Call to abolish capital charges on DHBs

Capital charges on the country’s district health boards should be scrapped, says Lyndon Keene, Director of Policy and Research for the Association of Salaried Medical Specialists (ASMS).

“Capital charges are imposing significant extra costs on hospitals that are already cash-strapped and creating additional safety risks in the delivery of health services,” he says.

ASMS has published a Research Brief looking at the impact and future of capital charges on DHBs, available online at https://www.asms.org.nz/wp-content/uploads/2018/05/Research-Brief-Capital-Charge_169877.2.pdf.

The paper describes how every six months DHBs have to pay the Government a capital charge on the Crown’s capital investment received by DHBs. The charge, which is currently set at 6% per year, applies to any DHB operational surpluses as well as any capital funding provided by government. In 2017, this totalled $174.2 million.

“The charges are expected to come out of the DHBs’ existing baseline funding, which is already stretched,” says Mr Keene.

“What this means in reality is that at budget time, operational funding for DHBs will be significantly less in real terms that what has been allocated. This is really concerning and needs to be addressed.”

He says DHBs previously tried to reduce the impact of the capital charge by using a government loan to finance capital projects because this carries a lower interest rate, but this avenue of funding was closed off last year when the then Government told DHBs they could no longer access Crown debt financing for funding capital investment.

“This was a very short-sighted decision, especially for those DHBs which are already vulnerable and also facing major building costs,” says Mr Keene.

“DHBs have limited options for improving their income to asset ratio. The Government decides their income and we know that this has fallen significantly in value since 2009/10. As a result, we’re seeing DHBs focusing on short-term results rather than taking a longer-term, more strategic view. This is not in the best interests of patients.”
ENDS

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