September they had the highest number of acute presentations ever. Based on the 05/06 year, a high number of electives were scheduled on the assumption that the requirements for acute presentations would again be light. Due to the initiatives presented by the Minister the DHB has committed itself to a higher throughput for elective caseweights than earlier signalled in the DAP.
· Taranaki DHB (11.5%) state their increase discharges over plan represent the winter seasonal impact that should reduce over time. We note that the plan activity levels do not include a seasonal factor.
· Waitemata DHB (12.1%) has confirmed these increases indicating that most of the increase occurred in July.
12. As detailed in Appendix 5, total Full Time Equivalent’s (FTE) for the three months are 410 (0.8%) less than planned for the sector. Counties Manukau and Waitemata DHBs report significantly more Medical Staff than planned. These variances are caused by the change in actual reporting to the new definition of FTEs. This change is also impacting the Annualized Average Consolidated Cost Per FTE in Appendix 6. We have requested DHBs to recast their planned FTEs if the cause of their variance is the change to the new definition of FTEs. Further comments received from the two DHBs with significant variances to plan are:
· MidCentral DHB reported 310 (16.6%) additional FTEs, primarily in nursing. The last residents in the Kimberley Centre moved out at the end of October, and the facility has now closed. The DHB had initially planned for Kimberley to close at the end of 2005/06.
· Canterbury DHB reported 214 (3.4%) less FTE’s due to lower activities in September than July and August, and additionally MRT industrial action meant as many staff as possible were encouraged to take annual leave during this time.
13. The consolidated cost per FTE, as contained in Appendix 6, is marginally greater than planned (0.4%). However, if Counties Manukau and Waitemata DHBs are excluded from the calculation, for reasons as discussed above, the average cost to the sector increases. The vast majority of DHBs report total average compensation per FTE within $3,000 of plan, only MidCentral and Tairawhiti DHBs report an average compensation per FTE variance in excess of this range at $5,000.
SECTOR ISSUES
New Zealand Equivalents to International Financial Reporting Standards
14. New Zealand equivalents to International Reporting Standards (NZ IFRS) are to be adopted by the sector from 1 July 2007, with an opening balance sheet and comparative figures required from 1 July 2006. A combined DHB/Ministry working group, including the OAG and Treasury, has been investigating the impact on the sector and developing a consistent approach for adoption. A draft template design has been prepared to collect NZ IFRS data. A template was issued to the sector for completion, and data is now being received and analysed by the Ministry. Audited NZ IFRS opening balance sheets for 2006/07 are due in December 2006.
CAPITAL CHARGES
15. Appendix 7 details the $8.52M of capital charges incurred for the month of October 2006. Invoices for capital charges are issued to DHB’s monthly.
16. A wash-up for the 2005/06 financial year has been performed by calculating capital charges due for the year ending 30 June 2006 using audited results, and offsetting invoiced charges raised during the 2005/06 financial year.