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The Office of the Auditor General’s investigation into the financial management of the regional health authorities and health trusts

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Summary

Background and goals of the investigation

For many years, the Norwegian parliament, the Storting, has emphasised that the regional health authorities must utilise their resources efficiently and exercise good cost control. During the period from 2002 to 2008, the regional health authorities had an accumulated deficit of around NOK 10 billion compared with the performance requirements.

The enduring deficit reduces the health authorities’ financial freedom of action. The deficit means that a larger proportion of the income must be spent on operating expenses, thus reducing the regional health authorities' ability to carry out planned investments in buildings and medical equipment. Management and control of the use of resources is crucial if the health trusts are to succeed in prioritising correctly and ensuring patient treatment of high quality.

The purpose of the investigation was to shed light on financial management in health trusts in order to help improve national cost control in the specialist health service.

Method

The investigation is based on data from written documentation of relevant procedures and guidelines, three questionnaire surveys aimed at chief executives, directors of finance and a sample of lower-level managers in the health trusts, as well as a case survey comprising interviews in four health trusts. In addition, a document analysis has been carried out of the management dialogue between the Ministry and the regional health authorities.

Results

The regional health authorities vary in terms of how far they have succeeded in meeting the owner’s financial management requirements during the period 2002 to 2008. The Central Norway Regional Health Authority was the only regional health authority to meet the owner’s financial management requirements in 2007 and 2008. More regional health authorities met the owner's financial management requirement in 2008. Inadequate implementation of restructuring measures is an important reason for the failure to meet the financial management requirement.

The investigation contains examples of health trusts that have established processes that have helped to achieve a high degree of implementation of restructuring measures. Continuity and a long-term focus on the management’s part are a prerequisite for success in restructuring processes and the establishment of good financial management. The fact that more than half the health trusts replaced their chief executives during the period 2006-2008 must be a challenge in relation to cost control in the specialist health service. Fifteen of 19 health trusts included in the investigation replaced their directors of finance during the same period.

The investigation shows that many health trusts start the budget process too late to be able to identify, plan and implement restructuring measures so that they have effect from the beginning of the budget year. It is a distinguishing feature of health trusts that succeed in achieving adequate financial effect of their restructuring measures that their budget process starts earlier than in other health trusts and that employees are involved in the choice of restructuring measures. It is a clear trend in the investigation that ensuring support for restructuring measures in the clinical entities helps improve financial goal achievement.

There is a clear tendency for managers who are strongly involved in the budget process to have a better understanding of the management requirements and to see the budget process as ensuring a good allocation of resources between the entities in the health trust. This helps to give the managers a greater sense of ownership of their own and the health trust's budgets, and also ensures that the budget is actually used as a guideline in day-to-day management. Many health trusts can reduce the risk of failure to meet financial management requirements by establishing more uniform and standardised budgeting and follow-up processes, thus achieving overall internal control. This will ensure that more lower-level managers become more involved in the budget process.

A patient will often be treated by several clinical entities during a hospital stay. Close collaboration is necessary, therefore, between clinical entities in the planning and budgeting process, both in order to eliminate bottlenecks in patient treatment and to adjust staffing plans to variations in treatment activity levels. The investigation shows that many managers do not have sufficient capacity to participate in processes intended to ensure improved cooperation across entities.

In the regional health authorities and health trusts’ experience, the annual letter of assignment from the Ministry contains too many and too detailed goals. In the Office of the Auditor General’s view, there is a risk that the highest priority management requirements are not sufficiently highlighted in the letter of assignment, and that they are therefore not given sufficient priority by the health trusts. The Ministry of Health and Care Services stated in its response that it will continue its work to improve letters of assignment and endeavour to give clearer priority to the management requirements.

During the period from 2002 to 2008, the owner has partly dealt with the health trusts’ deficit by allocating extra funds during the year. The investigation shows that the expectation of extra allocations from the owner reduces the internal budgets’ function in relation to cost control, since staff and lower-level managers do not see the financial limits as being final. The result is that the budget process is not taken sufficiently seriously, and necessary restructuring measures are not implemented or given priority in the clinical entities.

Ministry/ministries:

Riksrevisjonen, Storgata 16, P.O. Box 8130 Dep, 0032 Oslo, Norway

Phone: +47 22 24 10 00

Org.nr: 974 760 843