Northern Lincolnshire & Goole NHS Foundation Trustnlg(16)495

Northern Lincolnshire & Goole NHS Foundation TrustNLG(16)495

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NLG(16)495

29 November 2016

N/A

Finance Update Report:

Month 7: Year to 31st October 2016

Report Outline:

This report covers the Trust’s financial performance for the 2016/17 financial year to date. The variances, trends and forecasts outlined in this report are assessed against the detailed financial plans contained within the Forward Plan submissions submitted to NHS Improvement.

The financial report contains the following sections:

1) Financial Headlines – An Overall “Mini-Report”

2) Income & Expenditure Account at Month 7

3) Contracting & Income

4) Expenditure & Savings Programme Delivery

5) Capital Programme Expenditure

6) Balance Sheet and Working Capital

7) Budget Management Performance

8) Reserve Drawings and Plan Changes

9) Conclusion - Key Themes, Key Risks & Key Actions

This month further attention is paid to the developing forecast position, and the need to deliver on the Board’s agreed action points to deliver compliance by the end of the year with the control total maximum deficit set by NHS Improvement.

This report is supplemented by separate reports, as required by the Committee, covering the following areas:

• Developments in the Healthy Lives, Healthy Futures strategic review process;
• Performance, Activity and Contracting;
• Delivery of the Trust’s Sustainability Programme;
• Updates on the Capital Investment Programme and other strategic developments;
• Progress on the Trust’s Business Governance review.

This month will also see the Trust’s Mid Year Finance and Business Review (Part 2), reviewing the wider themes underpinning the financial and business performance of the Trust. The Finance Update should be viewed in tandem with this Mid-Year review.

1.Financial Headlines – “Mini Finance Report”

1.1Month 7 Headline Financial Position:

The following headline points should be noted by the Trust Board:

• The deficit for the period to 31st October was £11.89m, adrift of plan by an increased margin of £2.49m;

• The current underlying deficit forecast without further recovery action is £22.99m – this is significantly adrift of the Trust control total deficit limit of £12.27m.

• The full year forecast deficit after recovery action is £12.01m - within the control total limit. However, to deliver this position, a significant part of the recovery plan remains insufficiently developed;

• The Trust will have to review the financial position during November and December to confirm a revised forecast at the Q3 change point, following the processes set out by NHS Improvement;

• The Trust continues to rely upon emergency working capital facility extensions month by month, pending agreement of a formalised capital and liquidity support package for 2016/17. This situation requires resolution - currently a major focus of work for the Trust with NHS Improvement.

The key changes in month are:

• A marginal deterioration in core income forecast, reflecting latest activity levels and forecasts;

• A review of forecast Sustainability and Transformation income, to reflect performance projections on RTT and A&E which are not currently expected to meet the required trajectories;

• Continuing elevated staff costs for Medical locums and, to a lesser extent, non clinical staff.

These issues drive up the forecast deficit prior to recovery action to £23.0m. This is outside the control total placed upon the Trust by Regulators.

This position assumes appropriate mitigation actions relating to contracting income, cost control and savings delivery will remain robust. There remain significant risks of further deterioration in forecast in subsequent months.

The cash position is stable, with debtor pressures offset by slowed capital and elevated creditor levels. We now have in place a mechanism for extension of emergency working capital to support cash flow on a short term basis. However, we have still not finalised our wider funding support package, and capital programme with NHSI and the DH. This is ongoing work, which we hope to conclude within the first week of December.

We are now in direct contact with NHSI to work together through the steps set out in their recent guidance to support recovery where we anticipate non-compliance with the Control Total. We can anticipate further action from regulators if we unable to demonstrate robust recovery plans, and put in place initial action during Q3.

1.2M07 YTD Income and Expenditure Summary:

The deficit for the year has fallen further adrift of plan, at £11.89m. This results from a combination of further marginal deterioration in the underlying position, slippage in required recovery actions, and resulting reductions on accrued Sustainability and Transformation income.

A net shortfall on income is compounded by increased medical staffing and non clinical pay costs. We also have pressures from provision of additional activity in critical areas, most significantly diagnostics:

1.3Full Year Forecast – Prior to Recovery Action:

The full year forecast equivalent shows a further deterioration from last month:

The projected underlying deficit at this point, remains significantly adrift of plan, at £22.9m.

The key variances in forecast are:

1) We can no longer forecast full recovery of the Sustainability Programme: (£1.9m)

2) The Trust will lose Sustainability and Transformation income: (£6.5m)

(We will be outside our financial control total at the Q3 and Q4 assessment points and will miss and not recover the Q2 to Q4 performance position for RTT and A&E)

3) The imbalance between income additions and forecast costs of activity delivery:(£1.4m)

4) Projected additional Medical Staffing locum cost pressures(£1.6m)

Other variances have a net neutral impact.

This position still assumes delivery of a range of other controls and recovery actions to contain or mitigate additional risks:

1) Contract income risks –through non-payment by CCGs using penalties, CQUINs, or other claw back mechanisms;

2) Delivery of sufficient activity to support income projections - this will require a degree of activity throughput increase in planned care areas;

3) Management of activity and winter pressures within cost envelopes set in the Trust’s financial plan;

4) Maintenance of discipline on budgets and reserve allocations;

5) Delivery of the underlying forecast of specified savings.

Without each of these mitigation actions, the financial forecast is at risk of further deterioration, increasing the likelihood of regulator action.

1.4Forecast – Scenario Analysis:

The “best case/worst case” analysis reflects variance against the provisional plan, adjusted for latest projections, based upon the previously outlined assessment of risks. The updated forecast for I&E is as follows:

1.5Recovery Actions:

Even with the deterioration in income and performance forecast, a recovery action plan can still be constructed to recover this position – if a robust savings recovery programme is confirmed and delivered, and performance can either be recovered or subject to successful appeals. The Trust has again submitted a formal forecast which remains compliant with the control total, at £12.0m. The reconciliation to this position is made up of the following assumptions:

1) Robust savings recovery actions planned out but still to confirm:£0.4m

2) Assumed recovery actions on income:£1.7m

3) Assumed recovery actions on medical staffing locum costs (not confirmed):£1.7m

4) Assumed recovery actions on non clinical staffing (not confirmed):£0.7m

5) Recovery of full S&T Income:£6.5m

This remains a high risk position. The Trust must take necessary and prompt action to close the remaining gap and mitigate the risks to base forecast.

Cash Forecasting:

Cash forecasting still remains subject to confirmation of plan limits and constraints for capital and liquidity – still at the time of writing under consideration by regulators. We may well need to change our capital and working capital management plans significantly once we get a clear view from regulators. At that point we will be able to take stock of changes to plan, and reset cash management arrangements to match that plan. This will allow us to start to map out any remaining liquidity risks.

2.Income & Expenditure Account for period ending 31st October (Month 7)

The table below summarises the key I&E headings:

Key points:

• Clinical Income - the shortfall in plan is linked to shortfalls in planned care activity, and shortfalls linked to Sustainability and Transformation income. This position assumes mitigation of contract challenges.

• Other Income - we still see reduced levels of non-clinical contract and education income, though the largest proportion of the variance relates to contracts which have now been reclassified as NHS clinical income.

• Donated Income – still stalled awaiting confirmed capital programme spending.

• Clinical Pay - favourable variances earlier in the year have been eroded by a surge in medical staffing locum costs. This is largely linked to acute medicine and A&E establishment expansion, and has offset much of the gains from strong control of nursing agency costs.

• Non Clinical Pay - continues to increase. Additional spending to support clinical administration is the most significant run rate change, and adds to pressures on sickness absence management for support staff.

• Clinical Non Pay – Clinical non pay spend does not show the underspend that should result from reduced activity levels, particularly given demonstrable progress on specific savings projects.

• Other Non Pay - bought in healthcare services remains the key variance, driven by the need to enhance diagnostic, intermediate care and Ophthalmology capacity;

• The post EBITDA variance reflects a short term benefit on depreciation and our cash flow actions to reduce PDC charges, offset by increased interest charges due to the use of higher interest emergency working capital facilities, and increased debtors levels (most notably due to North Lincolnshire CCG failing to make payments in line with contract).

The position is now behind plan, and deteriorating. We also anticipate significant further expenditure as activity recovery is undertaken, and other reserve investments take effect. There remain significant risks of further deterioration.

3.Activity, Contracting and Income:

The Trust activity plan anticipated some degree of demand growth, as well as the need to increase planned care throughput to return RTT and more general waiting times to an acceptable position.

Emergency admissions have fallen slightly below last year’s equivalent outturn in spells terms, though tariff value, critical care activity and A&E growth still point to continued underlying demand growth. The Trust has been actively working to control urgent care activity growth. Maternity activity remains down against an unusually busy period last year.

In planned care pathways, the Trust still remains ahead of outturn (and contract levels) for new outpatient activity. Elective and follow up activity remains fractionally below outturn. Waiting times are increasing, with demand levels into the planned care system increased by around 6% on last year. RTT performance has therefore deteriorated. The Trust has a choice – respond to demand with further activity, above commissioned levels, or accept failure on the RTT trajectory.

Demand for high cost drug and other tariff excluded items remains high, and pressures on diagnostic services, particularly endoscopy, MRI and CT, remain significantly up on 2015/16.

Underlying activity delivery is still forecast to end close to income plan levels. Overtrading on high cost drugs offsets shortfalls in other areas – but with an expenditure commitment. There remain a number of key contracting risks:

1) CCGs continue to raise disputes and withhold cash, in contravention of the contracting rules;

2) NL CCG have raised £4.8m of challenges linked to Better Care Fund projects;

3) CQUINs delivery may deteriorate in Q3 and Q4;

4) Planned care activity recovery in full year contracting forecast may not be delivered;

5) CCGs cannot afford the contracts they have signed up to.

Within the rules framework, therefore, contract income should slightly exceed plan. However, this will break CCG (and NHS England) control total targets, and remains a potential income risk. The Trust has set in train actions to bring all parties together, of involving both NHSI and NHSE, to provide a definitive view on key dispute areas. NHSI are setting up the joint review, with both regulators present.

S&T Income:

The Trust was dependent upon S&T income of £11.5m through the year. The rules framework sets clear financial and performance deliverables to “earn” this support funding:

Performance:

• A&E: The Trust now does not anticipate being able to maintain performance through Q2, Q3 and Q4, but intends to appeal on the grounds of commissioner failure to control demand and decommissioning of key diversionary services.
• RTT: The Trust now does not anticipate being able to deliver against trajectories, but will appeal based upon underlying demand growth and exceptional disruption to capacity.
• Performance – Cancer 62 Day Limit: Though margins are tight, we expect compliance through Q2 to Q4.

Finance:

• We now forecast non-compliance with control total from Q3 onwards.

This puts at risk £6.47m of the total of £11.5m of S&T income – prior to further recovery action, including any successful appeals.

Recovery Plan Action Points:

There are two action points from the September actions agreed by the Trust Board linked to contracting and performance income, designed to minimise risk of additional deterioration in forecast through reductions in clinical income:

Action Point 1: Contracting Risk Mitigation

• The Month 5 contracting forecast be updated for August activity, and robustly stress tested;
• A comprehensive file be produced outlining perverse or incorrect action by local commissioners;
• A formal local contracting summit be established in the first week of October to identify any and all differences between local organisations;
• We take up NHS Improvement’s offer of a multi-party meeting with CCGs, NHS England, NHS Improvement and the Trust, in mid-October.

Progress Status Update - Ongoing: The Trust is behind schedule on this plan, but has written to each commissioner outlining the position, and also met with NLCCG to discuss a range of issues. The evidence pack for submission to NHSI has been completed, and the meeting with CCGs and NGSI/NHSE has been requested.

NLCCG – originating commissioner for the majority of disputes – has indicated some willingness to come to terms, but has yet to confirm this in writing.

Action Point 2: Performance Recovery