Extract from The Whimpering of the State: Policy After MMP, p.131-132.
Keywords Governance; Health
However, the CCMAU report underestimated the size of the financial problem, as became clear when the CHE accounts for the year to June 1997 were published. …
… By way of background, in the early 1990s almost all the old AHBs had unsatisfactory balance sheets, which would generate future cash flow difficulties. It is not a major issue: given a choice between a cash deficit and a medical emergency, the priority has to be the patient. But it is better for an institution not to be financially stressed, so it can concentrate on its real task of health care. The reforms of the 1990s were intended to address the imbalances by reconstructing the CHE balance sheets. But they were not put on a sound basis. Four years after the reforms 20 of the 23 CHEs made a loss totalling $228m in the 1996/7 year, with little prospect of the loss substantially reducing in the immediate future. At the same time 20 of the 23 CHEs had a shortage of working capital amounting to over $412m.
In 1990 the Bank of New Zealand required a capital injection of $600m and resulted – so we were told – in the newly elected National Government having to abandon its election promises. The financial difficulties of public health providers are of a similar order of magnitude. There is a difference between the balance sheet of a bank and of a hospital system but, insofar as they are comparable, the aggregate imbalance in the CHE balance sheets is probably slightly larger. Basically this fiscal stress is covered by ‘letters of comfort’ from the shareholders (the government) to the CHEs, which provide guarantees to private lenders. In any case patient health is more important. But the one thing the reforms ought to have achieved was balanced balance sheets.
(The suspicious may ask: if the BNZ financial crisis led to the government abandoning its election promises in 1990, why did it not abandon them in 1996 because of the CHE crisis? The answer is, perhaps, that an incoming government can blame such events on its predecessors: an incumbent government cannot, and so rather than dealing with the matter dramatically, it hides the problem. Even so, the procedures set down in the Fiscal Responsibility Act (FRA), including the publishing before the election of exceptionally comprehensive financial accounts, failed to identify this crisis. So a Bank of New Zealand type crisis can still sneak up on an incoming new government.)