Management Discussion and Analysis for the ACT Local Hospital Network Directorate, for the Financial Year Ended 30 June 2014

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 Local Hospital Council (Council), constituted under the Act, provides advice to the Director General of the Health Directorate on the clinical and corporate governance framework needed to support the improvement in standards of patient care and services provided through the ACT LHN. The Council also advises on way to support, encourage and facilitate community and clinician involvement in the planning of services that form part of the ACT LHN. The Council reports to the Minister for Health on the state of the ACT LHN and any recommendations relating to improvement of the ACT LHN that the Council considers necessary.

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

  • Canberra Hospital;
  • 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.

Estimated public hospital activity is higher than the actual activity delivered by the entities in the ACT Local Hospital Network that result in a reduction to funding from the Commonwealth Government.

The Commonwealth Government will fund 45 per cent of the growth in public hospital activity from 2014-15 and the ACT Government and the Directorate will agree on the process for managing fluctuation in activity and costs from 2014-15.

The above risk is monitored regularly throughout the year.

Financial Performance

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

Total Net Cost of Services

 

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Comparison to Budget

The Directorate's net cost of services for 2013-14 of $538.2 million was $11.8 million or 2.2 per cent lower than the 2013-14 budget (refer to Attachment A). The decrease is mainly due to higher than budgeted cross border revenue following finalisation of a cross border agreement with the New South Wales Ministry of Health and updated estimates of revenue from Victoria.

Comparison to 2012-13 Actual Expenses

 

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Future Trends

Figure 1: Net Cost of Services

As shown above in Figure 1, net cost of services is expected to slightly rise each year through to 2017-18.

Total Expenditure

Components of Expenditure

 

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Figure 2 - Components of Expenditure

Comparison to Budget

Total expenses of $915.4 million were within $9.1 million, or 1.0 per cent of the original 2013 14 budget of $906.3 million.

Comparison to 2012-13 Actual Expenses

Total expenses were $201.6 million or 28.2 percent higher than the 2012-13 actual result. This was due to an increase in public hospital activity to be funded under the National Health Reform Agreement following a review of eligibility criteria, an increase in the National Efficient Price and growth in public hospital activities, including acute services, cancer services, rehabilitation, aged and community services and mental health services.

Future Trends

Expenses are budgeted to steadily increase until 2017-18.

Total Revenue

Components of Revenue

Figure 3 below indicates that for the financial year ended 30 June 2014, the Directorate received 59.3 per cent of its total revenue of $927.2 million from Government Payment for Outputs ($550.0 million), 11.0 per cent from Cross Border User Charges ($102.0 million), with the remaining 29.7 per cent made up of Grants from the Commonwealth ($275.2 million).

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Figure 3 - Components of Own Source Revenue

Comparison to Budget

Own source revenue for the year ending 30 June 2014 was $377.2 million, which was $20.9 million or 5.9 per cent higher than the 2013-14 budget of $356.3 million. The increase is due to higher than budgeted cross border revenue.

Comparison to 2012-13 Actual Income

Own source revenue was $212.2 million or 128.6 percent higher than the 2012-13 result of $165.0 million.

This is due to delays in the prior year in the enactment of legislation to enable the establishment of the Local Hospital Network’s National Health Funding Pool bank account. As a result of the delays in legislation, Commonwealth Government funding which was to be received as own source revenue was instead paid to the Chief Minister and Treasury Directorate and on-passed to the ACT Local Hospital Network Directorate as Government Payment for Outputs in 2012-13. In 2013-14 these funds were received by the Directorate as own source revenue.

Future Trends

Total own source revenue is expected to decrease slightly in 2014-15 and then increase steadily until 2017-18.

Financial Position

The purpose of the Directorate is to receive Activity Based and Block Funding from the National Health Funding Pool created under the National Health Reform Agreement, and to purchase hospital services from ACT public hospitals. The ACT Local Hospital Network Directorate was never intended to have assets nor liabilities on its balance sheet, therefore no budget was set.

Total Assets

Components of Total Assets

Figure 4 below indicates that, as at 30 June 2014, the Directorate held 66.1 per cent of its assets in receivables and 33.9 per cent in cash and cash equivalents.

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Figure 4 - Total Assets as at 30 June 2014

Comparison to Budget

The total asset position as at 30 June 2014 is $36.2 million, which is $36.2 million higher than the nil 2013-14 budget.

The variance reflects the increase in:

  • Cash and Cash Equivalents ($12.3 million) - partially due to the provision of a cash buffer from Chief Minister and Treasury Directorate to allow for the timing of Goods and Services Tax (GST) transactions and the receipt of outstanding 2012-13 cross border revenue; and
  • Receivables ($23.9 million) - which relates to the cross border receivables from other jurisdictions for the treatment of their residents in ACT hospitals and an Australian Taxation Office refund for GST.

Comparison to 2012-13 Actual

The Directorates total asset position is $50.6 million lower than the 2012-13 actual result of $86.8 million. This is mainly due to a lower amount of cross border receivables owing from the New South Wales Ministry of Health for the treatment of their residents in ACT hospitals in 2013 14. The 2012-13 amount was high due to the delay in finalising a cross border agreement with the New South Wales Ministry of Health until 2013-14.

Total Liabilities

Components of Total Liabilities

Figure 5 below indicates that 100 per cent of the Directorate’s liabilities relates to payables.

 

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Figure 5 - Total Liabilities as at 30 June 2014

Comparison to Budget

The Directorate's liabilities as at 30 June 2014, of $9.3 million, are $9.3 million higher than the nil 2013-14 budget.

This is due to payables ($9.3 million) which relates to cross border payables owed to other jurisdictions for admitted and non-admitted patient services provided to residents of the ACT in hospitals outside of the ACT.

Comparison to 2012-13 Actual

Total liabilities were $62.5 million lower than the actual results as at 30 June 2013 of $71.8 million.

This is due to lower payables ($62.5 million) in 2013-14 compared to 2012-13. The higher level of payables in 2012-13 was due to a delay in finalisation of a cross border agreement with the New South Wales Ministry of Health.

Net Assets

The Directorate's net assets as at 30 June 2014 were $26.8 million higher than the nil position budgeted.

This is mainly due to cross border revenue being higher than the budget for the last two financial years.

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

 

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