Health system in dire financial straits

The health system is heading for bankruptcy, as rising costs force district health boards to live beyond their means, new reports show.

A briefing paper for the incoming health minister, prepared by the Crown Health Financing Agency, predicts the health system will be $1.6 billion in the red by the end of the 2010-11 financial year if inflation continues at its current level.

The revelations follow the shock resignation this week of long-serving Waitemata DHB chair Kay McKelvie, who blamed poor funding allocation for "screwing down" services.

Ms McKelvie, who is also on the crown agency's board, said health boards had to choose between overspending or denying people basic care.

The agency, which manages property sales, loans and other financial services on behalf of health boards, warned that the softening property market and resulting credit crunch threatened to push the sector further into debt.

Another financial body blow is coming from legal action by former psychiatric patients, who are seeking $143 million in damages for historic abuses suffered in mental hospitals.

In an indictment of the current structure of 21 health boards, the agency said the financial crisis could not be fixed without curbing some of their powers.

"Despite the best efforts of many, parochial interests, poor information and `sovereignty' often frustrate the process. Businesses with 21 subsidiaries would not normally tolerate such behaviour and it seems that a stronger central mandate is required."

Another report, by District Health Boards New Zealand, urges more hands-on involvement by the minister and more financial certainty for boards.

DHBNZ chairman Peter Glensor, who also chairs Hutt Valley District Health Board, said the rate of inflation in the health sector driven by wage jolts, pharmaceuticals and technology was rapidly outstripping budget increases.

"Every government wants to do new things with new money but we're saying we need that money to continue providing core services."

Mr Glensor said he was not aware of any plans to "rationalise" the number of health boards, but there were initiatives under way to encourage co-operation.

Capital and Coast chief executive Ken Whelan said the board had trimmed its deficit by improving data collection, to ensure it got paid for all the work it did, and better recruitment, which reduced reliance on locums and outsourcing.

Health Minister Tony Ryall, who issued the papers yesterday, said the boards' credit ratings reflected "the worsening financial situation confronting many boards and the new Government".

"And we already know that the demand for capital is hundreds of millions of dollars in excess of what is available."

The Government would continue to boost health spending over the next three years, including the extra annual allocation of $750 million.

CREDIT RATINGS

Capital and Coast: C Large deficit, risk of further deterioration.

Hawke's Bay: C Substantial deficit, risk of further deterioration. No cash to pay for operational expenses or essential capital expenditure.

MidCentral: B In deficit, risk of further deterioration.

Whanganui: C Large deficit, risk of further deterioration. Cash flows "strongly negative".

Hutt Valley: B Break-even operations at risk of deterioration.

Wairarapa: B Projected break-even at risk of deterioration. Operation under pressure due to backlog of deferred maintenance.