Summary: Clear audit opinions were issued for the 87 public hospitals and their 19 controlled entities for the financial year ending 30 June 2015. These entities make up the Victorian public hospital sector.

The sector generated a net deficit from operations (which excludes capital revenue) of more than $700 million annually in each of the past five financial years. The sector's net deficit from operations was $775.0 million in 2014–15 ($741.5 million in 2013–14). This has contributed to short-term cash-flow issues at individual public hospitals where they had taken actions such as delaying the payment of creditors or inappropriately using specific purpose funds to pay for operational costs. This indicates that the current funding model is not sufficiently sustainable for those hospitals.

Analysis of the sector found that public hospitals face both short- and long-term financial sustainability risks, as they are unable to generate a surplus from operations or build up reserves from operations to replace or renew their fixed assets.

The Department of Health & Human Services needs to work more closely with public hospitals to ensure that the funding model will address the root cause of public hospital financial sustainability risks. Financial support to public hospitals needs to allow them to fund operations, thus reducing public hospitals' cash-flow issues and this includes developing a longer-term financially sustainable framework for the renewal and replacement of assets.

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