How The Finance Works

in partnership with the NHS Trusts

in Glasgow

The Future

of Glasgow’s

Hospital Services

L e t ’ s P l a n I t

T o g e t h e r !

15How The Finance Works

Booklet 15 5/4/00 3:04 pm Page 1

The NHS financial system iscomplicated! Not just becauseaccountancy and its “rules” arecomplicated (which they are!) butbecause the local NHS provides somany hundreds of services, ofteninvolving GPs, hospitals, differentdepartments and lots of differentmaterials for individual patients.Tracking expenditure in the detail thatmatches each patient’s experiencewould itself cost a lot of money.

This leaflet tries to explain the systemin reasonably simple language andhelp you understand the financialimpact of our proposals.

Firstly there is the money needed torun services on a day-to-day basis. The cost of staff salaries, medicines,dressings, most equipment, electricity,maintenance, food, cleaning and soon. This is usually known in the jargonas “revenue cost” (or, sometimes“running costs”). This money isprovided by the Scottish Executiveunder a formula which, broadly,reflects the size and characteristics(age profile; amount of illness etc) of the population served by the Health Board.

The Health Board is required by law tospend no more than its “cash limit” (itsallocation for the year). It decides howmuch money goes to the various NHSTrusts which provide different servicesfor the population. Each NHS Trusthas a number of financial duties whichare defined in law. Basically a Trustmust remain financially solvent andmeet the financial targets set by theScottish Executive.

Although the Health Board has a setcash limit for each year, it is also givenan indication of what its futureallocations are likely to be for the two years beyond the current year.

The UK government and the ScottishExecutive have both said that theyexpect the amount of revenueavailable for the NHS to increasesignificantly over the next few years.Obviously a first charge on anyincrease is the cost of inflation (higherpay for staff and increased costs formedicines, materials and services) butthe government and Executive aim tosee that there would still be a lot ofnew money left to significantlyimprove services over and above theimpact of inflation.

How The Finance Works15


Greater Glasgow Health Board(GGHB) expects to get rather more“new money” than most other HealthBoards over the next few years. This isbecause the old formula used forallocating money to Health Boards didnot give enough recognition to thefact that Greater Glasgow’s populationhas high levels of social and economicdeprivation and this in turn leads topoor health. A new formula is beingintroduced. At the time of writingGGHB receives around £14 millionless per year than it would if the newformula was fully in operation - butwith the big increase in overall NHSfunding over the next few years thisfigure will become much larger.

We say more later on the competingdemands for “new money”.

The second type of money is knownas “capital” - used to build newhospitals, clinics and extensions, majornew equipment (like x-ray machines)and major repairs and replacements(roofs, boilers and so on). Sometimes

this money comes direct from theScottish Executive - the NHS inScotland has a capital programme ofbetween £165 million and £200million to spend each year. This has tobe spread over all the NHS Trusts inScotland and so the “queue” waitingfor money for very large capitalschemes can be quite long.

The Public Private Partnership (PPP)is a way that government has of tryingto secure more capital investment inpublic services over and above whatcan be met from the main capitalprogramme. It is a highly complicatedprocess with large procedure manualsdescribing its principles, rules andaccounting policies. In a nutshell itinvolves the private sector putting upthe money to pay for a new buildingand its equipment and the NHS thenpays the money back, with interest,over the next 25 to 30 years. Theprivate partners may also providesome of the maintenance, cleaningand catering services in the newhospital. The principle is that the

H e l p u s i m p r o v e o u r s e r v i c e t o y o u

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private sector is likely to design andbuild the project and run its supportservices more efficiently than NHSmanagers would. In the last couple ofyears better safeguards have beenagreed for any NHS staff transferringto a private sector employer as part ofa PPP scheme.

Whether capital investment comesdirect from the Scottish Executive orthrough a PPP arrangement, it has tobe paid for - just like a mortgage on aprivate house. Hospitals that havebeen built with money from agovernment capital programme havean independent valuation placed onthem and the Trust has to pay theScottish Executive a “capital charge”each year (an interest payment on thecapital cost). This capital chargebecomes one part of the annualrunning cost of the hospital - alongwith staff, materials and services - andhas to be funded by the Health Board.

If a new hospital is built through PPPthe private sector partner levies acharge for capital repayment, interest

and any support services they areproviding. This has to be paid by theTrust - and therefore by the Health Board.

Old hospitals, because they are oldand usually no longer very “fit forpurpose”, usually have a low valuationand therefore their capital charges arelow. A new hospital will have a highvaluation and so its capital charges (orPPP charge) will be much higher thanan old hospital. This is why there is somuch concern about the “affordability”of new hospitals. It’s nice to have newbuildings but the increased capitalcharge has to come out of the HealthBoard’s revenue allocation. Moremoney spent on bricks and mortarmeans less money available to spendon more doctors, nurses, other staff,medicines, and so on.

GGHB spends around £525 millionrevenue each year on hospital andcommunity health services provided byNHS Trusts in Greater Glasgow. Mostof that (around 70%) is spent on staff.



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In modernising Glasgow’s acutehospital services we need torecognise that several changes in costwill occur:• modern buildings will have high

capital charges or PPP charges.• the modern buildings will directly

replace some old buildings. Knocking them down or closing themwill save their capital charges andthe cost of running them.

• new patterns of care (moreambulatory care, for example) willprobably mean fewer wards to staff.

• but the beds that we do have willprobably have patients who are “iller”

• those whose illness or conditionmakes it impossible for them to betreated as an ambulatory carepatient. So the fewer beds we havewill need better staffing levels thanwe have per bed now.

• new buildings will allow services thatneed to work together to do so moreefficiently. Fewer reception areas,less need for long journeysaccompanied by porters, less needfor the patient to make return visits.

These efficiencies will save some money.

The way these changes work out indetail will be worked out at futurestages in planning. First in broadterms at what is called “OutlineBusiness Case” stage and then ingreat detail when a “Final BusinessCase” is being prepared.

At this stage we can only describe thefinancial impacts in broad terms butwe are confident that they aresufficiently well thought through tosupport this present consultation exercise.



So how does all this fit together?First the profile for capital spending in the first half of the plan period:

In the North and East we estimate that early in the decade (by 2002/3) therewill be two principal schemes:• Ambulatory Care Centre at Stobhill £29.5 million• An extra floor in the new ward block currently

built at GRI, to accommodate orthopaedics £ 7.0 million

On the Southside we plan a single contract to deliver three distinct parts of theplan by 2006/7:• Ambulatory Care Centre at the Victoria Infirmary )• New surgical unit, medical receiving unit, theatres, )

Intensive Care, High Dependency and pharmacy )facilities, some refurbishment of medical facilities - ) £170 millionall at the Southern General )

• New Children’s Hospital, laboratories and )ancillary accommodation )

In West Glasgow the priority is to end split-site in-patient working for medicineand surgery and to make best use of the relatively modern facilities at theWestern Infirmary. The key first elements for completion by 2005/6 are:• Emergency receiving centre, intensive care unit, )

minor injuries unit and improved ambulatory care )at Gartnavel )

• Improve facilities at Western Infirmary for Beatson ) £31.2 millionOncology Centre and creation of single cardiothoracic )unit for Glasgow )

In the same period we would also see some smaller scale capital schemes thatalso contribute to the overall plan:• concentration of in-patient gynaecology at GRI £ 3.5 million• concentration of in-patient gynaecology at Southern General £ 2.5 million• more efficient laboratory facilities : North Glasgow £ 2.7 million• more efficient laboratory facilities : South Glasgow £ 2.5 million• a new industrial centre (laundry/sterile supplies etc) £ 5.0 million

serving all Glasgow hospitals



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What would these mean for annual running costs? In our planning for the 5 yearforward look for our Health Improvement Programme we are assuming thatGGHB will need to spend more on acute hospital services. Work to refine this isstill being done. There are two types of increase in cost to cater for:• firstly the net increase in costs once the new services are fully in operation

(mainly their increased capital charges less any savings arising from thegreater efficiency of the new pattern of organising services).

• secondly short-run “transitional costs” - managing the costs of change, such asrunning current services while paying the start-up costs of the new.

We are making provision for these as follows:

£ million2001/2 2/3 3/4 4/5 5/6

Net increase in cost• GRI maternity, plastic surgery 1.7

& emergency receiving

• Gartnavel: new linear 1.2accelerators

• Stobhill Ambulatory 1.1Care Centre

• GRI new in-patient 0.3orthopaedics unit

• West Glasgow: revenue 3.0 (5.0)consequences of newbuildings. Cost in yearone (savings in year 2)

• Victoria Ambulatory Care 3.0(incl. rehabilitation beds)

• Southern General: net revenue 6.0*consequences of new buildings

2.9 1.1 0.3 6.0 1.0 11.3 **



* This figure assumes that the transfer of Yorkhill’s services would be revenuecost neutral. However, we would expect that the “mortgage” charge of the newbuilding would be only very slightly higher than the current Yorkhill capitalcharges and would be more than offset by efficiencies arising from the Yorkhilltransferred services being able to share some of the support services/infrastructure provided on the Southern General site. These will only beidentified through careful detailed planning at Outline Business Case stage. It is possible that some savings could be identified which could be ploughedback into improved hospital services for children.

** This figure is the total increase in annual running costs that will have arisen bythe end of this first half of the plan period.

£ million2001/2 2/3 3/4 4/5 5/6

Funding for non-recurrenttransition costs also expected to be available each year 2.0 3.0 3.5 3.5 3.5

In the second half of the plan period theprofile of capital spending would be:

In the North and East it would dependon the outcome of the currentconsultation on in-patient servicesinvolving the GRI and Stobhill. Theissue would be how to modernise in-patient capacity to supplement the600 modern beds in operation at theGRI from 2003/4 onwards. Capitalspending of around £55 millionspread from 2007/8 to 2010/11 hasbeen estimated on the presumptionthat some 400 new beds will need tobe built to replace GRI and Stobhillold beds.

On the Southside the final phase ofredevelopment of the SouthernGeneral Hospital would commence in2007/8 and be complete by 2010/11at an estimated capital cost of around£75 million. It would provide newambulatory care facilities plus around320 medical beds and diagnosticimaging (mainly x-ray).

In West Glasgow, starting in 2006/7(complete by 2010/11), the final phaseof capital investment would involvemoving the Beatson Oncology Centreand the cardiothoracic unit from theWestern Infirmary into brand newaccommodation. The estimated capitalcost would be some £65 million.



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How would this second half of theplan effect on running costs?

There has been less work done onthis. However, the estimated capitalspending in the second half of theprogramme would be some £195million. The capital charges for thatlevel of investment would be around£23 million but the new buildingswould be replacing old buildings -principally the Western Infirmary(present capital charge is over £4million), many old buildings at theSouthern General and old buildings ateither the GRI or Stobhill or both.

The other main influence over therunning costs of a hospital is thenumber of beds. The precise numberof beds to be built in the second halfof the programme would be reviewedin the middle of the decade. And thereplacement of old buildings anddispersed systems of working wouldalso yield some efficiencies andsavings that could help to offset theextra cost of the new buildings.

The South Glasgow Trust estimatesthat the net increased annual costpayable by GGHB following the finalphase of the redevelopment of theSouthern General would be some £4million - equivalent to a net 5%

“mortgage payment” per year relatedto spending £75 million on newbuildings to replace obsolete oldbuildings currently with a very lowcapital charge.

In the case of North Glasgow theequivalent estimate is a £2 millionextra cost per year after having spent£120 million in capital. This is a lowerincreased cost because the greatestscope for efficiencies offered by newbuildings comes in the second half ofthe ten to twelve year programme period.It implies off-setting savings of around£12 million against the capital chargeof the new buildings of £14.4 million.At least half of those off-settingsavings would come from no longerhaving to pay capital charges at theWestern Infirmary or for old buildingsreplaced at the GRI and Stobhill.

Clearly further detailed planning workwill be undertaken before the capitalinvestment proposals are put forwardfor formal Business Case approval.However, that detailed work cannot beundertaken until there is an approvedbroad service plan for Glasgow -which is what this consultationprocess is about.


Comments on this issue or anyother aspect of the proposals tomodernise Glasgow’s hospitalservices should be sent by June 30th, 2000 to

John C HamiltonHead of Corporate ServicesGreater Glasgow Health BoardDalian House350 St Vincent StreetGlasgowG3 8YZ

So, are all these extra revenue costsaffordable? We think so. The HealthBoard has many other demands forextra spending to deal with but duringthis time period we would expect thatthe Health Board would be able tofind the money and still maintain agood pattern of improvement inservices for the mentally ill, primarycare, children, and other servicesaimed at tackling the inequalities inhealth associated with social andeconomic deprivation. The HealthBoard will review its revenue positionfor the next five year period at itsmeeting in April, 2000 when theresults of the Chancellor’s 2000Budget are finally known. We willpublish a revised projection of howmoney would be spent over the next 5 to 10 years in early May, 2000.

However, the increased recurrentrevenue cost of £11.3 million for thefirst half of the plan up to 2005/6amounts to approximately 25% of thetotal money available for NHS servicedevelopment in Glasgow in the period2001/2 to 2005/6 which wasanticipated prior to the Chancellor’sMarch, 2000 budget. The prospectsare now even more favourable to affordability.

There is one final issue and thatconcerns land sales. The plan means

that some existing sites become lessfully used - or even unused - oncenew buildings are in place. There is alegal obligation on the NHS to sellsurplus land for the best price it canachieve and the normal rule is that theproceeds of those sales are used tooffset the capital cost of newbuildings. The sites concerned will be:

• most of the existing VictoriaInfirmary site

• the Mansionhouse Unit• Cowglen hospital• the Yorkhill site• the Western Infirmary

The land sales would take effectwhen replacement accommodationwas available and would therefore bemostly later in the mid to late part ofthe ten to twelve year planning period.


Booklet 15 5/4/00 3:04 pm Page 10

Leaflet request form


Getting InformedIf you want to read up on any otherissue please complete this leafletrequest form. Tick the box ✓ next tothe leaflets you want, provide yourname and address in the spaceprovided and send it to the Freepostaddress below (no stamp needed).

Acute Services ReviewGreater Glasgow Health BoardFREEPOST (GW 707)Glasgow G3 8BR

❑ 1. The Patient’s Experience

❑ 2. Getting It Right For Patients: What It

Means For Organising Services

❑ 3. Cancer Services:

Specialisation In Action

❑ 4. Why Specialisation Matters - And

What We Propose To Do To Make Its

Benefits More Available

❑ 5. Creating More Responsive Accident

And Emergency Services

❑ 6. Ambulatory Care: What Is It?

❑ 7. Minimally Invasive Technologies:

Keyhole Surgery And The Like

❑ 8. The Overall Planning Challenge For

Greater Glasgow - Acute Hospitals

In A Wider Context

❑ 9. Some Recent Background History

❑ 10. Impact Of Regulations On Doctors’

Working Hours

❑ 11. The Number Of Beds We Propose

To Provide

❑ 12. Regional Services Provided By

Glasgow Hospitals

❑ 13. Why Teaching And

Research Matters

❑ 14. Staffing Matters

❑ 15. How The Finance Works

❑ 16. Detailed Analysis Of The Options

For South Glasgow

❑ 17. Maternal And Child Health

❑ 18. Better Access For West

Glasgow Residents

❑ 19. The GRI/Stobhill Partnership

❑ 20. Why Centralise Cardiothoracic

Surgery?

❑ 21. Radiotherapy: Linear Accelerators

- A Patient’s Guide

Name: ________________________

Address: ______________________

______________________________

______________________________

______________________________

Postcode: _____________________

You can also send it by fax on 0141 201 4426.

Alternatively, you can call us onFreephone 0800 85 85 85.

✍✁

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Greater Glasgow Health Board

Dalian House

350 St Vincent Street

Glasgow G3 8YZ

Tel: 0141 201 4444 Fax: 0141 201 4401

Textphone: 0141 201 4400

Web site: www.show.scot.nhs.uk/gghb

in partnership with the NHS Trusts

in Glasgow

Booklet 15 5/4/00 3:04 pm Page 12

How The Finance Works

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