Five-Year Capital Expenditure Plan Prepared by the Director of Finance & Information

Transcription

1 The Lewisham Healthcare NHS Trust Meeting of the Trust Board 5 th July 2011 Five-Year Capital Expenditure Plan Prepared by the Director of Finance & Information 1. Introduction The Trust Board is required to agree a three-year capital programme prior to the start of each Financial Year. In preparation of a potential Foundation Trust bid, UHL moved to having a five year capital programme in 2010/11. A draft Capital Programme was presented and discussed at the February Strategy and Investment Committee and further refinements have now been agreed by the Capital Planning Committee and the Trust Management Executive. The Plan is enclosed as Appendix 1. The Board is asked to agree this plan, subject to the various issues identified in the paper. 2. Source of Funding With FT status, the Trust will have greater freedom to use surpluses and raise capital for investment. This should, in theory, allow the Trust to potentially invest more or less in capital than historical funding models. However, given the anticipated financial pressures facing the NHS over the next 4-5 years, it is deemed prudent to generally limit capital investment to no more than the level of expected depreciation during this period. Furthermore, the Trust will likely need to utilise some of its borrowing capacity to increase its working capital to meet FT liquidity requirements. In addition reinvesting depreciation, the Trust is assuming the Trust will draw down and spend the remaining 4.868m doe the UCC project in 2011/12 and 2012/13. Total loans for this project will be m. See Section 4.2. Depreciation in each of the next 5 years ranges will be at least 8.3m. This amount is anticipated to increase, be driven by required asset indexation and by a recent trend of primarily purchasing IT and medical equipment, which has shorter depreciable lives. Current detailed projections, driven by planned asset additions, the full depreciation of older assets and projected indexation is as follows: Projected Depreciation 2011/ / / / /16 (000 s) (000 s) (000 s) (000 s) (000 s) 8,624 9,217 9,089 8,839 9,652 Give the variability of the figures, which could change based on the timing of asset additions and the assigned useful life, it is proposed to hold this funding source constant at 8.3m for each of the next 5 years July 5- Trust Board - Five Year Capital Plan - FINAL 1 P a g e

2 In addition to depreciation and the UCC loan, the only other potential source of capital funding is the sale of capital assets, which is detailed in Section 2, below. The 2010/11 Capital Programme initially assumed that 500k in funding would be received from NHS Lewisham; this was the PCT s contribution to the cost of the Birth Centre. During the year it was assumed that 200k of this would be deferred until 2011/12. Current advice from NHS London, however, now indicates that PCTs are no longer allowed to transfer funding to Trusts, therefore it has been assumed that this 200k funding will not be available in 2011/ Sale of Property The Trust will be selling two properties in 2011/12 and is now developing plans for the sale of a third property, which has is assumed to be in 2013/14. Each of these is detailed below: Dunoran Home This property was vacated in April The sale of this property has continued to be delayed due to planning delays and the original sale falling through. Proceeds of 1,680,000 are assumed and are expected in June or July Hospital Way The Trust Board agreed to sell these remaining properties in May 2010 and the deal was concluded in April 2011, with the Trust receiving 4.375m. Approximately 2.2m of these proceeds were paid to the Housing Association, who built this staff accommodation, in order to terminate the remaining leases for these properties. Net proceeds were 2.086m. Accounting treatment of the transaction is unusual, with a portion of the lease termination payment ( 694k) being considered a capital acquisition; this is reflected in the capital programme. The Trust is anticipating that it will sell the Hospital Way Sterile Services property when the agreement with Synergy to provide this service concludes in 2013, with the Trust tendering for this service, as required under SFIs. It is anticipated that the service will then be provided from an alternative location. The value of this site is estimated at 2m. Net proceeds of 3,766,000 from the sale of Hospital Way and Dunoran Home are anticipated in 2011/12. It is proposed that these amounts are not reinvested in other capital assets and instead used to strengthen the Trust s working capital position. There is some risk that this strategy may not be agreed by the NHS London, who normally expects that capital proceeds are reinvested into capital assets. It is assumed that the proceeds from the sale of the Hospital Way Sterile Services facility will be used to increase the amount of capital available in 2013/ Capital Expenditure Assumptions 4.1. Debt Repayment July 5- Trust Board - Five Year Capital Plan - FINAL 2 P a g e

3 The Trust needs to account for debt repayment within its Capital Resource Limit (CRL), something that was not assumed when the capital programme was agreed last year. There are 3 areas where this impacts the funding available for new capital investment: Riverside Repayment The Trust has 25½ years remaining on the Riverside PFI lease. Under IFRS the Trust now accounts for this lease transaction as a combination of capital repayment, interest expense and operating costs based on detailed NHS guidance. It is therefore planned that the first call on the annual Capital Programme is the identified PFI capital repayment amount, which will gradually increase overtime and is currently 1.4m Urgent Care Centre The UCC is being funded through long-term borrowing, with principle repayment required for the next 25 years. Principle repayments are assumed to be 369k in 2011/12, increasing to 484k in future years Other Capitalised Lease payments Under IFRS rules, a number items of equipment which are leased now need to be accounted for as capital leases, with lease payments accounted for as a combination of interest and principle repayments. The amount of principle repayment needs to be accounted against the Trust s CRL and included within the Capital Programme. These are estimated at 71k in 2011/12 and dropping to 15k in 2013/ Specifically Funded Projects Within the draft Capital Programme, the only externally funded project assumed is the UCC, which is currently underway. Expenditure on this will correspond to government loans taken and detailed in Section 2, above. Please note the risk identified in Section 5 which arises due to potential slippage on this scheme in 2010/11. The UCC Project, when agreed, contained a contingency budget, which was consistent with NHS guidance and practice. The Director of Facilities & Estates has now requested that a further 100k be added to this contingency fund as a precaution, due to design refinements primarily associated with the spiritual/quiet space that is now being proposed. More detail associated with these pressures is reported separately to the Trust Board. This amount has therefore been included within the 2011/12 Capital Programme Schemes Carried Forward from 2010/11 A number of agreed schemes were not completed in 2010/11 and therefore remain outstanding in 2011/12. This contributes to under-spending on the 2010/11 CRL and creates a pressure on the 2011/12 CRL. These projects include: Dalton Foot Clinic This scheme provides for this community service to be re-provided on the Hospital site. It was recognised, when agreed, that construction costs would be split between July 5- Trust Board - Five Year Capital Plan - FINAL 3 P a g e

4 the two financial years. 30k was spent in 2010/11 and the remaining 210k will be spent in 2011/ Simulation Lab Equipment Only a portion of this 323k scheme was procured in 2010/11, with 158k of expenditure falling into 2011/ Radiology Equipment The Strategy Committee agreed to procure a number of pieces of new radiology equipment associated with the new UCC in the 4 th quarter of 2010/11. Some of this equipment was not received until after the year-end cut off, therefore creating a 59k pressure on the 2011/12 Capital Programme Backlog Maintenance and Estate Capital Equipment The Trust Board will be agreeing an Estate Strategy in the coming months. Current work estimates that that ideally, 5,636k in backlog maintenance should be spent during the next five years and that an investment of a further 5,656k should be spent on Estate Capital equipment. The total value of the currently proposed backlog maintenance programme and estate capital equipment programming is 11,292k over the next 5 years and is broken down as follows: 2012/ / / / /17 Backlog Maintenance 1, ,506 Estate Capital Equipment 1, ,510 Total 2,616 1,912 1,844 1,904 3,016 The Capital Planning Committee has undertaken a preliminary review of the list of backlog schemes and believes that it can be priorities and reduced so that budgeting 1m per year should be sufficient to address the key backlog needs. A prioritised list of schemes will be finalised and included within the Estates Strategy. By reducing funding for backlog maintenance below the theoretically calculated amount, the Trust could be potentially be increasing some risks associated with its facilities. It is therefore proposed to fund 1m each year for backlog maintenance, with the 2011/12 and 2012/13 amounts adjusted by 200k to better match available funds ( 800k in 2011/12 and 1.2m in 2012/13) 4.5. Medical Equipment - General July 5- Trust Board - Five Year Capital Plan - FINAL 4 P a g e

5 The Trust has invested approximately 800k in general Medical Equipment in each of the past two years. It was previously proposed to hold medical equipment expenditure at 800k in the next two years and then increase this to 1.5 years in years 3 and 4. It is still anticipated that medical equipment pressures will increase during the coming years. Some of this relates to equipment provided under the PFI contract and which will now be 5 years old in 2011/12. Work is currently underway to develop a detailed inventory of medical equipment, which should identify when each piece of equipment will need to be realistically replaced. This work is expected to be completed in the autumn of 2011 and should inform next year s draft of the Capital Programme. As this is not yet available, a bidding and assessment process will again be coordinated by the Director of Operations to identify the greatest equipment needs within the Trust. Funding for medical equipment has now been increased to 1m in 2011/12, 1.2m in 2012/13 and 1.5m over the next three years. In addition, as discussed in Section 4.6, below, smaller Radiology equipment purchases identified within the Radiology Equipment Replacement strategy, will be funded from this portion of the capital budget, with only the largest items specifically budgeted separately Radiology Equipment Replacement The Trust has acknowledged difficulties in planning for the replacement of Radiology equipment within the Trust, with a non-executive review of recent requirements recently completed. As part of these recommendations was the need for the Strategy Committee to finalise a Radiology Equipment Replacement Strategy. A draft of this strategy has been prepared and reviewed by the Capital Planning Committee. The current draft strategy includes 3,050,000 of desired radiology equipment to be replaced over the next five years. Included within these figures are: 960k for the replacement of the Nuclear Medical Gamma Camera in 2011/12; this cost includes 360k of estimated estates costs 1,195k for the replacement of the Trust s MRI in 2012/14; this amount includes 180k estimated estates costs. The lease on the current machine will expire in 2013/14 and arrangements to extend the lease for one year will be required. Fourteen other pieces of equipment, with estimated replacement costs ranging between 40k and 145k, phased over the next five years. In total, these items are estimated at 1,380k to replace. While the Radiology Equipment Replacement Strategy still needs to be finalised, it is proposed to tentatively include the Nuclear Medical Gamma Camera for purchase in 2011/12 and the replacement of the MRI in 2013/14. Full business cases will need to be developed and agreed by the Trust Board before replacement can go ahead. In regards to the remaining Radiology equipment requirements over the next 5 years, it is proposed that these be prioritised against other medical equipment requirements, as discussed in Section July 5- Trust Board - Five Year Capital Plan - FINAL 5 P a g e

6 4.7. Pathology Equipment Replacement Similar to Radiology Equipment, the Trust needs to replace a number of pieces of costly Pathology Equipment over the next few years. As a strategy to replace this equipment has not yet been prepared; it is difficult to estimate the potential financial costs associated. Additional issues include: Current uncertainty about the future of Pathology services on the UHL site, with options to potentially tender the service being considered. The Trust has a history of leasing pathology equipment. In some instances, the Trust pays minimal lease costs but faces significant revenue pressures associated with lab reagent costs. Reagent costs frequently increase above the rate of inflation and increase in line with increasing demand. Future purchases will need to consider IFRS accounting requirements, and an estimate of the true economic cost of equipment acquisition, either through purchase or lease. Given the uncertainty associated with Pathology services, and the lack of detailed plans, it is currently proposed to not allocate Capital resources against any Pathology equipment replacement at this point in time. Once the future of Pathology services at the Trust is clarified, the Capital Plan may need to be adjusted to reflect equipment replacement pressures Strategic Investment Preliminary work has indicated that the Trust will likely need to invest capital resources into Maternity Services and the potential relocation of a number of specialties from A Block into the Riverside building. Potential Projects include: Upgrade of NICU to address compliance issues; Potential expansion of delivery suite to match forecast increase in births; Upgrade of post-natal ward Potential move of children s services to maximise the use of Riverside The impact of these schemes, as they are developed, could have a significant impact on backlog maintenance costs, particularly since many of these services are located within A Block, which features significantly in current backlog plans. It is hoped that by addressing these strategic issues, some backlog maintenance pressures will be reduced or eliminated. The proposed capital Plan assumes that 500k in each of the next 5 years will be required to address various strategic issues coming out of the Clinical Strategies being developed. As plans are further developed, the Capital Programme may need to be refined to reflect these pressures and priorities Information Technology July 5- Trust Board - Five Year Capital Plan - FINAL 6 P a g e

7 The Trust Board has agreed an IT Strategy, subjective to sufficient capital funding being made available to support the strategy. The IM&T strategic development process has been one of establishing the Trust s information needs with the primary focus upon clinical and patient information systems. These have been translated into IT system requirements, including backend technology refresh to support service re-design and reconfiguration and core corporate systems, such as Electronic Patient Record and electronic prescribing. The strategic vision takes a hybrid approach between implementing a large, all encompassing Electronic patient Record and individual best of breed departmental systems which upload into a virtual patient record. This allows the Trust to develop clinical systems in a staged manner and choose the most appropriate solution for specific requirements. The five-year Capital Plan for IM&T, which totals 14.5 million, is detailed within the draft IM&T Strategy and summarised in Appendix 3. As the Trust had available funding in 2010/11, 211k of the previously planned 2011/12 expenditure was brought forward, reducing the 2011/12 projected expenditure. The costs of the programme have been developed using information from market research, indicative costs provided by potential suppliers and from similar implementations elsewhere within the NHS. All IM&T projects will be subject to a business case review process and Benefit Realisation Plans will be produced which must be owned by the project sponsor and appropriate business unit or division. Business cases will be assessed on the basis of patient safety, productivity improvements and cash releasing benefits, clinical impact, and organisational capability. Information Technology Investment 2011/ / / / /16 2,289 3,000 3,000 3,000 3, Risks and Other Issues a) The Trust has not had formal confirmation of its CRL from NHS London. Historically, this does not generally occur until the summer. There is a risk that these assumptions about available Capital funding are greater than what will ultimately be included in the Trust s CRL and that the Trust would then need to revisit this Capital Programme. b) The increase in depreciation due to indexation was not identified until April and was not reflected in earlier submissions to NHS London. There is a risk that the Trust s CRL may be based on original submissions and that the CRL agreed is less than what is now assumed in this Plan. To partially mitigate this risk, the Capital Planning Committee retained a higher contingency within the 2011/12 Plan July 5- Trust Board - Five Year Capital Plan - FINAL 7 P a g e

8 c) The Trust borrowed 6.974m in December 2010 as the funding source for the UCC. It was anticipated that this would equal expenditure in 2010/11 against the project. Slippage of 675k occurred in 2010/11, which was reflected in an under-spend on the Trust s CRL. It is assumed that NHS London will agree that this amount will be added to the Trust s 2011/12 CRL. If this does not occur, this amount may be a pressure on the capital programme. d) As part of the agreement with the Challenge Trust Board (CTB), last year it was proposed that the Capital programme be reduced by 2m in 2010/11 and 2011/12 so that cash was made available for the repayment of the 13.2m in historical cash debt. The assumption has not been reflected within this year s capital programme on the assumption that the remaining debt is repaid from operating surpluses over the next five years, an assumption consistent with the LTFM. e) The 2010/11 Five-Year Capital Programme included 1,022k costs associated with the demolition of DOG block following the completion of the UCC project (and was planned for 2011/12). While the timetable has been refined and demolition would not occur until 2012/13, it has now been excluded from the Capital Programme. Give that demolition costs do not create a depreciable asset, it has been deemed that these demolition costs are more appropriately accounted for as a Revenue cost and will need to be included with the revised LTFM as such. f) No specific capital requirements have been identified for Community Services. IT requirements are included within IT capital costs and medical equipment requirements will be considered against other medical equipment priorities. At this point in time estates capital investment remains the responsibility of NHS Lewisham, it is possible that the Trust will assume responsibility for the community estate sometime in the near future. If this goes ahead, appropriate due diligence, along with agreement for appropriate funding of associated depreciation, will need to occur. It is therefore assumed that the impact of taking over community estates would be neutral on the Trust s Capital Programme. g) Potential acquisition of the Registry Office from Lewisham Borough Council is being considered. This could take the form of an exchange of properties, with the Trust transferring the list portion of the Education Centre. The primary benefit to the Trust of obtaining the Registry Office is that it could greatly improve entrance onto the site. No funding assumptions have been made for acquiring this building. 6. Phasing, Approval and Monitoring of the Capital Programme a) During the past few years the Trust has periodically revised the capital programme in-year to reflect new pressures and priorities. It is anticipated that this will again be the case in 2011/12. Changes over 250k require Trust Board approval (previously delegated to the Strategy and Investment Committee) and that the Trust Capital Planning Committee can agree changes less than this threshold, with these changes then being reported to the Trust Board. It is proposed to continue with this approach in 2011/12. b) All expenditure over 250k will require the Trust Board to approve a robust business case. Although, the Plan includes the funding of a new Gamma Camera, this will not proceed without Board approval of a business case. Similarly, strategic expenditure, IT July 5- Trust Board - Five Year Capital Plan - FINAL 8 P a g e

9 expenditure, backlog maintenance or medical equipment purchases over 250k will require Board approval of a business case. c) Although 500k has been budgeted for strategic investment, this will not proceed until the Board agrees the priorities and components of this expenditure. d) Given the uncertainty within this Capital Programme, IT, Medical Equipment and Backlog maintenance can only commit 50% of their budgets during the first 6 months of 2011/12. e) Capital expenditure against this Plan will be reported to the Finance Committee monthly; it is not included as part of monthly Board financial reporting. The Director of Finance and Information will periodically bring update reports to the Board on the Capital Programme. 7. Requested Action The Board is asked to note the various risks within the Capital Programme, agree to the approval and monitoring arrangements proposed in Section 6, and agree the Capital Programme. John Hennessey Director of Finance and Information 31 st March July 5- Trust Board - Five Year Capital Plan - FINAL 9 P a g e

10 2011/ /16 Capital Programme APPENDIX 1 Current 5-Year Capital Programme Proposed Changes Capital Programme A B C D E F G H I J K L M N O Current Plan 2010/ / / / / / / / / / / / / / /16 SOURCES OF CAPITAL Depreciation 7,612 6,846 6,846 6,846 6,846 1,466 1,466 1,466 1,466 8,312 8,312 8,312 8,312 8,312 8,312 Proceed from Sales Dunoran Home 1,680 1,680 Hospital Way (Net) 2,780 2,780 Hither Green Sterile Services 2,000 2,000 Specific Funding PCT Polysystem funding (Lewisham PCT) 500 (500) PCT Funding of 2009/10 Birthing Centre Urgent Care Centre (NHS London/DH) 6,974 3,488 1, , UCC Unspent 2010/11 b/f Total Sources of Capital 14,586 10,834 6,846 6,846 6,846 7,179 1,768 3,466 1,466 8,312 18,013 8,614 10,312 8,312 8,312 APPLICATION OF CAPITAL SPECIFICALLY FUNDED SCHEMES Poly system 500 (500) Urgent Care Centre 6,974 3,488 1, , UCC - Additional Contingency Capital Lease funding Hospital Way MAJOR SCHEMES (Self Funded) Demolition DOG Block 1,022 (1,022) BOA Block microfibre 30 Dalton Foot Clinic Simulation lab STRATEGIC INVESTMENT BACKLOG MAINTENANCE /HEALTH & SAFETY 547 1,000 2,000 2,000 2,000 (200) (800) (1,000) (1,000) 1, ,200 1,000 1,000 1,000 EQUIPMENT Medical Equipment ,200 1, ,500 1,000 1,200 1,500 1,500 1,500 A&E Patient Montiors 216 Radiology Equipment 1, , (121) (1,040) (995) 59 Radiology Equipment - Gamma Camera Radiology Equipment - MRI 1,195 1,195 Pathology ,000 1,000 1,000 (500) (1,000) (1,000) (1,000) Other 13 INFORMATION TECHNOLOGY 823 1,000 1,500 1,000 1,000 1,289 1,500 2,000 2,000 3,000 2,289 3,000 3,000 3,000 3,000 Subtotal 11,904 8,490 6,340 6,195 5,500 3,521 (138) 1, ,000 12,011 6,202 7,195 6,000 6,000 Contingency , (38) 484 (979) , CAPITAL RESOURCE LIMIT 12,075 8,834 6,846 6,846 6,846 3,571 (176) 1,484 (479) 6,287 12,405 6,670 8,330 6,367 6,287 FINANCE COSTS (DEBT REPAYMENT) UCC PFI 1,327 1,402 1,387 1,483 1,446 1,541 1,402 1,387 1,483 1,446 1,541 Other Sub Total 1,496 1,842 1,944 1,982 1,945 2,025 1,842 1,944 1,982 1,945 2,025 UNAPPLIED CAPITAL RESOURCE 1,015 2,000 1,766 3,766 Total Application of Capital 14,586 10,834 6,846 6,846 6,846 7,179 1,768 3,466 1,466 8,312 18,013 8,614 10,312 8,312 8, July 5- Trust Board - Five Year Capital Plan - FINAL 10 P a g e

11 SUMMARY OF DRAFT IT CAPITAL PROGRAMME 2011/ /16 Appendix 2 IM&T Strategy - 5 Year Capital Plan 2011/ / / / /16 000s 000s 000s 000s 000s Clinical and Patient Applications Electronic Patient Record (EPR) / Virtual Patient Record eprescribing Patient Master Index (PMI) Existing Clinical Portal / "EPR Lite" Development Electronic Document Management (EDM) Intelligent Results Service - Results Acknowledgement 55 GP System Developments Cardiology and Cancer Networks support Pathology (cellular Pathology) 183 Enterprise Wide Scheduling SUB-TOTAL NPfIT System Replacements / Upgrades PAS (PiMS acute) 10 PAS (RiO community) 1350 PACS (Licences and Upgrades) 1000 SUB-TOTAL Information Provision and Data Warehouse Acute Data Warehouse and contract monitoring replacement 198 Community Data Warehouse migration 78 Outcome Related Dashboards for Patients and GPs SUB-TOTAL Business / Corporate Applications Service Line Reporting PLCIS 50 ESR erostering SUB-TOTAL Applications Infrastructure Integration Engine 301 RiO PAS Integration 70 New Interface Development SUB-TOTAL Infrastructure Data network - active network hardware (edge) Data network - active network hardware (core) 70 Cabling - Estates Block 20 Cabling Nursery 5 Cabling - Owen Centre 20 Cabling - other refresh Wireless Expansion (A Block, theatres, birthing centre) Wireless Refresh Server Refresh Cabinets and UPSes 5 10 Firewalls Virtual Desktop / thin client expansion (acute site) 180 Remote Access (increase capacity) 50 Increase Internet connection capacity Upgrade / replace back office software licences 300 Upgrade / replace desktop software licences 880 User Access - tablets, digi pens etc PACS workstation refresh 34 PCs (replace 400 per year) Printers Telephony / voice (IPT and PABX Replacement) SUB-TOTAL TOTAL July 5- Trust Board - Five Year Capital Plan - FINAL 11 P a g e