Funding and pricing

279. New Zealand’s health and disability system is predominantly funded from general taxation. The Vote Health allocation for 2009/10 is $12.6 billion (with similar levels in out-years).

280. Most of this funding is managed by DHBs, but 22 per cent is non-departmental expenditure (NDE) service funding managed by the Ministry.[77] There are also small allocations (of less than 2 per cent each) for the Ministry's operating expenses and for capital expenditure. New capital spending from Vote Health has to be approved by the government.

281. The following diagram provides an overview of the funding flows in the New Zealand health and disability system.

New Zealand health and disability system funding flows

Source: The New Zealand Health and Disability System: Organisations and Responsibilities - Briefing to the Minister of Health, November 2008[78]

Planning

282. Many current assets reflect previous decision-making processes. Recent processes have worked to apply more consistent criteria to large capital spending proposals through the National Capital Committee process. Capital spending has been substantial in recent years, with extensive plans for more spending (for examples, see the project list at the end of this section). Although DHBs are in principle devolved, the Crown as owner is involved in large investment decisions.

283. District Health Boards’ capital spending intentions are compiled into a National Asset Management Plan. The current Capital Asset Management (CAM) planning for the Ministry and DHBs covers 10 years and is done on a DHB-by-DHB bottom-up (business as usual) basis. DHBs have some incentives to economise on capital plans, but these are not as strong as they could be (e.g., Capital and Coast DHB is making substantial operating deficits partly as a consequence of the new Wellington Hospital). DHBs receive their funding in bulk from the government, from ACC, and from other DHBs with prices set on the basis of costs. Overall DHB budgets have increased substantially in recent years.

284. The net result of history, projected service changes, and the limitations of current planning processes is that current asset plans have shortcomings. Important changes are underway to improve the quality of DHB CAM. The National Asset Management Leadership Group (NAMLG) is developing guidance and tools to help DHBs move towards more of an ‘evidence-based’ process to developing asset management plans. As well as technical quality, a wider range of considerations has to be brought to bear in DHB CAM. More extensive change will involve integrating service planning with capital planning, looking further into the future, adopting a regional perspective, and introducing a top-down perspective.