Take Your Hands Off My Stash
And with the the words of Pink Floyd’s Money echoing in our ears, we comment on the the Herald’s somewhat exaggerated headline GP clinics stash reserves of $115m. While the total is correct, the word stashed has the same pejorative meaning as Pink Floyd’s version – a pile of money that someone is hoarding. This is complete nonsense. None of this money is being hoarded at all.
I have just come from the AGM of our PHO (hence the late blogging!), so I have the financial figures right in front of me. I can tell you that the cash reserves of the PHO almost exactly equal the money paid for services in advance by the DHB. Most of this is for services which have been tendered late, and have therefore not yet been completed. Some is for services that have simply not yet been accessed. Patients do not neatly access services in measured amounts month by month. What happens in real life is that they access the services in spurts. So, at the close of the financial year, some areas will not have used their full quota and this money will still be in the PHO account.
Then there is the matter of investments:
“But it did not explain a significant rise in investments – up from $41m last year to more than $60m. Those figures suggested that PHOs were building up healthy reserves with money supposed to be used for health promotion programmes, he said.”
I can tell you that the vast majority of these investments, at least for the PHO I am involved with, are term deposits. These term deposits almost exactly equal our current liabilities. So what is happening, is that the PHOs are placing a reserve approximately equal to the current liabilities in a term deposit. This is not hoarding, this is prudent money management. It allows the inefficient DHB approval process to delay the commencement of new service contracts without cessation of the service. Otherwise what would happen is that, when the contract came to an end, the service would cease until the DHB got its act together. As this may take many months, the result would be completely disastrous.
DHBs of course, have a similar problem. Their solution is to go into deficit (other things beside contract gaps cause this deficit, of course). This is not a solution available to PHOs.
Note that this is absolutely NOTHING to do with “management fees” which are merely the monies paid to cover the running costs of PHO. The threat to do away with management fees is empty because the only place that that money can otherwise come from is from services to patients. It would have precisely the opposite effect to the intended one.
A moments logical reflection would have told everyone that it is extremely unlikely that the PHOs would be withholding money. After all, the people they would be withholding it from (mostly doctor’s practices) are the shareholders of the company. PHOs are not for profit ventures and do not pay dividends. Therefore the doctors would have to be a special sort of stupid to allow the PHO boards to withhold funds.
Tony Ryall needs to take a step back from this and stop making half-baked statements to the media (who always love a good “doctors are bad” story). The PHOs currently appear to be working better than most parts of the health system. They are, at least, not in debt. Yet they are castigated for prudent financial management. This is simply stupid. The last thing the health system needs right now is to damage the only part of the system that is functioning as it should be by withdrawing funding or insisting on imprudent financial management.
Mr English might think that running a country on deficit funding is ok, but I am hoping Tony Ryall does not wish to run the health services in the same manner.
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Nov 17 09 10:18 am
Ummm, so let’s get this straight. You have deposits virtually equal to your projected liabilities. That’s nice. I’ll bet many businesses would love to be in that situation, knowing that for the foreseeable future their debtors and costs are fully covered. Plus earning interest on money that hasn’t been “used” yet. This would be lower in the current climate but when interest rates are up toward double-digits again, what a lovely little earner that would be. Is that interest factored into the original amount funded? If not, why are taxpayers debt funding this amount for you to earn interest on? Sounds like an entirely crappy mechanism to this taxpayer.
Notwithstanding this, you have valid points about the contract rollover issues. Better to fix those though.
And let’s not get too excited by the “not for profit” stuff. In the case of a PHO it simply means there is no profit to distribute, but this tells us nothing about what costs were incurred that led to no profit.
As a taxpayer funding this entirely (I hope I’m correct here), I take it you aren’t too keen on letting me see the financial side of my investment in your business by making your accounts public?
I’m trying hard not to have a go at the PHO’s but none of this makes particularly good economic sense to me. Though it may be better than what weas there prior to the PHO experiment, so much is still hidden it’s hard to tell.
No doubt I’m missing something vital?
Nov 17 09 6:40 pm
Hi -
this isn’t related to this post but I see nowhere else to raise a suggestion.
I heard on the radio today that this year has set a record for the total number of deaths.
Now I am not accusing you of any complicity or fault in this. What I would like to suggest is that you run your ability to analyse such matters and then report them in a clear and understandable format. I would be interested to see if the increase was in line with the total population or are we seeing the babyboomers starting to ‘pop their cogs’.
Nov 17 09 8:50 pm
Dazza: You have deposits virtually equal to your projected liabilities.
No. We have deposits equal to our CURRENT liabilities. It means that (unlike the DHBs) we are solvent. And, yes, there are a number of companies who would like to be in that position…
Is that interest factored into the original amount funded?
No. Obviously not. That money is mostly re-channeled back into the community, usually in the form of improved services. Some may be used in administration (which is hardly a surprise).
why are taxpayers debt funding this amount for you to earn interest on?
Why are taxpayers debt funding anything?
And let’s not get too excited by the “not for profit” stuff. In the case of a PHO it simply means there is no profit to distribute, but this tells us nothing about what costs were incurred that led to no profit.
Firstly, not for profit means that all the money going into PHOs (apart from the $30 million admin funding) goes to fund primary health services. I don’t see any indication that the PHO is costing a lot to run. True, operating expenses were three times the amount the Ryall give for this purpose, but it was still about 9% of total revenue, despite this year being very expensive administratively, because of the changes envisaged in PHOs. Last year, the operating expenses were less than 7% of total.
I take it you aren’t too keen on letting me see the financial side of my investment in your business by making your accounts public?
Seeing as these are public companies, you can view the accounts any time you want in exactly the same manner you would for any other company. The annual report is usually on the website of each PHO within a week or two of being released at the AGM. I try not to drag my colleagues into my blogging debates, which is the only reason I don’t link you directly to the PHO accounts.
No doubt I’m missing something vital?
All the PHO does is add an additional layer of bureaucracy to the equation. However, it does remove the GPs from direct contact with the DHB, which, given the extremely poor relationships GPs have had historically with DHBs and CHEs, is probably a good thing.
Nov 17 09 8:54 pm
Chris: I heard on the radio today that this year has set a record for the total number of deaths.
Now I am not accusing you of any complicity or fault in this.
Thanks. I think.
I’ll look into the stats when I get a chance.