Leaked data reveals Victorian hospitals strapped for cash

Victorian hospitals’ dire financial situation has been exposed by new internal data showing the network is forecast to need a major funding injection of up to three weeks’ worth of operational costs.

More than half of the state’s health services are running low on cash, prompting fears of a financial squeeze and lay-offs within the sector.

Data shows that for the financial year to January, 41 of Victoria’s 75 health services didn’t have 14-day cash supplies to cover operating costs.Credit: Gabriele Charotte

The data – obtained by The Age – shows that for the financial year to January, 41 of the state’s 75 health services did not have 14-day cash supplies to cover operating expenses, which is the benchmark used for Victorian hospitals. The numbers include hospitals and health services that are reporting significant shortfalls between their allotted budget and what has been spent so far this year.

Such cashflow shortages can force health services to pull funding from other areas to ensure they can still provide essential support. This can include not filling vacant positions – particularly non-clinical ones – as well as cutting spending on preventative health and stripping funding from training.

Among the areas of most concern is the western metropolitan region, where hospitals are estimated to have a deficit of 32.6 days’ worth of available cash to cover operational expenses. Melbourne’s north-east region was short 29.4 days and the Grampians 26.8 days.

One chart seen by this masthead shows a projection for the rest of the financial year predicting – pending any additional cash injections – that hospital balance sheets would fall into the red from this month, running the risk that they will run out of cash.

The chart forecasts that by June there will be an overall cash deficit equivalent to 24 days of operational costs.

The Allan government – already facing a tight budget – maintains that it is normal for hospitals to operate under deficit throughout the financial year, and says additional payments to cover extra costs will be reconciled at the end of the financial year.

But the leaked data shows that over a three-year period, the number of days worth of cash kept in hospital coffers has steadily declined.

A Treasury source, speaking to The Age on the condition of anonymity to discuss budgetary strategies, said while the state government would likely top up cash-strapped health services, the downward trajectory highlighted the financial strain the state’s health system was under.

Cashflow shortages can force hospitals to pull funding from areas to ensure they can still provide essential support.Credit: Chris Hopkins

“Running budgets like this doesn’t give health services the security to do any forward planning,” the source said.

Victorian Healthcare Association chief executive Leigh Clarke said it was unclear how the government would address the issue of cash flow affecting hospitals across the state, despite the end of the financial year approaching.

“Usually at this point the Victorian government would be considering the potential impacts of service delivery if Victorian health services remain in the red, and providing a top-up to assist them to maintain a healthy balance sheet,” she said.

“But instead we’re getting close to the Victorian state budget and the pathway forward for our health services to run a sustainable budget is looking increasingly uncertain.”

Treasurer Tim Pallas and Premier Jacinta Allan are preparing for a tough state budget.Credit: Gus McCubbing

Clarke said escalating costs had already hampered the ability of hospitals to deliver services sustainably.

“We know that some services have already made decisions not to backfill essential non-clinical staff,” she said.

State opposition finance spokeswoman Jess Wilson.Credit: Eamon Gallagher

“The recent request of Victoria’s health services to find savings across non-clinical staff will have significant flow-on effects.”

At the end of 2023, public hospitals were asked to find additional cost savings for non-clinical areas – such as payroll or external public relations – before the state budget.

Clarke said small rural health services had also been contacted with the same request despite running an “incredibly lean operation”.

“While all affected services will struggle to absorb these costs, we’re worried that the government is taking a blanket approach without considering the scale of smaller services,” she said.

“We urge the Department of Health and the Victorian government to put more meaningful funding reform on the table to ensure health services are not continuing to grapple with this structural deficit in their budgets year-on-year.”

A government spokesperson blamed the “unprecedented pressure on operating costs and workforce” on the COVID-19 pandemic.

“Victorians rightly expect us to prioritise the frontline health services they need and that is what we have done – streamlining back of house functions will not impact our frontline health workers,” the spokesperson said.

“After a decade of inaction by the former federal Coalition governments, our country’s broken primary care system is also placing significant pressure on hospitals as a result of deferred care. Patients are arriving sicker and staying in hospital longer, and this is having a flow-on effect to hospital operating costs.”

But state opposition finance spokeswoman Jess Wilson said hospital bank accounts were running dry because of Labor’s mismanagement.

Dr Jill Tomlinson from the Australian Medical Association.Credit: Penny Stephens

“The liquidity crisis facing public hospitals across the state demonstrates just how dire Victoria’s finances are under the Allan Labor government,” Wilson said.

“The Allan Labor government must explain why hospitals are facing such significant cash shortfalls and guarantee frontline services will not suffer as a consequence.”

Dr Jill Tomlinson, the Victoria president of the Australian Medical Association, said although the state did not have a lot of cash, healthcare remained a vital industry.

“It is important that our health services have the cash that they need to keep functioning,” she said.