Date: 20 February Budget Setting and Five Year Financial Plan Reference Number: Board Paper 2017/18/63

Transcription

1 Agenda Item 8(ii) Meeting: Shetland NHS Board Date: 20 February 2018 Paper Title: Budget Setting and Five Year Financial Plan Reference Number: Board Paper 2017/18/63 Author / Job Title: Decision / Action required by meeting: The Board is asked to note: Colin Marsland, Director of Finance the out-line planning assumptions that the five year financial plan is based upon; the draft five year financial plan outlined in Appendix B efficiency savings schemes target value and progress to date the final version of the Budget and five year plan will be presented at the April 2018 Board meeting. The Board is asked to agree: Indicative planning assumptions Cost Pressure short list for draft approval (final approval to take place on agreement of final budgets) The continuation, on a recurrent basis, of the Transformational Change Fund reserve at 250k The Board is asked to decide whether to: Hold in reserve 250k NRAC funds received in to offset any funding gap in Pay Award allocation or offset this 250k fund recurrently against the Board s efficiency savings target. continue on a recurrent basis the Contingency Reserve Fund at 2% of the Board s baseline budget or revert back to 1% and offset the other 1% realised recurrently against the Board s efficiency savings target to reduce the underlying recurring deficit. High Level Summary: The Board agreed the budget and five year financial plan on 18 April The Scottish Government announcements have advised some changes should be made to the planning assumptions in but a number of issues remain outstanding. It is expected that pay awards are likely to be higher than 1.0% but resourcing for additional cost implications is yet to be fully clarified. The current allocation to Board s does not include funding for a pay award higher than 1%. Distribution of funding from the Scottish Government s Transformation fund ( 120M), Primary Care investment ( 110m) and Mental Health ( 17m) fund is still to be confirmed.

2 Corporate Priorities and Strategic Aims: Board s corporate objectives outline a requirement to provide best value for resources and deliver financial balance. Key Issues for attention of meeting: At present a balanced financial plan for cannot be agreed by the Board. Work is on-going in the development and implementation of redesign schemes to realise efficiency savings without compromising quality or outcomes for and future years. The pay award for staff in is yet to be agreed and additional funding for any increase above 1% is still to be clarified. Implications: Service Users, Patients and Communities: Human Resources and Organisational Development: Equality, Diversity and Human Rights: Partnership Working Legal: Finance: Assets and Property: Environmental: Risk Management: The level of efficiencies required will inevitably require a significant redesign of service delivery. Direct implications for patients and service users will need to be developed as part of this redesign work. The required level of efficiencies will not be achievable without impacting on service users. No specific issues identified. The delivery of individual savings schemes may impact on individual staff or teams and this impact is assessed within each scheme No implications for the Board s overall compliance. However any significant action plans to address either short-term or underlying issues to deliver the financial plan will require an EQIA to be undertaken. The budget is being set in tandem with Shetland Island Council and Shetland Islands Health and Social Care Partnership (IJB). None identified Highlights potential financial risks associated with the board s recurring revenue position. None identified None identified Organisation has reputational damage if financial balance is not achieved at year end through the development of a fiscally sound financial plan that can be delivered. Policy and Delegated Authority: Previously considered by: Exempt / private item

3 SHETLAND NHS BOARD Strategic Financial Plan for 2018 to Purpose of Paper The purpose of this paper is to advise the board on the progress for the development of the budget and to seek further direction on the Board s view in respect of the draft financial planning assumptions for the period Background The Board agreed the financial plan at its meeting on 18 April 2017 and the out-line plans for The board is required to update this annually as part of the Local Delivery plan (LDP) process. In line with the Scheme of Integration agreed with Shetland Island Council both organisations are due to set indicative budgets by 31 December 2017 to ensure the integrated care body s budget is clarified and in place for 1 April As a result of this timetable it is necessary to start the budget process before the Local Development Plan guidance and updated financial planning assumptions are received from the Scottish Government. The previous version of the financial plans was presented to the Board at its meeting on 12 December Key External Constraints The Board does not set its financial plans in isolation and strategic financial planning is significantly influenced by external stakeholders. The overall resource envelope of the Board will be influenced by four key factors outside the Board s direct control, the final impact of which are not currently all confirmed. The four key factors are: I. Fair Share Model for II. UK Government Budget statement on public sector planning III. Scottish Government budget statement for IV. Cabinet Secretary for Health spending priorities arising from budget statement 3.1 Fair Share Model The current Scottish Government policy is that territorial boards should be no worse than 1% below their respective fair share value. NHS territorial board s fair share values are determined by the formula that was developed by the NHS Scotland Resource Allocation Committee (NRAC).

4 The Information Services Department (ISD) of NHS National Shared Services Scotland has responsibility to produce a revised Fair Share Model for NHS Territorial Boards. The local values for the model up to are outline in table 1 below. The fair share model currently allocates funding to the Board that is 13% greater than an allocation based purely on the size of our population. In the last 12 months NHS Shetland has received an additional 1M recurrently to move NHS Shetland towards NRAC parity. The draft budget presented to the Scottish Parliament confirmed our planning assumption that the Board will receive no further supplementary funding from fair share parity process. 3.2 UK Government Budget There is no further update to that advised in the December 2017 budget paper other than in respect of the Pay Review Body. The remit for the NHS Pay Review Bodies was set in December by The Secretary of State for Health, Jeremy Hunt and the UK Government has submitted its evidence. The following is an extract from the UK Government submission: We recognise that higher inflation is putting pressure on all households as well as our hardworking public servants. But historically the relationship between pay and inflation has been a weak one, in part due to the temporary nature of many inflation fluctuations. Most forecasters expect this period of above target inflation to be temporary, as inflation has been pushed above the target by the boost to import prices that had resulted from the past depreciation of sterling. The OBR and the Bank of England both expect inflation to peak at the end of this year and then fall again over 2018 and The appropriate level of public sector pay award is complex and determined by a variety of factors, notably retention and recruitment. Rates of price inflation are important, but not the only consideration. The three devolved parliaments have also submitted submissions to the NHS Pay Review Bodies As yet the NHS Pay Review Bodies is still to publish their recommendations.

5 3.3 Scottish Government The Scottish Cabinet Secretary for Finance is presented the first draft of the Scottish Government budget for on 14 December 2017 The Scottish Government is currently committed to: 1. A minimum increase of 1.5% to Territorial Board s baseline funding. 2. Ending the 1% pay gap for public sector workers in The Scottish Government initial submission to the NHS Pay Review Bodies seeks a 3% pay increase for those earning less than 30, Paying the living wage to public sector employees, that will be 8.75 per hour in giving a full time employee a minimum salary of 17,109, an increase of 577 (3.4%) on Increase funding to Health and Social Care by 500m over the lifetime of the Parliament. The funding for Social Care in will be 66m however the funding will go directly to Local Authorities and not via the NHS. 5. Increasing funding to Primary Care and Mental Health Services over the lifetime of the Parliament In the Scottish Parliament the budget process has completed two of the three stages of scrutiny and approval. 3.4 Cabinet Secretary for Health The Cabinet Secretary for Health, Wellbeing and Sport has confirmed the NHS priorities for additional funding has remained constant with their manifesto commitments. Boards are now aware of the consequence in for their core resource allocations (excluding Pay Award implications); the consequential funding for additional resources to Primary Care, Mental Health and Access targets is still to be clarified. As a result the earliest the Board will be able to receive a formal financial plan to approve for , with confirmed resources allocation is likely to be in April Draft Timetable for Financial Plan The first draft budget proposal was submitted to the Board on 12 December 2017 for consideration. This second draft budget proposal updates the Board on developments. The plan outlines the gap in financial resources and therefore the level of savings and efficiencies that will need to be generated to deliver financial balance. Although some plans are in place for , the Transformational Board will be reviewing further plans for from the project Board s on 15 February The largest internal barrier to implementing the agreement of the financial plan within the proposed timetable is currently expected to be delivery of detailed plans that deliver the Board s required savings targets. The review of NHS pay and conditions may also have implications for the budget setting process and when this will be clarified is unclear.

6 The current planning timetable now assumes the Financial Plan and the plan for the subsequent 4 years will be presented to April 2018 Board meeting. 5. Revenue Resource Limit The Scottish Government have confirmed that in the key assumption made that Territorial Board s baseline funding is to increase by 1.5%. However funding increases for year two to five has not been clarified. The draft anticipated resource revenue limit (RRL) is out lined in table 2 below and assumes an increase of 1.5% per year will apply across the five year period Table 2 : Shetland Health Board Funding Opening Core Balance 46,814 47,538 48,273 49,018 49,775 Inflation Funding Fair Share / NRAC Fund Social Care Fund 1,444 1,444 1,444 1,444 1,444 Closing Balance 48,982 49,717 50,462 51,219 51,988 Percentage Increase 1.5% 1.5% 1.5% 1.5% 1.5% In a new ring fenced allocation, the Social Care Fund, was received and is primarily a pass through payment to the Health & Social Care partnership to support social care and the shift in the balance of care, to be allocated in line with the strategic directions of the IJB. The initial value of this fund was 1,024k and increased by 420k in as the first year of the five year commitment to increase funding to Health and Social Care by 500m over the lifetime of the Parliament. In this year s budget the Scottish Government announced that for the increase in the Social Care Fund will be paid directly to Local Authorities. During the following bundles have been added to the Board s baseline funding and are included within Table 2 values: 1. Island Board Partnership Fund 250k 2. Primary Care Fund investment for Pharmacists in GP practices 76k. In the Board is aware that a further allocation of 68k for Pharmacists in GP practices will be allocated. The board will receive additional allocation bundles in the normal manner. At present there is no material changes expected to these allocations in The only exception to this is in respect of transformational redesign for Primary Care, Mental Health and Access Targets. However at present the additional funding has still to be confirmed to individual Boards. It is likely that a proportion of this may also be allocated on a regional basis. Implication of additional funding arising from the implementation of the new GP Contract in is yet to be determined. There is also the potential for the Public Dental Service to be subject to reduction in allocation. This will be part of a larger exercise on how local independent dental contractors change the needs for a complementary salaried dental service to meet the Oral Health needs of Shetland.

7 6. Efficiency Savings Targets The Scottish Government s has a 3% efficiency target for the public sector in the medium term. In respect of Territorial Health Boards the funds released from the achievement of the target are currently retained by Boards to meet cost pressures and to offset the gap between funding and health inflation. Any further available resources after this would be available for investment in local services. Without the delivery of at least this level of efficiency there are no funds to address cost pressures and to ensure the Board s Income and Expenditure is balanced. The board s financial plans assume the continuation of this policy over the five year planning cycle of the Local Development plan. In addition for the Board previously agreed the need for an additional local target of 1% on top of the national target to create a small investment fund for key priorities / improvements. The implication of these required efficiency targets, over the five year period is outlined in table 3 below (total 7,697k). The overall target is now lower than that presented in the December Board paper by 1,680 due to the assumption that future increases in the Social Care funding will be allocated directly to Local Government and will not need to be funded from the uplift in the Board s core allocation. Table 3: Shetland Health Board New Savings Targets Total Funding (Excluding IJB Pass through) 46,814 47,538 48,273 49,018 49,775 New Savings Target -1,859-1,426-1,448-1,471-1,493-7,697 Target as a Percentage 4.0% 3.0% 3.0% 3.0% 3.0% 3.2% With the advent of the new integration agenda and rules applying to all partners the Board s overall flexibility is reduced. As a result, how savings targets are allocated by the Board will be subject to greater external scrutiny. In addition to these new targets, shortfalls in delivery of prior year recurring savings targets will have to be carry forwarded in to The value of this shortfall will only be finally confirmed at the end of the financial year. As at month 9, the balance of carry forward savings for 2018/19 would be 2,258k. This compares to the assumption within the financial plan that 1,216k would be carried in to on a recurrent basis. Therefore at month 9, we are 1,042k behind achieving the original yearend plans for recurring savings. Therefore as highlighted in table 4 the total value of recurring efficiency savings over the next five years currently sits at 9,955k. Table 4 NHS Potential Efficiency Savings Target 's Potential Brought Forward from ,258 To meet SG Plan of 3.0% for Public Sector 7,240 Additional Local Funding to Close Gap 457 Potential Savings Target Total 9,955 The Health Board s historic performance in delivering efficiency savings is as outlined in the graphs and tables contained within Appendix A. This covers the previous five years and the current projection for

8 In this six year period the recurring savings delivered are 9.1m with a further 9.4M non-recurrently. Although past performance is not necessary a guide for future performance the Board has a good track record for delivering savings schemes. In terms of delivering the required savings in , agreed plans are not yet fully in place to deliver the required value. The actual delivery of recurring efficiency savings will be the key factor in realising funds for internal investment and to fund inflation uplifts, local cost pressures and national cost pressure from UK Government levies or changes in taxation. Without the majority of plans in place to address the gap in a balanced budget cannot currently be set. At present the total efficiency savings gap for would 4,118k. Based upon prior years (Appendix A) and the current planning position in respect of schemes for , the entire target is highly unlikely to be achieved recurrently in year in This figure though is 189k less than the opening target at the start of , however more substantive progress in addressing the under lying deficit is required. Therefore the delivery of significant non-recurrent savings will continue be required to cover the gap in recurring efficiency savings so that the Board achieves the statutory obligation to breakeven. The delivery of 9,955k in recurrent efficiency savings over the next 5 years will need to be linked to the outcomes of the scenario planning exercises that started in January The Transformational Board will be reviewing further plans for efficiency projects in on 15 February These will be in addition to the plans that are currently in place for and future years. The value of these plans and the gap that is still to close is outlined in Table 5 below: Table 5: Efficiency Savings Plans to m m m m m Target Recurring identified Non-recurring identified In Year Gap to Address Historically it is not unusual for Efficiency Savings Schemes in year two to five in the financial not to be in place at this time so a gap is common in the NHS Board across Scotland. In addition further external impacts (pay award outcome) or internal developments may cause the savings target to increase to address changes in the environment that have a significant financial impact. 7. Planning Assumptions In setting out the board s financial plan, (please see Appendix B), in addition to assumptions made on future core income streams and efficiency targets a number of assumptions have also been made about future inflation pressures.

9 The key planning assumptions are outlined in Table 6, and there remains a risk behind these assumptions as the board has no real direct control over most of these inflationary pressures. The pay inflation figure includes three components: I. 1% General uplift in pay rates II. 1% allowance for the impact of incremental pay progression III. 0.05% for the impact of an additional increase in pay for those earning less than 22,000. Individuals who fall within this category will see a cash increase of 600 in Although the general uplift in pay rates is highly likely to be more than 1% the value above 1% may or may not be fully funded depending upon interpretations of the statements made by both the UK and Scottish Governments. The submission to pay review bodies can be interpreted as the UK Government seeking a lower increase than the Scottish Government. Please note just under 96% of NHS staff are enrolled in a work place pension. However all pay budgets are set assuming staff are enrolled with 14.9% employer s contribution included within the resources available. In addition to general pay inflation the plan also sets aside funds to invest in new services to meet and address the changing social, economic and health environment. These investment funds are out-lined in table 7. The financial plan has set aside a local unallocated investment reserve in each year of the financial plan that is equivalent to 1% of the board s baseline funding. In this is only achievable by increasing the local efficiency savings target by 1.0%.

10 However the increase in the Laboratory Managed Services and Capital Charges increases have been deducted as a prior commitment. NHS Grampian, as previously advised to the Board, have indicated that the tariff fees charged to the Board need to more accurately reflect the costs incurred in delivering the services they provided. This principle is now being applied to both the Acute and General Mental Health Service Level Agreements. The impact of these tariff changes have been phased in over three years with the final year increase in value in (as set out in table 7). Initially the total value of cost pressures submitted was 1,1270. These were reviewed by EMT at the beginning of November. The recurring short-list the Board is asked to consider for approval is out-lined in Appendix C. These cost pressure address either current or anticipated future costs that are considered unavoidable. Graph 1 in Appendix D illustrates the use of funds and expected income to show the movement from the brought forward savings target to the current projected gap. The Board over the last 5 years has prudently held a 1% contingency reserve to assist in managing in year cost pressures. Previously it has been debated whether this value should be more than 1%. However as this was only achievable via increasing the efficiency savings targets to self fund any increase in the contingency reserve this was considered unrealistic to achieve given the level of efficiency savings already required in the plan. During discussions about the NRAC parity funding adjustments in the budget cycle the Board received a 750k allocation adjustment that was not in the original planning totals. In these funds were allocated for the following two purposes. The Board indicatively agreed the same use in at the December 2017 Board meeting: 1. Creation of a change fund to pump prime projects non-recurrently under the auspice of the Transformational Change Board, 250k. 2. Amending the value of the contingency reserve from 1% to 2% of the Board s baseline funding, 490k. In October the Board received a further 250k in respect of NRAC parity movement. This has not been allocated on a recurrent basis in and is nonrecurrently being utilised to manage the yearend financial position. At the December Board meeting the provisional use of this fund in was to hold this as a reserve to offset against any shortfall in funding for pay inflation or any other new commitments made against baseline funding not currently in the plan. One of the most volatile cost pressures the Board faces each year is locum Medical staff costs in both the Hospital and Community setting. Table 8 below identifies the historical cost pressure above budget position for the last three years and the projection for

11 Table 8: Locum Medical Staffing Cost Pressures to ** Locum GPs 164, , , ,000 Mental Health Locums 13,329 17, ,000 Acute Locums 209, , , ,000 Locum Total 386, ,806 1,029,894 1,700,000 The Board is now being asked to reconsider the options for the use of the following funds in 2018/19: 1. Hold in reserve 250k NRAC funds received in to offset any funding gap in Pay Award allocation or offset this 250k fund recurrently against the Board s efficiency savings target. 2. Continue on a recurrent basis the Contingency Reserve Fund at 2% of the Board s baseline budget or revert back to 1% and offset the other 1% realised recurrently against the Board s efficiency savings target to reduce the underlying recurring deficit. The use of these two funds is not linked so Appendix E outlines the financial impact upon Directorate Budgets and Appendix F the impact upon the IJB offer. Option 1 illustrates the status quo as agreed at the Board in December 2017 Option 2 amends option 1 to allocate the 250k October NRAC allocation against the efficiency savings target to reduce the recurring gap to 3,868.k. Option 3 amends option 1 to allocate the 490k, 1% Contingency Reserve, against the efficiency savings target to reduce the recurring gap to 3,628k. Option 4 amends option 1 to offset both the 250 NRAC allocation and the 490k, 1% Contingency Reserve, against the efficiency savings target to reduce the recurring gap to 3,378 k. In making a decision on this it is relevant to recognise that the use of locums as outlined in Table 8 in and was more than the 2% contingency fund. There are currently five full time Consultant vacancies at the Gilbert Bain Hospital and all eight GP Practices the Board operate have a vacancy so the level of locum expenditure in is currently projected to be at the same level as This potentially will require addition l non recurring savings to offset this of 720k or 1,210k depending upon whether option 1 or alternatively option 3 or 4 is the preferred option for the use of the additional NRAC allocations. 8. Risks to the Financial Plan Financial plans will always be subject to political and economic changes which are outside the board s direct control. The continued uncertainty in the overall UK general economy may also require the government to further review their spending plans in future years and this may impact the future growth assumptions included in this plan. However if manifesto pledges are delivered the risk of this occurring is low.

12 The financial plan assumes that activity levels with NHS Grampian remain constant in the long term. Increases in activity will impact upon not only NHS Grampian Service Level Agreements but may also increase costs incurred under Highland and Island Travel Scheme (HITs). Medical staffing vacancies in both secondary and primary care have resulted in significant expenditure on locum costs and this will continue to be a significant risk to the board. However one of the aims of on-going Clinical Staffing reviews and Scenario planning is to reduce this risk in the medium term and this is must be a high priority for the Board to address, not only for financial reasons, but also to ensure good quality services and continuity of care. The delivery of recurring savings is a continuing risk to the board s underlying financial position. Until the underlying backlog in recurring efficiency savings is addressed through service redesign proposals the board will remain in recurring financial deficit. The financial plans for 2018/19 and beyond carry a high degree of risk given the level of efficiencies required. This therefore creates risk for the future development of our services since the efficiencies are required to fund both immediate cost pressures and any planned investment in services. The decisions the Board will need to make to maintain financial balance may require significant changes in current practice or service models and this will need effective engagement if these are to be adequately explained and communicated so as not to cause public concern or challenge. It is important that proposals are evidence based on current or emerging changes in best practice / clinical practice. Individual changes will require an equality impact assessment in line with the Equality Act The proposed scenario modelling exercise that began in January 2018 will play an important role in shaping the future service provision to the local community. 9. Contributions to the Integrated Joint Board The indicative contributions from the Board to the Integrated Joint Board are outlined in Appendix F. This assumes that the underlying budget remains at a minimum at the values of 23,092k. Depending on the outcome of the decision on the use of additional NRAC funds highlighted above then for any Option other than Option 1 the value of the Board s contribution to the IJB will be more than last year s out-turn. 10. Summary Although the Board s financial plan requires a balanced budget over the next five years to be set, the delivery of these plans remains extremely challenging given the service pressures, impact of integration, challenges around service sustainability and the need to address the underlying financial deficit the board has previously managed through a series of non recurring measures. The indicative budgets, based on the current assumptions, at service area level are outlined in the options in Appendix E. However it is important to note these are indicative at this stage and will be further developed and finalised as part of the ongoing budget setting process of which this meeting forms a key step.

13 11. Recommendation The Board is asked to note: the out-line planning assumptions that the five year financial plan is based upon; the draft five year financial plan outlined in Appendix B efficiency savings schemes target value and progress to date the final version of the Budget and five year plan will be presented at the April 2018 Board meeting. The Board is asked to agree: Indicative planning assumptions Cost Pressure short list for draft approval (final approval to take place on agreement of final budgets) The continuation, on a recurrent basis, of the Transformational Change Fund reserve at 250k The Board is asked to decide whether to Hold in reserve 250k NRAC funds received in to offset any funding gap in Pay Award allocation or offset this 250k fund recurrently against the Board s efficiency savings target. continue on a recurrent basis the Contingency Reserve Fund at 2% of the Board s baseline budget or revert back to 1% and offset the other 1% realised recurrently against the Board s efficiency savings target to reduce the underlying recurring deficit.. Colin Marsland Director of Finance 12 February 2018 Appendix A: Efficiency Savings Historic Performance to Appendix B: Draft five year financial plan outline to Appendix C: Cost pressure and investment proposal for Appendix D: Breakdown of projected financial position in 2018/19 Appendix E: Initial baseline service budgets at Directorate Appendix F: Initial split to highlight funds held by IJB and Board

14 Appendix A

15 Appendix A (continued)

16 Appendix A (continued) Year Recurrent savings delivered ( Ms) Non-recurrent savings delivered ( Ms) Total Savings delivered ( Ms) 2012/ / / / / / Total

17 Appendix B: Draft five year financial plan outline to RECURRING POSITION 2018/ / / / /23 000's 000's 000's 000's 000's A Recurring Financial Position at start of year 2, B Overall Total for Estimated Recurring Growth (723.9) (734.7) (745.7) (756.9) (768.3) C D E Inflation Uplifts Pay Awards Non-pay Utilities External Providers Primary Care External income (19.4) (19.7) (20.0) (20.0) (20.3) Pre-Commitments New Investments Commissioning investments Prescribing & Hospital Drugs ngms Cost Pressures Allow for new cost pressures F Financial Gap to Address 4, , , , ,493.0 G Required Savings Targets to Address Gap New 3% Target (1,402.1) (1,426.0) (1,448.0) (1,471.0) (1,493.0) New Target Additional 1% Target for (456.6) (1,858.7) (1,426.0) (1,448.0) (1,471.0) (1,493.0)

18 Appendix B Continued H Plan for actual achieved in-year, full year recurrent value (4,116.7) (1,426.0) (1,448.0) (1,471.0) (1,493.0) I Recurring Financial Position at end of the year J IN YEAR EFFECT Recurring Financial Position for year K Add non recurring resources Non-recurring (surplus) / deficit brought forward from previous year L SGHD funding M N Borrowing Repayment of borrowing In year issues In year costs O Plan for actual achieved in-year non-recurrently P Non-recurring deficit / (surplus) in year Statutory Required Board Minimum Position

19

20 Appendix D

21 Option 1: Appendix E

22 Option 2: Appendix E

23 Appendix E Option 3:

24 Appendix E Option 4:

25 Draft Indicative Split of Budgets to IJB and Health Board Appendix F Option 1:

26 Appendix F (continued) Draft Indicative Split of Budgets to IJB and Health Board Option 2:

27 Appendix F (continued) Draft Indicative Split of Budgets to IJB and Health Board Option 3:

28 Appendix F (continued) Draft Indicative Split of Budgets to IJB and Health Board Option 4: