If Otago had received the average 5.5% funding increases given across the country, it would not be staring down the face of a $7.3 million deficit this financial year, he said.
Instead, the 3.2% funding increase it received was not enough to match wage increases for clinical staff, which had increased, on average, about 6%.
Under the population-based funding model, some district health boards, where populations had increased, had received increases as high as 8%, Mr Thomson said.
"They are getting extra money, which theoretically they will put into providing extra services for the people they are looking after.
However, if you are faced with increasing costs through increasing wages, you might fund those out of that extra money, rather than growing services."
The board was still in discussion with the Ministry of Health regarding its funding woes and there had been a "productive" telephone conference with Health Director-general Stephen McKernan on Thursday, he said.
"He has undertaken to come down with his key staff and spend some time with us."
That process should happen during the next three weeks.
If the board did have to start cutting costs, it would not be an easy process, Mr Thomson said.
"We have got to try and do every little thing better. We have got to accelerate what we are doing in terms of regional services with Otago and Southland.
"Our problem is any solutions which are going to generate significant sums of money are longer-term solutions."
The deficit could be solved by slashing services tomorrow, but such a solution would not be politically acceptable, he said.
"From the board's perspective, it gets harder and harder to see where we can save the next dollar."
New Zealand Nurses Organisation industrial adviser Glenda Alexander said she hoped the board would not take the easy option of cutting costs by cutting staff.
"Obviously, district health boards don't want to reduce the services they provide, so they will say 'can we do this with less people'?"
"For years, it has been seen as the quick fix."
The alliance between the Otago and Southland boards to provide regional health services was a good concept and she hoped the board would look at those sort of options before looking to save money on staff costs, she said.
National Party health spokesman Tony Ryall said National would be announcing its health funding policies in the next month.
