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Following is a question by the Hon Law Chi-kwong and a written reply by the Secretary for Health and Welfare, Dr E K Yeoh, in the Legislative Council today (March 6):

Question:

It is reported that the Hospital Authority (HA) has projected a deficit of $220 million in the current financial year, which would have to be made up by HA fiscal reserves. In this connection, will the Government inform this Council whether it knows:

(a) the increase in annual funding received by each hospital under HA over the past three years, with particular reference to the funding received for the increase in new beds, facilities and services; and the deficit in expenditure in each of the past three years and the amount made up by HA fiscal reserves for such deficits;

(b) the estimated expenditure of HA and the five HA hospitals with the most serious deficits by the end of the current financial year; and among such expenditure, the items with substantial discrepancies between the actual expenditure and the approved estimates and the items not listed in the approved estimates, and the amount involved in such items;

(c) given that at present public expenditure by Government departments involving 10 million dollars or more are subject to the approval of the Legislative Council for amendment to the approved estimates of expenditure or new proposals, the monitoring mechanism adopted by HA and its hospitals to amend the approved estimates of expenditure or propose new items of expenditure, and the monitoring details;

(d) whether the Chief Executive of HA is empowered to allocate funding to respective hospitals to made up the deficit; if so, of the ceiling for such allocation;

(e) the terms of reference of the Finance Committee and the Hospital Governing Committee under HA in monitoring the fiscal management of HA and its hospitals; and

(f) which HA meetings are open to the public, and whether HA will consider opening to the public all meetings of HA and its committees at which HA's fiscal management and financial allocations are discussed?

Reply:

Madam President,

(a) The actual expenditures of the Hospital Authority (HA) and its hospitals in 1999/2000 and 2000/01, as well as their respective approved budgets and projected expenditures in 2001/02 are at Annex A.

The HA manages its budget from the perspective of the entire organization as a whole, instead of on individual hospital basis. This is because the respective budget of individual hospitals does not cover expenditures on certain activities of the hospital concerned which are provided by HA centrally. These activities include drug procurement, laundry services, legal services, information technology services, training of staff, etc. The HA Head Office also maintains a central pool of doctors, nurses and allied health staff for deployment to hospitals for provision of health care services on a need basis, and the pool is funded centrally.

HA did not experience any budget deficit in 1999/2000 and 2000/01. For 2001/02, HA estimates that there would be a deficit in the region of $227 million or 0.75 per cent of its total budget. HA will use its reserves to cover the projected budget deficit.

The emergence of budget deficit in 2001/02 is mainly due to the higher than expected increase in service demand for public hospital services in 2001/02 as illustrated below, the need to meet the annual salary increment built into the pay scales of HA staff, and the development and advances in medical technology. The latter has resulted in the introduction of new and expensive drugs for the treatment for conditions which hitherto are not amenable to medication, drugs which have been shown to be effective in the treatment of HIV-AIDS, as well as drugs that can enhance the effectiveness of treatment, such as anti-psychotic drugs and cancer drugs.

Hospital


Service    Original Estimated Current Estimated Increase


           Activities         Activities        Activities


           in 2001/02         in 2001/02           (%)






Number of General 


In-patients 


Discharged     887 500           892 400           0.6%




Number of General 


Day Patients 


Discharged     288 900           3303 40           5.0%




Attendance at 


Accident & 


Emergency 


Department    2 434 000          2 594 700          6.6%




Attendance at 


Specialist 


Out-patient 


Clinics       8 140 200          8 332 800          2.4%

(b) The estimated expenditure of HA and the five hospitals with the most serious deficit in 2001/02 is at Annex B.

At present, the budgets for individual hospitals are determined using the historical resources allocation method, i.e. based on the operations and scope of services of the hospital concerned in the past year. Under the historical resources allocation approach, the budgets for some of the hospitals may not match with their expenditure requirements to cope with population growth or increase in service demand. As such, the budgets for such hospitals may not be sufficient to meet their expenditure requirements. As an interim measure and pending the finalisation of a long term resources allocation model by HA, hospital expenditure may be allowed to exceed the historical budget allocation if the Chief Executive of HA (CE/HA) is satisfied that the hospital management has taken appropriate measures to control its expenditure and that the budget deficit is justified on the grounds of real service needs, and taking into consideration the total requirements within the cluster which the hospital belongs.

The budget deficit of HA and the five hospitals with the most serious deficits in 2001/02 is mainly due to the increase in expenditures of two major items, namely personal emoluments (which accounts for about 80 per cent of HA's total expenditure) and drug costs (about 8 per cent of HA's total expenditure). The increase in personal emoluments is mainly caused by the additional cost to meet the annual salary increment built into the pay scales of HA staff. In addition, the low staff turnover rate in public hospitals also results in a higher staff cost. The increase in drug costs is mainly due to the use of new and expensive drugs as explained in part (a) above, as well as increase in service demand.

(c) Following the formulation of the Annual Plans of HA and individual hospitals, the hospital budgets are developed taking into account the addition and changes in the provision of hospital services. Budgets for individual hospitals may have to be revised in the context of a comprehensive Annual Planning exercise when the CE/HA will agree with each hospital its annual budget as well as expected service delivery and performance targets. Individual hospital budgets are endorsed by their respective Hospital Governing Committees (HGC). The expenditure and targets of individual hospitals will be closely monitored by the CE/HA and the HGCs.

HA's budget, which is the aggregate of all estimated expenditures of all HA hospitals, will then be submitted to the HA Finance Committee (FC) and the HA Board for approval. CE/HA has to manage the approved budget of HA and contain actual expenditure within the approved planned budget estimate. Individual hospitals will need to report any major deviations from their financial projections to the HGCs and HA Head Office.

During the course of a financial year, there may be budget movements and transfers between hospitals pursuant to the implementation of the Annual Plan targets related to rationalization of services. CE/HA has the discretion to approve these budget movements so long as they are in line with the Annual Plan and provided that the variation is within the limit of the approved planned budget estimate. Where the variation would result in the total budgeted expenditures exceeding the approved planned budget estimate of HA, the approval of FC and the HA Board has to be obtained.

For the monitoring purpose, a monthly financial report on the overall expenditure position of HA against the approved planned budget estimate is submitted to the FC and the HA Board.

(d) The CE/HA has the authority to re-distribute resources among hospitals within the limit of the approved planned budget estimate. He will need to seek the approval of FC and HA Board if the total budgeted expenditures exceed the approved planned budget estimate.

(e) The terms of reference of the FC insofar as the monitoring of the fiscal management of HA and its hospitals is concerned are as follows:

i) to advise and make recommendations on the financial aspects of the HA Corporate Plan and Annual Plan;

ii) to advise and make recommendations on the financial planning, control, performance, monitoring and reporting aspects of HA;

iii) to advise on policy guidelines for all financial matters, including investment, business and insurance;

iv) to advise and make recommendations on the resource allocation policies; and

v) to monitor the financial position of the HA.

As for the monitoring role of the HGCs, the HA Ordinance bestows upon HGCs the responsibility to oversee the management of hospitals with a view to optimising the utilization of hospital resources to ensure that public hospitals provide hospital services of the highest possible standard within the resources obtainable.

(f) Since 1998, the HA Board meeting has been opened to the public to enhance the transparency and public accountability of the HA's work. Issues such as HA's Annual Plan, planning for new hospitals and facilities, development of medical services and community development programs, will be discussed at the HA Board meetings. In addition, papers prepared for discussion at the HA Board and its functional committees, including the FC, as well as minutes of meetings are available in the HA's web site for public information. However, papers and discussions on sensitive issues, such as HA's proposed budget estimate, have to be kept confidential. That said, for budget estimates, HA publishes the finalized budget for each hospital in its Annual Plan.

End/Wednesday, March 6, 2002

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