Extra support for DHBs to help with the costs of building new facilities

Health Minister Dr David Clark has announced that District Health Boards will get financial help worth potentially tens-of-millions of dollars to cover one of the costs of major new building projects.

The Government has set aside a contingency in Budget 2019 to support DHBs with their capital charge costs as a result of building new facilities.

“The Wellbeing Budget included $1.7 billion for capital investment in our hospitals and other health facilities over the next two years. That will deliver much-needed new and upgraded facilities at DHBs across New Zealand,” David Clark says.

“As it stands, DHBs are required to pay back 6 percent of the cost of any Government capital investment in the form of a capital charge each year. This charge is intended to provide DHBs with the incentive to invest and manage capital assets wisely.

“DHBs fund capital charges from their existing budgets. This can have a significant effect on their operational funding for other services following a major investment. 

“I’m not convinced of the merits of this approach when it places considerable cost on DHBs with major new investments, such as Canterbury and Auckland DHBs.

“To address this, Treasury was asked to review the effectiveness of the capital system settings for DHBs. That work is ongoing. 

“In the interim, the Government has decided to directly fund DHBs for their capital charge costs for new facilities. For example, a DHB could receive up to $18 million annually to cover the capital charge related to a new $300 million hospital building.

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

“This also aligns DHBs with government departments which receive direct funding for capital charge costs when the Government makes new investments.

“The change will apply to DHBs which receive Government funding for capital investments from 1 January 2019. It does not apply to capital charges relating to earlier investments.

“A number of other initiatives are underway which will also improve the way DHBs manage their infrastructure assets. 

“In partnership with DHBs, the Ministry of Health is developing a National Asset Management Plan to map out the current state of health facilities. This will mean we can make more informed decisions, better prioritise upgrade work and plan for new facilities. 

“Budget 2019 also provides funding to lift the capacity and capability within the Ministry of Health, and to establish a new health infrastructure unit which will provide better support to DHBs.  

“Treasury’s review of the capital system settings will also support the Health and Disability System Review which aims to future proof health and disability services,” said Dr Clark. 

NOTE: The amount spent to cover capital charges will depend on the scale of new investment in hospital facilities. This will be funded from a contingency set aside in the Budget. 

DHB deficits will be a factor when calculating how much capital charge relief is provided. If, for example, a DHB has a $30 million dollar deficit, that will be subtracted from the value of the new capital asset as part of the calculation. So, in effect a new $300 million asset being transferred to the DHB would be treated as a $270 million asset, meaning the DHB would receive $16.2 million. This will further encourage sustainable financial management.