Report to the Special Board Meeting on 31 March 2015

NHS FIFE

Report to the Special Board Meeting on 31 March 2015

FINANCIAL FRAMEWORK 2015/16 AND LOCAL DELIVERY PLAN

1.INTRODUCTION

1.1.The Financial Framework and Local Delivery Plan (LDP) (Financial Annex) for 2015/16 requires to be approved by the Board, based on recommendations from the Finance and Resources Committee, to allow for opening budgets to be issued to managers and for the LDP to be submitted to the Scottish Government for their approval.

1.2.A draft financial plan was considered by the Finance and Resources at its meeting on 25 November 2014. A revised plan updating information and highlighting the financial challenge relating to the achievement of a breakeven position in 2015/16 was considered this morning by the Finance and Resources Committee who have recommended that the Board:

approve the 2015/16 Financial Framework
approve the updated LDP Financial Annex; and
approve the opening budget for 2015/16.

2.OVERVIEW AND FINANCIAL PLANNING APPROACH

2.1.The financial plan has been developed over a number of months, with an initial overview of proposals being presented to both the Strategic Management Team and Finance & Resources Committee in November. In line with the timescales for submission of the draft Local Delivery Plan, a draft financial plan has been provided to the Scottish Government Health & Social Care Directorates based on the details contained in this report.

Development of the financial plan is a largely iterative process, taking cognisance of:

planning assumptions in relation to pay, prices and drugs uplifts;
known or anticipated cost increases that are deemed to be “unavoidable” due to external factors such as policy initiatives;
planned developments which have already been approved through the Board’s governance processes; and
any known and quantified recurring impact of pressures in the current financial year.

2.2.The financial plan also recognises any guidance or agreed approach set out by the Scottish Government Health & Social Care Directorates via the National Directors of Finance Group.

2.3.Whilst this approach cannot, nor should it, capture all existing cost pressures, or indeed underspends, it does seek to consider issues which emerge from the “top down” as well as those operational issues arising from the “bottom up”.

2.4.The current financial year (2014/15) has been particularly challenging for NHS Fife, with significant pressures across a range of different issues which have been well articulated previously to the Finance & Resources Committee and NHS Board. This includes the impact of incremental progression, use of waiting list initiatives and the independent sector to meet Treatment Time Guarantees, additional costs associated with supplementary staffing within both our nursing and medical workforce, the impact of opening additional unfunded beds to meet capacity demands and the implementation of new medicines.

2.5.Where the recurring implications of these pressures have been (and can be) quantified, measures have been put in place to capture these via the draft financial plan. This includes new medicines such as those introduced for Hepatitis C. In terms of incremental progression within the nursing workforce, this is being addressed on a phased basis, with additional resources included across the period 2015/16 – 2017/18. The implementation of the nursing workforce tool will also seek to bridge the gap, as all posts were costed at the top of the scale and the nurses appointed will be recruited at the bottom of the scale. It is important that Committee members are aware, however, that costs which are deemed ‘manageable’ such as sickness absence have not been included as areas for investment.

2.6.One of the most significant issues which we cannot yet provide absolute assurance on is the financial investment required to address the mismatch in both our scheduled and unscheduled care activity and how, on a system wide basis, we can deliver a sustainable, recurring solution to this. This is a key issue which we need to address, to inform future planning and budget setting. A detailed piece of work is required to truly understand both our scheduled and unscheduled capacity requirements, with a robust assessment of future implications, based on demographic forecasts. This would likely come with a significant resource requirement, possibly including capital implications as well as revenue. This needs a joined up approach across the operational service, with planning expertise, and financial expertise. The Director of Acute Services and Director of Finance are in discussion with the new Chief Executive on the action required to take this forward.

3.REVENUE RESOURCE ALLOCATION (RRL)

3.1.The Board has received an initial RRL of £576.127m. This represents an increase of £18.034m over the recurring baseline for 2014/15. This allocation is made up as follows:

Recurring Baseline 2014/15557.293m

In-year 2014/15 Recurring 0.797m

2014/15 Recurring Baseline558.093m

Uplift at 1.8% 10.046m

Integration Fund 1.831m

National Resource Allocation Committee (NRAC) 2.000m

New Drugs Fund 2.138m

Delayed Discharge 2.019m

Initial 2015/16 Allocation£576.127m

Recurring 2015/16 Baseline£577.627m

3.2.The recurring 2015/16 Baseline is £1.5m higher than the initial allocation due to the additional £1.5m NRAC allocation that was advanced by SGHSCD in 2014/15. Based on the updated NRAC projection, NHS Fife is still circa £3.5m below its NRAC target allocation.

3.3.The Board’s estimated total income for the year is £716.158m which also includes £74.816m of additional allocations to be received in year, £32.870m of Family Health Service Non-Discretionary income, £29.326m of Miscellaneous income and £3.091m of Dental charges.

4.SUMMARY FINANCIAL PLAN

4.1.Table 1 below sets out the summary financial plan for 2015/16. This shows our known additional income, planned additional expenditure and thus highlights the gap which needs to be addressed through system wide cash releasing efficiencies.

Table 1 – Summary Financial Plan 2015/16

4.2.It is important to note the extent to which our additional funding received for 2015/16 does not cover all our additional ‘unavoidable’ costs. To that extent, any new developments or additional investments where there is an element of ‘choice’ must, by default, be funded by efficiency savings. In essence, in order to simply stand still, we need to reduce our level of expenditure.

4.3.The financial plan for 2015/16 makes appropriate allowances for general pay and supplies movements and incorporates a range of other adjustments. The following assumptions, many of which have been agreed at a national level, have been included in arriving at the estimated budgets for the year:

a)Basic Uplifts

Pay Awards – in line withPublic Sector pay recommendations, a 1% uplift in Pay Scales has been assumed, along with a £300 uplift to full time staff earning less than £21k and pro-rata for part time staff on the same pay scale range.

Existing Hospital Drugs / Direct Medical Supplies – both areas have been given a 4% uplift to cover both basic price inflation and the cost of new or substitute alternatives, and activity increases.

GP Prescribing – an uplift of 4% on existing budgets has been provided for Prescribing.

Energy – based on current information about energy contracts from National Procurement a 2.6% uplift has been included.

Rates – a 3.5% increase to reflect the actual estimate of likely rate increases.

General Supplies – a 1% uplift has been included.

Other NHS Service Level Agreements – as per previous years where nationally an uplift has been agreed based on the minimum RRL uplift, a 1.8% increase has been included.

Resource Transfer – an estimated 1% uplift has been included.

Other Non-NHS Agreements – this is largely payments to Fife Council which has been uplifted by 1%.

Voluntary Organisations – a 1% uplift has been included.

Reserves and Developments – no uplifts have been included for items under this heading.

Uplifts for the two PPP contracts (St Andrews Community Hospital and Victoria Hospital Phase 3) have been uplifted by 1% being the rate of RPI at February 2015.

CNORIS payments have been increased in line with SGHSCD recommendations to take account of NHS Fife’s share of £45m.

b)Developments / Service Pressures

The draft financial plan includes additional full year funding for additional costs which will be incurred from 2015/16. These include:

Increase in Employers Superannuation£3.750m
Scottish Medicines Consortium Decisions£2.058m
Delayed Discharges£2.019m
Integration Fund£1.831m
Individual Patient Treatment Requests (Drugs)£1.000m
Individual Patient Care Packages (UNPACS)£0.516m
Non-Fife Service Level Agreements£0.300m

4.4.The full list of the ongoing committed allocations are shown in Appendix 1(a). This includes Earmarked Recurring allocations due to be received from SGHSCD.

4.5.Other new developments which have been approved during 2014/15 are shown in Appendix 1(b) and include the following:

Nursing Workforce Review£2.752m
Hepatitis C Drugs£2.000m
NHS Tayside Service Level Agreement£0.700m
Board Chief Executives Proposed Initiatives£0.471m
Fife Community Equipment Store£0.400m
Neo-Natal Services£0.343m
Orthopaedic Workforce Review£0.163m
Health & Social Care Integration£0.117m
Scottish Enhanced Service Programme£0.106m

4.6.Additional funding has also been provided for Cost Pressures (Appendix 1(c)) and includes £1m towards incremental pay progression, £0.4m for the transfer of the slowstream Learning Disability Patients and £0.250m to meet the increased cost of maintenance contracts associated with Capital Equipment purchases. Appendix 1(d) includes funding that will be required to be created in 2015/16 from carry forward funding from 2014/15.

5.PROPOSED BUDGETS

5.1.The initial budgets for the year are shown in the attached Appendix 1 for the main service areas. In addition, the £10.143m efficiency savings target which is required to be deliver a balanced budget is highlighted. To date, these have not been allocated to individual delivery units and service areas for the purposes of this analysis

5.2.Appendix 1(e) provides details of expenditure with other Health Boards within Scotland, as well as the total cost of activity with Health Authorities in England, Wales and Northern Ireland (OATS) or Unplanned Activity with either Health Boards or the Private Sector (UNPACS).

6.EFFICIENCY SAVINGS

6.1.In line with the Scottish Government’s approach to public sector efficiency and productivity, there is an underlying principle that all NHS Boards will deliver at least 3% efficiency savings on an ongoing basis each year. This can be a combination of cash releasing savings required to ensure a balanced budget as well as productivity gain on a non-cash or cost reduction basis. In total, this 3% equates to £17.284m for 2015/16, however the focus requires to be on cash releasing savings.

6.2.Table 2 below sets out the estimated recurring cash savings target for 2015/16 along with plans identified to date, as required to deliver break even ie £10.143m.

Table 2 – Efficiency Savings 2015/16

Workstream

£000

High %

Medium %

Low %

Service productivity

Drugs and prescribing

3,700

Procurement

500

Workforce

651

Support services (non-clinical)

559

Estates and facilities

100

Unidentified savings

4,683

100

Total

10,143

6.3The plans identified to date have been categorised into broad themes and have an indicative delivery risk rating attached.

Drugs and Prescribing

The £3.7m cash savings represent, in the main, a staged approach to ‘closing the gap’ in our prescribing costs initially to the Scottish average (of which a large proportion remains high risk). There are also the sums of £0.2m arising from a review of Acute prescribing, and £0.1m potential savings from a review of immunisation (high risk).

Procurement

The sum of £0.5m savings from the procurement of goods and services has been estimated from information circulated by colleagues within the National Procurement service, of which c 75% is assessed as being high risk in terms of delivery.

Workforce

The potential savings within workforce total £0.651m and whilst the majority is considered either high or medium risk, there are a number of specific posts which have been identified as low risk. There is an expectation that projected cash savings might be gained via a workforce productivity review across non clinical staffing.

Support Services

Savings within support services comprise cash savings of £0.559m. This includes savings from Finance and eHealth which make up £0.236m or 42% of the projected savings and are categorised as low risk. The high risk element applies to £0.25m savings or 45% and is related to a review of voluntary organisations and more appropriate use of endowment funds.

Unidentified Savings

The level of cash releasing savings identified to date is clearly insufficient to deliver a balanced financial plan and is one of several financial risks facing us as we move into 2015/16. The sum of £4.683m cash savings remains outstanding.

7.NEXT STEPS

7.1.Work is ongoing with SMT colleagues to consider the outstanding cash savings target, within the context of overall financial sustainability. In addition to the specific proposals and workstreams already identified against the efficiency target, there are a number of other options which could be considered in order to close the £4.683m gap:

Application of a 1% cash savings target across all operational budgets (£3m), but recognising the challenge this presents;
Review of PPP agreements and opportunity for refinancing;
Use of generators to provide power back to the national grid, resulting in an income flow;
Introduction of electric vehicles to reduce lease, fuel and maintenance costs;
Estates rationalisation and resultant profit on disposal;
Further work to reduce prescribing expenditure

7.2.Earlier this week, members of the SMT agreed to develop a blueprint for the future which would set out a model to ensure closer alignment of strategic planning, performance management, organisational change and quality improvement, alongside our operational services, taking into account the financial context we are facing for 2015/16. There is consensus that this approach is key to ensuring we work toward a common purpose, which balances our financial and other performance management responsibilities with patient safety and quality.

8.RISK

8.1.Whilst every effort has been taken to ensure all likely additional costs and national, regional and local priorities have been incorporated into the financial plan, it is clear that there remain inherent uncertainties and associated risks. The key risks to note are:

Financial exposure on both scheduled and unscheduled care capacity pressures until such time as a detailed, robust assessment is made across the system and quantified in resource terms;
Ability of the organisation to deliver efficiency savings to the level required, taking into consideration the difficulties experienced over recent years;
Expertise and capacity to take forward a prescriptive programme of change in order to ensure longer term financial sustainability;
Ability of operational managers to put in place effective measures to reduce sickness absence significantly;
Availability of appropriately qualified and experienced medical staffing to meet the recruitment challenges across a number of specialties.

9.LONG TERM FINANCIAL PLANS

9.1.The long term financial plans have been revised to take account of known changes at this time to the planning assumptions.Assuming the level of savings required to be made in 2015/16 are made on a recurring basis, then additional savings of £11.5m and £5m would be required to be delivered in 2016/17 and 2017/18 respectively to ensure a breakeven position.

9.2.Development of the clinical strategy will be an essential component of our longer term financial strategy, as we seek to take cognisance of the change in our demographics, to mention just one factor in the changing landscape ahead. It is important that this is taken forward as part of a wider strategic planning focus, with our workforce, property, eHealth, finance and clinical strategies all aligned to a common purpose.

10.LOCAL DELIVERY PLAN – FINANCIAL ANNEX

10.1.A draft LDP Financial Annex was submitted to SGHSCD as part of the Board’s overall Local Delivery Plan earlier this month. Following consideration of this paper by the Finance & Resources Committee and NHS Board, the Financial Annex will be updated accordingly and a final version submitted for approval.

11.RECOMMENDATIONS

The Board is asked to:

approve the 2015/16 Financial Framework;

approve the updated LDP Financial Annex; and

approve the opening budget for 2015/16.

CHRIS BOWRING

Director of Finance

31 March 2015