Appendix 4

Trust Board meeting March 2010

Financial plan 2010/11 – update and draft budget

  1. Purpose

The Trust Board received a paper regarding the financial planning process for 2010/11 in February. The paper covered both the national and local context. This paper provides the Trust Board with anupdate on the financial planning process for 2010/11 and provides an indicative budget for approval, pending a fuller report and a final budget in April 2010.

  1. Introduction

Negotiations on the 2010/11 contract have not yet concluded with East and North Hertfordshire PCT. As a result, a final financial plan cannot be presented for Trust Board approval at this stage. It remains the intention to complete the contract negotiation process by 31st March 2010 and therefore to present for approval the complete and final budget at the April 2010 Board meeting.

In terms of the Trust’s internal budget setting process, this is largely complete, pending adjustments relating to the contract activity levels (to be agreed with the PCT) and allocations relating to initiatives such as CQUIN.

  1. Trust/PCT contract negotiation

The Hertfordshire PCT commissioners are indicating that they expect their spending with the Trust to reduce by around 5% (circa £10m) from the levels experienced in the 2009/10 financial year. They expect the bulk of this reduction to come in the form of lower activity levels, particularly with regard to outpatient attendances and elective admissions. Although we have received broad strategic commissioning intentions in this regard, the PCT have still to provide details of exactly where and how this will occur.

There are particular areas of patient activity where there are joint and potentially quick gains to be achieved. For example, the Trust is currently incurring additional (often premium) costs providing extra capacity in many surgical and medical specialties to deliver the 18 week target. These clinics and theatre sessions are provided internally and, in some surgical specialties, through outsourcing to local private healthcare providers. If activity can be reduced through demand management initiatives in these specialties, there is scope to reduce capacity and excess cost almost immediately.

Therefore to progress the negotiation and in response to the PCT’s initial broad demand management intentions, which indicated an approximate reduction of 20% across all outpatient first attendances, the Trust has provided a specific analysis of where reductions may be able to occur in 2010/11. This has been produced and collated using information from the consultant leads in each specialty. The backdrop to the analysis and these proposed activity levels for next year being current demand (2009/10 forecast outturn) adjusted for demographic changes using an updated version of the Tribal model. The Trust expects a response to this proposal by close of play on Monday 22nd March 2010.

At the time of writing, the difference between the 2 organisations’ positions is approximately £10m. Of this total, approximately £6.8m is linked to PbR (Payment by Results) activity with the balance being non-tariff activity.

The agreed revised deadline for contract signing is 31st March 2010. The Trust will continue to work closely with the PCT in setting appropriate levels of activity for 2010/11

  1. Budget setting – Divisions and Corporate plans

Clearly the estimation of the expected spend of Divisional and Corporate budgets needs to match the anticipated activity and income, together with costs associated with specific new initiatives, for example, CQUIN. It also needs to allow for a £3m planned surplus in 2010/11.

All Trusts were required to submit their first cut financial plans to the SHA in January. Very high level assumptions were made in the first cut plan, including the impact on both income and costs, of the PCTs demand management initiatives. A summary of this return was shared with the Board in February 2010.

Until the contracted activity levels are finalised for the new year, Divisions are producing detailed budget proposals based on current demand/activity levels. The starting point for the proposals will be the 2009/10 recurrent budget, and they are reviewing, and justifying their current cost pressures, as well as any future, unavoidable cost pressures. The cost pressures are split between those relating to activity and those driven by other factors. The activity related cost pressures, which largely relate to the cost of additional (premium-rate) in-house capacity or the outsourcing of patient activity to the private sector, will be flexed down, if appropriate, when contracted activity levels are confirmed.

Divisions submitted their first cut budget proposals with their draft Divisional annual plans on 29th January and since that date, further refinement has taken place. From the 8th March, the Chief Executive, Director of Finance and the Director of Operations have been meeting formally with Divisions to finalise their budgets, subject to the agreement of contract activity.

Formal sign off of Divisional budgets will therefore take place immediately after contract agreement is reached with the PCT.

  1. Cost Improvement Programme

The tariff uplift in 2010/11 includes an efficiency requirement of 3.5%, which offsets the inflationary impacts of pay and prices. Divisions have been allocated a 4.5% target, as set out in the table below, to allow a level of in-year contingency.

Division / Target £000s
Surgery / 3,023
Medicine / 2,593
Clinical Support / 1,826
Women’s & Children’s / 1,317
Cancer Services / 1,588
Corporate / 2,340
Total CIP / 12,687

Through the production of their annual plan and the subsequent iterations, Divisions have very detailed CIP plans for 2010/11 which are risk rated. Divisional budgets will not be signed off without a complete and robust CIP programme which contains supporting implementation action plans for each scheme within the programme.

  1. Draft indicative budget for approval

The table below outlines the current planned budget for 2010/11. Noted within the table are the assumptions underpinning each element of the budget.

Certain elements of the draft plan are relatively fixed and will not move significantly. They include the national tariff assumptions on income, CQUIN, pay and price uplifts and the CIP programme. The variability in the plan exists in the planned PCT volume changes (which have implications across income and expenditure) and cost pressures, where final decisions are required before the start of the new financial year.

Although the table is provided to the Trust in outline only, there is a substantial amount of detailed analysis to support the proposal.

  1. Recommendation and next steps

The Trust Board are asked to approve the interim budget pending a final version which will be submitted to the Board for approval in April 2010. This interim measure is a consequence of protracted contract negotiations with the PCT regarding 2010/11.

Paul Traynor

Director of Finance

March 2010

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