To: Trust Board From: Abi Tierney Director of Strategy Andrew Seddon Director of Finance & Procurement Date: 4 th February 2010 Healthcare standard:

Transcription

1 Paper C To: Trust Board From: Abi Tierney Director of Strategy Andrew Seddon Director of Finance & Procurement Date: 4 th February 2010 Healthcare standard: C7 a&c Title: Better For Less: Financial Planning for 2010 Author/Responsible Director: Abi Tierney Director of Strategy Andrew Seddon Director of Finance & Procurement Purpose of the Report: This report updates the Trust Board on the following: Operating Framework, SHA Financial Strategy and timetable for 2010/11 financial and business plans First cut view of 2010/11 Financial Plan Update on CIP plan development and timetable The plans in this report also form the basis of an initial financial plan submission to EMSHA. The Report is provided to the Board for: Decision X Discussion X Assurance X Endorsement X Summary/Key Points: UHL and the health economy faces a considerable financial challenge in 2010/11 UHL cost reduction measures of 58.5 million are required to deliver a 1 million surplus position Outline cost reduction actions are identified for 46.5 million, with additional actions required to reduce expenditure Critical to the delivery of these actions are initiatives to reduce patient care activity Recommendations: The Trust Board is asked to: Note the planning framework and timetable Note the first cut financial plan, including cost reduction/qipp delivery Approve the actions identified and a 1 million surplus financial plan (subject to the delivery of additional cost reduction actions totalling 12 million) 1

2 Paper C Performance KPIs year to date N/A Resource Implications (eg Financial, HR) To be confirmed as work continues to finalise the Financial Plan 2010/11 Assurance Implications The report seeks to provide assurance to the Trust Board on the work undertaken to-date in relation to the preparation of the Financial Plan 2010/11 Patient and Public Involvement (PPI) Implications N/A Equality Impact N/A Information exempt from Disclosure None Requirement for further review? Final Financial Plan due for approval at the March 2010 Trust Board 2

3 UNIVERSITY HOSPITALS OF LEICESTER NHS TRUST PAPER C REPORT TO: TRUST BOARD DATE: 4 TH FEBRUARY 2010 REPORT FROM: ABI TIERNEY DIRECTOR OF STRATEGY ANDREW SEDDON DIRECTOR OF FINANCE AND PROCUREMENT SUBJECT: BETTER FOR LESS: FINANCIAL PLANNING FOR 2010/11 1. INTRODUCTION 1.1 This report updates the Trust Board on the following: Operating Framework, SHA Financial Strategy and Timetable for 2010/11 financial and business plans First cut view of 2010/11 Financial Plan, including I&E Update on CIP plan development and timetable Recommendations to ensure short term financial stability The plans in this report also form the basis of a financial plan submission to the EMSHA. 2. OPERATING FRAMEWORK AND TIMETABLE The following is a summary of key documents which are informing UHL s planning process: 2.1 NHS Operating Framework 2010/11 The key national priorities for the NHS are: Improving cleanliness and reducing healthcare associated infections (HCAIs) Improving access through achievement of the 18-week referral to treatment pledge, and improving access to GP services (including at evenings and weekends) Keeping adults and children well, improving their health and reducing health inequalities Improving patient experience and staff satisfaction and engagement Preparing to respond in a state of emergency, such as an outbreak of a new pandemic These objectives should be achieved in the context of delivering cashreleasing strategies whilst sustaining and improving the quality of services. Work over recent months with NHS stakeholders on the quality and productivity challenge has identified the following characteristics of a system that can achieve this: 1

4 More care closer to home Fewer acute beds Reduced unit costs Reduced variation More standardisation of pathways Early and more upstream intervention Greater co-production, with people taking greater ownership of their health In order to help address this strategic context, the Operating Framework includes the following Financial Framework which includes important changes to key system levers and enablers. 2.2 Financial Framework PCTs will ensure that at least 2% of funding is only committed nonrecurrently. The resources released will be deployed non-recurrently to support service transformation across Health Economies (including UHL). This uncommitted expenditure should be carried forward into the next Spending Review period post 2010/11. The planning assumptions regarding growth in 2010/11 will remain in place. Local PCTs will receive the following uplift on 2009/10 allocations: Leicester City PCT % Leicestershire County & Rutland % There are no changes planned to capital allocations in 2010/11, but the DH expects a reduction in capital expenditure over the next Spending Review period. NHS organisations are expected to bear down on their back office management, procurement and estates costs in the coming years. The structure of the tariff will change significantly in 2010/11, specifically: There will be a zero percent uplift in national tariff prices, and for the following three years. Inflation should be offset by efficiency gains. Zero percent will also apply to non tariff services Income that can be earned from emergency activity will be constrained. In 2010/11, only 30% marginal income will be earned for activity above 2008/09 baseline. After 2010/11, national tariffs will represent the maximum price payable by a commissioner The income that can be earned under CQUIN will treble to 1.5% of contract income HRG4 changes have been consolidated and tested A&E tariff now based on Health Care Resource Group 4 Specialist orthopaedic and children s services will continue to attract a top-up in 2010/11 The first set of best practice tariffs will be introduced for cataracts, cholecystectomy, fragility hip fracture and stroke 2

5 Trusts will not be paid for any never event (e.g. wrong site surgery) 2.3 Workforce The NHS Pay Review Body has confirmed that it will not seek to review the pay increase for the final year of the three-year pay deal for Agenda for Change staff Consultants and very senior managers will receive no increase GP income will be restricted and practices will be expected to make at least 1% cash-releasing efficiency PCT management and agency costs must be reduced by 30% by 2013/ NHS East Midlands Financial Strategy NHS East Midlands has published its own strategy which supports the initiatives set out above. This confirms the detailed arrangements for delivering on the national agenda locally. New requirements are: NHS Trusts should aim to make a reasonable surplus in 2010/11 UHL have assumed 1 million for planning purposes but this is subject to confirmation. Trusts are also required to at least break even in each individual month as well as for the year as a whole. NHS organisations in the East Midlands should plan to reduce baseline management and administrative costs by 20% in 2010/11. The SHA is committed to ensuring that each Trust reaches NHS Foundation Trust status, and ensuring the Trust s plans are aligned to the requirements of the Operating Framework and the NHS East Midlands Financial Strategy. The SHA will track delivery of the Financial Strategy through: NHS Trust Gateway meetings for assurance of FT readiness Assurance process to ensure progress against Towards Excellence Benchmarking finance against Better Care Better Value (BCBV) quality and productivity metrics NHS East Midlands have produced a timetable for the production of financial and business plans and this is attached as Appendix LLR Economy Approach The local health economy is committed to working collaboratively to resolve the challenges posed by the Operating Framework in a way which maximises efficiency and maintains the quality of services. This can only be achieved by ensuring that local health organisations jointly plan and own efficiency plans. Chief Executives have therefore agreed the following principles: Disciplined financial approach based on: - Manage within current budgets (i.e. 2009/10 out turn) 3

6 - Target additional 2010/11 funding to secure specific quality improvements and substantial cost reductions - Agree and deliver prioritised and fully shared QIPP programme Collaboration and integration is the only option Success looks like: Integrated financial plan for LLR as a whole Aligned to the Trust s Integrated Business Plans and PCT Commissioning and Investment Strategies Contracts agreed by end of February 2010 without external intervention Collective and individual financial balance secured for each organisation on a monthly and full year basis Trust and PCT Executives recently held a three day focused workshop on detailed planning for 2010/11 and the approach to the delivery of QIPP outlined in this paper reflects the agreements reached, and are the basis of the submission to the EMSHA. This will ensure that the Commissioner and Provider plans are consistent and deliverable. 3. FORECAST FINANCIAL POSITION 3.1 Key Assumptions The Trust has used the guidance provided by both the Operating Framework and the SHA in developing financial plans. The main assumptions are as follows: 0% uplift in national tariff prices and non tariff services has been applied The detailed modelling for the effect of non elective activity is currently being developed. This is made more difficult by the additional Goodwin tariff reduction already applied by local commissioners and whether this offsets the over-performance The impact of non recurrent income and expenditure in 2009/10 has been identified The income that can be earned under CQUIN has increased to 1.5% of contract income across all commissioners. CIP's have not yet been included as they are subject to a detailed planning and confirmation process which is ongoing. Current proposals are summarised in Section 4 below A draft capital plan for 2010/11 has been prepared based on previously approved projects and essential planned maintenance A draft cash flow forecast has been prepared 4

7 3.2 Source and Application of Funds A first cut source and application of funds statement has been prepared based on currently available information. This is summarised in the table below. Income ( Ms) 2009/10 Forecast Out-Turn Less: Non Recurrent Income (9.2) CQUIN 5.7 Non NHS Inflation /11 Forecast Income Expenditure 2009/10 Forecast Out-Turn (686.0) 2009/10 Reverse Impairment /10 Non Recurrent adjustment (6.7) Inflation (24.4) Developments (9.9) Additional Pressures (6.0) NICE/Marginal Costs (5.9) 2010/11 Surplus Requirement (3.0) 2010/11 Forecast Expenditure (737.7) 2010/11 Gap (58.5) Note the above assumes no impact of non elective marginal and that significant additional expenditure is not required to deliver CQUIN targets. 3.3 Income and Expenditure The I&E position is summarised in the table below. 5

8 I&E Summary 2010/11 Forecast ( Ms) Total Income Total Operating Expenditure (691.8) Less: 2010/11 Cost Reduction 58.5 Operating I&E Surplus/(Deficit) (EBITDA) 45.9 Depreciation (28.9) Interest Payable (0.1) Interest Received 0 Public Dividend Capital (13.9) Surplus (Deficit) COST IMPROVEMENT PROGRAMME/QUIPP Based on the assumptions used in the high level I&E forecast, the cost reduction requirement for 2010/11 would be 58.5 million. The current process to develop detailed CIP plans is shown in the timetable attached as Appendix 2. Savings Opportunity Map This table provides a summary of the three key stages UHL will follow to realise the full savings potential available. Stage 1 Cost Containment (-3 6 months) Vacancy Management Discretionary Payments Staff Costs Procurement Capital Cost controls Cash management Directorate level CIPs Stage 2 Productivity & Efficiency Enablers (6 12 months September 2010) Better Care Better Value (e.g reducing LOS) Clinical Redesign Theatre and Outpatient Utilisation Diagnostics Review of major contracts Integration of Corporate Functions across Health Economy IT Enabled Patient Management Stage 3 Structural (12 months to 3 years April 2011 onwards) Virtual integration of provider services Real estate reconfiguration Health economy pathway redesign Supply Chain Joint venture/ partnership Integration of Corporate Functions across Public Sector Economy 6

9 Turnaround, Maximise, Integrate The Trust will focus on 3 Stages above, over the next three years with a focus in Stage 1 on turnaround, a focus in Stage 2 on maximising productivity and generating efficiencies and a focus in Stage 3 on integrating with the local health economy to redesign patient pathways, vertically and horizontally integrate and restructure to release economies of scale. 5. TURNAROUND 5.1 The Trust currently considers itself to be in financial turnaround mode as a result of the extremely challenging financial climate, poor history of CIP delivery, and insufficient pay controls in Clinical Directorates. This is not formal turnaround in the sense that it has been imposed on the Trust by the EMSHA or DH, but effectively represents the Trust s own response to the financial situation created by the Operating Framework. 5.2 Turnaround controls relate to short term actions to ensure that: Concrete progress is made on significantly slowing spend starting now Making real savings from the 1 st April 2010 so that the Trust enters the new financial year in balance, and, Cash is maximised to ensure that liquidity is maintained To this end, the following recommendations are made for consideration by the Trust Board: 7

10 5.3 Developments/Other Pressures The current financial position includes developments of 9.9 million, plus 6 million identified by Directorates as cost pressures. Many of these costs relate to filling posts to establishment rather than sticking with 2009/10 out turn levels. All developments and pressures which have yet to be physically committed should be withdrawn immediately pending a risk assessment and confirmation from commissioners that they wish to invest in these initiatives and fund them over and above the flat cash position. This review could potentially save 15 million. The initial forecast also assumed delivery of a 3 million surplus, but this could be revised down to 1 million. Action: All developments identified by Directorates to be withdrawn, subject to a risk assessment and confirmation from commissioners that they will be funded. Any other developments should be contained within the 2009/10 financial envelope. The assumed surplus should be reduced from 3 million to 1 million. 5.4 Vacancy Management It is recommended that all vacancies are reviewed by the Chief Operating Officer/Chief Nurse who will have sole responsibility to approve all future recruitments. The role will be to ensure that value for money and efficiency has been considered and balanced against clinical need before any post can be filled. The Chief Operating Officer/Chief Nurse will have delegated authority to approve or reject any recruitment requests. This process will be monitored and a vacancy panel established if required. The level of savings likely to be achieved will depend upon which groups of staff are targeted, the turnover rate and the level of rejection. The turnover rate currently stands at around 7%. Based on 10,700 WTE, this equates to around 60 WTE per month. Given that the average cost of a leaving employee is 25K, the possible range of savings are as follows: Rejection Rate PY Annual Savings ( m) FYE Recurrent Savings ( m) 75% % % There are other payroll savings opportunities which will be explored further such as: Termination of fixed term contracts Voluntary Redundancy Admin & Clerical Review 8

11 Action: An immediate vacancy freeze and review of all external adverts. The Chief Operating Officer/Chief Nurse will review all vacant posts and approve only those which are deemed essential to clinical safety or essential for achieving financial sustainability 5.5 Discretionary Payments At present, the Trust makes a number of payments which are discretionary as detailed below: Ms Overtime 4 Bank 6 Agency 5 Locums 4 Waiting Lists 5 TOTAL 24 The Trust should discontinue these payments where possible. Again, the level of savings would depend on the level of clinical risk versus the cost saving identified, but a modest reduction of 50% would save 12 million per annum. Action: The Chief Operating Officer/Chief Nurse should mandate and agree with Directorates their contributions to make a minimum saving of 20 million in 2010/11 relating to discretionary payments and vacancies. In order to maximise workforce flexibility the discretionary payments and vacancies should be regarded as a combined resource for this target and Directorates main focus will be on reducing the overall pay bill. 5.6 Procurement The Trust should impose an immediate reduction on the procurement of goods and services equivalent to 5% of 2009/10 outturn. This should include the following: Drugs - 2 million Purchase Orders - 2 million Non Purchase Orders - 2 million Action: The Chief Pharmacist to draw up a detailed plan to reduce drugs spend by 5% in 2010/11. 9

12 The Head of Procurement to draw up a list of items which are allowed to be procured through non purchase orders. Directorates will be instructed to ensure that purchase orders are placed for all other goods and services. Clinical Directorates should be instructed to identify a maximum of three members of senior staff who will have sole responsibility for the authorisation of non pay expenditure; Corporate Directorates should nominate one plus an authorised deputy. No other authorisation will be accepted by the Procurement Team. 5.7 Capital Payments The Trust should consider imposing a temporary suspension on the raising of non urgent capital orders. This control is important to maximise liquidity during the period in which longer term CIPs are being implemented. The maximum estimated saving on this is 2 million. Action: The Trust should suspend all non urgent capital procurement. Exceptions will be approved through a monthly meeting of the Capital Group and any more urgent requests to be reviewed by the finance lead for Capital. 5.8 Review of Job Plans At present, Consultants receive a number of PAs (Programmed Activities) as part of their contract. This could be reviewed with a view to reducing variability. This could result in freeing up sessions for clinical work (in conjunction with the productivity work) or alternatively making direct savings by paying for fewer PAs. Again, the level of savings would depend on the outcome of individual reviews of consultant workload, but on average each PA costs the Trust 12K and there are approximately 500 consultants. Action: The Acting Medical Director should be asked to lead the implementation, with support from the Director of Human Resources, of the Directorate plans with the medical workforce. 5.9 Summary If all of the above measures were implemented promptly, then the Trust could make achievable savings of up to 46.5 million as follows: Action Implementation PY Savings FYE 10

13 Review Developments/cost pressure assumptions/surplus requirement Vacancy Management (75% rejection rate) Discretionary Payments (50% saving) Date m Savings m Immediate Immediate Immediate Procurement Immediate Suspend capital Immediate programme Review of Job Plans July TOTAL Implementation of these actions will produce a short term impact on revenue and cashflow. This will buy the Trust important time to finalise and implement the sustainable service redesign and activity reducing initiatives which will provide sustainable long term financial health for UHL. It should be stressed that the CIPs identified to date will not deliver financial balance for 2010/11, as there is still a shortfall of 12 million. There is still a need to take additional action to reduce expenditure. 6. RISKS 6.1 There are some clear risks to delivery of this position, and these principally relate to the ability to make the level of savings required to break even, and the need to make savings which are effective from April Key risks are: 6.2 Clinical There will be a full and robust analysis of the risks associated with these actions, which will be led through the Governance and Risk structure within the Trust to ensure clinical risk is fully understood. 6.3 Demand These reductions will be extremely difficult to maintain if the demand for services does not reduce accordingly. Two work streams are being managed across the health economy to reduce elective and non elective activity. 6.4 Cash 11

14 If the Trust is unable to identify genuine cost reductions of 4-5 million per month with effect from April 2010, then there will be insufficient cash to make payments to employees and suppliers from July onwards. There is also the knock on effect of non delivery in that every month the Trust does not deliver savings this increases the amount that has to be found in the remainder of the financial year. It therefore cannot be over emphasised that the Trust must identify urgent and genuine cash releasing savings. 6.5 Income & Expenditure There is a significant risk that the Trust will not meet the statutory requirement to break even if the cost reduction measures of 58.5 million are delivered, as there is no provision for in year cost pressures. 7. RECOMMENDATIONS 7.1 The Trust Board is asked to: Note the planning framework and timetable Note the first cut financial plans and forecast I&E position, including CIP/QIPP delivery Note the current state of development of CIP/QIPP and the timetable for delivery of detailed plans Consider the following actions to support the efficiency agenda: - That all developments identified by Directorates will not attract additional funding in 2010/11. Any developments should be contained within the 2009/10 financial envelope. - That the assumed surplus should be reduced from 3 million to 1 million. - An immediate vacancy freeze and review of all external adverts. The Chief Operating Officer/Chief Nurse will review all vacant posts and approve only those which are deemed essential to clinical safety or essential for achieving financial sustainability. - The Chief Operating Officer/Chief Nurse should mandate and agree with all Directorates their contributions to make a minimum saving of 20 million in 2010/11 relating to discretionary payments and vacancies. In order to maximise workforce flexibility, the discretionary payments and vacancies should be regarded as a combined resource for this target. - The Chief Pharmacist should be asked to draw up a detailed plan to reduce drugs spend by 5% in 2010/11. - The Head of Procurement should be instructed to draw up a list of items which are allowed to be procured through non 12

15 purchase orders. Directorates will be instructed to ensure that orders are placed for all other goods and services. - Directorates should be instructed to identify a maximum of three members of senior staff who will have sole responsibility for the authorisation of non pay expenditure. No other authorisation will be accepted by the Procurement Team. - The Trust should suspend all non urgent capital procurement. Exceptions will be approved through a monthly meeting of the Capital Group. - The Acting Medical Director should be asked to lead the review of Consultant job plans, with appropriate support from the Director of Human Resources. - The Director of Safety and Risk should be tasked with developing a process for ensuring robust ongoing risk assessment regarding the cost reductions. - That the Director of Human Resources identifies additional options to reduce workforce expenditure. 7.2 The Trust Board is asked to approve a surplus plan of 1 million for 2010/11 on the basis that the Executive Team will implement additional actions to reduce expenditure by 12 million. 7.3 The Trust Board is asked to note that an update report will be submitted to its March 2010 meeting. ABI TIERNEY DIRECTOR OF STRATEGY ANDREW SEDDON DIRECTOR OF FINANCE & PROCUREMENT 13

16 Business Planning Timetable APPENDIX 1 The SHA has set the following timetable for Business and Financial Plans. Trust Financial Planning Timetable Deliverable Initial Trust Plan to SHA: comprising: Date 25 January Noon 1. Initial FIMS 2. Draft LTFM 3. Financial bridge analysis (annex 6) 4. Workforce Bridge (annex 7a and 7b) 5. Capital plans (annex 9) 6. Initial DoF Commentary Initial SHA Plan to DH 29 January 2010 SHA planning development/confirm and Challenge January 26 March 2010 Contracts to be agreed 1 March 2010 Final Plan Submission to SHA comprising all requirements (except FIMS) 26 February 2010 Full FIMS to SHA 15 March 2010 Final SHA plans to DH 26 March 2010 SHA/TRUST Formal Plan sign off 28 February 2010-*8 March 2010 Contracts to be signed 15 March DH/SHA Bilateral to sign off Plans April 2010

17 Appendix 2