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Three-year health funding package announced - Q&A

10 December 2001 Media Statement

Three-year health funding package announced

Health Minister Annette King today announced a three-year funding package to allow District Health Boards to plan health and disability services with certainty.

Mrs King said that over the next three financial years the Government would put a guaranteed total of almost $3 billion extra into health and disability services.

The package, which sets out all the additional funding for Vote Health over the next three years, comprises $400 million in new funding for health next year, $800 million the following year and $1.2 billion the year after that (the equivalent of $400 million of new funding each year).

There is also new funding to meet extra demand for health services from population growth — $101 million in 2002/03, $197 million in 2003/04 and $295 million in 2004/05 (the equivalent of $96 million and $98 million of new funding in 2003/04 and 2004/05 respectively).

“This all adds up to an extremely significant commitment, and it is the first time any government has committed to a three-year funding path of such magnitude.

“I’m announcing the funding now to allow DHBs to set about genuinely planning service delivery in a strategic way. No longer will boards have to live hand-to-mouth from year to year, not knowing what funding will be. They will know what is coming, and they must manage and plan according to that certainty.”

Mrs King said a significant funding package for Primary Health Care was included in the overall package. “Some details are still being discussed, but this means we can get on with implementing the Primary Health Care Strategy in 2002/03.

“Investing in primary health care is the most likely way to improve our health status significantly and to reduce health inequalities. New primary health organisations that provide services for groups in most urgent need, such as Maori, Pacific and low-income groups, will receive the most assistance.

“DHB chairs are being told later today of their broad allocations. The package will allow elimination of DHB deficits over the three years, but DHBs must manage their cost growth, including wage pressures, to live within this total package.”


Why a three-year funding package?
The three-year health funding package means DHBs are able to plan service delivery for the next three years. Previously, funding was only committed for one year.

What is new about it?
Previously, Vote Health, as for other Votes, was committed for one year only with indicative funding identified for the next two years, which could be changed in subsequent budget rounds (ie, there was no guarantee on the level of funding in the outyears and therefore no certainty for planning and risk management in those years). Having funding certainty for the three years of the funding path allows DHBs and others in the health sector the opportunity to innovate and prioritise to implement the New Zealand Health and Disability Strategies. The previous one year planning horizon significantly limited the ability to plan service delivery and take advantage of more cost effective opportunities (eg, through the ability to enter into longer term and more effective contracting arrangements). The three-year funding package also caps the increase in Vote Health over the three years of the path to $400 million cumulative and funding for demographic change. Details of the package are given in the two charts shown below. Under the new package, new funding initiatives (such as the implementation of the Primary Health Care Strategy) must be accommodated within the cumulative $400 million plus demographic change funding limit.

Vote Health Operating Funding 2001/02 – 2004/05

What must DHBs do to protect the investment in primary health care?
The three-year funding package represents a significant investment in the health sector by the Government to fund hospital and community based health and disability services that implement the New Zealand Health and Disability Strategies.

In return for this significant investment in the health sector and the three-year commitment, Vote Health will not be increased during the life of the funding package, unless agreed by Cabinet. Cost pressures must be met within the funding package to protect the planned investment in primary health care.

Will the primary health care strategy funding to DHBs be ringfenced?
The primary health care funding will be ringfenced at the DHB level in that DHBs will be required to spend primary health care funding on the implementation of the Primary Health Care Strategy. The Ministry will be developing more detailed policies on exactly how the primary health care funding will be targeted early in 2002 for Cabinet approval. Its allocation to DHBs for strategy implementation will be carefully controlled.

Why will the Primary Health Care Strategy make a difference in health status?
The Primary Health Care Strategy will improve health status by:
i) Reducing existing cost barriers to accessing services so that people are more likely to seek care earlier
ii) Identifying and treating health problems earlier to avoid the need for hospital admission, and allow more services to be provided in the community
iii) Increasing the public share of primary health care funding to strengthen the degree to which primary health care is a part of the public health system and contributes to achieving the health goals of the New Zealand Health Strategy
iv) Making funding available for health promotion and prevention of ill-health through a team approach that is more proactive about reaching people with poor health status
v) Distributing primary health care funding more fairly so that services can be delivered according to need rather than according to people’s ability to pay
vi) Improving the effectiveness of services through better coordination among primary providers and between primary providers and other parts of the sector (eg, hospitals).

Why does population growth require greater investment in health services?
Members of the population access different types of health services according to their age, ethnicity and gender. Changes in the total number and the structure of the population are key drivers of changes in health and disability services demand and health and disability service expenditure. Demographic funding adjusts Vote Health for the effect of these population changes. This adjustment is made automatically each year, and the additional funding that results from the adjustment is on top of the three year health funding package that adds $400m each year to the baseline funding for health.

How much has the population grown?
Statistics New Zealand has released provisional results from Census 2001 that indicates that the population grew by 3.0 percent in the five years between 1996 (the last Census) and 2001. The national demographic adjustment (the change in the total number and the structure of the population) accounts for 1.3 percent of Vote Health in 2002/03.

How will the funding package eliminate DHB deficits?
The funding package provides increases in funding sufficient to enable DHBs to plan innovations so they can keep the costs of their hospital services down, for example by better integration of primary and secondary care. This means the deficits will reduce over the three years allowing all DHBs to reach break-even positions.

When DHBs are out of deficit they will be able to invest more in the priorities signalled in the New Zealand Health and Disability Strategies. Wise use by DHBs of the available funding is therefore essential.

How much of the funding will go into paying off debt?
The repayment of debt is a management issue for individual DHBs. While there is no specific plan within this funding package for paying off debt, all DHBs have a requirement to meet their commitments to lenders. There is no requirement to eliminate debt per se, as it is a normal part of financing DHB balance sheets.

DHB deficits, on the other hand, are usually a short-term measure and each Board must have a plan to eliminate its deficit over the time of the funding package. It is clearly stated in the legislation covering the operation of DHBs that they must "operate in a financially responsible manner". DHBs wishing to operate a deficit must signal it within their annual plans that form the basis for their funding agreements with the Government. Individual annual plans must be agreed by the Minister of Health and are considered each year.
What does the package mean for health professionals (ie, what will happen with nurses' salaries and how does it fit in with the current industrial relations actions/climate?)
Pay increases for staff of DHBs are also a management issue for individual DHBs. DHBs are expected to manage pay rates for staff and also to meet their obligations to be good employers while managing within their budgets. Cost growth next year must be limited to 2 percent or less for some DHBs with large deficits. This does mean, however, that there is room for some upward movement in the salaries of nurses and other health professionals during the three-year period covered by the health funding package. There is an expectation that Boards will become more involved in industrial relations strategies and negotiating processes to ensure the affordability of salary and wage claims.

The purpose of this funding package is to get the best mix of health and disability services for New Zealanders to implement the New Zealand Health and Disability Strategies. Health professionals are of critical importance to implementing these strategies, but costs have to be contained if boards are to work with their staff to make the innovations needed for effective health and disability service delivery. What is also important is that there are clear and acceptable career paths available to health professionals and that they are fully engaged in the running of DHB services.

Why are the announcements being made now?
A pattern of early announcements for health funding has been established for a number of years.

What is the difference between a DHB and an HHS?
DHBs differ from HHSs in a number of fundamental ways. HHSs were providers of services only, they operated under contract to the Health Funding Authority (HFA) to provide a range of, predominantly, secondary and tertiary hospital services. The population for which services were to be provided was not necessarily geographically defined. DHBs on the other hand are established to plan, fund, and provide services for a defined population. A DHB will assess the needs of their resident population, and either provide services to meet those needs, or arrange other providers to do so. For example, a DHB will provide secondary hospital services and enter into agreements with primary health care providers for the delivery of community-based primary health care services such as immunisation checks or well child services.

HHSs were contracted by the HFA for the delivery of certain services. In contrast DHBs will be allocated funding (determined by the population-based funding formula) which will need to be allocated across providers to achieve the best health and independence outcomes for the population resident within the DHB district.

Finally, HHSs and DHBs differ in their governance arrangements. Saliently, the boards of DHBs are made up of a majority of elected members with a minority appointed by the Minister of Health. HHS boards were entirely ministerially appointed. The board of a DHB is accountable to the Minister of Health for meeting the obligations in its Crown funding agreement.


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