The Auditor-General's latest report into DHBs points to years of underinvestment combined with an ageing and increasingly impoverished population, senior doctors' union head Ian Powell says.

Photo: RNZ / DOM THOMAS

Controller and Auditor-General John Ryan wrote to DHB heads after his report identified several problems: poor and worsening finances with almost all boards in deficit, decaying hospital buildings and insufficient emergency readiness.

Office of the Auditor-General health sector manager Greg Goulding said DHBs appeared to be finding it more difficult to make ends meet, and that had intensified over the last few years.

However, the Office was not drawing conclusions about what had caused the financial problems, he said.

"We haven't made an in-depth analysis of what may be driving the deficits so really what we're doing here is identifying the trend, which in itself presents its own risks."

Ian Powell - the head of senior doctors union the Association of Salaried Medical Specialists, who is resigning at the end of the year - was less circumspect.

He told Morning Report the DHBs faced two main problems.

"It's, really, two-pronged: we've had until the last couple of years significant underinvestment in our public hospitals and the rest of the public health service, and that's had an accumulative effect with stresses and strains.

"We've also had what's called a 'significant increase in acute patient demands', now, that is patients that need to be treated not as emergencies but urgently.

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"Essentially there are more, sicker patients coming through our hospital doors with more complex conditions that is greater than the rate of population growth and greater than the rate of funding increases."

He said that was a result of a combination of factors.

"I don't think we invest enough in that preventative work but I think it's also the case too ... there is increased poverty in the community - we know that and the government recognises that - but we also have an ageing population. People are living longer and that's starting to impact as well."

Problems and solutions: Capital charge and Holidays Act payments

The question is how DHBs - and, by extension, the government - can respond to these increased pressures. The Auditor-General's report did identify some specific problems that could be targeted.

Capital charges - interest payments to the government on capital investments like hospitals - were not funded, meaning DHBs paid the Crown nearly $325m in 2017/18. Mr Ryan wrote that he could see no good reason for it.

Staff were also still owed money from incorrect calculations under the Holidays Act.

Mr Goulding said it was not the Office's position to say whether or not capital charges should be dropped, but they had observed it seemed to create additional pressure on DHBs when considering building.

He also said the Holidays Act problem should be sorted out as a matter of priority.

"I mean, we've been reporting on this [Holiday Act] in our audit reports for the last three years in a row.

"It's complex and it's challenging to work it out, so I think it would be wrong to suggest that the DHBs are in any way deliberately not meeting their obligations around this ... but we do think it's something they need to deal to."

Dr Powell agreed with those sentiments.

"The kindest thing that you can say about the capital charge is that it does no good and that it is an increased transaction cost in the system," he said. "It is a money-go-round, but it is also money that could actually be better spent on our hospital services.

"The Holidays Act thing, that could be a big cost to the system the longer they leave it."

He also said the report was useful in highlighting some of the "weaknesses in the capability of some of our hospital managements".

"Particularly they're under pressure to focus on the short term and less on how to improve their own capability ... our IT system should be a lot better than what it is, we shouldn't be struggling with password security."

Health Minister David Clark has signalled the government has already been considering making changes to capital charges.

He also acknowledged the funding pressures DHBs were facing and the capital management difficulties.

"There is an older population with more complex needs, and so we do put more money in each year - we've put $2.8 billion in this year's Budget which is a record amount and you can see as a percentage increase it's a step up from last year and certainly a step up from what the previous government was doing.

"Staff have been stretched and strained for a very long time, and we need to build up the workforces: you can't train a senior nurse overnight; you can't train a surgeon overnight either."

Photo: RNZ / Dom Thomas

However, Mr Clark said the DHBs' financial deficits had been on the rise since 2013, so it was not a new problem, but financial discipline was even more important now with the government increasing investments into operating costs and capital.

"I sent them a letter in December being really clear about my expectations and saying we would act if we weren't happy with financial performance," he said.

"You have seen us already step in: in Counties Manukau I've put in a crown monitor, in the Waikato I've put in a crown monitor and subsequently have appointed a commissioner, and in Canterbury recently I've appointed a crown monitor.

"A monitor is there to give the government a clear picture and make sure that clinical services continue to be delivered but also that the finances are under control and on target to return to a sustainable position."

He said he was looking forward to the Health and Disability review report being led by Heather Simpson.

"They report back to me - first, in August this year, and then with a final report in March next year.

"I think everybody accepts no matter what their political stripe that we do need some change in our health system to make it sustainable in the longer term."