Trust Board 5 June 2018 Budget 2018/19 Trust Secretariat Page 1 of 19 G:\Board Secretariat\Meetings\Board\Meetings\2018-19\05.06.18 EXECUTIVE SUMMARY REPORT TO: Trust Board DATE: Tuesday 5 June 2018 AGENDA NO: 3.2 AGENDA ITEM: Budget 2018/19 SPONSOR: Angela Hibbard, Director of Finance and Performance PREPARED BY: Colin Dart, Deputy Director of Finance PRESENTED BY: Angela Hibbard, Director of Finance and Performance Purpose To present to the Committee with a complete view of the final 2018/19 financial plan as approved by the Board at a briefing on 17 April 2018 and reflected in the finance general ledger that has been submitted to NHS Improvement. Decision Approval Receive Ratify Link to Strategic Objective(s) This paper supports delivery of the following strategic objectives, by demonstrating a financial plan that demonstrates no worsening of the performance within the NHS constitutional targets within a highly constrained financial environment. The plan is set at a level that is both challenging yet deliverable. 1. High quality 2. Sustainable local services 3. Integrated health and social care 4. Flexible, fulfilled and multi-skilled workforce 5. Efficient and effective 6. Promote independence and well-being. 7. Support individuals and communities to have more influence Key Issues The financial plan approved by the Trust Board for 2018/19 is a £11.9m in year deficit The Plan requires an £8m savings programme to be delivered The plans behind the £8m opportunity continue to be developed and monitored as a comprehensive CIP programme of work. The CIP governance has been reviewed and a proposal was approved by the board to strengthen current arrangements. Project Management Office roles are being recruited. A CIP Steering Group has been constituted and held its first meeting on 14 May 2018. A CIP Programme Board has been constituted and held its first meeting on 21 May 2018. Key risks are identified focusing on ability to manage demand in the system, impact on ability to deliver CIP, regulator response to non-acceptance of control total. The plan is risk assessed at level 3 (of 4) being moderately high and reflects the ‘Challenged Trust’ status by NHS Improvement. Equality-Related Impact The Trust is committed to an inclusive NHS that is fair and accessible to all; to upholding the principles of human rights and equality of people who use our services and of those who work in them. This paper has been assessed to have the following equality-related impact: Positive Impact Negative Impact No Impact Risk
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EXECUTIVE SUMMARY - Northern Devon Healthcare NHS Trust · 6/5/2018 · Cost improvement plan (CIP) 3.1. Overview The trust has undertaken a comprehensive review of the level of
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Trust Board 5 June 2018 Budget 2018/19
Trust Secretariat Page 1 of 19 G:\Board Secretariat\Meetings\Board\Meetings\2018-19\05.06.18
EXECUTIVE SUMMARY REPORT TO: Trust Board DATE: Tuesday 5 June 2018 AGENDA NO: 3.2 AGENDA ITEM: Budget 2018/19 SPONSOR: Angela Hibbard, Director of Finance and Performance PREPARED BY: Colin Dart, Deputy Director of Finance PRESENTED BY: Angela Hibbard, Director of Finance and Performance
Purpose
To present to the Committee with a complete view of the final 2018/19 financial plan as approved by the Board at a briefing on 17 April 2018 and reflected in the finance general ledger that has been submitted to NHS Improvement.
Decision
Approval
Receive
Ratify
Link to Strategic Objective(s)
This paper supports delivery of the following strategic objectives, by demonstrating a financial plan that demonstrates no worsening of the performance within the NHS constitutional targets within a highly constrained financial environment. The plan is set at a level that is both challenging yet deliverable. 1. High quality 2. Sustainable local services 3. Integrated health and social care 4. Flexible, fulfilled and multi-skilled workforce 5. Efficient and effective 6. Promote independence and well-being. 7. Support individuals and communities to have more influence
Key Issues
The financial plan approved by the Trust Board for 2018/19 is a £11.9m in year deficit
The Plan requires an £8m savings programme to be delivered
The plans behind the £8m opportunity continue to be developed and monitored as a comprehensive CIP programme of work.
The CIP governance has been reviewed and a proposal was approved by the board to strengthen current arrangements. Project Management Office roles are being recruited.
A CIP Steering Group has been constituted and held its first meeting on 14 May 2018.
A CIP Programme Board has been constituted and held its first meeting on 21 May 2018.
Key risks are identified focusing on ability to manage demand in the system, impact on ability to deliver CIP, regulator response to non-acceptance of control total.
The plan is risk assessed at level 3 (of 4) being moderately high and reflects the ‘Challenged Trust’ status by NHS Improvement.
Equality-Related Impact The Trust is committed to an inclusive NHS that is fair and accessible to all; to upholding the principles of human rights and equality of people who use our services and of those who work in them. This paper has been assessed to have the following equality-related impact:
Positive Impact
Negative Impact
No Impact
Risk
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Board/Committee Prompts
Does this paper affect confidence regarding achievement of the identified strategic objective(s)?
What assurance can the Board take from this paper regarding the identified strategic objective(s)?
References
None
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1. Purpose
1.1. The purpose of this paper is to present to the committee the supporting
information to the approved financial plan for 2018/19. The paper sets out:
The overall financial position and assumptions used
Key performance trajectories
Statement of Comprehensive Income (Appendix 1)
Statement of Financial Position (Appendix 2)
Statement of Cash Flows (Appendix 3)
Savings plan
Risks (Appendix 4)
Capital Programme (Appendix 5)
2. Background and overview
2.1. Plan Overview
The Board approved a realistic, challenging yet deliverable financial plan on 17 April 2018 that was submitted to NHS Improvement (NHSI) on 30 April 2018. The key highlights being:
Not accepting the notified control total surplus of £5.4m;
Accepting that Provider Sustainability Funding (PSF) of £5.4m would not be earned;
Deliver a £11.9m deficit; after
Achieving £8.0m of savings.
2.2. Operational Performance
The approved financial plan delivers the following performance against the key NHS constitution targets:
RTT 18W% will be maintained at 78% through to Mar 19 (early view reporting for best-estimate of performance as at Mar 18);
Cancer 62D performance will be improved by reducing backlog through the year, from 81% to 86%;
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4h flow performance will be increasing through the year from 72% to 83% at M6 to 92% at M12.
This performance for our activity level would have been in line with the national requirement of 90% at M6 and 95% at M12 if NDHT still had the Walk in Centre services that transferred to Royal Devon and Exeter FT at 1 Apr 18;
6WW diagnostics will see a reduction of overall WL and a major reduction in 6W+ waiters
2.3. Rollover Financial Position
The financial plan recognised that a number of transactions to achieve the 2017/18 yearend position were non-recurrent in nature and unwinding these into the 2018/19 opening plan position results in an underlying opening deficit of £8.9m.
2.4. 2018/19 overall planning assumptions
The financial plan is based on an agreed set of STP financial principles for 2018/19 of Flat Cash + across all CCG commissioned spend. The +’s in the agreement relate to:
RTT backlog funding in line with planning guidance
Mental health parity of esteem
Primary care non recurrent transformational funding
This means that the level of income received from STP NHS Commissioners (NEW Devon CCG and South Devon & Torbay CCG) will not be increased above 2017/18 levels with regards to price inflation and activity growth. By the same argument this secures any additional payments above tariff such as subsidies into the rolled over contract value. The expectation to the flat cash arrangement is the agreed cost of funding RTT required to hold the 2017/18 exit position. This has been agreed to be funded at PBR tariff and discussion are ongoing to confirm the arrangements to transfer this into the block arrangements. The Trust plan assumes £3.2m of income matched with £3.2m of expenditure.
2.5. 2018/19 income assumptions The key assumptions driving income in the plan can be summarised as:
activity growth
tariff income
flat cash reduction
RTT income
Transfer of Walk in Centre services to RDE NHSFT
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Contractual resolutions
STP support repaid 2.6. 2018/19 expenditure assumptions
The key assumptions driving expenditure in the plan can be summarised as:
Cost of delivering activity growth
Pay and non-pay inflation
Cost of delivering RTT activity
Transfer of Walk in Centre services to RDE NHSFT (reduced expenditure)
Electronic Healthcare Record
Unwind salaries recharged to capital programme
CQC action plan and governance 2.7. Reserves
The following material reserves have been incorporated into the financial plan and are held pending allocation to specific budgets:
Activity growth
RTT activity
CQC action plan
A transparent process for utilisation of these reserves will be implemented throughout the financial year to address the capacity within the organisation and the agreed RTT position at the end of the financial year as well as addressing the recommendations raised by the CQC.
The activity related reserves also provide a means to deliver the cost improvement plan productivity focused schemes. The productivity benefits targeted will deliver the increased level of capacity needed allowing for the release of funds. However, productivity KPI’s must be evidenced before release of funding to CIP schemes.
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2.8. Key Data
The following table sets out the quarterly and cumulative key performance indicators of the 2018/19 financial plan:
2.9. Risk Rating
The following table sets of the quarterly and cumulative NHSI risk rating of the 2018/19 financial plan:
Plan Risk Ratings Q1 Q2 Q3 Q4
Year Ending
Rating Rating Rating Rating Rating
Capital Service Cover rating 4 4 4 4 4
Liquidity rating 2 3 3 3 3
I&E Margin rating 4 4 4 4 4
Variance From Control Total rating
4 4 4 4 4
Agency rating 1 1 1 1 1
Plan Risk Rating after overrides 3 3 3 3 3
Key Data Q1 Q2 Q3 Q4 Cumulative
£'000 £'000 £'000 £'000 £'000
Turnover
Total operating income 48,664 48,761 49,049 49,175 195,649
Less capital donations/grants income impact (61) (63) (263) (363) (750)
Total Turnover 48,603 48,698 48,786 48,812 194,899
Performance against control total including STF
Surplus/(deficit) before impairments and transfers (3,497) (3,674) (2,255) (1,953) (11,379)
Total agency costs excluding outsourced bank 1,158 853 732 465 3,208
Agency ceiling 1,350 1,050 850 740 3,990
Agency costs as a percentage of gross payroll costs 3.6% 2.7% 2.3% 1.5% 2.5%
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3. Cost improvement plan (CIP)
3.1. Overview
The trust has undertaken a comprehensive review of the level of CIP achievable based on a number of benchmarking opportunities available. This has identified a target level of opportunity of £8m. This equates to 3.7% of trust baseline expenditure.
£,m
Gross Savings 8.50
Identified investment 0.45
Net Saving 8.05
The CIP opportunity identified is being translated into deliverable plans at specialty level with set financial targets and KPIs based on a number of markers such as:
Target reductions in agency spend through strengthening recruitment and retention
Reduction in number of non-elective admissions and A&E attendances through ensuring patients receive the right level of care and support before needing acute services
Increased utilisation of theatre sessions to deliver productivity gains required to address RTT and growth pressures
CIP governance has increased to provide assurance around CIP delivery from project to Board as set out below:
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3.2. 2018/19 Programme
An initial high level programme was constructed utilising the national benchmarking information available.
Informal conversations with regulators indicate that this level of CIP is in line with expectation.
This was further informed by reviewing the output from a CIP workshop.
Further review by the Director of Finance and Interim Director of Operations and Strategy assessed the plan below as reasonable:
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Area
Gross
saving
£'000
Identified
Investment
£'000
Net
Saving
£'000 Basis of Allocation
Agency spend
reductions 746 0 746 Division
Theatres
productivity 700 200 500
Reserve
(subject to demonstrable KPI’s)
Pharmacy -
Biosimilars 300 0 300 Division
Pathology 100 0 100 Division
Procurement 600 0 600
Division based on work
programme
Private Patients 600 0 600 Division
Corporate Services 400 0 400 Division
Patient Flow 400 0 400 Division
1% Efficiency 1,600 0 1,600 Division
Demand
Management 800 0 800
Reserve
(subject to demonstrable KPI’s)
Elective Care 200 0 200
Reserve
(subject to demonstrable KPI’s)
Non Block Contracts 200 0 200 Contract Income
Job Planning 500 0 500 Reserve
RTT delivered at
Marginal rate 800 0 800
(subject to demonstrable KPI’s)
Contribution to
overheads 550 250 300 Division
8496 450 8046
3.3. Further Opportunities
Further opportunities will be built into the plan to ensure that the full £8m target can be delivered on a recurrent basis by year end. This will be informed by the governance arrangements for assurance and escalation that are encapsulated in separate committee papers for the Terms of Reference for:
CIP Steering Group
CIP Programme Board
3.4. Plan Phasing The revised quarterly profiles currently reflected in the plan are:
£’000 %
Q1 1,116 14
Q2 2,007 25
Q3 2,412 30
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3.5. Internal Processes and CIP Governance The following have been considered for implementation:
Reviewed of CIP Governance arrangements from Project to Board
Received Board approval for a formal Programme Management Office (PMO) function. Roles have been banded and will be advertised imminently.
SmartSheets (Project to Board reporting tool) being populated with PID’s, KPI’s, milestones and trajectories.
Reviewed Terms of Reference and assurance arrangements required for the CIP Steering Group.
CIP Steering Group established to challenge on delivery against key milestones, risks and escalation. First meeting 14 May 2018.
Reviewed Terms of Reference and assurance arrangements required for the CIP Programme Board.
Revised CIP Programme Board established. First meeting 21 May 2018.
Finance Committee – report from CIP Programme Board 22 May 2018
3.6. SmartSheets project to board reporting tool Master Template The master template will be a complete log of all of the CIP schemes being worked up for 2018/19. The Project Initiation Document (PID) is the key supporting document.
The master template will record the operational lead and SRO, a RAG rating for project progress and savings progress as well as forecast and actual savings achieved.
The PMO will own the master template and maintain the details using information from CIP mandates, action plans and CIP steering group.
The finance manager will be responsible for maintaining and updating the financial trajectory within the master template on a monthly basis consistent with ledger reporting.
Action Plans
Q4 2,511 31
Total 8,046 100
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Each project will have an action plan which will record progress against milestones.
The PMO will be responsible for setting up the template using the milestones identified in the CIP mandate and then the operational lead will be responsible for keeping it up to date with progress at least fortnightly, 3 working days ahead of CIP Steering Board.
Any actions that are RAG rated amber or red must have a risk or issue entered into the risks and issues log by the operational lead.
Risks and Issues Log
The operational lead will be responsible for logging any risks and issues onto the log in Smartsheets using the Trust standard scoring and for keeping their project specific risks and issues up to date.
Risk score will be informed by the Trust risk matrix taking into consideration likelihood and impact.
KPI’s
A template will be created for each project to record the planned trajectory for each of the KPIs specific to that project as well as actual delivery against that KPI.
The PMO will be responsible for setting up the initial template for each project and the operational lead will be responsible for updating and maintaining it.
4. Cash
4.1. Due to the deficit nature of the financial plan an additional working capital loan is assumed in year of £9m. This will need to be applied for with NHS improvement. Given the conversations regarding their understanding of the Trust deficit plan this is expected to be supported.
4.2. This is reflected in the Statement of Cash Flows submitted to NHSI on 30 April 2018 as set out in Appendix 3.
5. Capital
5.1. A balanced capital programme has been developed to utilise the capital resources available through the utilisation of the annual depreciation, donated assets the repayment of the Salix loan. This provides capital available of £5.7m.
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5.2. This capital has been utilised against existing committed developments, medical devices equipment, IT trakcare commitments and a provision for backlog maintenance.
5.3. The capital programme is included as Appendix 5.
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6. Risk
6.1. Although the financial plan shows significant movement from the planned £4m surplus of 2017/18 to a £12m deficit in 2018/19 there still remains an element of risk to delivery of this position as set out in Appendix 4.
6.2. These risks are known at the planning stage and will be reviewed by the executive committee, Finance Committee and Board in accordance with the reporting cycle to ensure that mitigation actions are put in place.
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Appendix 1 – Statement of Comprehensive Income
STATEMENT OF COMPREHENSIVE INCOME April May June July August September October November December January February March Cumulative
Increase/(decrease) in cash and cash equivalents (1,515) (1,159) 768 (936) 1 544 (254) (290) 1,000 (1,000) 0 0
Cash and cash equivalents at end of period 2,536 1,377 2,145 1,209 1,209 1,753 1,499 1,209 2,209 1,209 1,209 1,209
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Appendix 4 – Material financial risks scoring above 12
No. Financial Risk Description Impact x likelihood
Mitigating action
1
Baseline activity levels exceed volumes set within block contract
The interplay with the contract subsidy ensures that an overall quantum of contractual income is achieved in the rollover block but the ability of the organisation to deliver against the block contract is compromised if activity levels continue to exceed planned volumes. This will otherwise manifest in further waiting list deterioration and over the level of acute bed stock required
4x3 =12
1. Demand management programme of work to be built into CIP to include parties from CCG, Community and Local Authority
2. Productivity generated through theatre utilisation programme to address RTT in the short term
2 Ability to further contain in year growth
The contract contains further activity assumptions for growth containment which is driving the in-year deficit position as costs are still assumed. CIP delivery is predicated on reducing activity levels so capacity can be reduced to remove cost
4x3=12
Mitigations as above plus
3. Strengthen CIP governance to increase assurance around CIP delivery to ensure early warning system when actions of track and clear escalation route to resolution of issues
3.
None agreement of control total will place the trust in SOF 4 with mandated regulator intervention
The scale of the regulator intervention is not known but is likely to be proportionate to the scale of the deficit compared to other deficit organisations and arrangements already being put in place to address viability issues.
3x4=12
7. Successful implementation of management contract with RDE to provide assurance to NHSI that action is being taken to address clinical and financial issues
4 Risk of overall STP position
The STP may require organisations to achieve better than current plan to remain in line with the original STP trajectory which was £61m deficit in 2018/19. The STP is currently £7m away from this trajectory in the collective plans
3x4=12 8. Should this risk arise it will need to be debated in the STP forum and brought back for board sign off.
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and therefore downside organisations may be asked to do better
A number of options are available:
(1) refusal to change plan
(2) agreement on assurance of additional system support
(3) agreement with unidentified CIP increase
5 Ability to deliver breakeven duty over three years
Delivering a deficit position to the magnitude of £12m may risk the ability of the trust to recover within a three year period – required to achieve the statutory duty
3x4=12
9. A 3 year recovery plan to be formulated in line with the development of a financial strategy
10. Consideration given to applying to extend the breakeven duty over 5 years.