Part 1: Introduction

1.1
In 2002, the Government introduced a substantial three-year package of new funding to allow the health sector to plan health and disability services with greater certainty than that provided by an annual funding cycle.

1.2
The initial Health Funding Package (the funding package) was $400 million each year for three years. The funding package has since been extended, and more funds have been included to allow for changes in population growth and structure.¹

1.3
In this Part, we discuss:

• why we undertook an audit of the funding package;
• the scope of our audit;
• our expectations; and
• how we conducted the audit.

Why we undertook our audit

1.4
We decided to audit the funding package for three main reasons:

• The funding package involved a significant amount of new government spending, and it has been the major source of new funding for the health sector since it was announced.
• There has been a lack of clarity and common understanding about where money from the funding package has been allocated, and the relationship of the funding package to other health funding. We therefore wanted to explain to Parliament and other stakeholders where the funding package was allocated in its first three years.
• The funding package committed the Government to providing certain funding levels for three years, which provides an opportunity to examine the effectiveness of a longer-term approach to funding of the health sector.

Scope of our audit

1.5
Our audit examined three main areas:

• the allocation of funds from the funding package;
• whether the benefits anticipated by the Government were achieved; and
• whether the aims of the Ministry of Health (the Ministry) for the funding package were met.

1.6
We looked at where the funding package was allocated in its first three years from 2002-03 to 2004-05. We describe how the funding was allocated, and how much was allocated to the Ministry and to district health boards (DHBs). We were unable to identify how the money was further allocated because it was generally combined with other funding and not accounted for separately, except for some specific initiatives and by some of the Ministry’s directorates.

1.7
We also assessed whether the funding package was allocated in accordance with Cabinet Minutes and Health Reports² relating to the funding package.

1.8
We assessed whether the funding package achieved the benefits anticipated by the Government, being that:

• with some exceptions approved by Cabinet, all health funding would be sourced from the funding package and no extra funding would be sought; and
• DHBs would reduce their deficits to zero (or close to zero) by the end of the 2004-05 financial year.

1.9
We also assessed whether the funding package met the Ministry’s aims to:

• allow the health sector to be innovative and to set priorities for implementing the New Zealand Health Strategy and the New Zealand Disability Strategy;
• fund the implementation of the Primary Health Care Strategy; and
• give the health sector certainty for strategic, annual, and operational planning, and risk management.

What we did not do

1.10
We did not examine the funding package beyond its initial three-year term, because later years’ funding had not been distributed at the time of the fieldwork for our audit.

1.11
We did not examine the issue of productivity³ in relation to the funding package. We acknowledge that there has been interest in productivity in the health sector, particularly given the large increases in public spending on health. However, the issue of productivity in the health sector is large and complex, and was beyond the scope of our audit.

Our expectations

1.12
We expected that:

• the funding package had been allocated in accordance with Cabinet Minutes;
• allocations had been appropriately approved and documented;
• the health sector had managed budgets within the funding package;
• DHBs had not relitigated the funding package;
• DHBs had eliminated deficits;
• the health sector had been able to be innovative and set priorities for implementing the New Zealand Health Strategy and the New Zealand Disability Strategy;
• the funding package had been used to implement the Primary Health Care Strategy;
• the funding package had enabled greater certainty for planning by DHBs; and
• the funding package had created opportunities for more cost-effective services.

How we conducted our audit

1.13
We examined information from the Corporate and Sector Finance section of the Ministry’s Corporate and Information directorate about how the funding package had been allocated. We obtained assurance that these allocations were authorised by comparing the Ministry’s information with Cabinet Minutes and Health Reports about the funding package.

1.14
We interviewed:

• staff at the Ministry, including the Manager of Finance in the DHB Funding and Performance directorate, staff in the Corporate and Sector Finance section, and senior management (including the Director-General of Health); and
• staff involved in funding and planning at eight of the country’s 21 DHBs.

1.15
We chose to conduct interviews at eight DHBs because this provided a sample of more than one-third of all DHBs, and it included large and small DHBs in rural and urban settings and in the North and South Islands.

1.16
We interviewed staff at:

• Auckland District Health Board;
• Waitemata District Health Board;
• Counties Manukau District Health Board;
• Wairarapa District Health Board;
• Capital and Coast District Health Board;
• Hutt Valley District Health Board;
• Canterbury District Health Board; and
• South Canterbury District Health Board.

1.17
We also discussed the funding package with Treasury staff responsible for Vote: Health.

1: Unless otherwise stated, all financial information in this report is as at 30 April 2005. All amounts are goods and services tax (GST) inclusive.

2: A Health Report is written advice from the Ministry to the Minister of Health and Associate Ministers of Health.

3: In this context, productivity is the amount of extra services provided for the extra funding supplied.