Medium Term Financial Strategy

Transcription

1 Medium Term Financial Strategy

2 *07/06/2013 Reader Information Table Name of document: Medium Term Financial Strategy Version: Draft v3 Status: Draft Owner: Zoe Pietrzak, Chief Financial Officer Date of this version: 13 June 2013 Produced by: Zoe Pietrzak Approved by: Great Yarmouth & Waveney CCG Governing Body Date ratified: TBC Next review date: June 2014 Enquiries to: Zoe Pietrzak

3 CONTENTS Page 1 Purpose 4 2 Context /13 A transition year 5 4 Current year forecast (2013/14) 6 5 Statutory duties 7 6 The environment & its influences on our finances 7 7 Financial planning assumptions 8 8 2% Non-recurrent Reserve 8 9 Future recurrent resource 9 10 Running Costs The Challenge - Impact of Do nothing expenditure The Opportunities Integration & QIPP Quality Premium Financial Impact Financial Risks & Risk sharing Summary 16 3

4 1 Purpose The purpose of this Medium Term Financial Strategy is to underpin the delivery of NHS Great Yarmouth & Waveney Clinical Commissioning Group s (NHS GYW CCG) Plan on a Page and Out of Hospital Strategy by establishing a robust, flexible and sustainable financial environment within which to operate. The strategy will enable the local system to develop as necessary within the context of the current and projected economic and political climate providing a financial framework for collaborative working. This strategy: Promotes robust financial control along with the implementation and maintenance of strong governance arrangements. Will deliver a sustainable and strategic surplus. Will meet the statutory requirements of the organisation. Supports and reflects the NHS GYW CCG Plan on a Page and Out of Hospital Strategy. Demonstrates the most appropriate use of resources for its population based on need. Will, through a clear financial framework and membership practice commitment, help deliver the Clinical Commissioning Group s (CCG) vision of Better Health, Better Care, Better Value. Has been informed by multi agency and partnership working. Will be revisited annually in line with NHS GYW CCG s operational/commissioning plan and be informed by the NHS Everyone Counts: Planning for Patients to ensure congruence with overarching strategies. 2 Context In July 2010 the new government introduced its White Paper for Equity and Excellence: Liberating the NHS which set out the future of the NHS. The fundamental theme of which was to move to Clinical Commissioning. The abolition of Strategic Health Authorities (SHAs) and Primary Care Trusts (PCTs) made way for Clinical Commissioning Groups to commission health services on behalf of the population regulated by NHS England and serviced, in part, by Commissioning Support Units (CSU). This change has happened alongside one of the biggest financial challenges ever faced by the NHS, the nationally directed productivity savings of 15 to 20 billion (20%) real terms reduction from 2011/12 to 2014/15 fuelled by the economic climate. The Quality, Innovation, Productivity and Prevention (QIPP) challenge is the response to this funding gap. The diagram below shows how the gap has arisen. 4

5 Great Yarmouth & Waveney PCT has left behind it a legacy of QIPP achievement. In 2012/13 the CCG embraced and revitalised QIPP plans to deliver 11.6m in savings which has been reinvested in healthcare for the population. The achievement of savings is becoming more difficult because easier, or transactional, savings have already been made and it is savings as a result of transformation that are now required. It has been noted nationally that savings plans are needed beyond 2014/15 as NHS organisations are being asked to do more for the same money. The CCG is responding to this challenge by working closely with local partners to develop a sustainable and efficient healthcare service. We have used the latest assumptions from Everyone Counts: Planning for Patients along with local assumptions to model our financial plans within which our QIPP savings target is embedded, achievement of our QIPP savings is imperative if we are to secure a sustainable future for our health economy /13 A Transition year NHS GYW CCG mirrors the foot print of Great Yarmouth & Waveney PCT and has taken on the legacy and challenges left by the outgoing organisation. 2012/13 was a year of transition with the demise of PCTs at the end of March 2013 and where commissioning responsibility was handed to CCGs from April It was vital not to lose sight of financial challenges in the climate of change whilst planning for the future and NHS GYW CCG drove strategy and closely monitoring the performance of Great Yarmouth & Waveney PCT during 2012/13. Appropriate commissioning budgets were delegated to NHS GYW CCG via the Clinical Executive Committee from April These delegated budgets incorporated QIPP and Running Costs targets and our successful 5

6 performance in managing these targets along with the financial position were monitored throughout the year. The final outturn position for the PCT was a small surplus that has been carried forward proportionately by the new organisations. 4 Current year forecast (2013/14) The future however presents a challenging financial environment and as NHS GYW CCG embarks on its first year as an authorised NHS body it is robust financial controls and planning that will enable it to meet these challenges whilst being flexible enough to mitigate risks as they arise. The financial environment has been felt throughout the country by all types of organisations and the NHS has not escaped. Although NHS funding is ring-fenced, the CCG must operate with minimal real growth and as a result of this considerable efficiencies must be made in this strategy. The CCG allocation for 2013/14 saw net growth of 2.3% which has been reflected in financial planning for future years covered by this strategy. There is a balance between maintaining financial control and innovating that needs to be struck in order to move the CCG into new ways of doing things as we commission efficient health services from our partners whilst achieving our statutory duties. CCGs are new organisations and Everyone counts: planning for patients 2013/14 guidance seeks to mitigate the risk of CCG financial failure through requirements to allocate resource non-recurrently. The guidance requires contingency reserves and non-recurrent reserves to be set from the allocation provided. In doing this the CCG is not committing all of its resource recurrently allowing for flexibility to mitigate risks throughout the year. It also enables a level of investment to transform the system. The CCG is also required to make a 1% surplus at the end of this financial year and the assumption in this strategy is that this will continue to be a requirement of the organisation. The table below sets out the financial legacy left by Great Yarmouth & Waveney PCT and the forecast revenue position for NHS GYW CCG. 6

7 Figure 1. PCT historic and NHS GYW CCG forecast outturn revenue position ( 000) 5 Statutory duties The CCG is required by statute to meet certain financial duties in order to ensure public funds are used appropriately. These duties are: Remain within its Revenue Cash Limit; Remain within its Revenue Resource Limit; In addition, the organisation has an administrative duty to comply with the Better Payments Practice Code. This requires the prompt payment of NHS and non-nhs creditors within 30 days. NHS GYW CCG will also commit to pay the majority of small and medium sized companies within 10 days recognising the importance of cash flow in the current economic climate. 6 The environment & its influences on our finances Political Changes in government, intervention policies and changes in legislation (both national and international) create an ever moving political environment. The NHS has seen the continued effects that political change has and this hasn t been more obvious than in the last three years. It is this environmental factor that has fuelled the recent change within the NHS landscape. Economic Continuing growth cannot be sustained in the current economy. The 20% productivity target is also unprecedented in the NHS and means radical transformational change. A maximum running cost envelope of 25 per head of population presents an efficiency challenge for CCGs in resourcing our commissioning activities. 7

8 Social The effect of the economic downturn and increased unemployment could widen the inequalities in our patch driving up the costs of healthcare combined with the CCG s distinct demographics and an aging population. Technological Changes and improvements in medicine and equipment could increase unit costs. Environment The local health system operates from some aging estate which may add to its carbon footprint in a climate where unsustainability is penalised. This may affect those trusts with whom the CCG contract. Legal Legislation such as the Human Rights Act can widen access to certain interventions or medicines which can impact on the level of costs for the CCG. 7 Financial planning assumptions The significant change that has created the new NHS landscape requires our current forecasting and processes to be flexible enough for the CCG to keep up and in places affect the reform as it embeds. To enable this, our financial planning is based on the following assumptions: National Limited growth in resource from 2013/ % tariff deflator for 2013/14 onwards. 2.5% CQUIN payments. Local 0.25% - 1% demographic growth. 1% technological change. 5% prescribing growth. 15% continuing healthcare growth. The 1.3% tariff deflator for 2013/14 is based on achieving the maximum efficiency of 4% set out in the current national planning guidance. Given the size of the financial challenges to both CCGs and providers this must become the expectation for future years also. Further to this there is a national requirement for CCGs to make a 1% surplus, set 2% aside for non-recurrent investment and ensure there is a 0.5% contingency reserve available. Local assumptions include growth in activity and price and two areas of high growth are prescribing and continuing healthcare. The forecast growth in prescribing remains at 5% to reflect historic growth and to mitigate increases in the cost drugs. 8

9 Continuing healthcare activity has increased significantly year on year for the last three years and again has been estimated to grow by 15% in the years covered by this strategy. To date we have realised these growth assumptions and therefore they remain however they will be revisited in the annual financial planning refresh. These are areas of significant spend for the CCG and are monitored closely to ensure that the most appropriate and cost effective service or package of care is commissioned. 8 2% Non-recurrent Reserve Everyone counts: planning for patients 2013/14 stipulates that we set aside 2% of our recurrent resources as a reserve to be spent non-recurrently in each of the next three years. Primarily this non-recurrent funding will act as an enabler to: Develop capacity in the community, to enable acute to primary care/ and community shift as set out in our out of hospital strategy. To pump prime invest to save initiatives which will have longer term benefits or promote behavioural changes. To facilitate system wide initiatives to develop synergies and radical change to pathways reducing waste and duplication in the longer term as part of the integration agenda. To manage expectation and growing demand for services. We will not use non-recurrent funding to support recurrent initiatives. Plans to use the non-recurrent reserve will need to be approved by NHS England, however the CCG will not commit these funds until it is assured of financial stability in any financial year. The current economic climate does not allow for complacency and any invest to save initiatives must deliver in the year of investment. As in-year or future year opportunities to invest arise, they will be prioritised by the Clinical Executive Committee and NHS GYW CCG Governing Body. Figure 2 below sets out the size of our Non-recurrent reserve. 9

10 Figure 2. 2% Non-recurrent reserve ( 000) 9 Future recurrent resource Our ability to invest in new initiatives depends on the level of our financial resources. These can be either recurrent or non recurrent. We can invest using new growth or use reinvested funds. The planning assumptions in section 7 mean that we have minimal recurrent growth only going forward. This means savings must be found to maintain business as usual in future years before any additional investments can be considered. From April 2013 some resource and associated expenditure has become the responsibility of bodies other than CCGs. Public Health funding is transferring to Local Authorities and Public Health England and other services such as Primary Care contracting and Specialist Commissioning are transferring to NHS England. Figure 3 below demonstrates the division of historic PCT resource. Approximately a quarter of the previous PCT allocation has been transferred to the above organisations. The impact of this on the CCG financially is a smaller less flexible resource allocation. Where the transfer of funding is matched by the transfer of activity an element of expenditure risk has also been removed. 10

11 Figure 3. Split of PCT resource allocation The way we work with these organisations in the future is crucial for the care of Great Yarmouth & Waveney patients. 10 Running Costs A nationally calculated envelope of a maximum of 25 per head of population has been set for CCGs to run their organisations this is consistent with the requirement to reduce system wide administration costs by one third. The methodology for calculating the target uses LOSA s (Lower Super Output Area) and is consistent with that historically used in PCT allocations. The running cost allowance includes both staff and services employed directly by the CCG and any other running costs we commission from external organisations. Achievement of this target will be closely monitored by NHS England. NHS GYW CCG has set its running costs at just under the ceiling and the organisation s Executive Team will continually monitor these costs to ensure that they are kept within the prescribed levels. The CCG will also evaluate its running costs for value for money and if this is in question will manage the balance of in house and externally provided services to ensure maximum efficiency. 11 The Challenge - Impact of Do nothing expenditure The CCG challenge has been calculated by modelling national and local financial assumptions. The challenge reflects the estimated growth in expenditure if we do nothing but provide our current level of service. This growth is caused by the increase in the population, growth in the number of elderly people, inflation and new technologies. 11

12 Even before we make provision for contingency reserves and any potential investments, our underlying growth in expenditure exceeds our resources within the next three years. In reality, the need to make provision for contingencies, meet previous commitments and recognise that some of our resources in the initial years are non recurrent means that there is a need to make large savings in each year of the strategy. This reflects the local effect of the national billion productivity challenge. Our planning assumptions are included on a year by year basis in the calculations that underpin the graph in Figure 3 below and illustrate why such large scale savings are required. Figure 4. Do nothing expenditure compared with allocation ( 000 s) Additional cost pressures that have been accounted for recurrently in each year of the strategy are CQUIN payments, the on-going costs of continuing healthcare, acute cost pressures and the revenue impact of investment in estate. Identifying these recurrent cost pressures at the planning stage has helped inform decision making within the CCG for future years at an early stage especially for future investments and our QIPP plans. 12 The Opportunities - Integration & QIPP The forecasts shown in Figure 4 clearly indicate that whilst we predict a continual rise in expenditure each year there is insufficient growth in resources to match this. To enable us to balance our books, we must improve the productivity and cost efficiency of our health services and how we commission them to ensure we develop our opportunities to maximum advantage so we can achieve our savings target for each financial year. The savings targets illustrated in Figure 5 below are set in order to cover the minimum known commitments and cost pressures in each year. Achieving these savings targets allows no surplus for investment in our initiatives. 12

13 The level of savings required in the next three years represents a huge challenge for the CCG and its membership practices. Savings made to date have taken advantage of any easy wins or transactional efficiencies within the system, future savings will only be found through transformational change. Transformational change includes doing things differently, in different settings, in different ways, contracting with different providers. These changes will be based in more primary prevention achieving care earlier, more effectively and encouraging patients to be more involved in their treatment. We can also improve care through integration, removing unnecessary intervention by multiple agencies. By reducing transactional costs and unnecessary overheads we will also explore changing funding mechanisms to remove perverse incentives. Figure 5. QIPP targets for ( 000) In order to achieve financial balance and a national required 1% surplus every year, we have already developed a QIPP plan. The main building blocks include: Overview of the savings requirement. Listing of current savings schemes. Risk rating each scheme. Identified ownership of individual schemes We are continuing to develop, build on and monitor these plans to ensure the required savings are made securing the foundations for a sustainable future. Our productivity approach is to continue to maintain cash independence. In order to maximise the cash position, we have a number of initiatives: 13

14 Efficient working capital management to ensure that payment profiles maximise cash flow and prompt payment deadlines. Maximise the surplus carried forward within that allowable to cover future years. Treat patients in the right setting to avoid costly admissions. Encourage contestability in the market. Outsourcing process driven back office functions where it is more cost effective to do so. Reviewing contracts to ensure providers are following quality specifications. The savings targets in Figure 5 below are those that must be achieved by the CCG, however it is the local system as a whole who are responsible for ensuring that savings targets are met. Working with other local organisations is the key to how these savings will be made and the CCG will continue to work with its local partners through the System Leadership Partnership and other forums to review current activity and continue to develop work streams to ensure our QIPP opportunities are met. The local 1% CQUIN payable to providers in 2013/14, included in planned expenditure, will be used to target integration and transformation within the local system driving efficiency savings. 13 Quality Premium The national planning guidance sets out a plan to financially reward high quality commissioning. The Quality Premium will be paid to CCGs in 2014/15 on improvement or achievement of high standards of quality in 2013/14. There are four national measures that must be improved during this financial year: Potential years of life lost from causes considered amenable to healthcare. Avoidable emergency admissions (a composite of four NHS Outcome Framework indicators). The friends and family test. Incidence of healthcare associated infection (MRSA and Clostridium difficile). The Quality Premium is also dependent on the achievement of three locally determined measures: To deliver Great Yarmouth and Waveney CCG s Out of Hospital Strategy in Lowestoft through a formal consultation with the public about the future provision of health 14

15 services for the people of Lowestoft. The aim is to ask the public how best to provide NHS care to patients in the 21st century, with a review of opportunities to provide services North and South of Lowestoft. Reduction in Hypnotic Prescribing, improving quality and safety in primary care Improving levels of diabetic control, enhancing quality of life for patients with long term conditions and improving outcomes for those with Diabetes These locally determined measures have been designed around local priorities and agreed with NHS England and key stakeholders including patients. The CCG will not receive the Quality Premium payment if statutory targets are breached or if there is a significant quality failure in year. The financial planning included in this strategy does not include the Quality Premium payments in 2014/15, however the CCG is carefully monitoring performance throughout the year and will use the resulting payment to invest non recurrently in local priorities and fund invest to save schemes. 14 Financial Impact The overall impact of the challenges and opportunities reflected in the above financial planning is shown in the following waterfall chart. The chart shows how our financial strategy balances our available resource with our forecast cost pressures and QIPP plans. 15

16 Figure 5. Waterfall chart ( 000) This chart shows how the CCG will need to release significant savings each year in order to balance its income and expenditure and that the only source of investment is from our nonrecurrent reserve and unless recurrent resource is freed up from divestment the only type of investment available is non-recurrent. This means that the initiatives that should have the highest priority for investment are those which will lead to an overall saving on healthcare expenditure. In addition it may also be possible to make further investments from services which we decommission. 15 Financial risks & risk sharing The risks to our financial forecasts are generated in the areas that are not within the control of NHS GYW CCG, but that need to be managed to ensure financial sustainability. These include: Commissioning arrangements with external providers - We have made allowance for tariff uplift for PBR and non PBR activity as per national guidance. However, an increase in prevalence or demographic pressures which have not been forecast, will lead to unexpected demand and activity. 16

17 The NHS landscape. While new structures embed cost pressures may occur as commissioning responsibilities are greater defined. High cost drugs and technology increases. Continuing Healthcare costs rising. We have seen increased demands for continuing healthcare from policy changes around criteria and as a result of the local demographic. In 2013/14 this area of spend will need to be closely monitored to ensure that successful implementation of revised processes are in place, particularly regarding procurement initiatives. Reduction in management capacity due to national targets for running costs resulting from efficiencies and the use of the CSU would impact on the organisations ability to achieve the savings and transformation necessary to meet statutory targets. Non delivery of QIPP. That the outcome of future allocations could be to the detriment of NHS GYW CCG. Forecasting is underpinned by realistic budget setting which is zero based for commissioning contracts and set on the previous year s outturn including any productivity saving or demand management expectations in other areas. All known risks around resource allocation have been incorporated, with no expected brokerage and incorporating all the national tariff adjustments. Forecasts have been fully reconciled back to the current notified resource limit. National guidance also highlights risk sharing across CCGs as a recommended approach to mitigating financial risk. NHS GYW CCG has been working with local CCGs in Norfolk to establish appropriate risk share agreements and will monitor the impacts throughout the year. NHS GYW CCG recognises that the transformational change necessary to achieve the level of savings required needs a whole system approach. In summary, the CCG will need to take advantage of risk share agreements and make greater efficiencies to mitigate cost pressures outside of its control. 16 Summary The key to financial planning in the current climate is to use funds and make savings as part of an efficiency driven and opportunistic approach, taking account of any quick wins to help balance the annual financial position. Having the foresight to use any non recurrent funds to pump prime invest to save projects that will have a return on investment in future years that is greater than cost is crucial. Vital to service planning in the future will be not only what we provide and where, but what we no longer provide, either in a particular setting or at all. An integral part of the financial plans is to achieve the potential reduction in hospital activity. What we must drive, in collaboration with our partners, is a radical transformation of how services are provided which will enable public funds to be used more cost effectively, across all sectors. 17