Finance Update Report 2017/18: Month 05

Northern Lincolnshire & Goole NHS Foundation Trust

______

NLG(17)393

DATE OF MEETING /

26 September 2017

REPORT FOR / Trust Board of Directors – PUBLIC
REPORT FROM / Marcus Hassall, Director of Finance
CONTACT OFFICER / Brian Shipley, Associate Director of Finance
SUBJECT / Finance Report – Month 05
BACKGROUND DOCUMENT (IF ANY) / -
PURPOSE OF THE PAPER: / For Decision / Assurance / Information (please select)
EXECUTIVE SUMMARY(PLEASE INCLUDE A BRIEF SUMMARY OF THE PAPER, KEY POINTS & ANY RISK ISSUES AND MITIGATING ACTIONS WHERE APPROPRIATE) / The report provides the Trust Board with the reported financial position for month 05 of the 2017/18 financial year including contracting and income, expenditure, capital, cash and savings delivery
HAVE STAFF SIDE BEEN CONSULTED ON THE PROPOSALS? / N/A
HAVE THE RELEVANT SERVICE USERS/CARERS BEEN CONSULTED ON THE PROPOSALS? /

N/A

ARE THERE ANY FINANCIAL CONSEQUENCES ARISING FROM THE RECOMMENDATIONS? / Contained within the Report
IF YES, HAVE THESE BEEN AGREED WITH THE RELEVANT BUDGET HOLDER AND DIRECTOR OF FINANCE, AND HAVE ANY FUNDING ISSUES BEEN RESOLVED? / N/A
ARE THERE ANY LEGAL IMPLICATIONS ARISING FROM THIS PAPER THAT THE BOARD NEED TO BE MADE AWARE OF? / N/A
WHERE RELEVANT, HAS PROPER CONSIDERATION BEEN GIVEN TO THE NHS CONSTITUTION IN ANY DECISIONS OR ACTIONS PROPOSED? / Yes
WHERE RELEVANT, HAS PROPER CONSIDERATION BEEN GIVEN TO SUSTAINABILITY IMPLICATIONS (QUALITY & FINANCIAL) & CLIMATE CHANGE? / N/A
THE PROPOPSALS OR ARRANGEMNTS OUTLINED IN THIS PAPER SUPPORT THE ACHIEVEMENT OF THE TRUST OBJECTIVE(S) / Yes
THE PROPOSAL OR ARRANGEMENTS OUTLINED IN THIS PAPER ENDORSE COMPLIANCE WITH THE REGULATORY OR GOVERNANCE REQUIREMENTS LISTED / N/A
THE PROPOSALS OR ARRANGEMENTS OUTLINED IN THIS PAPER TAKE ACCOUNT OF REQUIREMENTS IN RESPECT OF EQUALITY & DIVERSITY / N/A
ACTION REQUIRED BY THE BOARD / The Board is requested to review the reported financial position, identify key areas for challenge and review, and suggest further actions that they consider appropriate.

Finance Update Report 2017/18: Month 05

Report Outline:

This report covers the Trust’s financial performance to the end of month 5 (August 2017). It covers the following areas:

• Financial Position Overview;
• I&E Position – including Full Year Forecast;
• Activity, Contracting and Income;
• Expenditure and Savings Programme;
• Capital Programme;
• Balance Sheet, Cash and Working Capital;
• Budgetary Management;
• Reserve Drawings and Plan Changes;
• Financial Special Measures Update;
• Conclusion - Key Themes, Key Risks & Key Actions

The Trust was placed in Financial Special Measures by the regulator NHSI in March 2017. At this point, work is ongoing with our recovery partners Ernst and Young (EY) to develop a Financial Recovery Plan. When this work is completed, it will be reviewed by NHSI, and should confirm for the Trust very clear in year and future year financial expectations.

The Recovery Plan is due to be submitted to NHSI in late September, after approval by the Trust Board – an Extraordinary Meeting is set for 19th September, with submission to NHSI set for the 21st September.

The Trust will then be held to account for delivering improvement in its financial position – a challenge further complicated by the Trust’s Quality Special Measures status.

1. Financial Position - Overview:

M05 £m
In Month I&E Surplus/(Deficit) / (4.41)
YTD I & E Account Surplus/(Deficit) / (18.76)
YTD Plan I & E Surplus/(Deficit) / (5.91)
YTD Variance From Plan – I&E Surplus/(Deficit) / (12.85)
Full Year I&E Forecast – Provisional, Without Recovery Action: / (48.96)
Full Year I&E Forecast – Official Declaration “On Plan”: / (13.26)
Cash Balance at 31st August / 16.13
Set Minimum Cash Balance (after IRSL support) / 1.90
Variance From Minimum Cash Balance / 14.23
InMonth Net Loans (Drawdown)/Repayment / (0.00)
YTD Net Loans (Drawdown)/Repayment / (13.33)
Total Loans Balance / (85.51)

The Trust again ran a significant in month deficit in August, consistent with the underlying position in July – and significantly worse than the first 3 months of the year. The underlying I&E deficit in Q1 was £3.3m per month, but has risen to £4.4m per month for Q2 to date.

The deterioration in monthly I&E performance is primarily linked to clinical staff cost increases – summer leave pressures and increased vacancies for both Medical and Nursing staff groups driving up costs sharply. Costs of consultancy and interim staffing, related to delivery of Special Measures actions, were also a material factor.

The increased monthly deficit rate underpins an end of year forecast deficit that now stands at £49.0m. This is a pre-recovery plan figure - the Trust must deliver an improvement on this position in year, once a definitive financial recovery plan (FRP) is agreed with NHSI.

The Trust is still, pending agreement of its Financial Recovery Plan, required to officially submit an “on-plan” forecast, though this is clearly not now a deliverable outcome.

Cash balances have surged due to an agreement with key commissioners for frontloaded payment, mitigating loan drawdown and interest costs. Commissioners have now, however, drawn back from this agreement, so the cash and loan support impact will be transient.

The Trust has now to do a huge amount to stabilise and correct its operational and financial performance over the remainder of the year, in line with the expectations agreed with NHSI.

2.I&E Position Month 05:

Headline Financial Position:

YTD Actual / Variance from Plan
£mil / £mil
Income (excluding STF) / 142.21 / (4.39)
STF / 0.00 / (3.36)
Expenditure – Pay, Clinical / (85.77) / (2.82)
Expenditure – Pay, Other / (21.43) / (1.15)
Expenditure – Non Pay, Clinical / (26.58) / (0.50)
Expenditure – Non Pay, Other / (22.92) / (1.20)
EBITDA / (14.50) / (13.41)
Post EBITDA Items / (4.26) / 0.56
Trading Surplus/(Deficit) / (18.76) / (12.85)
Exceptional Items / 0.00 / 0.00

At the end of month 5 the Trust deficit is £18.76m. This follows an in month deficit of £4.41m. The Trust submitted a plan for 2017/18 in December 2016 which was consistent with its control total deficit of £13.29m. The month 5 position is currently running £12.85m adrift of this plan.

The key components of the deficit are:

1)Failure to earn Sustainability and Transformation Fund Income;

2)Shortfalls on income, driven primarily by activity delivery issues;

3)Pressures on clinical staffing costs, including non-delivery of savings targets;

4)Non clinical pay pressures resulting from shortfalls in savings delivery;

5)Expensive agency costs for senior management staff;

6)Additional energy, estates maintenance and IM&T infrastructure costs;

7)Additional non clinical agency/consultancy costs related to the Trust’s Special Measures status.

Activity and income delivery pressures reflect the operational and clinical staffing difficulties facing the Trust, issues dating back to the previous year. Clinical staffing issues also have a direct financial impact on expenditure, with cost increases and disruption to delivery of savings projects.

The state of the Trust’s building stock continues to put pressure on maintenance budgets, as do requirements to replace and upgrade IT infrastructure and equipment to support the move to digital services.

The Trust has incurred significant disruption following changes in Board and managerial staffing, with additional costs and disruption to savings plan delivery. Investment through the Financial and Quality Special Measures arrangements will have a short term cost impact, but will be designed to support longer term improvements in both the financial and service quality positions.

These critical issues will be a major focus of the Trusts recovery planning work – now being taken forward under the Financial Special Measures regime, with the support of improvement partners EY. The FRP will create a revised plan trajectory for the Trust, once agreed with NHSI.

I&E Forecast:

YTD Position M05 / Worst Case Forecast / Primary Forecast / Best Case Forecast
£m / £m / £m / £m
16/17 Plan Surplus/(Deficit) / (5.9) / (13.3) / (13.3) / (13.3)
STF / (3.4) / (10.2) / (10.2) / (10.2)
Income Delivery / (4.4) / (8.0) / (6.8) / (5.3)
AIC Risk Share / 0.0 / 0.0 / 0.0 / 5.3
Savings Plan - Core (£16.6m) / (1.8) / (9.8) / (8.3) / (2.0)
Capped Expenditure Plans (£10.7m) / (4.5) / (10.7) / (9.4) / (9.4)
Expenditure Pressures - Reserves/Overspends / 1.3 / (0.7) / 0.7 / 1.0
Special Measures - Interim/Consultancy / (0.8) / (3.2) / (2.6) / (2.2)
Financing, Assets etc / 0.6 / 0.2 / 0.9 / 0.9
Clinical Harm Response / * / * / *
Medical Staffing Driven Service Failure / * / * / *
Equipment Driven Service Failure / * / * / *
Forecast Surplus/(Deficit) / (18.8) / (55.6) / (49.0) / (35.1)
Variance to Plan (inc STF shortfall) / (12.9) / (42.4) / (35.7) / (21.9)
Variance to Plan (exc STF) / (9.5) / (32.1) / (25.5) / (11.6)

The “Primary” I&E forecast is currently £49.0m, showing a shift towards worst case since month 04. This reflects further work done to firm up likely investment requirements for Special Measures response, and also a shift to make the primary forecast consistent with EY’s “risk adjusted” methodology for savings delivery.

The range between best and worst case scenarios remains wide, reflecting the range of financial threats facing the organisation, and the volatility which arises from key operational difficulties on activity delivery and clinical staffing, and the developmental nature of the FRP - the savings programme primary case delivery forecast has still to build in the recovery actions which should be agreed as part of the Financial Recovery Plan.

This FRP work is critical to firming up a reliable and deliverable end of year target/forecast position for NHSI and also the Trust.

Other potential adverse variable would result if a major service failure resulted from the loss of key diagnostic equipment, or from major disruption to a key medical staffing clinical team. These sorts of developments remain possible, but are excluded from forecasting.

Additionally, excluded from the forecast at this stage are potential further actions to respond to potential clinical harm linked to RTT and Cancer wait delays (from clinical or administrative review, or through additional capacity responses beyond plan).

The forecast again highlights the difficulties still facing the Trust. Financial performance ranges reflect the scale of operational challenge to be managed.

3.Activity, Contracting and Income:

Key issues and variances on income are as follows:

STF:Net Impact YTD:(£3.36m)

The Trust had an allocation of £10.24m of STF income in 2017/18. The Trusts performance against all key metrics is adrift of the thresholds required to secure STF income. The Trust will not therefore receive any STF income in the current year.

South Humber CCG Contracts:Net Impact YTD:(£1.00m)

The Trust has now agreed an Aligned Incentive Contract with its two largest CCGs (in effect a block agreement with risk sharing arrangements which significantly favour the Trust). This has significantly improved the contract baseline “Minimum Income Guarantee” level - though still £2.4m short of the levels set out in the Trust’s plan.

The two CCGs may also seek to reset the MIG to cover their own risks in meeting NHSE requirements to hold back 0.5% of CQUINS monies – the Trust will resist this.

Other Contracts and Income Flows:Net Impact YTD:(£3.39m)

Planned care productivity remains lower than required, and activity levels are significantly below the expectations underpinning the income plan.

Significant pushback is now being generated from commissioners – normal for this point of the year, as CVGs and NHS England start to work through year end forecasts, and react to overcommitments.

NHS England are due to submit a number of activity increase challenges to fight payment of overtrading against their contract baselines – in effect trying to cement in place their QIPP schemes. The Trust will need to respond effectively to secure payment for full service delivery.

Lincolnshire CCGs are attempting to secure significant reductions against Pathology prices. In year, this is not allowed within the rules framework, and therefore the Trust is not in a position to agree any reduction. However, this may indicate a risk for 2018/19 – potentially of up to £3.0m. Negotiation on a reasonable outcome will be pursued.

Difficulties in increasing planned care output, and currently flat urgent care demand also work against income increases built in to the Trust’s income plan, to respond to RTT pressures and forecast demographic demand increases.

Activity Position:

Headline activity numbers are as below:

2016/17 Outturn to M05 / 2017/18 Plan to M05 / 2017/18 Outturn to M05 / Variance vs Outturn / % / Variance vs Plan / %
A&E Attendances / 62,495 / 64,431 / 64,294 / 1,799 / 2.88% / (137) / (0.21%)
Non Elective Spells / 18,653 / 19,219 / 18,455 / (198) / (1.06%) / (764) / (3.98%)
Elective Spells / 2,840 / 3,248 / 2,802 / (38) / (1.34%) / (446) / (13.73%)
Daycase Spells / 21,315 / 22,695 / 22,573 / 1,258 / 5.90% / (122) / (0.54%)
Outpatient Attendances - New / 50,637 / 52,214 / 50,692 / 55 / 0.11% / (1,522) / (2.91%)
Outpatient Attendances - Review / 103,356 / 97,589 / 103,003 / (353) / (0.34%) / 5,414 / 5.55%

In summary:

• A&E is up on outturn by almost the volume forecast, and is close to plan.

• Non elective activity has slipped back on outturn, when plans had anticipated an increase.

• Elective and daycase plans needed significant increases on last year to start to match underlying demand, and then start to deliver RTT recovery. Daycase activity is above outturn, and is only slightly adrift of the target. Elective admissions remain down on outturn.

• New outpatient activity is fractionally above outturn, but significant increases were required to match plan, and contribute to stabilising and improving RTT waiting times.

• Outpatient review activity was planned to reduce significantly through improved New to Review ratios, and the loss of Dermatology activity. In fact, activity has fallen slightly and exceeds plan – but review backlogs are still an issue.

This summary uses provisional numbers, not taking into account casemix weightings.Work to get a clearer view of casemix dynamics, and also to review activity targets following the agreement of the AIC contract arrangements with NEL and NL CCGs is ongoing.

4.Expenditure and Savings Plan Delivery:

Pay - Clinical:Net YTD Variance:(£2.82m)

Pay expenditure for medical and nursing staff continued at the elevated and unsustainable level of July. Clinical staff costs, driven by agency expenditure, remain outside plan parameters and NHSI cap levels. Leave issues and a difficult training grade handover created additional pressure to compound high vacancy rates – August is also a difficult month to secure staff supplies through bank and agency.

Medical Staff Locum Spend:
Agency Nursing Spend:

Longer term trends are also clearly adverse – a key issue for the FRP.

Pay – Non Clinical:Net Impact YTD:(£1.15m)

At this stage limited progress has been made in reducing the spend run rate on administrative pay – and progress that has been delivered has been offset by interim cover arrangements for senior posts:

Non Pay Spend:Net Impact YTD:(£1.69m)

Key Issues Breakdown:

Clinical Non Pay:(£0.50m):

Drug expenditure is driven by high cost excluded drug growth – this is recovered through income contracts, and is a feature of some of the contracting issues with NHS England. Pressures on non clinical supplies are less readily explained, given shortfalls on planned care activity levels, but some slippage or stalling of non pay savings projects is a feature – again an issue that must be tackled, as part of the FRP.

Travel Costs:(£0.14m):

The Trust has reversed previous changes to travel rates following staff grievances. This has turned a potential savings full year effect into a cost pressure.

Premises and Plant Costs:(£0.59m):

The Trust has seen increased energy costs following disruption to a new CHP plant – this will be recovered under the Trust’s guaranteed savings contract with British Gas. Additional IM&T costs for rollout of devices, licences and N3 changes have also increase pressure on spending. N3 costs will be partly covered by additional income via CCGs later in the year. Wider on pressure arises from the condition of the Trust estate, but there is still work ongoing on prioritisation and control of the revenue (and capital) expenditure.

Consultancy Costs:(£0.56m):

The Trust is under the Financial Special Measures regime obliged to fund additional consultancy support – in NLAGs case from EY. This was not included in plan. Later phases of work will significantly increase this pressure, and the key task is to ensure appropriate development of internal capability and capacity to allow for swift handover to a re-skilled in house team.

Other I&E Issues:

Financing costs have increased due to the Trust’s FSM status, but at this stage depreciation and dividend costs are lower, delivering a net reduction overall.

Savings Plan:

WORKSTREAM / 2017/18 PLAN / 2017/18 YTD PLAN / 2017/18 YTD DELIVERY / 2017/18 YTD VARIANCE / 2017/18 FORECAST DELIVERY / 2017/18 FORECAST VARIANCE / FORECAST IN MONTH MOVEMENT
Central & Commercial / 1,135 / 440 / 673 / 232 / 1,370 / 235 / (118)
Contracting & Service Development / 62 / 26 / 107 / 81 / 107 / 45 / (18)
Corporate & Management / 1,334 / 556 / 393 / (163) / 664 / (670) / (96)
Estates & Facilities / 700 / 226 / 285 / 60 / 680 / (20) / (55)
Medical Staff / 4,241 / 1,223 / 540 / (683) / 800 / (3,441) / 2
Non Pay & Procurement / 2,938 / 1,009 / 869 / (139) / 1,999 / (939) / (598)
Nurse Staffing / 2,281 / 1,080 / 541 / (539) / 899 / (1,382) / (137)
Operations / 3,517 / 742 / 161 / (581) / 357 / (3,160) / (280)
Terms & Conditions / 384 / 113 / 60 / (53) / 116 / (268) / (71)
UNALLOCATED / 10,684 / 4,452 / 0 / (4,452) / 0 / (10,684) / 0
Grand Total / 27,275 / 9,866 / 3,630 / (6,236) / 6,991 / (20,284) / (1,372)

The Trust savings plan is made up of a core programme of £16.6m (the Trust’s forecast best feasible delivery level in year) and a further £10.7m gap to plan (resulting from the sharp run rate deterioration seen in Q3 and Q4 of 2016/17), which has remained “unallocated” to individual savings plans.

The unallocated amount has formed the basis of the Capped Expenditure Programme actions – aimed to limit activity spend, drive through service reconfiguration, improve STP wide procurement of bought in services, and community wide estates utilisation. These high risk schemes are now accepted as jointly owned by the CCGs and Trust, and covered by the contract risk share.

The remaining core savings programme is now showing significant strain, with limited progress in critical areas – clinical pay cost reduction, and operational productivity improvement.

The Trust has also experienced significant issues in mobilising effective delivery support through its PMO team – significantly affected by vacancies, and in operational management capacity. As part of the Trust’s FSM response, the appointment of a Turnaround Director has taken place, and a re-launch/re-population of the PMO are now underway.

The Trust is now working rapidly with EY to build an effective Financial Recovery Plan, which will focus on improving the key shortfall areas on the savings programme: