Boards who meet targets set by the Ministry of Health are able to be funded in advance, allowing them to earn interest on that money.
Regional chief financial officer Robert Mackway-Jones said that the amount of money earned as a result of advance funding would be about $1.4 million over a year.
Dr Macpherson told this week's board meeting it was the stupidest thing he had encountered "by a mile".
Speaking after the meeting, he said it was a perverse system with no rational basis which punished boards when they ran deficits caused by factors outside their control, such as national wage settlements.
By taking away the advance funding for such boards, the situation was made worse, depriving them of money they could spend on health services.
"It's a bizarre penalty."
If boards were in deficit because they were not managing properly - and Otago was certainly not in that position - it would make sense to bring someone in to help them get out of deficit, not make their deficit worse.
The board was told that its district annual plan has still not been approved by the Ministry of Health.
The board faces a $7.3 million deficit this financial year and there are concerns about its long-term position as the gap between costs and funding is expected to increase over the next three years.
Discussions with the director-general of health Stephen McKernan recently did not resolve the situation but board chairman Richard Thomson said discussions were continuing and "as long as we're talking, we're not having to slash and burn".
It was possible that the board might still get funding for hospital services early if agreement could be reached about the plan.
The delay in getting the plan approved was not affecting any of the board's capital works for this calendar year, but it could become an issue for next year's plans.
One of the long-term funding concerns for the board is the capital charges it faces for its multimillion-dollar master site project which will progressively upgrade substandard facilities at Dunedin and Wakari hospitalsTwo months into this financial year the board, which had budgeted for a $1 million loss, already had a deficit of $1.8 million.
Mr Mackway-Jones said personnel costs were $449,000 over budget for August and he warned the board there was potential for new wage rates to add to that, as new wage agreements could be above budget assumptions.
September's results are also expected to include the costs related to the recent norovirus outbreak at Dunedin Hospital.
