ACT Local Hospital Network Directorate Annual Report 2015-16

Management Discussion and Analysis for the ACT Local Hospital Network Directorate, For the Year Ended 30 June 2016

General Overview

Purpose

The ACT Local Hospital Network Directorate (ACT LHN) was established under the Health Act 1953 (the Act), and is administered by the Director-General of the Health Directorate and supported by staff from the Health Directorate.

The ACT LHN receives Activity Based Funding from the Commonwealth and ACT Governments, and block funding for teaching, training and research. It purchases public hospital services from four ACT public hospital providers:

  • Canberra Hospital and Health Services;
  • Calvary Public Hospital;
  • Clare Holland House; and
  • Queen Elizabeth II Family Centre.

Risk Management

The Directorate’s management has identified the following potential risk that may influence the future financial position of the Directorate.

Actual public hospital activity (inpatient and outpatient services) delivered by entities in the ACT Local Hospital Network is lower than the budgeted activity resulting in a reduction of funding from the Commonwealth Government.

The Commonwealth Government funded 45 percent of the growth in public hospital activity from 2015-16 and the ACT Government and the Directorate will agree on the process for managing fluctuation in activity and costs from 2015-16.

The above risk is monitored regularly throughout the year.

Financial Performance

The following financial information is based on audited financial statements for 2014-15 and 2015‑16, and the forward estimates contained in the 2016-17 ACT LHN Budget Statements.

Total Net Cost of Services
  Actual
2014-15
$m
Budget
2015-16
$m
Actual
2015-16
$m
Budget
2016-17
$m
Forward
Estimate
2017-18
$m
Forward
Estimate
2018-19
$m
Forward
Estimate
2019-20
$m
Total Expenses 966.0 1,019.6 1,025.5 1,064.7 1,103.5 1,130.0 1,156.8
Total Own Source Revenue 402.9 414.5 421.7 431.2 459.8 481.0 503.2
Total Net Cost of Services 563.1 605.1 603.8 633.5 643.7 649.0 653.6

 

Comparison to Budget

The Directorate’s net cost of services for 2015-16 of $603.8 million was within $1.3 million or 0.2 percent of the 2015-16 budget.

Comparison to 2014-15 Actual Expenses

There was an increase of $40.7 million or 7.2 per cent compared to the 2014-15 net cost of service of $563.1 million. This is due to higher expenses of $59.5 million mainly relating to growth in acute services including emergency and additional elective surgery, mental health, outpatient, community and primary care services and women and children’s health.

Higher expenses are partially offset by an increase in own source revenue of $18.8 million mainly due to:

  • growth in activity for public hospital services funded through the National Health Reform Agreement including emergency and additional elective surgery, mental health, outpatient, community and primary care services and women and children’s health; and
  • a higher number of interstate patients, in particular New South Wales residents, being treated in ACT public hospitals.

Future Trends

Figure 1: Net Cost of Services

 
Figure 1: Net Cost of Services
As shown above in Figure 1, net cost of services is expected to increase across the forward years.

Total Expenditure

Components of Expenditure

Figure 2 below shows that for the financial year ended 30 June 2016, 99.4 percent of total expenditure ($1025.5 million) relates to grants and purchased services.

 
Figure 2: Components of Expenditure
Figure 2: Components of Expenditure

Comparison to Budget

Total expenses of $1025.5 million was within $5.9 million, or 0.6 percent of the original 2015-16 budget of $1019.6 million.

Comparison to 2014-15 Actual Expenses

Total expenses were $59.5 million or 6.2 percent higher than the 2014-15 actual result of $966.0 million. This was due to growth in public hospital services funded through the National Health Reform Agreement including emergency and additional elective surgery, mental health, outpatient, community and primary care services and women and children’s health.

Future Trends

Expenses are budgeted to steadily increase across the forward estimate years.

Total Own Source Revenue

Components of Own Source Revenue

Figure 3 below indicates that for the financial year ended 30 June 2016, the Directorate received 77.0 percent of its total own source revenue of $421.7 million from Grants from the Commonwealth ($324.7 million) and the remaining 23.0 percent from Cross Border User Charges ($97.0 million).

 
Figure 3: Components of Own Source Revenue
Figure 3 - Components of Own Source Revenue

Comparison to Budget

Own source revenue for the year ending 30 June 2016 was $421.7 million, which was $7.2 million or 1.7 percent higher the 2015-16 budget of $414.5 million. The higher own source revenue is due to higher activity based funding and cross border revenue from higher patient numbers than estimated in the budget.

Comparison to 2014-15 Actual Own Source Revenue

Own source revenue was $18.8 million or 4.7 percent higher than the 2014-15 result of $402.9 million. The increase is mainly due to growth in public hospital activity including acute services, mental health services and cancer services funded through the National Health Reform Agreement.

Future Trends

Total own source revenue is expected to increase steadily.

 

Financial Position

Total Assets

Components of Total Assets

Figure 4 below indicates that, at 30 June 2016, the Directorate held total assets of $23.0 million with 86.3 percent of its assets in receivables and 13.7 percent in cash and cash equivalents.

 
Figure 4: Total Assets at 30 June 2016
Figure 4: Total Assets at 30 June 2016
Comparison to Budget

The total asset position at 30 June 2016 is $23.0 million, which is lower than the 2015-16 budget of $25.2 million by $2.2 million.

The variance reflects an increase in:

  • Receivables ($2.4 million) - which relates to outstanding cross border health receipts, mainly from New South Wales for the treatment of their residents in ACT hospitals; offset by a decrease in
  • Cash and Cash Equivalents ($4.6 million) - relates to the abovementioned increase in receivables and a lower than anticipated result from the finalisation of 2014-15 cross border activity.
Comparison to 2014-15 Actual

The Directorate’s total asset position at 30 June 2016 is $23.0 million, which is $5.4 million higher than the 2014-15 actual result of $17.6 million. This mainly relates to outstanding cross border health receipts, mainly from New South Wales for the treatment of their residents in ACT hospitals.

Total Liabilities

Components of Total Liabilities

100 per cent of the Directorate’s liabilities relates to payables.

Comparison to Budget

The Directorate’s liabilities at 30 June 2016, was $14.0 million, which is higher than the 2015-16 budget of $9.3 million by $4.7 million. This is mainly due to an outstanding payment to the Health Directorate for providing health services.

Comparison to 2014-15 Actual

Total liabilities were $7.4 million higher than the actual results as at 30 June 2015 of $6.6 million.

The higher level of payables in 2015-16 is mainly due to an outstanding payment to the Health Directorate for providing health services and cross border health payments mainly in connection with New South Wales.

Net Assets

The Directorate’s net assets at 30 June 2016 were $6.8 million lower than the $15.8 million budgeted. This is due to the combined impact of the reasons listed above.

 

Attachment A - Comparison of net cost of services to budget 2015-16
Description Original
Budget
$'000
Plus AAO
Transfers
$'000
Total
Funding
$'000
Less
Actual
$'000
Variance to be Explained
$'000 %
Expenses
Purchased Services 1,013,732 - 1,013,732 1,019,664 (5,932) -0.6%
Transfer Expenses 5,910 - 5,910 5,803 107 1.8%
Total Expenses 1,019,642 - 1,019,642 1,025,467 (5,825) -0.6%
Own Source Revenue
User Charges 93,053 - 93,053 97,005 (3,952) -4.2%
Grants from Commonwealth 321,427 - 321,427 324,704 (3,277) -1.0%
Total Own Source Revenue 414,480 - 414,480 421,709 (7,229) -1.7%
Total Net Cost of Services 605,162 - 605,162 603,758 1,404 0.2%