Health Report: DHB Financial Performance

Ref. No.: 20070085

HEALTH REPORT
Subject: / DHB FINANCIAL PERFORMANCE FOR THE SIX MONTH period ENDED 31 December 2006
Date: / 29 January 2007 / 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 six month period ended 31 December 2006.

TIMING IMPLICATIONS

Priority:

/ Routine / Semi-Urgent
(5 Days) / Urgent
(3 Days) / 24 Hour


Executive summary

The DHB sector financial performance for the six month period ended 31 December 2006 resulted in a sector deficit of $12.9M compared to a planned deficit of $30.2M. This represented a $17.3M 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 Auckland DHB.

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: and select Reports.

Recommendations

The recommendations are that you:

(a)note that the DHB sector financial performance for the six month period ended 31 December 2006 resulted in a net deficit of $12.9M that was $17.3M 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

Ref. No.: 20070085

Anthony Hill

Deputy Director-General

DHB Funding & Performance

MINISTER’S SIGNATURE:

DATE:

Contact for telephone discussion (if required)

Name / Position / Telephone
Direct LineAfter 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 six month period ended 31 December 2006 and shows a net year to date (YTD) deficit for the sector of $12.9M. This is $17.3M favourable to the planned $30.2M deficit.

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

Consolidated Statement of Financial Performance ($'000)
31 December 2006 / 3 / 2
Year to Date / Full Year
Actual / Phased Plan / Variance / % Variance * / Plan
$ '000 / $ '000 / $ '000 / $ '000
TOTAL REVENUE / 4,919,360 / 4,814,641 / 104,719 / 2.2% / 9,654,903
Operating Costs
Personnel Costs / 1,737,559 / 1,736,372 / (1,187) / (0.1%) / 3,490,290
Outsourced Services / 152,543 / 124,004 / (28,539) / (23.0%) / 247,043
Clinical Supplies / 428,354 / 418,362 / (9,992) / (2.4%) / 833,721
Infrastructure/Other Supplies / 517,844 / 513,644 / (4,200) / (0.8%) / 1,002,368
Subtotal / 2,836,300 / 2,792,381 / (43,918) / (1.6%) / 5,573,422
Payments to Providers
Personal Health / 1,432,567 / 1,384,562 / (48,005) / (3.5%) / 2,767,362
Mental Health / 187,018 / 197,202 / 10,184 / 5.2% / 403,407
Public Health / 2,272 / 1,147 / (1,125) / (98.1%) / 2,279
Disability Support Services / 455,965 / 450,623 / (5,342) / (1.2%) / 900,810
Maori Health / 18,146 / 18,908 / 762 / 4.0% / 37,882
Subtotal / 2,095,967 / 2,052,442 / (43,525) / (2.1%) / 4,111,740
TOTAL EXPENSES / 4,932,267 / 4,844,823 / (87,444) / (1.8%) / 9,685,162
NET RESULT / (12,907) / (30,182) / 17,275 / (57.2%) / (30,259)
FTEs at end of period / 49,963 / 49,964 / 1 / 0.0% / 49,903
Avg Annual Cost Per FTE ($) ** / 70,005 / 69,569 / (435) / (0.6%) / 69,941
Case Weighted Discharges - Inpatients / 266,535 / 267,780 / (1,245) / (0.5%) / 528,776
Case Weighted Discharges - Daypatients / 45,312 / 38,337 / 6,975 / 18.2% / 76,515
Total Case Weighted Discharges *** / 311,847 / 306,116 / 5,730 / 1.9% / 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 six month period ended 31 December 2006.

4.Total Revenue for the period is $104.7M (2.2%) 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 $1,737.6M is in line with the plan. Total Full Time Equivalents (FTE), as well as the average consolidated cost per FTE, are in line with plan. This may however be affected by the annual leave period, and will be monitored in the next two months to confirm the trend. Outsourced Services reflect a significant unfavourable variance to plan of $28.5M (23.0%),with the most significant unfavourable variances in Outsourced Medical ($16.4M) and Nursing ($4.2M) Personnel. It is worth noting that the increasing cost of locums is becoming apparent across the sector.

6.Appendix 1 to this report shows the net results by arm for each DHB year to date as at 31 December 2006.

Nine DHBs reported operating surpluses.
Twelve DHBs reported deficits of which nine had planned for deficits.
Capital & Coast DHB reported the largest unfavourable variance at $4.8M. The unfavourable variance is primarily in the Provider arm ($7.9M), offset by a favourable variance in the Funder arm ($3.2M). The unfavourable variance in the Provider arm results from revenue being less than planned, and unfavourable variances in personnel costs ($2.2M) and outsourced services ($2.5M). The DHB is experiencing difficulties in implementing the initiatives highlighted in their DAP and are indicating an operating deficit for the current year. The Ministry is working with the DHB to ensure the success of the initiatives.
West Coast DHB also reported a significantly unfavourable variance of $2.3M,reported primarily in the Provider arm ($2.5M unfavourable); this variance is due mainly to outsourced medical personnel ($1.3M 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 planned scenario was for 5 employed RMOs to 2 locums; however the reverse is true). The DHB is currently forecasting a deficit of $3.3M, and the Ministry will continue to work with the DHB in their efforts to reduce the deficit.
Fourteen DHBs returned favourable variances to plan.
Nelson Marlborough DHB reported the highest favourable variance ($6.8M). The significant underspend is due to delays with the implementation of new services, and expenditure on capital items which will come in under plan. It is expected that this surplus will reduce over the remaining months of the year.
Waikato DHB reported a favourable variance of $5.2M predominantly in the Funder arm. The DHB does not expect to maintain this level of surplus through the year.

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 $97.1M (2.2%), payments to the DHBs’ own Provider arm by $24.4M (1.0%), and payments to other providers by $43.5M (2.1%).

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 17.6% to Bayof PlentyDHB with the highest surplus at 3.7%. In dollar terms Auckland DHB reports the highest deficit of $21.9M and the Bay of Plenty DHB has the highest surplus of $4.5M. The majority of DHBs are reflecting deficits against their Provider arms; however this is offset by surpluses being carried against the Funder arms.

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 for this year.

11.Of the 20 DHBs, for which CWD data is available, only six are reporting services delivered less than plan, with Bay of Plenty DHB reporting the highest percentage shortfall of 5.3%.

12. Two DHBs outperformed plan by greater than 10%, as detailed below:

Northland DHB (12.8%) 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.
Waitemata DHB (11.3%) has confirmed continuing high medical admissions and ECC attendances due to the cold weather, with discharges above both planned and previous year levels.

13.As detailed in Appendix 5, total FTEs for the six months are in line with planning for the sector. This may however be affected by the annual leave period, and will be monitored in the next two months to confirm the trend.

14.Counties Manukau and Waitemata DHBs continue to report significantly more Medical and Nursing 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. DHBs have been requested to recast their planned FTEs as the cause of their variance is the change to the new definition of FTEs. Further comments received from two of the DHBs with significant variances to plan are:

Capital & Coast DHB reported 207 (5.5%) additional FTEs, primarily in nursing. FTE numbers for Capital and Coast show a high level of variability from month to month. Nursing numbers, particularly, can fluctuate by up 10% per month.
Canterbury DHB reported 153 (2.4%) less FTE’s, due to a decrease in the average length of stay, and a reduction in the number of management and administration personnel.

15.The consolidated cost per FTE, as contained in Appendix 6, is inline with the planned cost. 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 Tairawhiti DHB reports an average compensation per FTE variance in excess of this range at $5,000, and this variance is indicative of conservative planning data being used, as the actual costs are inline with the rest of the small DHBs.

16.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.

17.Appendix 8 provides a summary of Capital Expenditure per DHB to track actual expenditure.

Waikato DHB shows the largest under spend according to plan ($9.2M), due to the budget being phased on a 1/12th basis.
Nelson Marlborough DHB also shows a large under spend according to plan ($6.5M), due to the budget being phased on a 1/12th basis. All planned capital projects are, however, within the timeframes set for each project.
Capital & Coast DHB shows the largest overspend according to plan ($3.6M) due to overspend on Land and Buildings and Information Technology, however this is offset by an under spend on Clinical Equipment.
Canterbury DHB’sexpenditure is ahead of plan ($2.4M), as the Burwood Hospital Stage II redevelopment is proceeding ahead of schedule.

SECTOR ISSUES

New Zealand Equivalents to International Financial Reporting Standards

18.New Zealandequivalents 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 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 were received from DHBs in December 2006, and a consolidated audited return has been filed with Treasury. The Ministry will now file monthly NZIFRS returns with Treasury.

CAPITAL CHARGES

19.Appendix 9 details the $8.3M of capital charges incurred for the month of December 2006. Invoices for capital charges are issued to DHB’s monthly.

20.Capital & Coast DHB have now paid all undisputed outstanding charges and the Ministry is working with them and Southland DHB to resolve issues regarding outstanding debt.

Implications for REDUCING INEQUALITIES

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

DHB FINANCIAL PERFORMANCE FOR THE SIX MONTHS 31 DECEMBER 2006

Appendices attached to this report:

Appendix 1: DHB Net Results by Arm for the six month period ended 31 December 2006 grouped according to variance to net result.

Appendix 2:DHB Funder Arm Revenue Allocation for the six month period ended 31 December 2006 separated into payments to own Provider and Governance, and payments to Other Providers.

Appendix 3: DHB Provider Arm Results for the six month period ended 31 December 2006 grouped according to size of DHB.

Appendix 4: CWD’s for the six month period ended 31 December 2006 grouped according to % variance to planned output.

Appendix 5: Consolidated FTE Numbers by DHB as at 31 December 2006.

Appendix 6: Annualised Average Consolidated Cost per FTE by DHB for the six month period ended 31 December 2006.

Appendix 7:DHB Balance Sheet as at 31 December 2006, grouped according to size of DHB. (NEW)

Appendix 8:Capital Expenditure per DHB for the six month period ended 31 December 2006. (NEW)

Appendix 9: Outstanding Capital Charges as at 31 December 2006 with DHBs grouped according to current level on the Monitoring Intervention Framework. (Old Appendix 7)

Also attached are “one-page” summary reports for each DHB. A “one-page”summary 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, and
a variance for key inputs, FTEs, and outputs, case weighted daypatient and inpatient discharges.

One of the functions of these summaries is to identify areas in need of corrective action, if any, in order to bring actual performance in line with plan. In order to understand the fundamental cause of these variances, and any such corrective plans, the Ministry is reliant on receiving quality comments from DHBs. Highlights of these comments are included in the summaries and the monthly Health Report.