Government implements population funding for District Health Boards

Health Minister Annette King says DHBs will receive an extra $137 million in the next financial year to bring their total new funding for the year to $338 million.

Ms King said the additional $137 million, previously unallocated from the $3 billion funding package announced in December 2001, is designed to smooth the path to the population-based funding formula.

"The extra funding means that most of the DHBs will be able to eliminate their deficits by the end of the 2003/04 year,'' said Ms King

"The Cabinet recently signed off the final version of the population-based funding formula (PBFF). This means we can now progressively allocate funding not on the basis of history, but to reflect population numbers and characteristics.

"This is a hugely significant step in completing the move this Government initiated to a population focus for our health system.

"The New Zealand Health Strategy already provides the big picture. DHBs have been planning how they will meet the strategy’s objectives, and now we have a way to match funding to board populations and their health needs,” she said.

“I will be expecting boards to live within their budgets. Boards have already been told of incentives to encourage financial responsibility, and disciplines will also be applied to ensure that budgets are not overspent.”

Ms King said boards have been briefed this week on the details of how the formula affects them, and on their specific funding allocations. "I have also told them I appreciate the work they've done to enable us to get to this point. These initiatives mark the end of the first year of DHBs, and begin a new phase in their operation and maturity.

Ms King said the PBFF "weights" funding for a board's population according to the likelihood of usage of services. The formula reflects age, gender, ethnicity and deprivation and Boards also receive funds reflecting unmet need, rurality and special disadvantages caused by size or remoteness.

“The boards have eagerly awaited the implementation of more equitable funding across New Zealand regions from Vote Health. This is the first step.”

Question and Answers

What is the population-based funding formula (PBFF)? It is a method of allocating funds to District Health Boards (DHBs). Basically, it looks at each person in the population, asks what chance they have of needing health and disability services, and allocates money to DHBs on that basis. The formula is primarily based on population size and demographics.

When will PBFF be implemented? From 1 July 2003.

How important is the PBFF to the health sector? The formula is an integral part of the redesigned public health system. It will mean that for the first time, DHBs will become responsible for funding the full range of personal health services for their populations.

What does the formula mean for DHBs? It is a fair distribution of resources, designed to give each DHB the same opportunity to meet their population health needs.

Does this mean more or less money for DHBs? From 2003 to 2005 an extra $156 million ($137 million in 2003/04 and $19 million 2004/05) of previously unallocated money from Vote Health will go to DHBs to smooth the introduction of PBFF. No board will receive less money than previously advised.

How much more money does each of the 21 DHBs get compared with 2002/03?
DHB
DHB Total base funding 2002/03
03/04 Increase on 02/03 funding
04/05 Increase on 03/04 funding

Auckland
859,464,090
67,690,131
26,990,079

Bay of Plenty
243,110,051
15,324,088
12,781,437

Canterbury
682,877,460
28,559,121
19,180,556

Capital & Coast
406,353,159
18,601,837
11,807,433

Counties Manukau
468,993,943
55,707,434
13,376,746

Hawkes Bay
185,287,533
9,986,276
10,972,463

Hutt
172,248,171
6,021,621
4,568,253

Lakes
121,030,908
9,331,672
3,749,509

Mid Central
207,007,216
13,361,777
12,563,028

Nelson Marlborough
147,735,121
8,900,511
9,735,809

Northland
187,435,166
10,993,958
11,311,298

Otago
302,211,794
11,000,204
8,434,396

South Canterbury
65,426,080
2,827,584
3,498,072

Southland
112,553,663
7,976,541
3,639,018

Tairawhiti
65,825,813
2,632,290
2,144,330

Taranaki
125,045,455
7,536,720
3,675,565

Waikato
553,904,344
24,350,453
27,914,350

Wairarapa
46,937,953
1,926,963
1,134,557

Waitemata
417,653,924
25,325,077
16,861,713

West Coast
50,237,480
3,930,547
1,349,062

Whanganui
93,600,487
5,866,785
2,513,993
- - -
Total
5,514,939,811
337,851,589
208,201,668

Will this extra money help eliminate DHB deficits? The intention of this package is to smooth the introduction of the PBFF. In doing so, most boards should be able to move out of deficit by the end of 2003/04.

How much total additional funding is there in 2003/04 for DHBs? $338 million. DHBs already know they are getting an extra $201 million for this year. They are getting a further $137 million to help smooth the introduction of PBFF in this year.

Including the additional PBFF funding, how much money in total will go to DHBs for 2003/04? $5.85 billion.

What incentives and disciplines are envisaged to encourage DHBs to display financial responsibility?

A national approach to prioritising capital expenditure to ensure the best regional and national mix of health facilities over time.

Early payments to good performers for certain periods of the year. By receiving funding at the start of the month, not the end, they will have more flexibility and reduced interest payments (which can equate to millions of dollars over a six month period).

Revising the way changes to health services are explored and approved. DHBs will have more flexibility and responsibility for adjusting the type or location of services to best meet community needs.

DHBs are expected to enter collaborative arrangements to manage funding pressures such as referred services.

A revised monitoring framework will be introduced which has clear actions, tight timeframes for intervention and action, and very clear consequences. Any DHB with a deficit will have an action path negotiated with them.

Boards requiring short-term finance will face strong banking tests before approval is given.

Deficit funding from capital account is being phased out quickly. This means that the availability of funds over those appropriated each year will not be readily available to a DHB that seeks additional funding.

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