Boards set to tighten belts

Press, 25 July 1989, Page 16

Boards set to tighten belts

By

NEIL CLARKSON

Area Health Boards throughout the country are poised to tighten their financial belts after the Budget on Thursday. Area Health Baords expect spending cuts of between 6 and 10 per cent. Boards are likely to know their annual allocation within a fortnight of the Budget and most will then make the cuts and changes necessary to stay within it.

Some are waiting with an array of options to cut spending. The drop in their spending power will determine where the axe must fall.

Boards were warned what to expect in the March economic statement by the Minister of Finance, Mr Caygill. Mr Caygill said there would be no compensation for the 2.5 per cent increase in GST. No compensation would be given for wage increases or inflation. These, in real terms, amount to significant cuts in spending power for area health boards. They come after boards faced a 3 per cent drop in funding in the 1988-89 financial year.

These costs must be absorbed within a national budget likely to be little different from the $2,524 billion spent in the year ended March 31. Area Health Board spending will have to drop nearly $220 million — about 10 per cent — to stay within budget. Paying the extra GST will cost about $63 million, meeting backdated pay increases of about $45 million, and inflation of about $lOO million. The Government is cutting health spending by stealth, according to the former president of the Hospital Boards Association. Mr Tom Grigg.

Mr Grigg, who stood down in May after a four-year term, criticised the pace of change being forced on health boards by the Government. “I think they are quite unrealistic. They wonder why we slash and burn. It is the only way to stay within budget.” He argued that a more gradual reduction in funding would have allowed boards to make savings in a more orderly and constructive way. Most boards have individually calcu-

lated the spending cuts they are likely to face.

They have pushed for greater efficiency in streamlining administrative costs, some in the hope of avoiding cuts in services and closing institutions. Others appear to face no choice but close institutions and transfer services to existing hospitals. The Canterbury Area Health Baord, overspent more than $5.5 million in the 1988-89 financial year, is looking to cuts of $3O million to pull back its overspending and cope with the impending restraints.

A series of “mix and match” proposals put to the board amount to spending cuts of $4O million which could result in up to three city hospitals and eight country hospitals closing, withy the prospect of up to 600 job losses.

The thrust of the proposals is to reduce the hospital stay of patients, and relocate and amalgamate some services.

Spending cuts inevitably mean staff losses. One official at the annual meeting of the Hospital Boards Association in May predicted up to 7000 redundancies out of the 50,000 hospital staff. Boards typically spend 80 per cent of their budgets on paying staff. It is an area few boards have been able to ignore in trying to save money. Ironically, the West Coast Area Health Board, criticised-last year for its proposals to close Reefton Hospital, hope it can weather the cuts without closing institutions. The general manager, Mr Peter Kerridge, said, however, he cannot guarantee that all institutions will survive. “I hesitate to be definite but I would be disappointed if we cannot cope at

the end of the day. “We ar turning over every stone to see if there are potential savings in every area of the board’s activities.” The board, with a $36 million budget last financial year, expects a 7 to 8 per cent drop in real income. Inflation is likely to cost it $200,000, the GST increase about $850,000 and the last wage rise, backdated to February, about $1 million. Additional costs will be salary creep and any increase in the next wage round. “The problem we have is a small population. Board are funded on a population basis. We have been shedding money since it was introduced in 1983.

“Bigger boards are becoming obliged to do the things we had to do five years ago because they are on the right side of the ledger in terms of populationbased funding. That has been their good luck.”

Its present staff of 850 is 50 fewer than at April last year and a sinking lid policy is being pursued. The Southland Area Health Board’s budget expenditure for last financial year was about $62.5 million. It ended $700,000 overspent but in the next three months reversed the situation, finishing $215,000 underspent. “We expect a 6.7 per cent cut in funds,” said the acting general manager, Mr John Pannett. Two months ago the board released a discussion paper outlining possible options for spending cuts of up to 12 per cent.

During its May meeting the board said which insitutions it would close, or cut back, if it had to make a final decision at that time to save about 6.7 per cent.