REDACTED - CENTRAL LONDON, WEST LONDON, HAMMERSMITH AND FULHAM, HOUNSLOW AND EALING CCG COLLABORATIVE

Transcription

1 REDACTED - CENTRAL LONDON, WEST LONDON, HAMMERSMITH AND FULHAM, HOUNSLOW AND EALING CCG COLLABORATIVE Financial Due Diligence around delegated authority for primary care GP Contracting 31 January 2017

2 CONTENTS 1 Executive Summary Introduction Methodology Contracts Financial Analysis Financial Planning Other Risks Conclusions Recommendations Appendices Glossary...40 Financial Due Diligence around delegated authority for primary care GP Contracting 1

3 As a practising member firm of the Institute of Chartered Accountants in England and Wales (ICAEW), we are subject to its ethical and other professional requirements which are detailed at The matters raised in this report are only those which came to our attention during the course of our review and are not necessarily a comprehensive statement of all the weaknesses that exist or all improvements that might be made. Recommendations for improvements should be assessed by you for their full impact before they are implemented. This report, or our work, should not be taken as a substitute for management s responsibilities for the application of sound commercial practices. We emphasise that the responsibility for a sound system of internal controls rests with management and our work should not be relied upon to identify all strengths and weaknesses that may exist. Neither should our work be relied upon to identify all circumstances of fraud and irregularity should there be any. This report is supplied on the understanding that it is solely for the use of the persons to whom it is addressed and for the purposes set out herein. Our work has been undertaken solely to prepare this report and state those matters that we have agreed to state to them. This report should not therefore be regarded as suitable to be used or relied on by any other party wishing to acquire any rights from RSM UK Consulting LLP for any purpose or in any context. Any party other than the Board which obtains access to this report or a copy and chooses to rely on this report (or any part of it) will do so at its own risk. To the fullest extent permitted by law, RSM UK Consulting LLP will accept no responsibility or liability in respect of this report to any other party and shall not be liable for any loss, damage or expense of whatsoever nature which is caused by any person s reliance on representations in this report. This report is released to our Client on the basis that it shall not be copied, referred to or disclosed, in whole or in part (save as otherwise permitted by agreed written terms), without our prior written consent. We have no responsibility to update this report for events and circumstances occurring after the date of this report. RSM UK Consulting LLP is a limited liability partnership registered in England and Wales no.oc at 6th floor, 25 Farringdon Street, London EC4A 4AB. Date of Document Author Revision Level Reason for Change 30/01/17 N Pinson / S Adams Initial Draft - 31/01/17 N Pinson / S Adams Second Draft Amendments following manager review 31/01/17 N Pinson / S Adams Draft for Initial QA Review QA 02/02/17 Steve Uttley Redacted version Redacted Version Evidence of review Date of Document Revision Level Approved By Date of Approval 31/01/17 Second Draft Steve Uttley 30/01/17 31/01/17 Initial QA Pelle Langli 31/01/17 31/01/17 Final Draft Pelle Langli 31/01/17 02/02/17 Redacted Pelle Langli 02/02/17 Financial Due Diligence around delegated authority for primary care GP Contracting 2

4 1 EXECUTIVE SUMMARY This review was requested by Central London, West London, Hammersmith and Fulham, Hounslow and Ealing CCG Collaborative (CWHHE) to help their Governing Bodies consider the financial risks associated with the proposed transfer of responsibilities for the management of primary care contracts from NHS England (NHSE). 1.1 Overall findings The due diligence review has concluded that there is a level of financial risk to the CCGs in taking on delegated commissioning responsibility. This relates to the Primary Care Medical Services (PCMS) and Commissioning Resource budgets, savings requirement, property and accruals. In addition, a GP practice survey undertaken as part of this review highlighted some issues with regard to the management of contracts and property. We have made a number of recommendations to help the CCGs mitigate these risks which will require the need to invest time and money to help ensure that the CCGs can start their new function with a better service model and one which will be noticeably improved. With a 1 April 2017 start date for delegation; this would constitute a dedicated and focused piece of work over the coming months to get everything in place. 1.2 Key financial risks Financial performance In order to determine the level of risk associated with the CGGs taking on delegated responsibility for managing the PCMS budgets we have undertaken a range of financial analysis both at the GP practice level and CCG level. This has considered the trends in historical and current financial performance and the potential exposure if this were to continue going forward. A summary of this is shown in the table below. Central London CCG ( m) West London CCG ( m) Hammersmith and Fulham Hounslow Ealing CCG ( m) Total ( m) CCG Level Budget CCG Level Forecast Outturn Overall Position 0.2 (0.1) 0.1 (0.1) (0.2) (0.1) GP Practice Level Variance Non GP Practice Level Variance (0.6) (0.8) (0.6) (0.4) (0.6) (3.0) At a GP practice level there is potential for the CCGs to underspend by 2.9m against the budgets in 2016/17 based on a straight line extrapolation of the first eight months financial performance. It should be noted that the financial information is captured at GP practice level and CCG level (use of default code) within the ledger system and therefore to provide a meaningful analysis this needs to be considered in totality. When the level of spend captured at CGG level is brought into the equation this is becomes an overall potential overspend in 2016/17 of 0.1m with all but Central London CCG and Hammersmith and Fulham CCG being exposed to some degree of financial risk. Financial risk exposure: circa 0.1m. Financial Due Diligence around delegated authority for primary care GP Contracting 3

5 1.2.2 Budget setting NHS England has provided a forecast for the 2017/18 Primary Care Medical Services budgets which would be transferred on delegation. This has been compiled based on the total budget for 2016/17 (including 0.5 per cent contingency and one per cent non-recurrent reserve). Uplifts have been applied to this to take account of demographic growth based on the Office of National Statics projections and inflation which has been set at 1.2 per cent. This figure has been used to reflect national guidance regarding GP pay uplift (1 per cent) and the fact that there may be a requirement for other uplifts following the final contract settlement e.g. practice remuneration, which at this point is an estimate. The 2017/18 budgets are yet to be finalised, but it is the intention that these will be based on the 2016/17 forecast outturn and in the absence of any further information regarding GP contract negotiations will be subject to the estimated inflation rate of 1.2 per cent. Hence there is a financial risk that the 2017/18 budgets will not be representative of the historic levels of spend previously incurred due to the inflation uplift of 1.2 per cent being insufficient. The sensitivity that we have undertaken has identified that for every 0.1 percentage point change in the level of inflation there is a corresponding 0.2m increase in the value of the uplift. Thus if inflation were to be applied at 1.5 per cent (at time of writing the Bank of England reported this as 1.6 per cent with a target of 2 per cent) this would represent an additional 0.6m uplift to the budgets. Financial risk exposure: circa 0.6m per annum Commissioning resource allocation NHS England has determined the level of resource needed to commission and manage the Primary Care Medical Services allocation. They have recognised that the commissioning function is currently under resourced and have proposed an increase of 32 per cent in allocation (the NHS England report does not give a timescale, but the most logical start date for this would be April 2017). It is likely, that even with the increase, the workforce will have insufficient capacity to derive the benefits of delegation for CCGs and they would need to provide for additional resource of circa 0.1m per CCG. This is based on the requirement for two full time posts from 2017/18 resulting in a total level of financial exposure across the CCG consortia of 0.5m. Financial risk exposure: circa 0.5m per annum QIPP NHS England has advised that a QIPP target will not be directly applied to the CCG allocations thus reducing the level of funding available for investment in Primary Care Medical Services. There is, however, an expectation that they will deliver a breakeven position against the budget. In order to achieve this, the CCGs will most likely be required to adopt some form of structured savings approach incorporating the need for sufficient planning to identify how the savings will be realised. If it is the case that the 0.5 per cent QIPP value be applied to the CCG allocations, this would result in a need for the CCGs to achieve circa 0.8m of savings. Financial risk exposure: circa 0.8m Property The Valuation Office is due to complete a review of the rateable values of London GP premises in The rateable value is a significant value as it determines the level of business rates and rent to be paid; the higher the rateable value, the higher the business rates and rent. The rateable values were last revised in 2008, and whilst there has been a challenge to these in that they were valued too high, given that nine years have passed, the rateable value is now likely to have increased. The effect of this potential increase is as yet unknown, but there is a risk that it may be at a rate above inflation. Approximately 9 per cent of the Primary Care Medical Services budget is spent on rent and rates, and any increase over and above inflation will have a significant impact. Our sensitivity testing found that the CCGs may be exposed to increases in year of between circa 0.2m and 0.8m from 2017/18 based on a revaluation range of 1 percentage point increase above inflation to 5 percentage points above inflation. Financial Due Diligence around delegated authority for primary care GP Contracting 4

6 Financial risk exposure: circa 0.2m 0.8m per annum Budget Reserves There are no earmarked budget reserves for Primary Care Medical expenditure outside of the mandated 1 per cent non-recurrent reserve which has been included in the budget baseline but is not readily available for use to fund investments and cost pressures. Indeed it has been expressed by NHS England that it should be allocated to support transformation projects from April 2017 subject to regional assurance. In addition to this each CCG is required to hold 0.5 per cent of the Primary Care Medical budget as a contingency but this is not ring fenced and can be used to fund other in year cost pressures or offset the requirement to deliver savings to achieve a break even position. The CCGs therefore need to be mindful that the headroom available for manoeuvre will be reduced by the requirement to hold back the non-recurrent reserve and contingency in support of delivery of the required performance which equates to 2.5m across the CCGs Financial risk exposure: circa 2.5m per annum Summary of financial risk exposure Taking into account the issues that have been identified as a result of the due diligence exercise the full extent of the exposure to financial risk and consequential impact can be summarised in the table below: Central London CCG ( m) West London CCG ( m) Hammersmith and Fulham Hounslow Ealing CCG ( m) Total ( m) 2017/18 Allocation /18 Baseline Budget Headroom/(Gap) (0.7) Financial Performance 0.2 (0.1) 0.1 (0.1) (0.2) (0.1) Budget Setting (0.1) (0.1) (0.1) (0.1) (0.2) (0.6) Commissioning Resource (0.1) (0.1) (0.1) (0.1) (0.1) (0.5) QIPP (0.1) (0.2) (0.1) (0.2) (0.2) (0.8) Property (5% above inflation) (0.1) (0.1) (0.2) (0.2) (0.2) (0.8) Budget Reserves (inc Contingency) (0.4) (0.6) (0.3) (0.5) (0.7) (2.5) Risk Adjusted Headroom/(Gap) (1.3) (0.8) Financial Due Diligence around delegated authority for primary care GP Contracting 5

7 1.3 Other risks Accruals Monthly accruals are posted to the relevant cost centre at either CCG level or GP practice level based on the extent of knowledge and supporting information available to determine the amount of the accrual. Thus all payments expected to be made to practices are captured in totality but this does not allow for an accurate representation of the financial performance when comparing the level of spend to the individual GP budgets. In the absence of an appropriate level of granularity for all accruals i.e. GP practice level, the CCG may not be able to determine the full extent of spend against each GP contract. Risk exposure: financial performance at GP level may be inaccurately reflected GP issues Across CWHHE, an average of 43 per cent of practices (97 practices) responded to the GP survey. In terms of respondents, a total of 34 per cent highlighted financial or other disputes with NHS England. On average, 36 per cent of respondents had issues with regards to property, with 43 per cent of practices reporting that issues were ongoing for more than one year. Very few practices had a contract meeting with NHS England in the last 12 months year (circa 8 per cent or 10 practices). The findings helped to validate concerns around property, NHS England capacity and the impact of any inheritance of ongoing issues. The financial impact of property risks have been highlighted in other sections of this report. Risk exposure: property disputes Quality and practice performance As above, in line with the contract meetings, a low percentage of GP reported contracts are monitored or performance managed in a 12 month period (circa 8 per cent or 10 practices). The cause of this appears to be two-fold: The wording of GMS/PMS contracts in particular is not designed to help monitor activity or apply any contractual or financial sanctions for non-achievement. Though newly procured APMS contracts do contain some KPIs, enabling more contract powers. The capacity or time devoted to this by the North West London (NWL) Regional Office of NHS England. Given that the majority of contract terms will not change in the near future, it is likely that any contract management will remain limited, and as noted previously, the NHS England workforce allocated to CWHHE to manage the 252 practices is likely to continue to experience capacity issues (even with a 32 per cent increase in resource). CWHHE also has two out of the eight practices rated as inadequate across NWL. These practices will require more intensive input, which may have an impact on the NHS England workforce capacity. These survey results are similar to other NWL practices reviewed in 2016/17. Risk exposure: reputational. Financial Due Diligence around delegated authority for primary care GP Contracting 6

8 1.3.4 Historic issues and NHS England liabilities NHS England has confirmed that they will be responsible for liabilities incurred ahead of the April 2017 delegation. However, there are a significant number of historical issues with NHS Property Services, amounting to 3.6m for CWHHE. These have the potential to become complex in terms of tracking accounts with GPs, who will be caught in the middle of CCGs, NHS England and NHS Property Services. The financial risk relates to managing what has been a complex invoicing process which has caused problems in the past and potential errors in payments affecting the costs attributed to individual GP practices. This is predominantly a cash flow issue, however in the event of inaccurate invoicing and payment; this may affect the outturn position. Risk exposure: inaccurate outturn position. 1.4 Recommendations This due diligence review has concluded that there is a level of financial risk to the CCGs in taking on Level 3 delegated commissioning responsibility. The level of risk is related to the budget setting process, cost saving requirements, property costs, staffing resource and the approach to accruing for costs at a GP Practice level. In addition, a GP practice survey undertaken as part of this review highlighted the lack of direct interaction with between NHS England and the GP Practices. These risks need to be considered in the context of the opportunities that Level 3 delegated commissioning may provide, such as the scope for improved system-wide financial management. This opportunity is significant and should be weighed up against the likely short-term financial challenge that the CCGs will inherit if they decide to proceed with Level 3 delegation. We have made a number of recommendations to help the CCGs mitigate these risks which will require the need to invest time and money to help ensure that the CCGs can start with a better service model and one which will be noticeably improved. With a 1 April 2017 start date for delegation, this would constitute a dedicated and focused piece of work through to March to get everything in place. It should also be noted that in delivering this assignment RSM encountered initial delays in receiving some of the information requested and limitations with the detail available from NHS England which may reflect on how this function within NHS England has been resourced and organised in the last few years. If the CCGs decide to undertake the commissioning of these GP services, then there are a number of recommendations that RSM would ask the CCGs to consider. These are summarised below: Financial performance: as demonstrated in the financial GP analysis within this report, the expectation is that the outturn for 2016/17 will be below the budgets set by NHS England. Conversely, the overall position across the CCGs is an overspend of 0.1m (with Central London CCG and Hammersmith and Fulham CCG potentially underspending). The CCGs need to work with NHS England to understand what is driving both the overall overspend and the underspend at GP Practice level (highlighted within the both the main body of this report). This is particularly important, given that the CCGs may need any underspend to offset other financial risks. This would mean that they may need additional resource to ensure that a more robust reporting mechanism is in place to go live on 1 April This could incorporate a training programme so that both the CCG and GP practice staff adopt a consistent approach to monitoring contracts in 2017/18. Financial Due Diligence around delegated authority for primary care GP Contracting 7

9 Budget setting: at the time of writing this report, the national contract negotiations are still in progress and hence the impact of these on final budgets is as yet to be finalised. The analysis shows that there are issues with the budgets that have been set at GP practice level, and if the CCGs take on delegated commissioning, there will be a need to invest time and resource into understanding and owning the budgets. This will be a shift in focus for the NHS England staff who will continue to provide GP contract support under the proposed delegation model. In the past they have tended to focus on managing contracts at a regional/ccg level rather than at a more granular level i.e. GP practice. Commissioning resource: NHS England have indicated that the current level of resource allocated to the management of the GP Practice contracts is too low, and have proposed an increase of 32 per cent in capacity. This need for extra resource is borne out from the GP survey analysis undertaken as part of this review, and the GP practice financial analysis. The concern is that providing this additional resource will only improve the service to the level required by NHS England, rather than the facilitate the need to build stronger relationships with the GP practices to support the transformational change agenda. The recommendation would be that CCGs should budget for additional resources. Whilst this is hard to quantify until the impact of the proposed increase is seen, two additional staff is in line with anecdotal information from CCGs that undertook delegated commissioning in April The cost of two staff was estimated at circa 0.1m per annum per CCG. Accruals: a significant number of accruals have been made in 2016/17 at CCG level rather than at GP practice level, which makes it more difficult to fully understand the financial positions of the GP Practices. As above, additional time and resource is needed to move from the current position to a GP focused one. A large part of this time needs to be spent on working with the NHS England financial team. Again the CCGs will need to understand and own this level of information to ensure it meets the needs of the GP Practices. QIPP: whilst from 2017/18 the GP Practice allocation from NHS England does not contain a formal QIPP target, under any delegation arrangements the CCGs will be responsible for any cost savings. If 2017/18 cost savings were at the same level as NHS England QIPP targets in 2016/17 this would be 0.9m. NHS England has indicated this may be possible through APMS contract re-procurement; however Ealing and Hounslow each have three APMS re procurements in year; West London as one and Central London and Hammersmith and Fulham do not have any due. Therefore it would be prudent for the CCGs to crystallise and formally document any plans currently in place to achieve this and manage any inequity in opportunity. Property: the greatest impact is likely to come from premises costs rising in excess of inflation. To this end, the CCGs should factor in additional contingency for this in 2017/18. An increase of 5 per cent above inflation would represent a cost of 0.8m ( 0.1m for Central London, 0.1m for West London, 0.2m for Hammersmith and Fulham, 0.2m for Hounslow and 0.3m for Ealing). Contracting: the CCG should prepare a specific service standard for Primary Care Medical Services commissioning which is agreed with NHS England as part of either the planned Memorandum of Understanding or preferably under a Service Level Agreement. Given that NHS England have indicated the way GP contracts are written has made it difficult for them to apply sanctions or penalties. The CCGs should work with NHS England to move to a more collaborative approach with the CCGs and GP Practices, and setting up working groups (with GP, CCG and NHS England contract support staff) to develop this going forward. Clear lines of reporting and accountability should be agreed between NHS England and the CCG, which would feed into the planned governance arrangements. Financial Due Diligence around delegated authority for primary care GP Contracting 8

10 2 INTRODUCTION 2.1 Background The CCGs have commissioned RSM to provide a high level due diligence exercise on the Primary Care Medical Services (PCMS) for which they may take delegated responsibility from NHS England s Primary Care Commissioning function from 1 April This report is to help support the CCGs decision process for delegation, and identify key risks to mitigate the arrangements each organisation puts in place to manage the contracts. 2.2 Scope The agreed scope that formed the basis of the work undertaken as part of the due diligence exercise incorporated the following aspects: Historical financial performance including an assessment of GMS, PMS and APMS contracts covering QOF, essential and enhances services and premises costs for the financial years 2014/15, 2015/16 and 2016/17 (YTD). Current year budget setting process and any implications for future years including changes in funding formula. Current year financial performance and projected outturn forecasts including commentary and highlighting risks. An assessment of any inherent risks in the budgets transferring across including known (or likely) formula changes. QIPP - an assessment of the requirement to deliver savings. Analysis of budget reserves. Assessment of the current contract management and any risks associated with the potential transfer including any additional risk exposure due to taking on the employing authority role. Identification of any known regulatory, quality or service issues relating to the services being delivered under the transferring contracts. An assessment of the level of resource currently engaged in the management of contracts for the APMS, GMS and PMS practices. Financial Due Diligence around delegated authority for primary care GP Contracting 9

11 3 METHODOLOGY 3.1 Financial planning and performance Financial analysis We have obtained financial information from NHS England covering the three years under review (2014/15, 2015/16 and 2016/17), which included the budgets and actual performance for each contract type (PMS, GMS and APMS). Using this data we have undertaken trend analysis at GP Practice level across the three years in the following ways. Outturn for the three years (with 2016/17 based on forecast) to assess which GP Practices had large areas of variability. Comparison of the outturn for the three years against the 2016/17 budgets to assess whether there are any risks. Considered the year on year budgets to identify any issues, anomalies and outliers. Actual performance was assessed year on year against budget to identify which GP Practices were consistently adrift (either under or over) Financial planning We have reviewed the approach to financial planning across the following aspects to consider the extent of risk that may be inherent in the transfer of the commissioning function for Primary Care Medical Services to the CCG. 2017/18 Budget Setting, including both the PCMS allocation and the NHS England allocation for the commissioning workforce. QIPP Targets. Accruals. Budget Reserves. 3.2 Contracts and Contractual Issues GP Survey We have undertaken a survey of the GP Practices with questions specifically focussed on the contracts and contractual issues. Key findings from this survey are presented in the main body of our report at section 4.1. The specific survey questions are presented below. Which CCG are you part of? What type of contractor are you? What type of contract do you have? Do you have a signed primary care contract? Have you received any variations to update your primary care contract? Financial Due Diligence around delegated authority for primary care GP Contracting 10

12 Do you believe that there are any outstanding contract variations that you have not yet received? Do you provide any additional services under your primary care contract other than essential, additional, or directed enhanced services? Have you received any breach or remedial notices in respect of your primary care contract? Do you hold any other contracts other than that with your CCG? Have you met with NHS England in the last 12 months to review performance? Was your last meeting minuted and agreed with you? Do you have any unresolved financial or other disputes with NHS England? Are all issues with NHS Property Services agreed? When was the date of your last rent review? When do you believe your last rent review was due? NHS England consultation We requested and have reviewed a wide range of quantitative and qualitative detail from NHS England around QIPP planning, capital spends in year and contract issues, as well as detail around the transition to delegated authority. This has included GP issue logs, historic and 2017/18 QIPP plans and forecasting, NHS England workforce restructure planning and workforce budgeting ahead of delegation, and contract and procurement plans and issues Contractual issues We reviewed the material provided by NHS England that listed issues with specific contractors, CQC compliance ratings and the current process around performance monitoring. 3.3 Other risk areas Property We have reviewed and analysed information provided by NHS Property Services and Community Health Properties (CHP) relating to property that is occupied by a GP practice contracted by NHS England within each CCG. This has included a cross checking exercise with NHS England rates review savings forecast, analysis of outstanding debts and wider consideration of the business rates process across London Commissioning workforce We have reviewed the planning model approach used by NHS England and the decision making processes around this. This has included a review of STP Footprint plans and assurances and the Ernst and Young (EY) Organisational Development review. We have sought to obtain details of the workforce planning formulas used and the current position and plans around vacancies and performance issues. The GP survey has been a pivotal part of this process, to help validate or challenge the approach being used to formulate an effective commissioning workforce model that will work within NHS England s forecasted allocation for each CCG. Financial Due Diligence around delegated authority for primary care GP Contracting 11

13 4 CONTRACTS 4.1 GP survey In this section we summarise the results of the GP survey, which we asked all GP practices to complete. CCGs promoted the survey and ensured that practices understood that this was their opportunity to help check and challenge what NHS England reported. The survey response rate is shown in the table below. CCG Number of GP practices completing the survey Percentage of total GP practices Central London CCG 16 42% West London CCG 21 45% Hammersmith and Fulham CCG 13 41% Hounslow CCG 44 83% Ealing CCG 3 4% Total 97 43% Please note that given the low response rate from Ealing (4 per cent) an analysis of responses cannot be relied upon to be representative. Ealing are therefore excluded from the analysis below. In the survey we asked GP practices if there were any unresolved financial or other disputes. The percentage of respondents with unresolved financial or other disputes with NHS England is presented in the chart below Central London CCG West London CCG Hammersmith & Fulham CCG Hounslow CCG Overall (exc Ealing) 5 0 % of practices with unresolved financial or other disputes with NHSE Financial Due Diligence around delegated authority for primary care GP Contracting 12

14 We asked practices about issues relating to property, and which issues had been ongoing for more than one year. The results are presented in the chart below Central London CCG West London CCG Hammersmith and Fulham CCG Hounslow CCG Overall exc Ealing 5 0 % practices stating issues with property % practices reporting issues outstanding > 1 year We also checked within the survey the extent to which rent reviews had occurred within year, to give an indication as to whether the rent value within budgets was current. (NB this is only an indicator of a rent value forecast, as rent values will be finally determined by rateable value reviews due in 2017 by the Valuations Office). The results are presented in the chart below Central London CCG West London CCG Hammersmith & Fulham CCG Hounslow CCG Overall exc Ealing 5 0 % practices reporting rent reviews completed within the past year Financial Due Diligence around delegated authority for primary care GP Contracting 13

15 To understand the level of engagement around the contract itself and performance we asked GP practices to indicate the number of practices who had undertaken contract meetings with the NHS England over the past year. We also checked the number of practices who had signed contracts with NHS England. The results are presented in the chart below Central London CCG West London CCG Hammersmith & Fulham CCG Hounslow CCG Overall exc Ealing 0 % Practices who have had a contract meeting with NHSE in past year % Practices with a signed contract with NHSE The survey provides some key areas for CCG consideration. Only a low percentage of GP contracts are monitored or performance managed in year (circa 8 per cent or 10 practices). Further to discussion with NHS England Commissioning staff, the cause of this appears to be two-fold. The capacity of the NWL NHS England team has been insufficient. The wording of GMS/PMS contracts, in particular, is inadequate to monitor activity and apply contractual or financial sanctions for non-achievement. (Newly procured APMS contracts do contain some KPI enabling more contract powers). Given that the majority of contract terms will not change in the near future, it is likely that any contract management will remain limited, and as noted previously the NHS England workforce allocated to CWHHE to manage in the region of 252 practices is likely to continue to experience capacity issues (even with a 32 per cent increase in resource). The CCGs will need oversight of practice performance and contract issues, which is currently only provided on an exception basis, and will need to agree a reporting model with NHSE to ensure that there is a structured approach to understanding contract risks and issues in their region. Financial Due Diligence around delegated authority for primary care GP Contracting 14

16 Issues relating to property appear to affect the majority of practices, with issues dating back over a year. CCGs will have both the responsibility and opportunity for fielding and supporting the resolution of GP property issues, although this would require a clear directive to the NHS England resource aligned to the CCG and agreement of expectations. It should be noted that there is no designated allocation for estates and property resource within NHS England; although they have advised that there will be limited access to support specific tasks. The survey findings add to our overall property considerations (see property section) to indicate that a range of property issues will be inherited as part of delegated authority and may have an impact on budget and workforce capacity. The survey also provides a crude indicator around the accuracy of rents and rates within the budget. Approximately a quarter of those practices which responded have had a rent review in the past year. Whilst this cannot assure the CCG of stability around rent and rates value it does suggest that for circa 65 per cent of properties there is likely to be uncertainty in future rent/rate costs. Financial Due Diligence around delegated authority for primary care GP Contracting 15

17 5 FINANCIAL ANALYSIS 5.1 Budget and trend analysis - historical outturn vs 2016/17 budget As part of our analysis, we looked at the actual budgets year on year to identify any issues, anomalies and outliers. The analysis was performed for each CCG segregated by contract type namely PMS, GMS and APMS. Graphical illustrations for each contract type have been undertaken at GP practice level and the detail is presented within the Appendices. As noted, we reviewed the historical outturn for 2014/15 and 2015/16 together with the projected 2016/17 outturn (based on eight months actuals which has been prorated on a straight line basis for 12 months). This was compared to 2016/17 budgets. 180m 160m 140m 120m 100m 80m 60m 40m 20m 0m Outturn per contract type- CWHHE APMS GMS PMS Total 2014/15 Actual 2015/16 Actual 2016/17 Actual (projected) 2016/17 Budget The chart above presents a high level summary of the consolidated outturn for all five CCGs segmented by contract type. This is based on outturn data for the last three years and a comparison to the 2016/17 budget. It shows that the 2016/17 outturn will come in slightly below the budget ( 3.0m variance). The actual outturn has risen gradually year on year across all contract types. To identify financial risk, the outturn and budgets have been assessed at a GP practice level across each CCG. Outliers have been identified as a 5 per cent movement from 2015/16 to 2016/17 outturn with a further consideration of materiality (more than 0.1m). This has been used to determine the risk associated with the potential for future under and overspends against these budgets PMS Contracts The consolidated forecast outturn for PMS contracts in 2016/17 is 48.2m. This is prevalent for West London CCG (2016/17: 20m) and Central London CCG (2016/17: 13m) with both CCGs experiencing a general increase in PMS outturn from 2014/15 to 2016/17. Financial Due Diligence around delegated authority for primary care GP Contracting 16

18 In the majority of cases the 2016/17 budget is in line with outturn suggesting that this has been anticipated, with regards to these practices and managed accordingly from a financial governance perspective. The contracts with a material movement from 2015/16 to the 2016/17 outturn and a significant discrepancy from budget to actual for 2016/17 has been recognised as exceptions. These are as follows. REDACTED Potential financial impact: 0.1m underspend and 0.1m overspend GMS Contracts GMS contracts constitute the largest proportion of the consolidated outturn for 2016/17 at approximately 97.0m. The exceptions to this are as follows. REDACTED Potential financial impact: 0.1m overspend APMS Contracts APMS contracts represent the smallest proportion of outturn for 2016/17 at 17.0m. In the majority of cases, the budgets have been in line with actuals with the following exceptions. REDACTED Potential financial impact: 0.1m overspend and 0.1m underspend. 5.2 Budget and trend analysis - year on year budget As part of our analysis, we have assessed the budgets for the last three years to determine any potential issues and outliers within the 2016/17 budgets. This is in addition to the analysis of historical performance performed in section 5.1. Graphical illustrations for each GP practice and the outliers recognised are presented within the Appendices. Financial Due Diligence around delegated authority for primary care GP Contracting 17

19 180m 160m 140m 120m 100m 80m 60m 40m 20m 0m Budget per contract type- CWHHE APMS GMS PMS Total 2014/ / /17 The diagram above illustrates a high level summary of the consolidated budget position for all three CCGs segmented by contract type. It shows that the budget set for each financial year has risen gradually to reflect the outturn position. This has been assessed for each contract type PMS Contracts The total budget for PMS Contracts in 2016/17 is 49.0m. The outliers where there has been a material year on year on movement from 2015/16 to 2016/17 (not highlighted within section 5.1) include the following. REDACTED Potential financial impact: 0.1m underspend GMS Contracts The total budget for GMS Contracts in 2016/17 is 99.0m. The outliers where there has been a material year on year on movement from 2015/16 to 2016/17 (not highlighted within section 5.1) include the following. REDACTED Potential financial impact: 0.1m overspend and 0.1m underspend APMS Contracts The total budget across APMS Contracts in 2016/17 is 17.0m. The outliers where there has been a material year on year on movement from 2015/16 to 2016/17 (not highlighted within section 5.1) include the following. REDACTED Potential financial impact: 0.1m underspend. Financial Due Diligence around delegated authority for primary care GP Contracting 18

20 5.3 Variance analysis The purpose of this section is to document the analysis performed between budgeted and outturn figures at a practice level focusing on the material outliers that have not been assessed in sections 5.1 and 5.2. The diagram below illustrates budget vs actual differences across contract type for the last three financial years. The variances which have arisen on APMS contracts are small suggesting that the budget setting methodology in place is robust. The CCGs must monitor such GP practices to mitigate the risk of overspend in future years. 3.5m 3.0m 2.5m 2.0m 1.5m 1.0m 0.5m 0.0m - 0.5m Budget vs Actual variance per contract type- CWHHE APMS GMS PMS Total 2014/ / /17 There has been an underspend across all three financial years for GMS and PMS contracts consolidated across CWHHE. The CCGs should review such contracts and where there has been a trend of underspend on such practices, budgets could be increased elsewhere where there is likely to be additional outturn in future years PMS Contracts The material outlier based on a year on year movement from 2015/16 to 2016/17 budget vs actuals (not highlighted in sections 5.1 and 5.2) is as follows. REDACTED Potential financial impact: none GMS Contracts The material outliers based on a variance movement from 2015/16 to 2016/17 (not highlighted in sections 5.1 and 5.2) are as follows. REDACTED Potential financial impact: 0.2m underspend. Financial Due Diligence around delegated authority for primary care GP Contracting 19

21 5.3.3 APMS Contracts The material outliers based on a variance movement from 2015/16 to 2016/17 (not highlighted in sections 5.1 and 5.2) are as follows. REDACTED Potential financial impact: 0.1m overspend and 0.1m underspend. 5.4 Overall findings - GP practice level This section evaluates the implications and financial analysis performed in sections The analysis has been performed on individual GP practices segmented by contract type across the five CCGs. If all overspend budgets were to continue to this tend and underspending budgets were to consume their slack, there is a risk that the financial gap would grow. The potential across material exceptions for this is shown across the five CCGs in the table below. 3 Year actual vs 16/17 Budget PMS ( m) GMS ( m) APMS ( m) Total ( m) Overspend Potential Underspend Potential Year Budgets Overspend Potential Underspend Potential Year Budgets vs Actual Overspend Potential Underspend Potential Total Potential Overspent Total Potential Underspent The table illustrates that there is a greater potential for underspend rather than overspend. This is lower risk but it does suggest more is required to enhance the accuracy of budgets set. It is also crucial that the CCGs review their controls and processes surrounding the capturing of financial information. If this lacks completeness there is a risk that reporting is incorrect and that the comparisons performed are not a true representation of the position of the GP practices. 5.5 CCG level analysis The purpose of this section is to present the potential financial impact of the budget vs actuals variance for each CCG. The analysis already performed has been undertaken at GP practice level, however it has also been identified that a number of costs have been coded as default and therefore not allocated to a specific GP. We have factored this into our analysis and discuss the impact of this on the overall position consolidated across CWHHE and each CCG. The graph below illustrates that CWHHE could underspend for 2016/17. However, the difference is considerably less with a favourable variance of 0.1m compared to 3.1m when only identifiable GP practice level costs are taken into consideration, as per section 5.3 above. Financial Due Diligence around delegated authority for primary care GP Contracting 20

22 For 2017/18 and future years the CCGs should ensure that such costs are understood and allocated at practice level to enhance planning, reporting and support stronger decision making. 4.5m 4.0m 3.5m 3.0m 2.5m 2.0m 1.5m 1.0m 0.5m 0.0m - 0.5m Budget vs Actual variance - Overall position per CCG Ealing West London HounslowHammersmith and Fulham CLCCG Total 2014/ / /17 A further breakdown of the variance at GP practice level, default code and overall position is presented in the following table. Overspend is denoted in brackets. PMS ( m) GMS ( m) APMS ( m) Total ( m) Central London CCG Level Budget CCG Level Forecast Outturn Central London Overall Position Vs GP Practice Level Variance Non GP Practice Level Variance (0.2) (0.5) 0.1 (0.6) West London CCG Level Budget CCG Level Forecast Outturn West London Overall Position (0.1) (0.1) Vs GP Practice Level Variance Non GP Practice Level Variance (0.4) (0.3) (0.1) (0.8) Hammersmith and Fulham CCG Level Budget CCG Level Forecast Outturn Hammersmith Overall Position (0.1) 0.1 Vs GP Practice Level Variance Financial Due Diligence around delegated authority for primary care GP Contracting 21

23 Non GP Practice Level Variance (0.0) (0.5) (0.1) (0.6) Hounslow CCG Level Budget CCG Level Forecast Outturn Hounslow Overall Position (0.2) (0.1) Vs GP Practice Level Variance (0.1) 0.3 Non GP Practice Level Variance (0.1) (0.2) (0.1) (0.4) Ealing CCG Level Budget CCG Level Forecast Outturn Ealing Overall Position 0.0 (0.1) (0.1) (0.2) Vs GP Practice Level Variance (0.1) 0.4 Non GP Practice Level Variance (0.1) (0.5) 0.0 (0.6) Some of the primary reasons which have led to significant overspend variances for budget vs actual at CCG level through use of the default codes are as follows. Minimum Practice Income Guarantee (MPIG) - the spike which took place in 2014/15 for Hounslow was largely attributable to the MPIG on GMS contracts which was designed to ensure practices were not financially destabilised with the advent of GMS contracts in A budget was set for 1.2m coded as default and with no payment made, this led to a significant underspend. Direct Enhanced Services (DES) - there are DES costs incurred which have not been reflected at GP practice level. This led to an average 0.4m adverse variance for each CCG in 2016/17. The differences relate to contract types for extended hours access and unplanned admissions. Premises Payment - there are several instances where premises payments had not been split at practice level, for example in 2016/17 for West London the variance for GMS premises payments was 0.1m. It is evident that the budgets have largely been in line with actuals and since 2014/15 and the consolidated position has been one of underspend rather than overspend. More is needed to ensure that the costs incurred are appropriately recognised for each GP. Budgets should also encompass an element of zero based budgeting so one off costs are reflected and captured accordingly. Financial Due Diligence around delegated authority for primary care GP Contracting 22

24 6 FINANCIAL PLANNING 6.1 Budget setting The allocation for Primary Care Medical Services (PCMS) is formulaically driven using the Carr-Hill funding distribution which has been set incorporating the following levels of growth for 2017/18 onwards. 2017/ / / /21 North East London 4.68% 3.50% 4.18% 5.44% North Central London 6.61% 3.95% 4.03% 6.24% North West London 6.89% 3.93% 3.69% 4.83% South West London 3.25% 2.93% 3.68% 4.84% South East London 4.38% 3.38% 3.85% 4.93% London Average 5.22% 3.56% 3.89% 5.22% The resulting allocations which will be delegated to the CCGs to fund Primary Care Medical Services are shown in the table below. PCMS Allocation 2017/18 ( m) 2018/19 ( m) 2019/20 ( m) 2020/21 ( m) Central London CCG West London CCG Hammersmith and Fulham CCG Hounslow CCG Ealing CCG Total A forecast for the 2017/18 Primary Care Medical Services budgets has been compiled based on the total budget for 2016/17, including 0.5 per cent contingency and 1 per cent non-recurrent reserve, plus each CCGs ONS forecast demographic uplift and a provision of 1.2 per cent net inflation across total expenditure. This can be broken down as shown in the table below. Financial Due Diligence around delegated authority for primary care GP Contracting 23

25 PCMS Expenditure Budget Central London West London Hammersmith and Fulham Hounslow Ealing CCG ( m) 2016/17 Practice Level Budget % Non-Recurrent Reserve Contingency (0.5%) QIPP (0.5%) (0.1) (0.2) (0.1) (0.2) (0.2) (0.8) 2016/17 Baseline Budget Demographic Uplift Net Inflation (1.2% estimated) /18 Baseline Budget The national guidance regarding GP pay uplift is one per cent, however, the final contract settlement may include uplifts to other elements of practice remuneration, and premises costs inflation will vary from this and therefore a net 1.2 per cent has been used by NHS England to reflect this, although this is an estimate at this point. It should be noted that there is no allowance in the above for outturn pressures in 2016/17, recurrent use of the 0.5 per cent contingency in 2016/17 or specific development pressures such as new contracts or the revenue consequences of ETTF / Improvement Grants. The amount of headroom between the 2017/18 budgets and the Primary Care Medical Services Allocation is shown in the table below: PCMS Budget Headroom Central London West London Hammersmith and Fulham Hounslow Ealing CCG ( m) 2017/18 Baseline Budget /18 Allocation Headroom / (Gap) (0.7) Due to the inclusion of a brought forward surplus on the 2017/18 regional allocation for Primary Care Medical Services, NHS England has stipulated that there is a requirement to break even in year on their allocation as opposed to delivering a 1 per cent surplus. The 2017/18 Primary Care Medical expenditure budgets will be drafted in the new year, based on the forecast outturn for 2016/17, adjusted for non-recurrent items and including known specific pressures / developments. If there is no further information on the GP Contract negotiations, the above 1.2 per cent inflation will be used along with GP list sizes as at 1 January Final budgets will be set once the national contract negotiations have been concluded and the April list sizes are known. Hence there is a financial risk that the 2017/18 budgets will not be representative of the historic levels of spend previously incurred due to the inflation uplift of 1.2 per cent being insufficient. We have provided an assessment of the level of exposure if an inflation uplift of 1.5 per cent were to be a more representative of budgeted increases in cost. Total ( m) Total ( m) Financial Due Diligence around delegated authority for primary care GP Contracting 24