Health Report · Web viewThese calls were daily during March and April and scaled back to twice weekly during May. Monthly performance meetings (formally MIF meetings) where the Deputy

Health ReportDHB Sector Year to Date Financial Performance for the ten months to 30 April 2020

Date due to MO:

N/A Action required by: N/A

Security level: IN CONFIDENCE Health Report number:

20200814

To: Hon Chris Hipkins, Minister of Health

Copy to: Hon Grant Robertson, Minister of Finance

Contact for telephone discussionName Position TelephoneMichelle Arrowsmith Deputy Director-General, DHB

Performance, Support and Infrastructure

021 572 584

Fergus Welsh Chief Financial Officer, Corporate Services

021 550 410

Action for Private Secretaries

Return the signed report to the Ministry of Health.

Forward copy of report to Minister of Finance.

Date dispatched to MO:

DHB Sector Year to Date Financial Performance for the ten months to30 April 2020

PurposeThis report provides an overview of the financial performance of the district health board (DHB) sector for the year to date to 30 April 2020. The commentary is based on data and responses from DHBs as part of their monthly financial reporting to the Ministry of Health (the Ministry). The report highlights where the sector or an individual DHB reports a significant variance against their Annual Plan financial budgets and provides information on sector wide issues with financial implications.This report is also provided to the Minister of Finance because of his interest in the associated fiscal risks arising from DHBs which are a significant component of the Crown’s balance sheet and operating budget [CAB (00) M19/13 refers].

Key pointsDHB financial results for the year to date 30 April 2020 show the following: A sector wide deficit of $480 million after ten months of the financial year, or a $97

million (or 25.2 percent) unfavourable variance to budget. In the same period last year, the sector reported a $311 million deficit ($67 million or 27.2 percent unfavourable), ending the year on a net deficit of $1.248 billion, or $432 million excluding one-offs.

The increase in deficit from March is $105 million, which includes a net $77 million impact resulting from the COVID-19 pandemic response.

For the ten months year to date, Holidays Act provisions have increased by $8.8 million across ten DHBs.

DHBs are forecasting a $790 million deficit to 30 June 2020 against the draft year end planned deficit of $497 million. The deterioration in forecast of $147 million from March includes additional provisions forecast at $102 million required for Holidays Act remediation for fourteen DHBs, and an additional $40 million impact from COVID-19. The Ministry is working with DHBs on both Holidays Act remediation costs and COVID-19 to gain a fuller picture of the impact and ensuring that all funding for COVID 19 costs that has or will be directed to DHBs (e.g. CBACs, and Funder Arm External Provider payments) has been appropriately accounted for in their year end forecast and actual results.

The sector’s unfavourable variance to budget is across most cost categories totalling $251 million, particularly personnel/outsourced personnel, and payments to other provider costs.

This is offset by a favourable revenue variance against budget of $136 million and a favourable variance to budget for infrastructure costs of $18 million. The favourable revenue movement is partly due

Health Report: 20200814 2

to additional COVID-19 funding provided to DHB’s for Funder Arm External Provider payments.

While all DHBs reported year to date deficits, three DHBs achieved a result favourable to budget.

Overall, across the sector Full Time Equivalents (FTEs)1 are lower than planned by 46, but this is 2,647 higher than the same period last year.

DHBs’ capital expenditure for the year to date was $439 million against budgeted expenditure of $612 million, an underspend of $173 million (or 28%). The sector forecast for the full year is an underspend of $37 million although this is likely to increase significantly due to further project delays from COVID-19 which are currently being assessed.

There will also be additional capital project operating expenditure arising from COVID-19 impacts which DHBs are currently in the process of assessing (e.g. extension of project time claims, and additional Health & Safety related costs).

Eighteen DHB 2019/20 annual plans have been approved as at 30 April 2020. Hon Dr David Clark recently received advice on Auckland and Canterbury DHB’s Annual Plans.

The latest sector cash flow forecasts at the end of May show that seven DHBs will be in overdraft by 30 June 2020. Three DHBs are currently forecasting to potentially breach their Operational Policy Framework overdraft limits during the first six months of 2020/21, although Canterbury is likely to be the only DHB requiring advanced cash funding assistance.

DHBs have reported that the adverse impacts on DHB cash flows, compared to prior month forecasts, are due to COVID-19 impacts, and the Government directive to change supplier payment terms to settle within 10 working days, which DHBs are still assessing the impact of. However, it should also be noted that most of the DHBs have not yet included the impact of greater Budget 2020/21 funding changes into their cash flow forecasts.

RecommendationsThe Ministry recommends that you: a. Note this report is specifically for the purpose of informing the

Ministers of Health and Finance, of the current financial performance and arising issues of the DHB sector to 30 April 2020.

b. Agree to refer this report to the Minister of Finance for his information.

Yes / No

c. Note this report will be published on the Ministry’s website

1 In the FTE counting framework, the definition for Accrued and Worked FTEs for all personnel categories is based on a nominal standardised full-time week of 40 hours. This standardisation factor converts to 2,086 hours per year. Further information is contained in the document ‘‘measuring staff resources – counting FTEs’ that is available on the National Service Framework Library (NSFL) Ministry of Health website.


Michelle Arrowsmith Hon Chris HipkinsDeputy Director-General Minister of HealthDHB Performance, Support and Infrastructure

Date:

Fergus WelshChief Financial OfficerCorporate Services


Operating results1. The Ministry has received the DHB financial performance results for the year to

30 April 2020. Table one below shows the following:i. A sector wide deficit of $480 million after ten months of the financial year, or a

$97 million (25.2 percent) unfavourable variance to budget. The increase in deficit from March is $105 million which includes a net $77 million DHB reported adverse impact from the COVID-19 pandemic response.

ii. At the same period last year, the sector reported a $311 million deficit ($67 million or 27.2 percent unfavourable), ending the year on a net deficit of $1.248 billion, with an operational deficit of $432 million excluding one off costs such as Holidays Act provisions.

iii. The net deficit comprised a favourable revenue variance against budget of $136 million ($77 million of this for additional COVID-19 funding for External Provider payments), offset by unfavourable expenditure against budget of $233 million.

iv. The average monthly actual spend to date is $1.549 billion per month, compared to a year to date average budgeted spend of $1.532 billion.

Table One: DHB Sector Financial Results YTD to 30 April 2020 - Consolidated Revenue, Expenditure, Net Result, FTEs

Actual Budget Variance Variance$M $M $M % $M $M %

REVENUE 15,108 14,972 136 0.9% 14,269 17,972 84.1%

Operating CostsPersonnel (6,093) (6,054) (40) (0.7%) (5,604) (7,290) 83.6%Outsourced Personnel (201) (118) (83) (70.5%) (189) (142) 141.8%Total Personnel (Including Outsourced) (6,294) (6,171) (123) (2.0%) (5,793) (7,432) 84.7%Outsourced Services (495) (476) (18) (3.8%) (470) (570) 86.8%Clinical Supplies (1,350) (1,326) (24) (1.8%) (1,279) (1,599) 84.4%Infrastructure & Non-Clinical Supplies (1,333) (1,350) 18 1.3% (1,286) (1,626) 82.0%Total Operating Costs (9,471) (9,324) (147) (1.6%) (8,827) (11,227) 84.4%

Payments to ProvidersMoH - Personal Health (3,936) (3,914) (22) (0.6%) (3,748) (4,699) 83.8%MoH - Mental Health (437) (445) 7 1.7% (407) (534) 81.9%MoH - Public Health (96) (32) (65) (203.3%) (27) (38) 253.3%MoH - Disability Support Services (1,606) (1,602) (4) (0.3%) (1,533) (1,924) 83.5%MoH - Maori Health (42) (40) (2) (4.6%) (39) (47) 87.7%Total Payments to Providers (6,117) (6,032) (85) (1.4%) (5,753) (7,242) 84.5%

TOTAL EXPENDITURE (15,588) (15,356) (232) (1.5%) (14,580) (18,469) 84.4%NET RESULTS: Surplus/(Deficit) (480) (384) (97) (25.2%) (311) (497) 96.6%

Average FTEs YTD 70,102 70,148 46 0.1% 67,455 70,234

Year to Date

Previous Year to Date

Full Year Target Budget

Spend Against

Budget after 83% of Year

Gone


2. Total expenditure was unfavourable to budget by $232 million (1.5 percent) mainly due to unfavourable variances for personnel costs/outsourced personnel costs, and payments to other provider costs. The variance to budget of $232 million includes $130 million of costs identified by DHB’s as being due to the impact from the COVID-19 pandemic response. Against the prior year to date, total expenditure has increased by $1,008 million or 6.9 percent.

3. Personnel costs were unfavourable to budget by $40 million (or 0.7 percent) across thirteen DHBs with Auckland and Waitemata DHBs having the largest variances; mainly due to:

i. COVID-19 related payroll expenses, rate per FTE being 0.6 percent higher than budgeted overall and security services being brought in-house. Note: Security Costs were originally budgeted under Infrastructure and non-clinical supplies budget for Auckland DHB; and

ii. COVID-19 related payroll costs for Waitemata DHB. 4. Personnel costs were $489 million or 8.7 percent higher than the equivalent

period last year, due to a combination of more FTEs, particularly in nursing, average pay rates higher than plan, and COVID-19 impacts especially for increased leave provisions due to the cancellation of scheduled leave


5. Outsourced personnel costs were unfavourable to budget by $83 million (or 70.5 percent) across the sector. The unfavourable variance reflects costs for outsourced staff who are used to cover vacancies, staff leave, rosters and other workloads. Against the equivalent period for last year, outsourced personnel costs were $12 million or 6.5 percent higher in 2019/20 reflecting increased costs of using outsourced providers and increased levels of activity to meet demands in certain regions. This is principally driven by the cost of using outsourced medical personnel.

6. Across the sector, FTEs are 46 lower than planned, but this is 2,647 higher than the same period last year. The increase in FTEs is driven by a range of factors, such as collective agreements and associated roster changes for nurses and junior doctors, increased demand from demographic growth, mental health services, national bowel screening, filling of vacancies and bringing outsourced functions back in house.

7. Most categories of personnel numbers were favourable to budget. The key exceptions are nursing personnel and support personnel which are higher than


planned. Medical personnel were 250 FTEs favourable, nursing personnel were 561 FTEs unfavourable, allied health personnel were 315 FTEs favourable, support personnel were 36 FTEs unfavourable and management/administration were 79 FTEs favourable.

8. Outsourced services costs (excluding outsourced personnel) were unfavourable to budget by $18 million (or 3.8 percent) across thirteen DHBs with Mid-Central and Northland DHBs having the largest variances; mainly due to:

i. Outsourced radiology reading services covering Radiologist vacancies in medical imaging in MidCentral DHB; and

ii. Outsourcing of radiology reads and send away pathology tests due to vacancies in these services in Northland DHB.

The marked trend reduction in costs in April in the graph below is primarily due to lower activity levels arising from COVID-19.

9. Clinical supplies costs were unfavourable to budget by $24 million (or 1.8 percent) across fifteen DHBs, with Counties Manukau and Southern DHBs having the largest variances, mainly driven by:

i. Counties Manukau DHB – Whakaari/White Island response costs, particularly dressings, skin grafts and surgical instruments, unrealised target savings and projected expenditure increases in pharmaceuticals to support an increase in burns patients (acute and Tahitian), and for non-PCT drugs. We note that direct costs associated with treating people injured during the Whakaari/White Island eruption will receive additional funding.

ii. Southern DHB - The clinical activity was pulled back in anticipation of COVID-19 patients, resulting in favourable variances for the April month in Treatment Disposables, Implants & Prostheses and Other Clinical Costs. All of these areas are favourable for the month however remain unfavourable year to date. Other Clinical Costs includes Air Ambulance activity, which has increased significantly with Neurosurgery patients being transported from/to Dunedin


10. Clinical supplies costs have increased by $90 million or 7.8 percent against the equivalent period in the previous year. Some of the higher March costs were COVID-19 driven but at this stage in the pandemic the impact of COVID-19 appears to be a reduction in clinical supplies costs mainly due to reduced activities volume due to "lockdown".

11. Infrastructure and Non clinical supplies costs were favourable to budget by $18 million (or 1.3 percent). Mainly driven by an underspend in facilities and interest & financing costs offset by an overspend in other operating costs:

i. Canterbury DHB had the largest underspend due to favourable depreciation relating to delays in the Hagley complex and reduced capital charge related to EQ insurance drawdowns.

ii. Waitemata DHB had the largest overspend; primarily due to unallocated savings being budgeted under 'Other Operating costs'- whilst actual savings achieved YTD are shown under other expenditure categories.

12. Against the same period in the previous year, costs have increased by $47 million or 3.6 percent.


13. Payments to other provider costs were unfavourable to budget by $85 million (1.4 percent) across sixteen DHBs. The deterioration in variance to budget of $63 million from March includes unplanned costs of $68 million related to the COVID-19 pandemic response. This was offset by an associated increase in COVID-19 funding revenue paid to DHBs.

14. When comparing to the same period last year, payments to providers have increased by$364 million or 6.3 percent. The March and April movements include COVID-19 related funding payments made to the external Providers in the Primary Care sector that is offset by increased revenue funding also provided to DHBs.

15. All DHBs are now reporting year to date deficits, with only three DHBs achieving a result favourable to budget.

Forecast Sector Result16. DHBs are forecasting a $790 million deficit to 30 June 2020 against a draft

budgeted year end-result of $497 million, $293 million unfavourable to budget. 17. The forecast year end position worsened by $147 million in April from a forecast

net deficit of $643 million at the end of March. The deterioration in forecast of $147 million from last month includes additional provisions forecast at $102 million required for Holidays Act remediation for fourteen DHBs, and an additional $40 million impact from COVID-19.

18. Many DHBs assumed that the Holidays Act remediation work would be completed in 2019/20 thus avoiding the need to provide additional remediation cost for 2019/20. The 2018/19 total Holidays Act remediation provision ($770 million) was for nine years. One ninth of the total provision is around $90 million providing an estimate of the impact in 2019/20. So far this year, ten DHBs have provided for $8.8 million additional remediation cost. DHBs have advised a further $102 million in Holidays Act remediation provision in their April forecasts


and indicated further risk of an additional $62 million of estimated provisions (yet to be fully quantified or forecast).

19. Taking into account the likely additional $62 million further estimated Holidays Act remediation provisions the year forecast deficit would increase to over $850 million.

20. Approved budgets for 2019/20 are shown in Table Two reflecting approval of eighteen of the DHB Annual Plans. For Auckland and Canterbury DHBs, the budgets reflect their proposed budgets (including the updated Auckland DHB annual plan) which Hon Dr David Clark recently received advice on.

Table Two:DHB Financial Results YTD to 30 April 2020 Net Surpluses / (Deficits)

DHB

YearTo Date Result

2019/20

Unfavourable / favourable to Budget - April 2020

Variance from

previous month

2019/20 Plan Approved

Targeted Budgeted Year End

Result

Forecast Year End

Result April 2020

Forecast Year End Result vs Budget

$M $M $M $M $M $MAuckland DHB (21,457) (22,979) (12,591) No (20,000) (94,607) (74,607) Bay of Plenty DHB (13,784) (5,775) (3,146) Yes (10,500) (24,520) (14,020) Canterbury DHB (116,037) 21,825 3,048 No (180,470) (179,786) 684 Capital & Coast DHB (29,742) (18,693) (4,348) Yes (15,900) (47,500) (31,601) Counties Manukau DHB (36,409) (6,645) (2,449) Yes (38,594) (65,015) (26,421) Hawke’s Bay DHB (24,462) (14,104) (4,417) Yes (12,900) (29,244) (16,343) Hutt Valley DHB (12,952) (5,780) (1,776) Yes (8,142) (14,639) (6,497) Lakes DHB (10,460) (2,537) 213 Yes (10,130) (14,521) (4,391) MidCentral DHB (13,668) (4,077) (3,164) Yes (12,100) (19,286) (7,186) Nelson Marlborough DHB (8,053) (3,763) (2,377) Yes (6,042) (8,980) (2,938) Northland DHB (14,046) (4,705) (2,101) Yes (12,800) (18,672) (5,872) South Canterbury DHB (1,294) (1,100) (175) Yes 27 (1,100) (1,127) Southern DHB (33,217) (6,128) (708) Yes (38,512) (49,413) (10,901) Tairawhiti DHB (11,627) (2,133) (362) Yes (12,000) (14,091) (2,091) Taranaki DHB (21,995) (3,972) (1,631) Yes (18,023) (28,205) (10,182) Waikato DHB (59,847) 153 4,186 Yes (72,425) (72,425) 0 Wairarapa DHB (5,317) 1,703 180 Yes (9,527) (8,251) 1,277 Waitemata DHB (29,485) (17,116) (4,411) Yes 0 (79,049) (79,049) West Coast DHB (6,159) (859) (164) Yes (6,613) (7,752) (1,139) Whanganui DHB (10,404) (112) 183 Yes (12,597) (12,979) (382)

Total (480,415) (96,797) (36,009) (497,249) (790,035) (292,786)

Capital Expenditure21. DHBs’ capital expenditure for the year to date reported actual expenditure of

$439 million against a budgeted expenditure of $612 million (or 28 percent underspent). The total $173 million underspend against the plan largely consists of timing delays and underspends of $101 million in Buildings and Plant, $41 million in Clinical Equipment and $38 million in Information Technology and Software.

22. Historically, the sector has tended to be below budgeted capital expenditure levels, which is mostly driven by delays in projects commencing. In the same period last year, DHBs reported a total underspend of $211 million from underspends of $50 million in Buildings and Plant, $98 million in Clinical Equipment and $55 million in Information Technology and Software.

23. The impact of COVID-19 has been to initially delay most capital projects by at least six weeks and to add higher costs to projects which may not be able to be


mitigated by project contingencies. The true impact on Capital projects from COVID-19 is still currently being assessed by DHB’s.

Liquidity24. The DHBs manage a shared banking and treasury service through a cash offset

arrangement with the Bank of New Zealand. Individual DHBs can become overdrawn on any day provided there are surplus funds held by other DHBs, ensuring the net DHB sector balance is positive. A significant decrease in the total sector cash over several years has resulted in cash balances reducing to a level where there was a risk in 2019/20 of cash offset arrangements being breached.

25. The Ministry and Treasury have been working closely with New Zealand Health Partnerships to develop options to manage forecast breaches over the 2019/20 financial year. After joint advice provided to Ministers (HR20191004 and T2019/1529 refers) the sector received $141.9 million equity deficit support in June 2019. A further request for $430 million equity deficit support was approved by Ministers and paid to ten DHBs at the end of April which was forecast to maintain DHB’s and overall sector liquidity through to December 2020.

26. The latest sector cash flow forecasts at the end of May show that seven DHBs will be in overdraft by 30 June 2020. Three DHBs are currently forecasting to potentially breach their Operational Policy Framework overdraft limits during the first six months of 2020/21 although Canterbury is likely to be the only DHB requiring advanced cash funding assistance.

27. The adverse impacts on DHB cash flows, compared to prior month forecasts, are due to COVID-19 impacts, and the Government directive to change supplier payment terms to weekly which DHB’s are still assessing. However, it should also be noted that most of the DHBs have not yet included the impact of greater Budget 2020/21 funding changes into their cash flow forecasts.

28. We will continue to work with DHBs and NZ Health Partnerships to improve overall cash flow forecasting and monitor the DHB’s forecast cash positions as they are updated on a fortnightly basis.

Monitoring29. Ten Strategic Discussions between Ministry officials and DHBs were held during

March. The DHB discussions in April were cancelled due to COVID-19. These discussions will be rescheduled.

30. Performance discussions are continuing between Ministry officials and DHB executives. Formalised engagements scheduled include:

i. Regular COVID-19 Zoom calls between Deputy Director-General DHB Performance, Support and Infrastructure, other Ministry officials and all DHB Chief Executives. These calls were daily during March and April and have been scaled back to twice weekly during May.

ii. Regular COVID-19 Zoom calls between the Acting Group Manager, DHB Performance, Support and Engagement and all DHB Chief Operating Officers. These calls were daily during March and April and scaled back to twice weekly during May.


Monthly performance meetings (formally MIF meetings) where the Deputy Director-General, DHB Performance, Support and Infrastructure continues to engage with the Chief Executives of DHBs where their latest monthly forecast template reflects a position that is a deterioration, have been held in May.

i. Canterbury DHB – 8 Mayii. Southern DHB – 14 May

Further DHB monthly performance meetings have been scheduled to take place in June. Bi-monthly meetings with remaining DHBs are in the process of being scheduled.

31. Due to COVID-19 no on-site visits have taken place during the months of April and May.

32. Other:i. The Ministry’s appointed partner for DHB Board Governance, Tregaskis

Brown, continues to have ongoing engagement via phone calls with DHB Board Chairs around governance and developing support opportunities.

ii. The Hospital Response Group (HRG) was set-up in response to COVID-19, its purpose is to provide governance over the work programme to provide a nationally consistent approach to hospital operational management, advice and decision during the pandemic. The HRG was meeting twice per week, now meets weekly and is made up of the Deputy Director-General, DHB Performance, Support and Infrastructure, Ministry of Health senior officials and a mix of DHB Senior Executive representatives.

ENDS.


Documents

Health Report · Web viewThese calls were daily during March and April and scaled back to twice weekly during May. Monthly performance meetings (formally MIF meetings) where the Deputy