1. The primary purpose of this paper is to inform Ministers' decisions on the matters to be covered in the New Zealand Public Health Services Bill with respect to the accountability arrangements for District Health Boards (DHBs).

2. Cabinet has specifically sought advice on the accountability and reporting requirements for DHBs, including performance expectations, incentives and sanctions relating to: service provision, financial accountability, benchmarking and hospital performance [CAB (00) M2/4 refers]. The proposed DHB accountability framework addresses each of these key elements of DHB performance.

3. This paper also responds to report backs sought by Ministers in the Roles [CAB (00) M 11/1A refers] Governance [CAB (00) M 11/1A(3) refers] and Mäori Partnership [CAB (00) M 11/1A(4) refers] papers.

4. Ministers' approval is attached.

EXECUTIVE SUMMARY

Overview
5. Cabinet has agreed that DHBs "will be accountable to the Minister of Health" and that they will "consult and exhibit a sense of social responsibility by having regard to the interest of the community they serve". Furthermore, "current Health and Hospital Services, their assets, liabilities and services will be part of District Health Boards" [CAB (00) M2/4 refers].

6. The overall design of DHB organisational and governance arrangements is a complex task given DHBs' multiple roles (as funder, provider and owner) and the relationships that DHBs must maintain. These multiple roles offer the advantage of alignment and collaboration in the interests of local health gain, but will produce tensions that must be managed. There is particular concern that these arrangements may pose risks to ongoing Mäori provider development, with DHBs having dual roles as funder and provider of services. This could potentially limit progress in reducing health disparities.

7. Whilst effective accountability mechanisms may reduce the tensions that arise, they will not in themselves fully resolve these inherent tensions. It will be up to all involved in the sector to foster an environment of honesty, trust and goodwill, and to work collectively to resolve the complex and difficult issues that will inevitably arise. The new environment will provide the Minister of Health with a challenging role given the multiple relationships, complex roles, and tensions related to these.

8. The role assigned to DHBs confers three key functions:
   1. funding health and disability services through appropriate contractual mechanisms
   2. governance and management of the DHB, including management of the core budget and the delivery of outputs (including needs analysis, consultation, contracting and monitoring the delivery of contracts)
   3. governance and management of the DHB's hospital and associated health services with a focus on organisational health and sustainability.

9. It is fundamentally important that the accountability arrangements reflect these different dimensions of performance through funding and reporting streams. In addition DHBs will be required to clearly and separately account for Crown revenue and Crown capital made available to them with respect to these different dimensions of performance. Rationale for framework

10. The aim of the accountability arrangements will be to obtain the best DHB performance by creating an effective incentive structure, aligning the goals of the Board with those of the Government, and where appropriate controlling DHB activities.

11. The accountability arrangements for DHBs build on the most effective elements of the existing sector accountability arrangements. An evaluation of past experience shows that arrangements must avoid:
    1. too much specification of what the DHBs must do and how to do it
    2. multiple, potentially conflicting, sets of instructions released in an ad hoc manner
    3. any multiplicity of planning documents, agreements and performance reports.

12. The accountability arrangements need to be built around the DHB roles as funder, provider and owner. The critical accountability issues to manage are:
    1. DHBs achieving improvements in health and disability outcomes for their communities.
    2. potential tension between the community's preferences and Ministerial requirements
    3. the conflicting roles as funder of health services and direct provider of some health services
    4. balancing resources to ensure that the organisation is meeting its output requirements and is well managed, across all performance dimensions.