F.1 Financial Management

Management Discussion and Analysis for the Health Directorate, For the Financial Year Ended 30 June 2014

General Overview

Operations and Principal Activities

The Health Directorate (the Directorate) aims to achieve good health for all residents of the Territory by planning for and providing quality community based health services, hospital and extended care services, managing public health risks and promoting health and early care interventions.

The Directorate's objectives are grouped around the following seven key performance areas:

  • consumer experience;
  • sustainability;
  • hospital and related care;
  • prevention;
  • social inclusion and indigenous health;
  • community based health; and
  • aged care.

Changes in Administrative Structure

The Directorate did not gain or lose any functions in the 2013-14 financial year.

Risk Management

The Directorate's management has identified the following potential risks that may influence the future financial position of the Directorate:

  • abnormal rates of staff separation;
  • the cost of medical malpractice indemnity;
  • ability to attract and retain health professionals;
  • rising costs of pharmaceuticals, medical and surgical supplies;
  • demands on replacing systems and equipment; and
  • growth in demand for services.

The Government and the Directorate have responded to these risks in a number of ways, including:

  • implementation of strategies for the retention and recruitment of doctors, nurses, midwives and allied health professionals;
  • strengthening our patient safety and clinical practice review framework;
  • establishing the Medical School in cooperation with the Australian National University;
  • enhancement of procurement processes to maximise benefits from contracting;
  • a significant investment in infrastructure replacement and growth;
  • a significant investment in clinical systems and recording systems; and
  • the Government introduced growth funding into the Health Budget in 2006-07. This was based on activity projected through clinical services planning.

The above risks are monitored regularly throughout the year.

Financial Performance

The following financial information is based on audited financial statements for 2012-13 and 2013-14, and the budget and forward estimates contained in the 2014-15 Health Directorate Budget Statements.

Total Net Cost of Services

 

  Actual
2012-13
$m
Budget
2013-14
$m
Actual
2013-14
$m
Budget
2014-15
$m
Forward
Estimate
2015-16
$m
Forward
Estimate
2016-17
$m
Forward
Estimate
2017-18
$m
Total Expenses 1,083.8 1,109.7 1,115.9 1,188.7 1,271.6 1,360.3 1,427.5
Total Own Source Revenue 679.8 840.7 849.2 886.8 927.7 970.3 1,007.1
Net Cost of Services 404.0 269.0 266.7 301.9 343.9 390.0 420.4

 

Comparison to Budgeted Net Cost of Services

The Directorate's net cost of services for 2013-14 of $266.7 million was $2.3 million or 0.9 per cent lower than the 2013-14 budget.

A combination of factors resulted in higher than budgeted own source revenue ($8.5 million). The main variations are:

  • User Charges Non-ACT Government ($4.9 million) - Largely due to the finalisation of prior year reconciliations resulting in additional Cross Border revenue ($4.7 million) that was not budgeted for and additional high cost drugs reimbursements from the Commonwealth due to indexation and price adjustments for prior years ($1.1 million) which were partially offset by lower than budgeted Inpatient Revenue mainly due to the declining number of Department of Veterans Affairs patients ($1.2 million); and
  • Other Revenue ($3.3 million) - mainly due to the receipt of one off grants from the Australian National University and Health Workforce Australia for educational support and new research grants.

This higher than budgeted own source revenue was partially offset by higher than budgeted expenses ($6.2 million). The main variations are:

  • Employee Expenses (excluding superannuation) ($30.0 million) - largely due to a reallocation from grants and purchased services ($11.3 million) due to changes in the planned delivery of services from external providers to the Health Directorate, the impact of payrises from the collective agreements being higher than budgeted ($6.3 million), an increase in the rate used to estimate the present value of long service leave from 101.3% to 103.5% ($2.2 million) , the impact of payrises on employee leave provisions ($5.7 million), termination payments ($2.0 million) and an additional charge imposed on worker's compensation policies by Comcare ($3.0 million). An increase in staff numbers, increased overtime costs and penalties account for the balance; and
  • Superannuation ($4.3 million) - mainly due to payrise impacts, larger workforce and a slower decline in the number of employees leaving the higher cost CSS, PSS and PSSap schemes than had been anticipated.

The higher than budgeted expenses were partially offset by lower than budgeted expenses for:

  • Grants and Purchased Services ($11.3 million) - mainly associated with a reallocation to employee expenses due to changes in the planned delivery of services from external providers to the Health Directorate;
  • Supplies and Services ($7.5 million) - cost savings in medical and surgical supplies and pathology supplies ($5.3 million), favourable pharmaceuticals expenses due to more effective purchasing methodologies ($5.4 million), favourable non-contract services due to reduced agency nursing cost ($2.0 million) and lower utility expenses due to the combined impact of lower usage due to a reduction in construction activities and savings on green energy charge ($1.0 million), which were partially offset by blood products which was budgeted for in the Other Expenses category ($8.4 million);
  • Other Expenses ($6.0 million) - mainly due to blood products ($8.4 million) which was budgeted against this expense category while the actual expenditure has been included in the supplies and services expense category. This favourability is partially offset by higher than budgeted legal expenses ($1.0 million) and allowances for impairments ($1.0 million); and
  • Depreciation and Amortisation ($3.2 million) - mainly due to delays in the completion of some capital works and eHealthy projects including Belconnen Community Health Centre and Integrated Capital Region Cancer Centre.

Comparison to 2012-13 Net Cost of Services

Total net cost of services was $137.3 million or 34.0 per cent lower than the 2012-13 actual cost. This is due to increased own source revenue ($169.4 million), from higher User Charges ACT Government ($174.4 million) mainly due to a review of activity deemed as 'in scope' of public hospitals under the National Health Reform Agreement and indexation and growth in patient activity in acute services, cancer services, rehabilitation, aged and community services and mental health services.

This increased own source revenue was partially offset by increased expenses ($32.1 million). The main increased expenses are:

  • Employee Expenses (excluding superannuation) ($49.9 million) - largely due to the impact of collective agreement payrises ($15.1 million), a reallocation from grants and purchased services ($11.3 million) due to changes in the planned delivery of services from external providers to the Health Directorate, an increase in the rate used to estimate the present value of long service leave from 101.3% to 103.5% ($2.2 million), the impact of payrises on employee leave provisions ($9.4 million), termination payments ($2.0 million), an additional charge imposed on worker's compensation policies by Comcare ($3.0 million) and an increase in the overall workforce to cover growth in services in acute services, cancer services, rehabilitation, aged and community services and mental health services;
  • Superannuation ($4.2 million) - as a result of a larger workforce, payrises, increase in notional superannuation rates; and
  • Supplies and Services ($9.3 million) - from increased costs for visiting medical officers, mainly to cover medical staff on long term leave and fees related to services provided in prior years, increases in floor space for the Health Directorate which results in higher cleaning costs, increased repairs and maintenance, insurance premium, and computer expenses.

These were offset by reduced expenditure against:

  • Depreciation and Amortisation ($20.5 million) - the 2012-13 figure included additional depreciation charges for accelerating the depreciation for the old Women’s and Children’s Hospital building that was partially demolished and rebuilt, Tuggeranong Health centre and Level 5 Building 1 at Canberra Hospital which underwent substantial renovations, and the old Psychiatric ward. This reduction was partially offset by an increase in 2013-14 as a result the commissioning of the Gungahlin Community Health Centre and the new Centenary Hospital for Women and Children; and
  • Grants and Purchased Services ($10.2 million) - This is mainly associated with a reallocation to employee expenses due to changes in the planned delivery of services from external providers to the Health Directorate.

Future Trends

graph - future trends


Figure 1: Net Cost of Services

Net cost of services is planned to increase steadily over future years consistent with funding provided in the 2014-15 Budget and the forward estimate years for growth in public health services including acute services, critical care, cancer services, rehabilitation, aged and community services and mental health services. In addition, funding is provided for payrises and general indexation. A significant proportion of these costs are funded from Government Payment for Outputs.

Total Expenditure

Components of Expenditure

Figure 2 below indicates the components of the Directorate's expenses for 2013-14 with the largest components of expense being employee expenses (excluding superannuation) which represents 54.3 per cent or $606.4 million, supplies and services which represents 27.8 per cent or $310.7 million, and superannuation, which represents 6.9 per cent or $76.4 million.

pie chart - Components of Expenditure


Figure 2 - Components of Expenditure

Comparison to Budget

Total expenses of $1,115.9 million were ($6.2 million), or 0.6 per cent higher than the original 2013-14 budget of $1,109.7 million.

This increase was predominantly due to higher:

  • Employee Expenses (excluding superannuation) ($30.0 million) - largely due to a reallocation from grants and purchased services ($11.3 million) due to changes in the planned delivery of services from external providers to the Health Directorate, the impact of collective agreement payrises being higher than budgeted ($6.3 million), an increase in the rate used to estimate the present value of long service leave from 101.3% to 103.5% ($2.2 million) , the impact of payrises on employee leave provisions ($5.7 million), termination payments ($2.0 million) and an additional charge imposed on worker's compensation policies by Comcare ($3.0 million). An increase in staff numbers, increased overtime costs and penalties account for the balance; and
  • Superannuation ($4.3 million) - mainly due to payrise impacts, an increasing workforce and a slower decline in the number of employees leaving the higher cost CSS, PSS and PSSap schemes than had been anticipated.

This higher expenditure was partially offset by lower:

  • Grants and Purchased Services ($11.3 million) - This is mainly associated with a reallocation to employee expenses due to changes in the planned delivery of services from external providers to the Health Directorate;
  • Supplies and Services ($7.5 million) - cost savings in medical and surgical supplies and pathology supplies ($5.3 million), favourable pharmaceuticals expenses due to more effective purchasing methodologies ($5.4 million), favourable non-contract services due to reduced agency nursing cost ($2.0 million) and lower utility expenses due to combined effect of lower usage due to a reduction in construction activities and savings on green energy charge ($1.0 million), which were partially offset by blood products which was budgeted against other expenses ($8.4 million);
  • Other Expenses ($6.0 million) - planned expenditure on Blood Products ($8.4 million) was budgeted against this expense category, however the actual expenditure is included in the supplies and services expense category. This favourable position is partially offset by higher than budgeted legal expenses ($1.0 million) and allowances for impairments ($1.0 million); and
  • Depreciation and Amortisation ($3.2 million) - mainly due to delays in the completion of some capital works and eHealthy projects including Belconnen Community Health Centre and Integrated Capital Region Cancer Centre.

Comparison to 2012-13 Actual Expenses

Total expenses were ($32.1 million) or 3.0 per cent higher than the 2012-13 actual result. The increase was predominantly due to higher:

  • Employee Expenses (excluding superannuation) ($49.9 million) - largely due to the impact of collective agreement pay rises ($15.1 million), a reallocation from grants and purchased services ($11.3 million) due to changes in the planned delivery of services from external providers to the Health Directorate, an increase in the rate used to estimate the present value of long service leave from 101.3% to 103.5% ($2.2 million), the impact of payrises on employee leave provisions ($9.4 million), termination payments ($2.0 million), and an additional charge imposed on worker's compensation policies by Comcare ($3.0 million). Also there has been an increase in the workforce to cover growth in services in acute services, cancer services, rehabilitation, aged and community services and mental health services;
  • Superannuation ($4.2 million) - as a result of a larger workforce, payrises, increase in notional superannuation rates, and a slower decline in the number of employees leaving the higher cost CSS, PSS and PSSap schemes than had been anticipated; and
  • Supplies and Services ($9.3 million) - the main variations are due to increased:
    - visiting medical officers (VMO's) ($3.7 million)
    - as a result of using additional visiting medical officers due to vacancies and staff specialists on extended leave and $1.1 million that relates to services delivered in 2012-13;
    - insurance ($2.6 million) - mainly due to the Government's self insurance retention limit, which is a component of the premium charged by ACT Insurance Authority increasing from $17.5 million to $20.0 million;
    - repairs and maintenance ($2.6 million) - as a result of preventative and reactive repairs on ageing assets and an increase in maintenance costs for new buildings such as the Belconnen Community Health Centre;
    - clinical expenses/ medical surgical supplies ($2.1 million) - mainly due to price escalation and growth in patient activity, including in acute services, cancer services, rehabilitation, aged and community services and mental health services;
    - computer expenses ($1.7 million) - due to a combination of factors, including price escalation, increase in staff numbers and support costs for projects that became operational during the year. They include the Digital Wireless Network at the Canberra Hospital campus, Digital Intensive Care Unit Clinical Information System, and Clinical Portal Systems, ACT Patient Administration System, Identity and Access Management project, Renal Computerised Information System, Health Services Directory; and
    - contractors and consultants ($1.7 million) - mainly attributable to contractor and IT consultant costs relating to additional operational and maintenance work for a range of IT projects such as ACT Patient Administration System, Clinical Portal Suites, Digital Mammography and Digital Health Infrastructure, and Renal Computerised Information System.

The higher supplies and services were partially offset by lower:
- non-contract services ($2.9 million) - due to reduced usage of agency staff. Agency staff refers to temporary staff sourced at short notice from external labour providers; and
- pharmaceuticals ($1.4 million) - the reduction is mainly attributable to savings achieved from bulk purchasing.

The increased expenses were partially offset by lower:

  • Depreciation and Amortisation ($20.5 million) - the 2012-13 figure included additional depreciation charges for accelerating the depreciation for the old Women's and Children's Hospital buildings that was partially demolished and rebuilt, Tuggeranong Health centre and Level 5 Building 1 at Canberra Hospital which underwent substantial renovations, and the old Psychiatric ward. This reduction was partially offset by an increase in 2013-14 as a result the commissioning of the Gungahlin Community Health Centre and the new Centenary Hospital for Women and Children; and
  • Grants and Purchased Services ($10.2 million) - as a result of a reallocation to employee expenses due to changes in the planned delivery of services from external providers to the Health Directorate.

Future Trends

Expenses are budgeted to increase steadily across the forward years to account for price escalation and growth in services.

Total Own Source Revenue

Components of Own Source Revenue

Figure 3 below indicates that for the financial year ended 30 June 2014, the Directorate received 84.7 per cent of its total own source revenue ($718.0 million) from ACT Government user charges.

pie graph - Components of Own Source Revenue


Figure 3 - Components of Own Source Revenue

Comparison to Budget

Own source revenue for the year ending 30 June 2014 was $849.3 million, which was $8.6 million or 1.0 per cent higher than the 2013-14 budget of $840.7 million.

This favourable variance is due to higher:

  • User Charges Non-ACT Government ($4.9 million) - due to the receipt of additional cross border revenue following the finalisation of some prior year reconciliations;
  • Other Revenue ($3.3 million) - mainly relating to Health Workforce Australia grants and additional prior year expenditure reimbursement for workers' compensation claims; and
  • Resources Received Free of Charge ($0.8 million) - mainly related to legal advice from the Government Solicitor's Office and accommodation for patient teaching and training which was received free of charge.

Comparison to 2012-13 Actual Revenue

Own source revenue was $169.5 million or 24.9 per cent higher than the 2012-13 actual result of $679.8 million.

This is mainly due to an increase in ACT Government User Charges ($174.4 million) mainly due to a review of activity deemed as 'in scope' of public hospitals under the National Health Reform Agreement and indexation and growth in patient activity;

This was partially offset by a reduction in Non-ACT Government User Charges ($5.8 million) mainly due to the changed funding arrangements for the treatment of interstate patients in ACT hospitals following the implementation of National Health Reform Agreement (these revenues are now collected through the ACT Local Hospital Network Directorate).

Future Trends

Total own source revenue is expected to increase steadily across the forward years consistent with funding provided to the ACT Local Hospital Network to purchase increased activity from the Canberra Hospital and Health Services in 2014-15 and the forward estimate years.

Financial Position

Total Assets

Components of Total Assets

Figure 4 below indicates that, for the financial year ended 30 June 2014, the Directorate held 74.1 per cent of its assets in property, plant and equipment.

pie graph - total assets


Figure 4 - Total Assets as at 30 June 2014

Comparison to Budget

The total asset position as at 30 June 2014 is $1,158.8 million, $97.6 million lower than the 2013-14 budget of $1,256.4 million.

The variance reflects the timing associated with the acquisition and completion of various assets over the 2013-14 financial year including:

  • Property, Plant and Equipment ($143.5 million) - mainly due to delayed commissioning of the Belconnen Community Health Centre and Integrated Capital Region Cancer Service ;
  • Receivables ($43.7 million) - the budget included a large cross border receivable which has now been settled; and
  • Intangibles ($14.1 million) - mainly due to delays with ICT projects such as eHealthy projects, and the Identity Access Management Project.

Partially offset by higher:

  • Cash and Cash Equivalents ($83.5 million) - due to earlier than budgeted settlement of cross border receivables; and
  • Capital Works in Progress ($19.9 million) - due to the deferral of capital works projects from 2012 13 into future years as a result of procurement delays due to structural and manufacturing issues, and operational commissioning delays.

Comparison to 2012-13 Actual

The Directorate's total asset position is $47.9 million higher than the 2012-13 actual result of $1,110.9 million, largely due to increases in:

  • Property, Plant and Equipment including Assets Held for Sale ($151.2 million) - mainly due to completed new building capital works projects including the Centenary Hospital for Women and Children, the Gungahlin Community Health Centre and the Cancer Patient Accommodation property; and
  • Cash and Cash Equivalents ($97.7 million) - due to a decrease in receivables associated with the timing of cross border payments by the New South Wales Ministry of Health.

The above increases were partially offset by a reduction in:

  • Receivables ($102.8 million) - due to timely settlement of cross border provisional payments and payments from the Local Hospital Network Directorate (LHN) for services provided in 2012-13; and
  • Capital Works in Progress ($93.9 million) - as a result of works progressing on the new facilities including the Community Health Centres in Belconnen, Tuggeranong and Gungahlin, the Capital Region Cancer Centre, the Centenary Hospital for Women and Children, for Clinical Services Redevelopment, the Canberra Hospital Emergency Department Intensive Care Unit, Digital Mammography, Identity Access Management and various capital upgrades.

Total Liabilities

Components of Total Liabilities

Figure 5 below indicates that the majority of the Directorate's liabilities relate to employee benefits 81.3 per cent and payables 15.6 per cent.

pie graph - total liabilities


Figure 5 - Total Liabilities as at 30 June 2014

Comparison to Budget

The Directorate's liabilities for the year ended 30 June 2014, of $272.8 million, is $5.2 million higher than the 2013-14 budget of $267.6 million.

This was largely due to higher:

  • Employee Benefits ($22.3 million) - mainly due the impact of pay rises on leave provisions, accrued payrise amounts, increases in the rates used to estimate the present value of long service leave from 101.3% to 103.5% and annual leave from 100% to 100.9%.

Offset by lower:

  • Payables ($17.2 million) - mainly due to the budget including a large amount for unpaid capital works invoices.

Comparison to 2012-13 Actual

Total liabilities of $272.8m are $18.1 million lower than the actual results as at 30 June 2013 of $290.9 million. This is due to decreases in:

  • Payables ($45.0 million) - 2012-13 included a large number of invoices for capital works late in June 2013; and
  • Other Liabilities ($1.7 million) - 2012-13 included payment in advance for services provided to the Department of Veterans Affairs.

The above decreases were partially offset by an increase in:

  • Employee Benefits ($29.1 million) - mainly due the impact of pay rises on leave provisions, accrued payrise amounts, increases in the rates used to estimate the present value of long service leave from 101.3% to 103.5% and annual leave from 100% to 100.9%.

Territorial Statement of Revenue and Expenses

The activities whose funds flow through the Directorate's Territorial accounts are:

  • The receipt of regulatory licence fees; and
  • The receipt and on-passing of monies for capital works at Calvary Public Hospital.

Total Income

Figure 6 below indicates that 19.8 per cent of Territorial income is regulatory licence fees, with the balance being the receipt, for on-passing, of monies for capital works at Calvary Public Hospital (expenses on behalf of the Territory).

pie graph - Sources of Territorial Revenue


Figure 6 - Sources of Territorial Revenue

Total Territorial income for the year ending 30 June 2014 was $5.8 million, which is consistent with the budget figure of $5.8 million.

Total Territorial income for 2013-14 of $5.8 million is $4.0 million higher than the 2012-13 income of $1.8 million. The main contributor to this increase is:

  • Payment for Expenses on Behalf of the Territory ($3.9 million) - This is due to capital works paid to Calvary for the Continuity of Health Services Plan - Essential Infrastructure project which was for the expansion of clinical services including an additional 15 beds, expansion of the Rapid Assessment Unit and a Birthing Centre.

Total Expenses

Figure 7 below indicates that 80.3 per cent of expenses incurred on behalf of the Territory relate to the on-passing of monies for capital works to Calvary Public Hospital, with the other 19.7 per cent being the transfer, to Government, of regulatory licence fees.

pie graph - Sources of Territorial Expenses


Figure 7 - Sources of Territorial Expenses

Total expenses were $5.7 million, which was $0.1 million lower than the budget of $5.8 million due to lower regulatory licence fees received.

Total expenses were $3.9 million higher than the 2012-13 total of $1.8 million. This is mainly due to payments for new capital works for the Continuity of Health Services Plan - Essential Infrastructure project which was for the expansion of clinical services including an additional 15 beds, expansion of the Rapid Assessment Unit and a Birthing Centre.

Attachment A - Comparison of net cost of services to budget 2013-14

 

Variance to be Explained
Description Original
Budget
$'000
Plus AAO
Transfers
$'000
Total
Funding
$'000
Less
Actual
$'000
$'000 %
Expenses            
Employee and Superannuation 648,503 - 648,503 682,823 -34,320 -5.29%
Supplies and Services 318,133 - 318,133 310,676 7,457 2.34%
Depreciation and Amortisation 35,673 - 35,673 32,483 3,190 8.94%
Purchased Services 84,023 - 84,023 72,677 11,346 13.50%
Other Expenses 12,826 - 12,826 6,941 5,885 45.88%
Cost of Goods Sold 10,551 - 10,551 10,339 212 2.01%
Total Expenses 1,109,709 - 1,109,709 1,115,939 -6,230 -0.56%
             
Own Source Revenue            
User Charges 820,738 - 820,738 825,393 -4,655 -0.57%
Interest 278 - 278 195 83 29.86%
Resources Free of Charge 780 - 780 1,618 -838 -107.48%
Gains 1,544 - 1,544 1,394 150 9.71%
Other Revenue 13,230 - 13,230 16,518 -3,288 -24.85%
Grants from the Commonwealth 4,120 - 4,120 4,110 10 0.23%
Total Own Source Revenue 840,690 - 840,690 849,228 -8,538 -1.02%
             
Total Net Cost of Services 269,019 - 269,019 266,711 2,308 0.86%