C.1 Financial Management Analysis

Operations and Principal Activities

The Directorate partners with the community and consumers for better health outcomes by:

  • delivering patient and family centred care;
  • strengthening partnerships;
  • promoting good health and wellbeing;
  • improving access to appropriate healthcare; and 
  • having robust safety and quality systems.

We aim for sustainability and improved efficiency in the use of resources, by designing sustainable services to deliver outcomes efficiently, and embedding a culture of research and innovation.

The Directorate continues to strengthen clinical governance of its processes, and strives to be accountable to both the government and the community.

The Directorate aims to support our people and strengthen teams, by helping staff to reach their potential, promoting a learning culture and providing high-level leadership.

Changes in Administrative Structure

On 15 December 2014, Administrative Arrangements 2014 (No 2) (Notifiable Instrument NI2014 654) came into effect. This instrument transferred the Public Health Protection and Regulation function from the Health Directorate to the Chief Minister, Treasury and Economic Development Directorate as part of the establishment of Access Canberra.

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;
  • 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; and
  • a significant investment in clinical systems and recording systems.

The above risks are monitored regularly throughout the year.

Financial Performance

The following financial information is based on audited financial statements for 2013-14 and      2014-15, and the budget and forward estimates contained in the 2015-16 Health Directorate Budget Statements.

Total Net Cost of Services

 

Actual

Budget

Actual

Budget

Forward

Estimate

Forward

Estimate

Forward

Estimate

 

2013-14

2014-15

2014-15

2015-16

2016-17

2017-18

2018-19

 

$m

$m

$m

$m

$m

$m

$m

Total Expenditure

1,115.9

1,188.7

1,195.3

1,253.7

1,320.4

1,346.5

1,412.5

Total Own Source Revenue

849.2

886.8

898.1

942.7

986.0

1,008.4

1,037.8

Net Cost of Services

266.7

301.9

297.2

311.0

334.4

338.1

374.7

Comparison to Budgeted Net Cost of Services

The Directorate’s net cost of services for 2014-15 of $297.2 million was $4.7 million or 1.5 per cent lower than the 2014-15 budget. 

A combination of factors resulted in higher than budgeted own source revenue ($11.3 million). The main higher revenue variations are:

  • Other Gains ($5.5 million) – due to the derecognition of lease liabilities (receiving a gain in revenue from no longer recording a lease pay out amount to own the vehicle) due to the change in lease type for motor vehicles which has been reclassified from finance leases to operating leases. This revenue is offset by an expense amount in ‘Other Expenses’ of $5.3 million for the derecognition of the motor vehicle asset (an expense from no longer recording the vehicle as ACT Health’s asset);
  • User Charges ACT Government ($3.2 million) – largely due to receiving additional revenue from the ACT Local Hospital Network Directorate; and
  • User Charges Non-ACT Government ($3.2 million) – largely due to more inpatient fees as a result of an increase in compensable and private patients and revenue related to Department of Veterans Affairs patients that was not accounted for until 2014-15.

This higher than budgeted own source revenue was partially offset by higher than budgeted expenses ($6.6 million). The main higher expense variations are: 

  • Depreciation and Amortisation ($8.2 million) – due to the demolition of Building 15 at Canberra Hospital ($5.4 million) earlier than it’s original useful life and higher computer amortisation costs ($8.0 million) for completed software projects that became operational during 2014 15, partially offset by delays in the completion of capital works projects that have been moved out to 2015-16 and 2016-17;
  • Employee Expenses ($7.7 million) – largely due to an increase in the rate used to estimate the present value of long service leave from 103.5% to 104.2% ($2.9 million) and annual leave consumption being lower than anticipated ($3.3 million). An increase in overtime costs and penalties account for the remaining balance; 
  • Supplies and Services ($4.1 million) – largely due to charges for Blood Products ($8.9 million) classified as supplies and services but in the budget allocated to Other Expenses. Partially offset by:
    • cost savings in medical and surgical supplies ($1.3 million);
    • cost savings in staff development ($1.4 million);
    • lower domestic services charges ($1.2 million); and
    • utilities charges being lower than anticipated ($1.0 million).

The higher than budgeted expenses were partially offset by lower than budgeted Grants and Purchased Services ($14.5 million) expense. The 2014-15 Budget for Grants and Purchased Services was higher than required and has been adjusted down in the 2015-16 Budget.

Comparison to 2013-14 Net Cost of Services

There was an 11.4 per cent increase in net cost of services or $30.5 million more when compared to the 2013-14 actual cost of $266.7 million. 

This increase in net cost of services was due to higher expenses ($79.4 million). The main increases in expenses are:

  • Employee Expenses ($36.7 million) – largely due to:
    • the impact of collective agreement pay rises;
    • an increase in the rate used to estimate the present value of long service leave from 103.5% to 104.2%
    • the impact of pay rises on employee leave;
    • leave earned exceeding leave taken; and
    • an increase in the overall workforce to cover growth in services;
  • Depreciation and Amortisation ($14.1 million) – the increase is largely due to:
    • higher amortisation for computer software projects that became operational in 2014 15 ($8.0 million); and
    • The demolition of Building 15 at Canberra Hospital in 2014 15 earlier than its original useful life.
  • Supplies and Services ($13.2 million) – increased costs for:
  • medical and surgical supplies ($4.5 million) due to inflation and growth in acute services, mental health services and cancer services;
  • increased computer costs ($2.8 million);
  • higher pharmaceuticals costs ($2.4 million) mainly due to inflation and an increase in the use of high cost drugs;
  • higher cleaning and water and sewerage costs ($1.5 million) for the full year effect of the opening of new buildings; and
  • ageing assets increasing repairs and maintenance costs ($1.2 million);
  • Other Expenses ($6.4 million) – largely due to the derecognition of motor vehicle assets ($5.3 million) following a change of lease type from finance to operating leases;
  • Grants and Purchased Services ($5.7 million) – largely due to providing a dedicated hip and knee joint replacement program at Calvary John James Hospital which increased elective surgery payments by $3.6 million and an increase in payments to Calvary Public Hospital ($1.0 million) mainly for inflation and growth in services; and 
  • Superannuation ($4.6 million) – largely due to pay rises under collective agreements and an increase in the number of employees.

Total expenditure was partially offset by reduced expenditure for Cost of Goods Sold ($1.0 million) due to a lower volume of goods being sold to private hospitals.

Total Own Source Revenue increased by $48.9 million largely due to higher:

  • ACT Government User Charges ($42.6 million) largely due to indexation and growth in patient activity; and
  • Other Gains ($5.7 million) largely from the derecognition of lease liability for motor vehicles due to a change from finance leases to operating leases. 

Future Trends

Graph Net Cost of Services

Figure 1:  Net Cost of Services

Net cost of services is planned to increase steadily over the future years consistent with funding provided in the 2015-16 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.  

Total Expenditure

Components of Expenditure

Figure 2 below indicates the components of the Directorate’s expenses for 2014-15 with the largest components of expense being employee expenses which represents 53.8 per cent or $643.1 million, supplies and services which represents 27.1 per cent or $323.9 million, and superannuation, which represents 6.8 per cent or $81.0 million.

pie graph below indicates the components of the Directorate’s expenses for 2014-15 with the largest components of expense being employee expenses which represents 53.8 per cent or $643.1 million, supplies and services which represents 27.1 per cent or $323.9 million, and superannuation, which represents 6.8 per cent or $81.0 million.

Comparison to Budget

Total expenses of $1,195.3 million were $6.6 million, or 0.6 per cent higher than the original 2014 15 budget of $1,188.7 million.

This increase was predominantly due to higher:

  • Depreciation and Amortisation ($8.2 million) - due to the demolition of Building 15 at Canberra Hospital ($5.4 million) earlier than its original useful life and higher amortisation costs for completed computer software projects that became operational during 2014 15 ($8.0 million), offset by delays in the completion of capital works projects that have been moved out to 2015 16 and 2016 17; 
  • Employee Expenses ($7.7  million) –  largely due to an increase in the rate used to estimate the present value of long service leave from 103.5% to 104.2% ($2.9 million) and annual leave consumption being lower than anticipated ($3.3 million). An increase in staff numbers, increased overtime costs and penalties account for the balance;
  • Supplies and Services ($4.1 million) – largely due to:
    • the use of visiting medical officers (VMO’s) to backfill staff specialist vacancies and staff specialists on extended leave ($3.1 million);
    • increased amounts of assets purchased under the capitalisation threshold of $5,000 ($1.7 million); and
    • the hiring of non-contract staff ($1.9 million). 

These higher supplies and services were partially offset by:

  • cost savings in medical and surgical supplies ($1.3 million);
  • cost savings in staff development ($1.4 million);
  • Lower domestic services charges ($1.2 million); and
  • utilities charges being lower than anticipated ($1.0 million); and
  • Superannuation ($1.4 million) – largely due to;
    • pay rise 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 ($14.5 million) expense. The 2014-15 Budget for Grants and Purchased Services was higher than required and has been adjusted down in the 2015-16 Budget.

Comparison to 2013-14 Actual Expenses

Total expenses were ($79.4 million) or 7.1 per cent higher than the 2013-14 actual result. The increase was predominantly due to higher:

  • Employee Expenses ($36.7 million) - largely due to:
    • the impact of collective agreement pay rises;
    • an increase in the rate used to estimate the present value of long service leave from 103.5% to 104.2%;
    • the impact of pay rises on employee leave;
    • leave earned exceeding leave taken; and
    • an increase in the overall workforce to cover growth in services;
  • Depreciation and Amortisation ($14.1 million) – the increase is due to:
    • higher amortisation for computer software projects that became operational in 2014 15 ($8.0 million); and
    • The demolition of Building 15 at Canberra Hospital in 2014 15 before the end of its original useful life ($5.4 million).
  • Supplies and Services ($13.2 million) – the main variations are due to increased:
    • clinical expenses/medical surgical supplies ($4.5 million) – mainly due to inflation and growth in patient activity;
    • computer expenses ($4.5 million) - due to a combination of factors, including inflation, increase in staff numbers and support costs for projects that became operational during the year;
    • pharmaceuticals ($2.4 million) –mainly due to inflation and an increase in the use of high cost drugs;
    • domestic services, food and utilities ($1.5 million) – mainly due to higher cleaning and water and sewerage costs for the full year effect of the opening of new buildings;
    • repairs and maintenance ($1.2 million) - as a result of preventative and reactive repairs on ageing assets and an increase in maintenance costs for new buildings; and
    • the higher supplies and services were partially offset by lower visiting medical officers (VMO’s) ($1.8 million) – as a result of higher expenses in 2013 14 that included costs for services provided in 2012 13 that had previously not been accounted for.
  • Other Expenses ($6.4 million) - due to:
    • the derecognition of motor vehicle assets ($5.3 million) following a change of lease type from finance to operating leases; and
    • the write off of audio visual communication equipment ($1.8 million) that was bought for hospitals throughout Southern New South Wales;
    • the higher other expenses were offset by a reduction in legal settlements ($1.1 million);
  • Grants and Purchased Services ($5.7 million) - largely due to providing a dedicated hip and knee joint replacement program at Calvary John James which increased elective surgery payments by $3.6 million, an increase in payments to Calvary Public Hospital ($1.0 million) which was largely related to inflation and growth and the balance relates to inflation on contracts with non-government organisations; and
  •  Superannuation ($4.6 million) - as a result of an increase in:
    • the number of employees;
    • pay rises under collective agreements;
    • 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.

The increased expenses were partially offset by lower Cost of Goods Sold ($1.0 million) - due to a lower volume of goods being sold to private hospitals.

Future Trends

Expenses are budgeted to increase steadily across the forward years to account for inflation 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 2015, the Directorate received 85.4 per cent of its total own source revenue ($3.2 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 2015 was $898.1 million, which was $11.3 million or 1.3 per cent higher than the 2014-15 budget of $886.8 million. 

This favourable variance is due to higher:

  • Other Gains ($5.5 million) – due to the derecognition of lease liabilities from the change in lease type for motor vehicles which moved from finance leases to operating leases;
  • User Charges ACT Government ($3.2 million) – due to receiving additional revenue from the ACT Local Hospital Network Directorate; and
  • User Charges Non-ACT Government ($3.2 million) – largely due to increased inpatient fees from an increase in compensable and private patients and prior year revenues related to Department of Veterans Affairs patients.

 Comparison to 2013-14 Actual Revenue

Own source revenue was $48.9 million or 5.8 per cent higher than the 2013-14 actual result of $849.2 million. 

The increase compared to last financial year is due to:

  • ACT Government User Charges ($42.6 million) largely due to inflation and growth in patient activity;
  • Other Gains ($5.7 million) – mainly due to the derecognition of lease liabilities (receiving a gain in revenue from no longer recording a lease payout amount to own the vehicle) due to the change in lease type for motor vehicles which has been reclassified from finance leases to operating leases; and
  • Non-ACT Government User Charges ($1.6 million) – largely due to an increase in inpatient fees as a result of increases in compensable and private patients as well as prior year revenues related to the Department of Veterans Affairs patients.

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 2015-16 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 2015, the Directorate held  74.6  per cent of its assets in property, plant and equipment.

pie graph below indicates that, for the financial year ended 30 June 2015, the Directorate held  74.6  per cent of its assets in property, plant and equipment.

Figure 4 – Total Assets as at 30 June 2015

Comparison to Budget

The total asset position as at 30 June 2015 is $1,188.4 million, $118.8 million lower than the 2014 15 budget of $1,307.2 million.

The variance reflects the timing associated with the acquisition and completion of various assets over the 2014-15 financial year resulting in lower:

  • Property, Plant and Equipment ($129.2 million) – largely due to delays with current capital works projects from lengthy contract negotiations, procurement delays and extensions, delays in hospital road works as a result of the installation of a new demountable building, and a flow on effect of delays between projects; 
  • Receivables ($46.2 million) – largely due to the budget including a large amount for cross border revenue which has since been received; 
  • Intangible Assets ($7.8 million) – largely due to delays with computer software projects; and
  • Capital Works in Progress ($1.5 million) – due to the deferral of capital works from 2014 15 into future years, partially offset by the deferral of 2013 14 capital works projects into 2014 15.

Partially offset by higher:

  • Cash and Cash Equivalents ($63.0 million) – largely due to payment of the 27th pay happening on 1 July 2015 rather than 30 June 2015 and continued delay in the medical officers enterprise bargaining agreement.

Comparison to 2013-14 Actual

The Directorate’s total asset position is $29.6 million higher than the 2013-14 actual result of $1,158.8 million, largely due to increases in:

  • Property, Plant and Equipment ($27.0 million) – largely due to completed building capital works projects; and
  • Intangible Assets ($15.7 million) – due to completed computer software packages; and
  • Receivables ($3.8 million) – the increase mainly relates to reimbursements of Directorate doctors seconded to Calvary Hospital and accrued revenue for chargeable patients fees.
  • The above increases were partially offset by a reduction in:
  • Capital Works in Progress ($16.0 million) - as a result of completed computer software works moving to intangible assets and completed building works moving to property, plant and equipment; and
  • Cash and Cash Equivalents ($2.2 million) – The reduction in cash relates to the return of $27 million surplus cash to the ACT Government, this is offset by cash held by the Directorate for a 27th pay that occurs in 2015-16, outstanding pay rise back pay for medical officers and deferred expenditure.

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  18.1  per cent.

pie graph below indicates that the majority of the Directorate’s liabilities relate to employee benefits  81.3  per cent and payables  18.1  per cent.

Figure 5 – Total Assets as at 30 June 2015

Comparison to Budget

The Directorate’s liabilities for the year ended 30 June 2015, of $300.1 million, is $1.9 million lower than the 2014-15 budget of $302.0 million. 

This was largely due to higher:

  • Employee Benefits ($41.2 million) – largely due to the impact of pay rises on leave provisions, increases in the rates used to estimate the present value of long service leave from 103.5% to 104.2% and annual leave from 100.9% to 101.0%.

Offset by lower:

  • Payables ($33.9 million) – largely due to the budget including a large amount for unpaid capital works invoices which was reduced in 2014 15;
  • Finance Leases ($6.9 million) – this relates to motor vehicle finance leases and on 23 April 2015 there was a change in contract at the Whole of Government level to move these to operating leases leaving a nil actual figure; and
  • Other Liabilities ($2.3 million) – largely due to the budget including a large amount for revenue received in advance which was based on actual figures from 2012 13.

Comparison to 2013-14 Actual

Total liabilities of $300.1 million are $27.3 million higher than the actual results as at 30 June 2014 of $272.8 million. This is due to increases in: 

  • Employee Benefits ($22.0 million) - largely due to the impact of pay rises on leave provisions, accrued pay rise amounts for medical officers, increases in the rates used to estimate the present value of long service leave from 103.5% to 104.2% and annual leave from 100.9% to 101.0%.
  • Payables ($11.6 million) - the increase includes capital works accruals ($7.0 million), visiting medical officer accruals ($2.0 million) and pharmaceutical accruals ($2.0 million); and

The above increases were partially offset by a decrease in:

  • Finance Leases ($6.2 million) - this relates to motor vehicle finance leases and on 23 April 2015 there was a change in contract lease type from finance to operating leases.
Attachment A - Comparison of net cost of services to budget 2014-15

 

Description

 

Original
Budget
$'000

 

Plus AAO
Transfers
$'000

 

Total
Funding
$'000

 

Less
Actual
$'000

Variance to be Explained

$'000

%

Expenses

Employee Expense and Superannuation

715,062

(382)

714,680

724,154

9,474

1.3%

Supplies and Services

319,790

-

319,790

323,871

4,081

1.3%

Depreciation and Amortisation

38,395

-

38,395

46,586

8,191

21.3%

Purchased Services

92,810

-

92,810

78,343

(14,467)

-15.6%

Other Expenses

11,758

-

11,758

13,084

1,326

11.3%

Cost of Goods Sold

10,934

-

10,934

9,295

(1,639)

-15.0%

Total Expenses

1,188,749

(382)

1,188,367

1,195,333

6,966

0.6%

 

Own Source Revenue

User Charges

863,162

-

863,162

866,105

2,943

0.3%

Interest

278

-

278

70

(208)

-74.8%

Resources Received Free of Charge

792

-

792

1,470

678

85.6%

Gains

1,574

-

1,574

7,080

5,506

349.8%

Other Revenue

16,722

-

16,722

19,857

3,135

18.7%

Grants from the Commonwealth

4,245

-

4,245

3,503

(742)

-17.5%

Total Own Source Revenue

886,773

-

886,773

898,085

11,312

1.3%

 

Total Net Cost of Services

301,976

(382)

301,594

297,248

(4,346)

-1.4%

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 16.0 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 - below indicates that 16.0 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).

Figure 6 - Sources of Territorial Revenue 

Total Territorial income for the year ending 30 June 2015 was $8.0 million, which is $0.9 million lower than the budget figure of $8.9 million due to reprofiling of capital works into 2015-16 for the completion of building refurbishment for clinical services and the electrical substation and savings returned from a prior year capital upgrade.

Total Territorial income for 2014-15 of $8.0 million is $2.2 million higher than the 2013-14 income of $5.8 million. The main contributor to this increase is:

  • Payment for Expenses on Behalf of the Territory ($2.1 million) – this is due to capital works paid to Calvary Public Hospital.

Total Expenses

Figure 7 below indicates that 84.1 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 15.9 per cent being the transfer, to Government, of regulatory licence fees.

graph - below indicates that 84.1 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 15.9 per cent being the transfer, to Government, of regulatory licence fees.

Figure 7 - Sources of Territorial Expenses

Total expenses were $8.0 million, which was $0.9 million lower than the budget of $8.9 million due to lower regulatory licence fees received.

Total expenses were $2.2 million higher than the 2013-14 total of $5.7 million. This is due to capital works paid to Calvary Public Hospital.