Finance, Performance & Resources Committee

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Finance, Performance & Resources Committee DATE OF MEETING: 31 October 2017 TITLE OF REPORT: Financial Outlook 2018/19 2022/23 EXECUTIVE LEAD: Carol Potter, Director of Finance REPORTING OFFICER:

1 Finance, Performance & Resources Committee DATE OF MEETING: 31 October 2017 TITLE OF REPORT: Financial Outlook 2018/ /23 EXECUTIVE LEAD: Carol Potter, Director of Finance REPORTING OFFICER: Rose Robertson, Assistant Director of Finance Purpose of the Report (delete as appropriate) For Decision For Discussion For Information SBAR REPORT Situation In line with our approach for clarity and transparency on the financial position, in support of the wider strategic and operational decision making across NHS Fife, this paper illustrates the first cut of a financial outlook for the five year period from 2018 to It is presented to the Finance, Performance & Resources Committee for discussion and consideration, in advance of a workshop with the Area Partnership Forum in November, and a presentation to the Board Development session in December. Background This report provides details of our intended approach; it outlines assumptions and principles used in informing the position; and sets out an indicative budget gap position for the 2018/19 financial year. It also provides an assessment of the financial challenge on the health budgets delegated to the Integration Joint Board and managed through the Health & Social Care Partnership; as well as the budgets retained and managed by the NHS Board. As a separate assessment this year, the report also provides details of the budget for the acute set aside services, which (under the terms of the Integration Scheme) are delegated to the IJB for planning purposes but remain within the operational management responsibility of the Health Board. The financial outlook presented in the report is a high level update of the previously agreed Local Delivery Plan 2017/ /22. At this point in time, the assessment has taken a top down approach, and requires further input from operational budget holders and Directors over the coming weeks and months. This will be addressed for the next update, which is expected to be presented at the Board Development Session in December. Assessment Overview The UK Government Spending Review on 22 November will inform the Scottish Government Draft Budget. It is not yet known when the NHS Scotland budget for 2018/19 will be confirmed thereafter, although it is likely to be mid December. It is also not clear if this will be more than a one year budget. However, we will keep a watching brief on any issues emerging, and through the NHS Scotland Corporate Finance Network and National Directors of Finance Group, we will continue to keep abreast of current national assumptions.

2 As with previous years, the financial planning process will encompass an assessment of national; regional; and local developments and their implications. Available Resources In the absence of a published draft budget we have assumed a 0.5% baseline income uplift equivalent to 3m. This compares with a net 0.4% uplift in 2017/18 (excluding the social care fund). The assumed income uplift has been split between Health Board and IJB based on recurring budgets as at August Currently, data indicates that the Board remains 1% adrift from parity in relation to the overall funding formula for NHS Scotland ie the National Resource Allocation Committee (NRAC) model; as such, a further 6m of additional NRAC funding has been assumed for 2018/19. This reflects the growing population within the area and an increase in the acute element of the funding formula. Further modelling is required to establish any potential further impact beyond this period. This funding source is entirely dependent on the outcome of any refresh of the NRAC model and the extent to which the Health Directorates within Scottish Government ring fence funding for NRAC. It is currently assumed that any funding received will not be allocated to individual budget holders and will be held corporately to offset system-wide pressures such as national developments and infrastructure cost increases. Additional DEL (Departmental Expenditure Limit) is a separate funding source allocated by the Scottish Government. There are caveats around the use of these funds, with only specific categories of expenditure being able to be classified in this way. Our baseline funding assumption includes continuation of the 2.5m within the 2017/18 financial plan. This funding is at risk if we are not able to identify appropriate expenditure to offset this. The New Medicines Fund (NMF) has been supported in previous years through funding received under the Pharmaceutical Price Regulation Scheme (PPRS). This fund has been used to offset the cost of Individual Patient Treatment Requests (IPTRs) and specific high cost new medicines. The current PPRS scheme is reaching an end and there is a risk therefore that any ongoing funding for future years is lower than expected or does not materialise at all. The baseline budget currently assumes recurring funding of 2.5m. Additional Expenditure Commitments As in previous years, there are a range of expected cost increases, many of which are unavoidable. Table 1 below sets out the underpinning assumptions. Table 1 Financial Outlook Expenditure Assumptions 2018/19 Expenditure Budget Increase Pay 1% plus low pay adjustment General Supplies 1% Direct Medical Supplies 4% Hospital Drugs & GP Prescribing 4% (growth and price increases) Scottish Medicines Consortium approvals 2.5m (pending horizon scanning analysis) Rates 2.5% NHS Board Service Level Agreements 0.5% (linked to income assumptions) PFI contractual commitments 3.5% (pending confirmation of RPI) Page 2 of 9

3 Royal Hospital for Children & Young People / Department of Clinical Neurosciences Major Trauma Acute Nursing Incremental Progression 0.9m contribution 1.8m contribution 1.3m (balance of 3 year agreed funding) The recent announcement on the public sector pay cap has not been modelled in this version of the financial outlook. It is assumed that any increase in cost beyond the current 1% pay uplift ( 1.6m for every additional 0.5%) would be funded through an additional allocation from Scottish Government. Clearly, there is a risk in this assumption, which should be clarified through the UK Spending Review and Scottish Government Draft Budget process later this calendar year. The financial plan for 2017/18 included an expenditure commitment of 1.5m in recognition of an increase in the rates cost across NHS Fife properties. In addition, the plan continued to assume an increase in employers National Insurance of 0.8m. Through a detailed assessment of the financial plan as part of the Quarter 1 review, it was identified that these expenditure commitments are no longer required. As a result, these have been included in the non recurring financial flexibility assumptions for the 2017/18 year end forecast outturn, and remain as a source of recurring flexibility in 2018/19. For the purposes of the 2018/19 financial outlook, therefore, 2.3m is included as a reduction in expenditure commitments. Projected Financial Outlook 2018/19 The financial implications of these additional income and expenditure assumptions are provided in Table 2; highlighting a projected initial budget gap of 7.6m. Table 2 Projected Financial Outlook 2018/19 '000 Estimated Additional Income Anticipated Uplift 3,073 NRAC share 6,000 Estimated increase in funding 9,073 Estimated Additional Expenditure Pay uplift 5,931 Supplies uplift 1,355 PPP contractual 780 Prescribing uplift / new medicines 6,711 Infrastructure 1,070 Other healthcare providers 407 New local developments 153 National & regional developments 2,273 Other 341 Financial flexibility (2,320) Estimated increase in expenditure 16,701 Estimated in year gap 7,628 It is important to note that the initial budget gap reported in Table 2 does not take into account any non delivery of recurring savings in 2017/18. Through the Quarter 1 review process, work was undertaken to identify the extent of this. Table 3 provides a summary of this baseline carry Page 3 of 9

4 forward pressure into 2018/19, and the impact on the financial gap prior to any recovery actions such as efficiency, redesign or sustainability & value initiatives. Table 3 Analysis of Projected Financial Outlook 2018/19 Total IJB Acute set aside HB '000 '000 '000 '000 Income 9,073 1, ,718 Expenditure 16,701 5, ,969 In year gap 7,628 4, ,251 Prior year savings recurring shortfall 19,076 8,459 1,966 8,651 Net position 26,704 12,547 2,255 11,902 Further analysis of the position by operational area is provided in Appendix 1. Other Issues for Consideration In preparing the financial outlook, no consideration has been given to the impact on resources from shifting the balance of care, as set out in the requirements of the Scottish Government s Health & Social Care Delivery Plan. This Plan indicates a commitment to increase funding in primary care and GP services by 500m by For NHS Fife, this would equate to c. 33m. Current indications are that 50% of this would be supported by new resources, with the other 50% to be a transfer from secondary care. Clearly this needs careful consideration and planning, as any shift in resources without actions in our acute services would have a negative impact on the overall financial position in this area. Estimates from the National Records of Scotland (NRS), and as described in our Clinical Strategy, indicate that the population of Fife is growing. In 2014, the population was 367,260; by 2037 this is expected to have increased by 30,729 (8%). The most notable increase is within the over 75 year old age group. In the absence of a robust patient level costing model, it is difficult to provide a detailed assessment of the financial consequences of these demographic changes. However, we are working with finance colleagues across the East Scotland region, using a patient level costing model adopted in NHS Lothian, to estimate the high level financial impact of this growth for NHS Fife. This clearly would need to be translated into specifics in terms of additional workforce implications; medicines; other supplies; and possible infrastructure costs. The NHS Fife Clinical Strategy and Strategic Plan of the IJB set out specific aspirations in relation to the development of Community Health & Wellbeing Hubs and a parallel redesign of our urgent care model. To date, this work has not quantified the extent of any investment required or efficiencies emerging. Through the in year quarterly review process for 2017/18, further clarity will be sought on the impact of any ceasing or reduction of non recurring project-specific funding from Scottish Government or other sources. There is an expectation that the acceptance of any non recurring funding to support individual projects is predicated by an exit strategy. The consequences of any ongoing financial commitment have not been taken into account in the current financial forecasts. NHS Fife, unlike many other Boards across Scotland continues to show good operational performance in relation to scheduled care, with activity and money largely in balance. The Page 4 of 9

5 financial outlook at this time does not include any cost pressure to support the continued delivery of this level of performance and the expectation being, therefore, that any additional cost will be met by additional funding from Scottish Government. At this point in the assessment of the financial outlook, no specific efficiency measures have been included as an offset to the gap, with detailed discussions still to be taken forward with Directors. The extent to which routine housekeeping measures (commonly referred to as cash releasing efficiency savings or CRES) might deliver against the scale of the financial challenge is becoming increasingly difficult. To provide some context, a targeted 2% CRES programme across the system would potentially deliver 7m against the overall 26.7m for next year. This emphasises the continued requirement for significant redesign and transformational change. A recent publication from the Healthcare Financial Management Association (HFMA) highlights that in order to meet rising demand in a more proactive and sustainable way, this needs to incorporate more prevention and provision of support at the best point in the patient pathway to get the best outcomes. Integration Joint Board The assessment of the financial outlook for 2018/19 has adopted a similar methodology to the planning process for the current year. This includes, therefore, a share of anticipated income uplift to offset growth in costs, with the integrity of budgets to be maintained by recognising expected increases in pay and supplies budgets (per the assumptions in Table 1) at the time of budget setting. There is a continued expectation that the social care funding will be passed in full to the Integration Joint Board. We expect to receive Directions from the Integration Joint Board in relation to the use of resources for 2018/19. Any impact of these will need to be reflected in the planning process. Following consideration of this financial outlook, the Chief Executive and Director of Finance will formally write to the Director of Health & Social Care and Chief Finance Officer to set out the anticipated share of the overall gap within the IJB budget to 2022/23 and invite the IJB to prepare a strategic plan that supports delivery of financial balance within its delegated functions. This will include an expectation that the Health & Social Care Partnership will continue to support the wider redesign and sustainability & value agenda for NHS Fife. Projected Financial Outlook Beyond 2018/19 The development of a medium to long term financial strategy is ongoing but it is clear the financial challenges facing the NHS Board and the Integration Joint Board are continuing. Appendix 2 provides a summary of a high level forward look, based on similar planning assumptions to those set out in Tables 1 & 2 above, in relation to income, pay, medicines, and supplies uplifts for the period to 2022/23. This shows an ongoing requirement to deliver significant efficiency to reduce costs. In parallel with our local planning processes, we continue to play an active role in the development of the Regional Delivery Plan for the East of Scotland. This work is still evolving and will continue to be refined between now and the end of the 2017/18 financial year. Through an initial review of the current RDP, it is clear this is unlikely to deliver savings sufficient to address the local financial gap. Next Steps The financial outlook will be refined as this year progresses, to ensure the Board are in a Page 5 of 9

6 position to consider and approve a Financial Plan for 2018/ /23 in advance of 31 March The Director of Finance and team will work with members of EDG and other senior staff on the following areas: Further detailed assessment of key risks and mitigations; Discussion with the Director of Health & Social Care and Chief Finance Officer of the IJB, in relation to any impact of the Directions for the NHS Board; Parallel discussion with the Chief Operating Officer (Acute Services), Director of Health & Social Care and Chief Finance Officer of the IJB with regard expectations for the acute set aside budgets Review of any material changes to recurring baseline pressures Discussion with the Chief Operating Officer and Director of Public Health re the do-ability of a 2% CRES target Agree an approach for corporate areas, (Finance, Workforce, Planning, Nursing, Medical, and Estates & Facilities) re the do-ability of a 10% CRES target and how bold we wish to be in relation to the links with regional shared services Continue to seek opportunities from the sustainability & value programme Detailed discussion with the Executive Directors Group to consider the impact of all aspects of the wider strategic planning agenda, encompassing, for example, realistic medicine, digital / technology; infrastructure & assets; workforce. Based on the information available, consider whether we can provide the NHS Board with ongoing assurance on our ability to deliver financial balance over the 5 year period, without difficult decisions eg slowing down the introduction of new medicines. Recommendation Members of the Committee asked to note: the approach taken to inform the financial outlook; a finance workshop will be scheduled for the Area Partnership Forum in November an update will be provided to the NHS Board at the Development Session in December formal consideration of the Draft Financial Plan 2018/ /23 will be taken by the Finance, Performance & Resources Committee in December, with submission to the full NHS Board thereafter, in parallel with the timescales for the Local Delivery Plan and Regional Delivery Plan, once these are confirmed by Scottish Government Health & Social Care Directorates. Page 6 of 9

7 Objectives: (must be completed) Healthcare Standard(s): All HB Strategic Objectives: All Further Information: Evidence Base: Glossary of Terms: Parties / Committees consulted prior to EDG Meeting: NA NA Executive Directors Group Impact: (must be completed) Financial / Value For Money Statutory requirement to break even Risk / Legal: Refer to Appendix 3 Quality / Patient Care: There are no specific implications from the issues in this Workforce: paper as it provides an overview of the financial outlook Equality: Appendix 1 Projected Financial Outlook 2018/19 by Operational Area Appendix 2 Projected Financial Outlook 2018/ /23 Appendix 3 Financial Risk Matrix Page 7 of 9

8 APPENDIX 3 FINANCIAL RISK MATRIX Key Assumptions NHS Scotland budget 2018/19 Initial Risk Assessment Potential Impact Uncertainty on timing, quantum, conditions, and whether it will be more than a one year budget. NRAC funding assumptions If additional NRAC funding to achieve parity is not forthcoming then there is a further budget gap of 6m in 2018/19. Additional DEL funding Medium The financial plan assumes 2.5m DEL funding. Funding is dependent on qualifying criteria and funding is at risk if we are unable to identify appropriate expenditure. Financial flexibility Use of the existing recurring flexibility as an offset to the opening position will impact on the extent of any further in year availability Public sector pay cap Any uplift beyond the current 1% assumed in the plan is likely to be unfunded, with every additional 1% equivalent to 3.2m of a cost pressure. Non delivery of recurring savings from previous years Shifting the balance of care from Secondary Care to Health & Social Care Demographics increase in over 75 s Development of Community Health & Wellbeing Hubs; and a redesign of our urgent care model Ceasing or reduction of non recurring project-specific funding from SG or other sources Health & Social Care Integration Medium Any non delivery of recurring savings from previous years may increase the 2017/18 gap. Ability to release resource from Acute services. Financial impact not quantified Lack of clarity re investment required and potential efficiencies Ability to provide service by other means and / or plan appropriate exit strategies. The outlook has assumed that the additional resources passed to the IJBs from the Social Care Fund will create additional capacity and reduce the total level of Delayed Discharges in the Health System. New GP Contract Medium No additional costs of the new GP contract ie immunisation, GMS premises have been included in the financial outlook. GP Prescribing Medium A sustained level of ongoing growth and price increases have been included in the financial Page 8 of 9

9 Pharmaceutical Price Regulation Scheme (PPRS) outlook, however there is the potential for increases to be greater than projected. The PPRS has provided a source of funding in previous years to offset the cost of approved IPTRs and New Medicines. At present the risk of not receiving any ongoing funding is high as recurring funding of 2.5m has been assumed for future years. Secondary Medicines Medium There is a risk that the level of growth exceeds the estimate contained in the financial outlook. Page 9 of 9

Carol Gillie, Director of Finance, Procurement, Estates & Facilities Susan Swan, Deputy Director of Finance (Financial Accounting)

Borders NHS Board Meeting Date: 17 January 2019 Approved by: Author: Purpose of Report: Carol Gillie, Director of Finance, Procurement, Estates & Facilities Susan Swan, Deputy Director of Finance (Financial