health & science

DHBs’ $885 million deficit

Political parties promise action to address ‘unsustainable’ district health board deficits, now deep in the red

District health boards (DHBs) are in financial strife, posting a collective deficit of at least $885 million, analysis by Newsroom shows.

All but one of the 20 DHBs, South Canterbury, returned a draft deficit result for the 2019-20 financial year, with the sector hit hard by the costs of the Covid-19 pandemic and continued fallout from unpaid Holidays Act provisions.

The combined shortfall is more than the funding provided to run a major DHB like Capital & Coast for a year, and easily exceeds the total spend on significant new hospital projects like the $525m Christchurch Hospital Hagley building.

In short, the sector has a problem.

Sources spoken to by Newsroom had a range of views, describing the deficit variously as: a symptom of longstanding underfunding of health; due to extraordinary circumstances; or, the consequence of an inefficient, fragmented system.

“Deficit is a term that’s used for underfunding,” health systems expert Dr Robin Gauld, pro-vice chancellor and dean of the Otago Business School, said.

“The DHBs are providing more services than they’re funded for, so they wind up in this situation of being underfunded, or having a so-called deficit.”

Health systems worldwide are grappling with rising costs driven by factors including population growth and ageing, the associated increase in disease, new, more expensive technologies and increased expectations from the public.

The 20 DHBs received a $569m funding uplift in the 2019-20 year, or a 4.2 percent increase on the previous year, according to a Ministry of Health spokeswoman.

The ministry was unable to provide the sector-wide DHB financial result for 2019-20, saying audited figures were not expected until November. It also declined to provide more recent data beyond the monthly financial summary for March; then, the DHBs were forecasting a deficit of $643m for the year ending June 30. For the previous financial year, 2018-2019, they posted a combined deficit of $1.2 billion (excluding one-offs like Holidays Act provisions, the base result was a $432m deficit).

To estimate the 2019-20 sector deficit, Newsroom asked each of the 20 DHBs for their provisional year-end result and analysed their recent financial reports. The $885m figure is inclusive of Holidays Act provisions and Covid-19-related costs, and is likely to rise as not all DHBs had included further Holidays Act repayments.

Canterbury DHB had the largest draft deficit, $175.9m, plus another $66m in costs associated with Holidays Act compliance. The DHB, under immense pressure to claw back costs, has recently lost seven of its 11-strong senior management team, including chief executive David Meates. In a final newsletter to staff, Meates said the deficit was due to earthquake-related depreciation and capital costs, a decline in Canterbury’s funding share and facilities issues including delays to the Christchurch Hospital Hagley building, which was delivered more than two years late.

Auckland DHB had the second largest deficit, $101.87m. Excluding Holidays Act liabilities and Covid-19 costs, the result would have been a deficit of $14.76m, a spokeswoman said.

Having delivered record funding to DHBs, the Government expects and has been pressuring them to get back to a breakeven position. Like Canterbury, which this year submitted an annual plan with proposed savings of $56.9m, Otago Business School's Gauld said DHBs would be considering how they could cut or reorient services to balance the books.

But doing so in the middle of a global pandemic could prove contentious, as demonstrated by the recent protests in Christchurch.

Health Minister Chris Hipkins said the Government had increased DHB funding substantially, lifting operational funding for the next four years by $3.9b in the last Budget alone.

“The Government doesn’t accept that DHB deficits are inevitable and I’ve made it clear to DHB chairs they must have a credible plan to return to financial sustainability.”

The reporting of estimated Holidays Act liabilities represented a significant factor in the size of DHB deficits over the past two years, Hipkins said. This reporting did not happen under the previous government, he said, despite being raised by the Auditor-General.

DHBs had also incurred extra costs due to the Covid-19 response.

“Looking past these factors, it’s worth noting growth in the combined DHBs’ deficit has slowed,” Hipkins said.

The ministry had a work programme under way to help DHBs understand what was driving their costs and what realistic options they had to address cost pressures.

Other options to address the sustainability of the health system would be considered as part of the Government response to the Health and Disability System Review, Hipkins said. The review, a sweeping overview led by Heather Simpson, recommended slashing the number of DHBs to eight to 12.

National’s health spokesman Dr Shane Reti said the party was concerned by DHB deficits, which he said were caused by several factors including a flawed 2018 Census which had affected population-based funding for DHBs.

Should National be in a position to form a Government after the election, Reti said the party would deliver an increase in health funding along with clear targets and accountability for the new money.

Reacting to the $885m figure, the senior doctors’ union questioned why governments would allow a model that put DHBs under such intense financial pressure to continue.

Association of Salaried Medical Specialists (ASMS) executive director Sarah Dalton acknowledged the significant funding increase for DHBs in Budget 2020, but said it would not have a big impact on deficits without further substantial increases.

“The fact DHBs are carrying such large amounts of debt is unsustainable and symptomatic of years of underfunding,” she said.

Funding had not kept pace with population growth and the big rise in acute demand seen by DHBs, Dalton said, and this had contributed to their deficits.

“They also face a punitive capital charge regime. It leads to a situation where they either have to balance their books with inadequate funding or cut services. Not a good choice.”

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