Agenda Item 10 Meeting: Shetland NHS Board Date: 21 August 2018 Report Title: Finance monitoring report (2018-19) to 30 June 2018 Reference Number: Board Paper 2018/19/30 Author / Job Title: Colin Marsland, Director of Finance Decision / Action required by meeting: The Board is asked to note: the over spend against budget of 1,242k for the financial year to date. This equates to an over spend on budget of 9.0%; compared to the Local Delivery Plan trajectory at the end of June ( 450k over spend) this is significant adverse movement against the plan by 792k; that 75% of the year to date overspend, 928k, is caused by over spend in staffing due to supplemental staffing and agency locums. that savings achieved for the year to date total 374k, this is an adverse variance of 202k against the planned trajectory, 35.1% variance to plan. High Level Summary: This report updates Board on the management of financial resources and outlines the overall financial position at the end of Month 3 (June 2018). Corporate Priorities and Strategic Aims: Board s corporate objectives for 2018-19 outline a requirement to provide best value for resources and deliver financial balance. Key Issues for attention of meeting: Significant management action will have to occur during the year to ensure the Board can achieve financial balance at the yearend to meet its statutory financial obligation under section 85 of the National Health Services (Scotland) 1978. Projections for yearend position after three months have a high degree of risk of variance and have an underlying pessimism bias based on current cost pressures. Therefore current financial year is very likely to be a tough and challenging year in respect of the overall statutory financial obligation to breakeven. The continuation at the current level of supplementary and temporary staffing will make it very difficult to achieve breakeven. The current best case forecast is 3m over spent based upon assumption with respective to recruitment to substantive posts and other issues impacting upon supplementary and temporary staffing levels.
The Board is continuing to actively run recruitment campaigns to current vacancies but all the GP vacancies and Acute Services Consultant vacancies have already all been through at least two recruitment campaigns. The Board s current financial plan still has a gap in year of 696k to address in respect of efficiency savings. However as the current proposed schemes are not all on a recurrent basis, this creates an underlying recurring gap at 2.0m going into 2019-20. Implications: Service Users, Patients and Communities: Human Resources and Organisational Development: Equality, Diversity and Human Rights: Partnership Working Legal: Finance: Assets and Property: Environmental: Risk Management: Funding does not support the current service models. As a result redesign to more sustainable service models is required which will involve a public discussion on proposed changes in-line with Board and IJB policies. No specific issues identified. However the delivery of individual savings schemes June affect individual staff members or teams. Relevant scheme may be subject to both Quality Impact Assessment and Equality Impact Assessment (EIA). This has no implications for the Board s overall compliance. However any significant action plans to address either short-term or underlying issues will require an EQIA to be undertaken. None identified Obligations under section 85 of the National Health Services (Scotland) 1978. Highlights potential financial risks associated with the revenue position. None directly identified None directly identified Organisation has reputational damage if it fails to achieve financial balance at year-end. In future years any over spend will have to be repaid to the Scottish Government. Policy and Delegated Authority: Previously considered by:
SHETLAND NHS BOARD FINANCE MONITORING REPORT (2018/19): APRIL TO JUNE 2018 1. Purpose of Paper The paper advises the Board of the expenditure against Revenue Resource Limit at month three for 2018-19, highlights financial issues together with the actions required to manage these to ensure the year-end out-turn meets the Board s statutory obligation to breakeven. 2. Background The Board agreed the 2018-19 financial plan at their meeting on 22 June 2018. This report provides an update on progress against this plan. Shetland NHS Board s statutory requirement is to break even at the year-end. To achieve this in 2018-19 will be dependent on the good financial stewardship of revenue budgets in line with the financial plans whilst managing emerging costs. 3. Revenue Resource Limit The Board s core Revenue Resource Limit baseline allocation for 2018-19 is 48,978k. However, the anticipated overall Revenue Resource Limit in the financial plan to be approved by the Board in June 2018 was 58,337k. As at 30 June 2018, the Board s confirmed Revenue Resource Limit is 49,691k. Additional funding in respect of the proposed 2018-19 pay award to staff has yet to be confirmed so remains an outstanding risk to the Board. The public announcement in June by UK Government of an additional funding of 20 billion for the NHS in England covers the period 2019-20 to 2023-24 so does not impact upon this year. At present the consequential funding to the three devolved parliaments is yet to be confirmed. The proposed three year pay award settlement, under consultation with Trade Unions, year 2 and 3 funding will likely be a commitment against these funds rather the Board s being asked to generate further additional efficiency savings to fund the pay award settlement. 4. Overall Financial Position to end of June 2018 The overall position at the end of June 2018 is 1,242k overspent against budget. This equates to the year to date position being 9.0% over spent on budget. This compares to an assumption made in 2018-19 LDP financial plan that the Board would be 450k over spent at this point in the year. Appendix A, presents this position in-line with the traditional annual accounts reporting format and Appendix B in the manner, which reflects the local analysis of services.
4.1 Analysis of Expenditure for April 2017 to June 2018 The Board s overall expenditure, comparing the period to June 2018 with the period June 2017, has increased by 952k or 6.5%. This movement is principally caused by increased pay costs of 896k, a 12.3% increase on last year. As outlined in table 1 below the primary cause of this costs increase is due to agency locums covering substantive vacancies and over spend in staffing due to supplemental staffing. In addition part of this increase is the transfer of Primary Care staff from independent GP practices to the Board. Table 1: Summary Financial Position for April 2017 to June 2018 Expenditure on drugs has increased by 64k; this is an increase of 3.9%compared to last year. High Cost New Medicines, up 37k on last year costs account for the majority of this increase. The balance is inflationary and at Month 3. There is only April actual real data for GP prescribing costs as there is a two month lag in data. Appendix B outlines in full the income and expenditure position for the Board by service area and this is summarised in Table 1 above. The principle service areas with issues are outlined in further detail in Appendix E. In terms of setting the cost increase against changes in the Board s underlying funding at the start of 2018-19 the Board received an uplift of 1.5% to the core revenue resource limit (RRL). The underlying noncore additional funding allocations the Board receives primarily remained at last year values. Due to the anticipated timescale for delivering savings, the board s financial plan for 2018-19, as agreed in the Local Delivery Plan, does not assume a breakeven position will be achieved at the end of every month. The annual plan and current performance against the plan is outlined in graph 1below whilst the detailed figures behind graph 1 are outlined in full in Appendix C. Out-turn at Month 3 shows an adverse variance against the LDP plan of 792k.This variance from the planned trajectory in percentage terms is 176%. The over spend year to date were primarily the result of the use of locums to fill gaps in staffing, bank staff leading to over establishment against budgets as outlined in table 1 above.
Graph 1: Shetland NHS Board Financial Plan Trajectory 2018-19. 4.2 Progress against Savings Plans The Board s External Auditors in their 2014-15, 2015-16 2016-17 and 2017-18 external audit annual reports continue to highlight their concern that the Board s reliance on non-recurring savings is not sustainable in the long term. The Board agreed the financial plan in June with the underlying assumption that the target would be 3,455. The overall target comprises - 1,596k ( brought forward from 2017-18) - 1,859k (2018-19, 4% savings target) At the end of June, efficiency savings of 374k have been achieved year to date. Table 2 along with Graph 2 outlines the position with further detail in Appendix D. The split of achieved savings is 196k on a recurrent basis and 178k made on a non-recurrent basis. Table 2 Summary Savings Position as at June 2018
The planned trajectory for the board s revised savings plan, contained within the 2018-19 local delivery plan, outlined in graph 2 below, assumed that by the end of June 2017, 576k in savings would have been achieved. The Board therefore has an adverse variance of 202k against the year to date target, or 35.1% expressed in relative terms. Graph 2: Shetland NHS Board Savings Plan Trajectory 2018-19. Transformational Change Board has the lead organisational role for the performance review and monitoring delivery of the efficiency savings work stream. There are currently 29 NHS projects that are grouped in to the following work streams: Whole Population Implementing an asset based approach to health care prevention Effective Prescribing Sustainable Service Models Developing a safe and effective model of unscheduled care Developing a sustainable hospital, acute and specialist services model for Shetland Developing a sustainable primary care model for Shetland Developing a sustainable model of social care resources Developing a sustainable model for mental health services Developing a sustainable model for adults affected by learning Organisational Issues Improving Business Performance and Efficiency
5. Actions Being Taken Work is ongoing to refine the Project Initiation Documents (PIDS) and implementation plans. Once these are finalised the Finance Department can reflect these schemes in the management accounts and ensure progress with financial delivery is monitored. The Finance Department continues to work with managers to ensure further ideas for savings are generated, scrutinised for risk and assessed for impact upon other services and once agreed as part of the board s plan that they are then delivered. The Finance Department also continues to work with relevant budget managers to monitor and predict out-turn positions especially in the key risk areas. In addressing the cost pressure from Locum Agency Medical staff the Board has entered in to an agreement with VAT Liaison to use the Tempre System that a number of Foundation Trusts in England use to reduce the overall cost of Locums. At present Acute and Mental Health Services are engaging locums via this route. This saved just under 115k in VAT costs over the final six months in 2017-18 and will continue to aid in reducing the cost pressure from locums during year 2018-19. However recruitment to vacant substantive positions is essential to ensure the long-term viability for both sustainable services and the Board s financial strategy. Current models of services that have continuing difficulty in recruiting permanent staff may require to consider redesign options to alternative best practice service models. The Executive Management Team collectively will continue to monitor in year progress of savings plan and work on the development of non-recurrent schemes to tackle in year shortfalls that develop. Work will also continue to develop schemes to address the current roll forward recurrent gap of 2.0m projected to be carried into 2019-20. 6. Risks to the Financial Plan The financial out-turn for 2018-19 and beyond carry a degree of risk, given the level of efficiencies required to allow for the planned reinvestment in services while also achieving financial balance. There are ongoing management actions to address the short-term issues and establish longterm sustainable solutions. These are being progressed as part of the Board s efficiency and redesign programme. The five key risk areas under close monitoring are delivery of savings targets, medical staffing locum costs, supplemental staff, recruitment of permanent staff and prescribing. 7. Year end Projection At the current time, the Board s projection assume that there is a high likelihood the current use of locums in Primary Care, Mental Health Services and Acute Services is set to continue. The forecast projection to yearend assumes these cost pressure from locums will continue for the foreseeable. The current level of temporary staffing significantly increases the risk that Board will not achieve a breakeven position and likely to result in the Board being 3.0m over spent at year end.
Projections for yearend position after three months still have a high degree of risk of variance and have an underlying pessimism bias based on current cost pressures. However, the Board is required to achieve a balanced financial position in-line with our statutory duties at the yearend and work is progressing on delivering this. 8. Cash In addition to balancing the revenue resource allocation, the Board has a cash allocation and the target balance to hold on account at the year-end. The Board s yearend cash target is currently 100k. 9. Summary At the end of June 2018, the board is 1,242k over spent (significantly adverse to plan). 10. Recommendation Board should note that: the financial position as at month three is a significant over spend the savings achieved this year the service risk that needs to be sustainably addressed to bring the Board in to long-term financial balance projected out-turn for 2018-19 is currently 3.0m over spent. Author: Colin Marsland Job title: Director of Finance E-mail: Colin.Marsland@nhs.net Date: 29 July 2018 Appendices: Appendix A: Financial Position stated in Annual Accounts pro-forma Appendix B: Summary Income and Expenditure Statement Appendix C: Local delivery plan variance trajectory and historical data Appendix D: Local delivery plan saving trajectory and historical data Appendix E: Service issues impacting financial plan
Appendix B
Appendix C
Appendix C continued