In the Press this week this article raised my interest https://www.stuff.co.nz/national/health/122017066/dhb-overspends-now-a-feature-of-the-system–auditorgeneral
In the past week the Auditor General has written a paper on the funding deficits of the District Health Boards. In this report the Auditor General wrote:
Financial sustainability continues to be one of the largest shared challenges in the sector. DHB deficits have increased to the point where they are a feature of the system instead of just a budget management issue for individual DHBs to solve. In my view, this requires both a DHB and a system response.
I note the significant increase in DHB funding in Budget 2020 compared with Budget 2019. Achieving sustainability, however, is about more than funding. DHBs need a clear understanding of what is driving their costs, how their costs compare with sector best practice, and what are their realistic options to address cost pressures. This is difficult to achieve in isolation – co-ordination and leadership are necessary components of system sustainability.
For this reason, I have included, as part of the 2020/21 work programme for my Office, gaining a better understanding of how the Ministry of Health and the Treasury are working together to support the financial sustainability of DHBs (together with the work DHBs are doing) and, where possible, to support this work by identifying where improvements could be made.
It is interesting to contemplate just what makes up the costs of the Canterbury District Health Board. One item which might have made sense many years ago was the imposition of “cost of capital charges”. These were introduced in an era when successive Governments were trying to get some discipline in Government Department capital funding. Treasury imposed a charge for capital. This dampened down demand for capital when Departments had to find a 7% charge for whatever they had borrowed. Now the charge is 6%, per year.
The purpose of this charge is now well and truly over. Especially now that the Government can borrow funds for less than 1%. The hoped-for discipline is there now. The need for this charge is over. That’s the function of depreciation. This comment is for accountants to nod over. Economists won’t understand it. They came up with “capital charges”.
Let us consider the Canterbury District Health Board. Those in Treasury, who have only just recently started shaving, will have still been at school when we had serious earthquakes down here. A whole stack of buildings had to be replaced. These buildings arrived with an extra interest charge each year which added to the CDHB deficit. These highly trained young experts need to be reminded of this cost, which they have taken as gospel, which need to be reviewed, and then abandoned.
Also, the Ministry of Health has been in charge of managing the construction of new buildings for the CDHB. They have been hopeless, as these buildings are now 3 years late. Because of this the CDHB has to outsource 10 operating theatres each day from the private sector. This costs around $35m per annum.
Just to make matters worse the Ministry of Health has reduced access to Capital by CDHB which added to operating costs of $3m per annum.
Recently the Press printed an article by Sarah Dalton who is Executive Director of the Association of Salaried Medical Specialists. Sarah is questioning the funding of our Board. Here’s the article
The Press also carried this article on how the CDHB might have to cut staff to meet this economist incursion which have driven across sensible accounting principles https://www.stuff.co.nz/national/health/121954522/canterbury-health-authorities-consider-cutting-staff-costs-to-claw-back-deficit
So, in an effort to add some clarity to the discussion on CDHB deficit here are some numbers to think about:
- Depreciation on equipment and buildings $83,165,000
- Capital Charge/interest $54,464,000
- Capital charge related to insurance payment after quakes $12,000,000
- Extra costs caused by MOH delays on building construction $36,000,000
- Additional Princess Margaret charges $3,000,000
I reckon that if we add items (2) to (5) there are charges which total $105m which would go a long way to clear the supposed CDHB deficit.
Isn’t it time that Treasury dogma of the era of neo-liberalism is challenged? I might write to the Auditor General. He seems a reasonably ethical chap who is courageous and prepared to ask hard questions. He does have an Irish name which means there must be the ability to scrap somewhere in his DNA.