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Board members made the unanimous decision at a public-excluded meeting last Friday, chairman Joe Butterfield said.
The move affects 40 full- and part-time staff.
The programme, for women aged 45-69, caters for about 16,500 Otago and Southland women.
A tender process to find a new provider would begin in the next fortnight, National Health Board national services purchasing director Jill Lane said.
''Services will be transitioned to a new provider later next year and eligible women in Otago and Southland will continue to have access to free breast-screening services that are safe and reliable.''
Without the National Screening Unit contract, some submitters to the consultation process feared diagnostic breast-care would be under threat, because the two services shared resources.
In the decision document, the board acknowledged concerns the diagnostic service was vulnerable without the screening programme.
''In partnership with the DHB's current breast care staff, we will explore how best to continue to provide diagnostic mammography services to ensure there is a sustainable and safe local service.''
All six submissions on the proposal argued the board should keep the service. However, radiologists were working excessive hours, and efforts to recruit more of them were unsuccessful.
''On balance, the key issue around the inability to recruit sufficient breast radiologists appears to be insurmountable. Often reading of mammograms is being carried out in 'out-of-hours' time, after radiologists had already worked many hours.''
Public Service Association southern region organiser Julie Morton said staff were unsure why they were consulted when their unanimous view to keep the service was rejected.
They felt devastated by the decision, and did not know what the future held for them, she said.
Health board patient services director Lexie O'Shea said the board had listened to the submitters, and the final decision document addressed their concerns.
Screening mammography would need to be provided in the South by the new provider; the successful tenderer was likely to be providing screening elsewhere, which meant it would have greater resources, she said.
It was too soon to say what additional support may be needed to ensure the diagnostic service was sustainable.