Covid 19 coronavirus: Auckland, Canterbury DHBs received stark financial warning from Health Minister

Two of New Zealand’s biggest DHBs were given a stark warning about the state of their finances as the country grappled with the Covid-19 pandemic.

The state of Canterbury DHB’s books were so dire that officials had no choice but to advise the then Ministers of Health and Finance not to approve its annual plan last year.

This development was labelled “particularly concerning” by the Treasury, which said in June 2020 that the DHB’s ongoing deficits were “unsuitable”.

But Canterbury DHB acting chief executive Andrew Brant said his DHB is in the process of implementing a number of initiatives to turn the ship around.

The other DHB written to, Auckland, did have its annual report approved by the ministers and its chief financial officer is expecting to breakeven by the next financial year.

“We will continue to look for efficiencies, to ensure every dollar is spent in a way that optimises health gain for all,” Justine White said.

Information, obtained under the Official Information Act (OIA), reveals former Minister of Health David Clark wrote to the heads of the Canterbury and Auckland District Health Boards (DHBs) outlining his concerns regarding their financial performances.

In both letters, Clark made his expectations abundantly clear.

“Currently, DHB financial performance is not sustainable, despite Government providing significant funding growth to DHBs in the past two Budgets,” he said in both letters.

In the 2020 Budget alone, the Government allocated DHBs an extra close to $4 billion – the largest ever one-off spend.

On top of the increased funding in the budgets, the Government provided almost $400 million in bailout support to DHBs between 2018 and 2020, with Canterbury receiving the most extra funding.

Canterbury DHB had submitted an annual plan for the 2019/2020 financial year which included a draft budget deficit of $180m.

But in June 2020, officials advised Finance Minister Grant Robertson – who had been called in to help make a decision based on the “high risk” nature of the situation – not to approve the plan.

Ministers were told that Canterbury DHB was “cash flow insolvent” and would probably require more cash injections from the Government in the coming years.

One of the reasons for the substantial deficit, according to the officials’ report, was related to the high number of staff.

But the DHB has previously pointed out other reasons for the increasing deficit, including years of underfunding as well as earthquake-related depreciation.

According to Stuff, Health Minister Chris Hipkins has since effectively wiped that $180m debt so the DHB can keep paying its bills.

Treasury officials also appeared concerned at the state of Canterbury’s books, according to the OIA.

Officials note that the decision of the ministers not to accept the DHB’s annual plan so late in the financial year – less than a month before the 2020/21 financial year began – was likely to have just a “limited impact” given the tight timeframe.

The 2020/21 annual report has not yet been publicly released.

But Brant said there are six areas of focus his DHB has identified as areas where “targeted savings” can be achieved within 12 months.

These include improving clinic resourcing, updating and bettering the roster system, as well as re-evaluating how the DHB works with patients.

Clark did, however, sign off on Auckland DHB’s annual plan but it came with a warning.

“I am approving your plan on the expectation that you will continue to focus on opportunities for improving financial results for 2019/20 and into 2020/21 and beyond,” he said in a June 10 letter to its chairman, Pat Snedden.

But the DHB’s chief financial officer Justine White said he’s committed to operating in a way that is financially sustainable.

“Historically we have managed to live within our means, producing a surplus every year from 2011/12 to 2018/19, and we are confident we will do so again in time.

“We are aiming to reduce our deficit and break even by the year 2021/22.”

He said the DHB has been reviewing the ways it delivers its services in a way that is cost-effective and does not impede its health priorities.

Despite its poor financial performance to date, both the Treasury and Clark appear optimistic about the road ahead for Canterbury DHB.

“I am aware that your DHB has set up several task forces to address the changes required to help drive operational and financial suitability – this is a positive step with good work to date,” Clark said in his letter.

But just weeks after the letter was sent to chairman Sir John Hansen, seven senior health executives at the DHB resigned – including its chief executive David Meates, who had been in the role since 2009.

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