Health Minister Tony Ryall has approved the Otago District Health Board's district annual plan, including a $7 million deficit, but he is concerned the board has " no clear pathway" to break even in future years.
He has given the board until the end of this month to come up with a financial recovery plan showing how it will break even by 2011-12.
Mr Ryall's approval of the plan does not help address the board's longstanding issues over capital expenditure.
It is still awaiting approval from the National Capital Committee of its plan to improve substandard hospital facilities, including the intensive care unit, the neonatal intensive care unit, the paediatric ward and the acute mental health ward.
In this year's plan, the board says it has had to invest further funds into deferred maintenance, which has contributed to the deficit.
In their plan summary, chief executive Brian Rousseau and chairman Errol Millar indicated "financial efficiencies" should serve to reduce spending by $6.3 million this year, $2.4 million next year and a further $1 million in 2011-12.
They pointed out that under population-based funding the board was still overfunded by about $13.1 million annually and that about $7.9 million of that was money "ring-fenced" for mental health.
Areas for possible savings were community care for the elderly, community medicine and rural hospitals.
The plan stated the board was paying about $6.4 million above national pricing levels to maintain rural hospitals and was looking at other ways of providing the service which would be clinically and financially sustainable.
The board estimated it spent $9 million a year more than the national average on the elderly and $7 million too much on community medicine.
It has already begun scaling back its spending on the elderly, particularly in the area of home-based support.
Over three years it hopes to reduce spending by $5.7 million.
It has been wanting to change the way community medicines are paid for in the hope incentives would reduce waste. The estimated possible saving is $1 million over three years.
Uncontrolled demand for medicines posed a serious financial risk to the board, the plan stated.
The board has indicated it would prefer the community pharmaceuticals budget to be managed by primary health organisations (PHOs).
This is on hold while the configuration of PHOs is settled.
The plan to make patients pay for private specialist-referred laboratory testing, with estimated savings of $800,000, is also on hold awaiting the outcome of a review by the Health Minister.
From next year, the board also wants recognition for the $1 million of elective surgery it performs each year above the rate set by the Ministry of Health.
In planning the $7 million deficit for this year, the board is assuming salary settlements will not be higher than expected and that the activities of neighbouring boards will not affect it negatively.
In his letter Mr Ryall acknowledged the board's revised position, following his rejection of an earlier version of the plan, which projected a $9.7 million deficit.
Mr Ryall referred to ongoing issues the board has had over its mental health spending, something which was the subject of a critical review earlier this year, in which the board was found to be overpricing its own services and severely limiting funding for outside community services.
The figures
2009-10 2008-09
Revenue $532m $515m
Personnel costs $199m $188m
Expected deficit $7m $9.6m
