Government to 'directly fund' DHBs for building new facilities

Health Minister Dr David Clark.
Health Minister Dr David Clark. Photo credit: Newshub

The Government has decided to "directly fund" DHBs to help with the costs of building new facilities. 

DHBs are currently required to pay back 6 percent interest on the cost of capital investments made by the Government in what's called a "capital charge", each year. 

Knowing they'll have to pay interest on the money given to them by the Government for those investments is intended to provide DHBs with the incentive to invest and manage their funds wisely. 

But Health Minister David Clark announced on Monday that he isn't "convinced" about the charge required of DHBs. 

He said he's asked Treasury to review the effectiveness of the current system, and that Treasury is looking into it. 

In the meantime, Dr Clark said the Government has decided to go ahead and "directly fund" DHBs for their capital charge costs for new facilities. 

"This will reduce some of the immediate cost pressures for DHBs and provide more stability for long term asset planning," he said. 

"For example, a DHB could receive up to $18 million annually to cover the capital charge related to a new $300 million hospital building."

It comes after Controller and Auditor-General John Ryan expressed concern about the worsening financial positions of DHBs and the state of hospital buildings. 

Clark told Morning Report last week that he had listened to Ryan's concerns, and said the removal of the capital charge was something ministers had been considering.

National's Health spokesperson Michael Woodhouse has pointed out that all public sector organisations pay interest, and that it "reflects the fact that money has a cost". 

The amount spent to cover DHBs' capital charges will depend on the scale of new investment in hospital facilities, Dr Clark's statement said. 

DHB deficits will also be a factor when calculating how much capital charge relief the DHBs will get. A $30 million deficit, for example, would be subtracted from the value of the new capital asset as part of the calculation. 

"This will further encourage sustainable financial management."

To map out the current state of health facilities in New Zealand, Dr Clark said the Ministry of Health has partnered with DHBs to develop a National Asset Management Plan. 

This has been welcomed by John Ryan. 

DHBs, or District Health Boards, fund and provide health services in their region. There are 20 in New Zealand, and each DHB is governed by a board of up to 11 members. 

The Government committed $1.7 billion for capital investment in hospitals and other facilities over the next two years in Budget 2019.