Part 2: Financial performance of the district health boards

2.1
In this Part, we discuss the financial performance of DHBs for 2010/11, the financial sustainability of DHBs, and the arrangements for monitoring them.

Financial performance in 2010/11

2.2
Figure 2 sets out the financial performance of the 20 DHBs for the year ended 30 June 2011.

Figure 2
Summary of district health boards' 2010/11 financial performance

N/A "Not applicable".

* From DHBs' annual reports. The surplus/deficit figure does not include revaluations. Also, where the surplus (deficit) figure is affected by profits from joint ventures or associates, it will not be the same as revenue less expenditure. Rounding may lead to some small differences in the total.

** From DHBs' annual reports.

§ Because of rounding, there may be some small differences between the surplus/deficit minus planned surplus/deficit reported here and the actual variance from plan.

Financial sustainability

2.3
DHBs continue to work to make savings and set up a sustainable model of service delivery that will allow them to achieve a break-even position. Last year, it appeared unlikely that this would be achieved soon.⁹ However, DHBs' financial performance for 2010/11 was better than their 2009/10 performance and better than the budgeted position for 2010/11. DHBs might achieve a break-even result earlier than expected, although we are aware that the effects of the Canterbury earthquakes could still adversely affect DHBs' financial performance.¹⁰

2.4
In 2009/10, the deficit was $102.1 million.¹¹ Figure 2 shows that, individually, 12 of the 20 DHBs had budgeted for a deficit for 2010/11, with an aggregate budgeted deficit of $76.5 million. In fact, only eight DHBs recorded a deficit in 2010/11, with an overall deficit for DHBs in 2010/11 of $16.1 million.

2.5
Of the eight DHBs that recorded a deficit in 2010/11, only four DHBs had a deficit that was more than 2% of revenue. The overall deficit was highly influenced by the result for Capital and Coast DHB, with its deficit of $31.6 million, although this was $8.5 million better than its budgeted deficit of $40.1 million. No other DHB's deficit was more than $6.8 million.

2.6
As part of our normal audit process, we will continue to monitor the effectiveness and efficiency with which DHBs manage their resources to provide enough high-quality health and disability services to meet current and future needs.

Monitoring arrangements

2.7
The Ministry is the monitoring department for DHBs, and monitors and supports DHBs through its National Health Board business unit.

2.8
The Ministry's monitoring regime for 2010/11 had three different levels of intervention – standard monitoring, performance watch, and intensive monitoring. There was also a Single Event Monitoring regime, introduced to respond to external events such as the Canterbury earthquakes.¹²

2.9
As well as intensive monitoring, the Minister of Health can change how a DHB is governed, to help improve its performance. To do this, the Minister can appoint one or more Crown monitors to observe the decision-making processes of the DHB board, to help the board understand the policies and wishes of the Government, and to advise the Minister on any matters about the DHB or its board. If the Minister is seriously dissatisfied with the governance of a DHB, they can dismiss the board and appoint a commissioner.

2.10
There has been little change in the last 12 months in the number of DHBs that have required special monitoring or governance arrangements. As at 31 December 2011:

• Capital and Coast, Southern, Wairarapa, West Coast, and Whanganui DHBs were being monitored intensively;
• Taranaki DHB was on performance watch;
• Capital and Coast and Hutt Valley DHBs had a joint Crown monitor, and Southern DHB had a Crown monitor; and
• there were no commissioners in place.

2.11
Since the Canterbury earthquakes, Canterbury DHB has been on a Single Event Monitoring regime.

2.12
The Ministry also monitors specific DHB functions. For example, the Ministry requires and monitors the DHBs' implementation of Māori health plans for improving the health of, and reducing health disparities for, Māori. We discuss this further in Part 5.

Crown Health Financing Agency's monitoring of DHBs' financial performance

2.13
The Crown Health Financing Agency also monitors risks to the financial performance of all DHBs.¹³ In its report on the DHBs' (unaudited) 2010/11 results, the Crown Health Financing Agency commented on DHBs' favourable performance, with only two DHBs performing "materially unfavourable to plan"¹⁴ (see also Figure 2).

2.14
However, the Crown Health Financing Agency also commented on the understatement of the aggregate deficit, given the large once-only asset revaluation at Capital and Coast DHB and the delays in planned capital investment for DHBs. It advised a continued strong focus on cost control and deficit reduction.¹⁵

2.15
The Crown Health Financing Agency also noted an expected increase in the deficit for 2011/12, affected to a large extent by the forecast deficit for Canterbury DHB. In the Crown Health Financing Agency's view, DHBs have an underlying deficit of $30 million, although it rates this as insignificant when compared with DHBs' revenue.¹⁶

2.16
The Crown Health Financing Agency rated five DHBs as being "not stable", in that they were generally projecting deficits. They would also require support to meet planned operating costs and capital plans with, possibly, other aggravating factors, such as aggressive cost growth assumptions, optimistic efficiency targets, or a poor history of performance issues. The five DHBs were Capital and Coast, Southern, Tairawhiti, Wairarapa, and Whanganui.¹⁷

9: Office of the Auditor-General (March 2011), Central government: Results of the 2009/10 audits (Volume 2), page 26.

10: See also, Central government: Results of the 2010/11 audits (Volume 1), December 2011, Part 2.

11: Office of the Auditor-General (March 2011), Central government: Results of the 2009/10 audits (Volume 2), page 25.

12: Briefly stated, standard monitoring is used when a DHB is in a sound financial position, has supported accountability arrangements in place, and is complying with requirements in a timely manner. DHBs are under a performance watch when there is some non-compliance or deterioration in performance. Intensive monitoring is carried out when a DHB continues to be non-compliant or deteriorates in the performance watch requirements, or a single event creates a material risk.

13: There is legislation being considered that would disestablish the Crown Health Financing Agency and pass its monitoring functions to the Ministry of Health from 1 July 2012.

14: Crown Health Financing Agency (2011), Annual Credit Review of District Health Boards October 2011, Wellington, page 3.

15: Crown Health Financing Agency (2011), Annual Credit Review of District Health Boards October 2011, Wellington, page 3.

16: Crown Health Financing Agency (2011), Annual Credit Review of District Health Boards October 2011, Wellington, page 4.

17: Crown Health Financing Agency (2011), Annual Credit Review of District Health Boards October 2011, Wellington, page 6.