HERTFORDSHIRE COUNTY COUNCIL

HEALTH SCRUTINY COMMITTEE

WEDNESDAY8 JUNE 2006 AT 10.00 AM

SUBJECT: Health Service Financial recovery Plans

Report of the Head of Scrutiny

Author: David MosesTel: 01992 555300

Executive Member: Sally Newton

  1. Purpose of report

To attach a briefing paper prepared by the Strategic Health Authority on the approach to financial recovery and 2006/07 financial plans.

  1. Further information

A covering report outlining the roles and issues for the Committee will be placed in Members pigeon holes or posted to them on Monday 6 June, together with detailed plans in respect of each of the Primary Care and Hospital Trusts.

David Moses

Head of Scrutiny

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BEDFORDSHIRE & HERTFORDSHIRE STRATEGIC HEALTH AUTHORITY

APPROACH TO FINANCIAL RECOVERY AND 2006/07 FINANCIAL PLANS

SECTION A

FINANCIAL POSITION AT 31ST MARCH 2006

Income and Expenditure

The Health System had a cumulative deficit of £47.5 million in 2004/05 before audit. The Health Economy had an in year deficit of £60.4 million in 2005/06 and a cumulative deficit of £107.9 million at 31st March, 2006.

The Health System had an agreed control total from the Department of Health of £75 million in 2005/06. There is therefore an adverse variance of £32.9 million to this control total. Of this £11.3 million relates to a prescribing creditor provision as per national NHS accounting guidance.

The audited accounts in 2004/05 showed an actual deficit of £58.4 million, an adverse movement of £10.9 million compared to the pre-audited accounts. Under NHS accounting rules the adverse movement of £10.9 million is reported in 2006/07 and is a first call on available funds.

£ million
2003/04 Cumulative surplus / 1.2
2004/05 In-year deficit / (48.7)
2004/05 Cumulative deficit / 47.5
2005/06 In year deficit / 60.4**
2005/06 Cumulative deficit / 107.9
DOH Target
Variance from target / 74.9
(33.0)

** Includes £11.3 million for non-recurrent prescribing creditor

Source: FIMs

Cash

In 2005/06 Beds and Herts faced a £103 million shortfall which was reduced to £65 million through the implementation of a number of relatively low risk measures, including extending trade creditors and delaying capital spend. The Department of Health provided the remaining £65m of cash which is repayable in 2006/07.

Headcount

From 2003/4 through 2004/5 significant investment was made in staff numbers across the SHA, recruiting 2,400 additional staff or 12% of the workforce. In 2005/6 the staff numbers have been managed to the same level as at the start of the year, c 22,600 people.

SECTION B

APPROACH TO FINANCIAL RECOVERY

The approach to financial recovery across the Bedfordshire & Hertfordshire SHA has been developing on an iterative basis in recent months with key principles finalised by Chief Executives on 10th May.

The aim has been to secure an in year surplus in 2006/07 prior to the repayment of 2005/06 RAB (£107 million) and the funding of other non-recurrent items (£28 million e.g.2004/05 accounts adjustment/CPLNHS one off costs). This allows the Health System and most organisations to move into 2007/08 with recurrently balanced plans. High levels of growth in 2007/08 will secure this improvement on a sustainable basis.

East and North Herts Trust and West Herts HospitalsTrust both face significant challenges to return to robust financial health and require organisational and cultural change as well as reconfiguration.

2006/07 KEY PRINCIPLES

  1. Under spends from 2005/06 are not being returned except where commitments made or DOH requirement
  2. Revenue growth in 2006/07 is being used to resolve the Health System financial difficulties and is not being used for new investment other than the six must dos as part of the NHS operating framework for 2006/07.
  3. 4% provision for generic cost pressures and 1% for must dos
  4. All PCTs to generate 3.5% cash releasing efficiency savings to contribute towards the overall financial position – this was allowed for in the setting of control totals
  5. The baseline financial plans reflect SLAs which are almost finalised within the East of England from both Commissioner and provider perspective
  6. The baseline financial plans show the latest position for SLAs outside the East of England
  7. Capacity is to bechanged by Providers to reflect agreed SLAs
  8. All organisations except East and North Herts and West Herts Trusts to deliver an in year breakeven position in 2006/07 before the funding of non recurrent RAB adjustments from 2005/06
  9. 2005/06 RAB adjustments for Provider Trusts will be funded by a non-recurrent and non-repayable topslice from PCTs/SHA and will be managed through PCT/SHA resource limits
  10. Commissioning a patient led NHS (CPLNHS) costs will be covered by the appropriate Organisation and the control total of that Organisation will changed by an equivalent amount. Provision has been made for 1.5% of targeted annual savings.
  11. Any risk reserves will be established at the East of England cluster level

2007/08 KEY PRINCIPLES

  1. All organisations to deliver in year breakeven and recurrent balance
  2. BedfordHospital to payback cumulative deficit in 2007/08
  3. West Herts/ENHT to complete payback of cumulative deficit over a longer timescale which is still to be agreed as part of recovery plans
  4. Efficiency requirement of at least 2.5% assumed at this stage for Provider Trusts towards new costs in 2007/08
  5. Generic cost pressures assumed at 4%
  6. Planning priorities assumed at 2%
  7. Published growth for 2007/08
  8. Adjustments from 2005/06 (audited accounts compared to month 12 FIMs) to be funded by each Organisation
  9. RAB adjustments from 2006/07 to be funded by each Organisation

SECTION C

2006/07 HEALTH SYSTEMFINANCIAL PLAN

The overall control total given to the Beds/Herts SHA by the East of England Transitional Leader was £71million. Control totals of £71 million were therefore issued to organisations. Control totals were set in accordance with the principles outlined above.

To deliver the control totals requires £150 million of savings to be delivered across the Health System (6.6% for acute Provider Trusts and 5% for PCTs – of available resources). Work continues by all organisations to identify the necessary savings to deliver the control totals.

There are four non-recurrent issues amounting to £135 million being managed in 2006/07:

  • £107 million of 2005/06 RAB adjustments

As part of this the PCTs have non recurrently and on a non-repayable basis provided £61 million to fund the 2005/06 RAB adjustment in the Provider Trusts.

  • £11 million has been set aside to cover the one off costs of Commissioning a Patient Led NHS
  • £11 million has been included to cover the 2004/05 Month 12 adjustment to the audited accounts
  • £6 million of commitments from 2005/06 SHA under spend

SECTION D

MANAGEMENT OF RISK

There are a number of risks to be managed in delivery of the financial plan. These are summarised below:

RISK / FINANCIAL IMPACT / ACTION TO MANAGE
Group 1 - Non Recurrent issues
Non-recurrent payment of 10% fee relating to 2005/06 outturn I & E position / £10.7 million
Not included in plans / Discussion with DOH
Group 2 – Delivery of £150 million of savings
Delivery of SLA reductions in East of England / £47 million of total reductions in SLAs / Clinical engagement
  • Practice Based commissioning plans to be agreed by end June
  • Provider based Clinicians to formally sign off recovery plans by end June

Delivery of Category 1 and 2 savings other than SLA reductions / £81 million in total /
  • Robust performance management through EOE business rules
  • Robust Turnaround support

Delivery of very high risk (Category 3) savings / £22 million /
  • Specific actions with respective organisations as per East of England business rules

Group 3 – Agreement of SLAs
Non EOE SLAs to be agreed
Largely in London / To be confirmed /
  • London rules to apply as minority Providers/Commissioners
  • Dedicated team to agree SLAs by end June

Group 4 - Organisational Management
Transitional risk of PCT/SHA changes /
  • Move to new PCT arrangements on interim basis
  • Move to specific SHA arrangements on interim basis including strong patch focus

Capacity and capability to deliver recovery plans / Specific capacity and capability to be put into place to deliver recovery plans
Group 5 – Turnaround arrangements
Securing maximum benefit from Turnaround support / Turnaround to be focused on areas where greatest financial benefit can be derived.

Minimising non delivery of savings targets

Key actions to minimise riskbeing progressed by all organisations include:

  1. All organisations to ensure that the basics are done well
  2. Productivity and clinical efficiency to be maximised
  3. Low priority treatments will not be funded within SLAs
  4. Capacity reductions to be implemented
  5. Activity management to be improved
  6. Estates rationalisation to be delivered
  7. Reconfiguration plans to be progressed as soon as possible
  8. Non NHS income opportunities to be maximised
  9. Procurement efficiencies to be maximised
  10. Accounting measures to be maximised
  11. Commissioning a Patient Led NHS initiatives to be advanced where possible to reduce costs
  12. Spend to save schemes are being identified. Revenue payback for such schemes will be within approximately one year. Access to national capital would be a lever to change.

All organisations are required to demonstrate upper quartile activity in these areas and standardisation of best behaviour within organisations.

Sandy Hogg

Director of Finance

26th May, 2006

Appendix A

2005/06 Financial Position

Month 12 / SHA Target / Month 12 Variance from Target
Bedford / £000 / £000 / £000
Bedford PCT / 162 / 1,000 / (838)
Heartlands PCT / (20,925) / (19,500) / (1425)
BedfordHospital Trust / (11,887) / (11,555) / (332)
Sub-total / (32650) / (30,055) / (2595)
Luton
Luton PCT / (8,689) / (2,000) / (6,689)
Luton & DunstableHospital Trust / 396 / 0 / 396
Sub-total / (8,293) / (2,000) / (6,293)
West Herts
Dacorum PCT / (5,656) / 0 / (5,656)
Hertsmere PCT / (9,375) / (2,500) / (6,875)
St Albans PCT / (5,755) / (2,500) / (3,255)
Watford & 3 Rivers PCT / (3,764) / 0 / (3,764)
West Herts Hospitals Trust / (28,284) / (19,300) / (8,984)
Sub-total / (52,834) / (24,300) / (28,534)
East & North Herts
North Herts & Stevenage PCT / (6,728) / (2,500) / (4,228)
Royston, Buntingford & Bishop Stortford PCT / (4,318) / (1,000) / (3,318)
SE Herts PCT / (812) / 0 / (812)
Welwyn Hatfield PCT / (643) / 0 / (643)
E & N Herts Hospitals Trust / (22,379) / (18,870) / (3509)
Sub-total / (34,880) / (22,370) / (12,510)
Other
Beds & Herts Ambulance Trust / 147 / 0 / 147
Beds & Luton Partnership Trust / 1,282 / 500 / 782
Herts Partnership Trust / 55 / 1,000 / (945)
Sub-total / 1,484 / 1,500 / (16)
Total PCT & NHS Trust / (127,173) / (77,225) / (49,948)
SHA WDC & Reserves / 19,320 / 2,374 / 16,946
TOTAL / (107,853) / (74,851) / (33,002)

Appendix B

Growth Assumptions

2006/07 baseline £million / 2006/07 Uplift
£million / % / 2007/08 Uplift £million / %
Luton PCT / 201.8 / 21.2 / 10.52 / 24.6 / 11.04
Bedford PCT
Bedford / 159.7 / 14.5 / 9.08 / 17.9 / 10.26
Heartlands / 236.1 / 23.7 / 10.06 / 32.0 / 12.32
Sub-total / 395.8 / 38.2 / 9.65 / 49.9 / 11.55
East & North Herts
N Herts / 197.7 / 18.1 / 9.18 / 22.1 / 10.24
RBBS / 77.8 / 6.3 / 8.15 / 6.9 / 8.16
SE Herts / 173.6 / 15.9 / 9.18 / 20.2 / 10.64
Welwyn / 110.0 / 9.0 / 8.16 / 10.0 / 8.41
Sub-total / 559.1 / 49.3 / 8.82 / 59.2 / 9.72
West Herts
Dacorum / 152.5 / 13.3 / 8.71 / 14.9 / 9.01
Hertsmere / 102.0 / 8.3 / 8.15 / 9.0 / 8.16
St Albans / 132.1 / 10.8 / 8.15 / 11.7 / 8.16
Watford / 192.4 / 15.7 / 8.15 / 17.0 / 8.16
Sub-total / 579.0 / 48.1 / 8.31 / 52.6 / 8.38
Total / 1735.7 / 156.8 / 9.03 / 186.3 / 9.84

Appendix C

2006/07 Control Totals and PCT Recurrent Position

2005/06
Month 12
position / 2006/07
Recurrent
Position / 2006/07
Non-Recurrent
Top Slice / 2004/05
Accounts adjustment / 2006/07 Control Total
Bedford / £000 / £000 / £000 / £000 / £000
Bedford PCT / 162 / 8,360 / (11,750) / (3,390)
Heartlands PCT / (20,925) / 10,660 / (17,340) / (250) / (6,930)
Sub-total / (20,763) / 19,020 / (29,090) / (250) / (10,320)
Luton PCT / (8,689) / 18,990 / (14,790) / (450) / 3,750
West Herts
Dacorum PCT / (5,656) / 9,190 / (11,210) / (3,590) / (5,610)
Hertsmere PCT / (9,375) / 5,470 / (7,550) / (3,290) / (5,370)
St Albans PCT / (5,755) / 5,840 / (9,740) / (3,900)
Watford & 3 Rivers PCT / (3,764) / 12,230 / (14,180) / (1,840) / (3,790)
Sub-total / (24,550) / 32,730 / (42,680) / (8,720) / (18,670)
East & North Herts
North Herts PCT / (6,728) / 11,360 / (14,510) / (560) / (3,710)
RBBS / (4,318) / 830 / (5,760) / (130) / (5,060)
SE Herts PCT / (812) / 7,100 / (12,760) / (510) / (6,170)
Welwyn Hatfield PCT / (643) / 5,060 / (8,100) / (270) / (3,310)
Sub-total / (12,501) / 24,350 / (41,130) / (1,470) / (18,250)
Total PCTs / (66,503) / 95,090 / (127,690) / (10,890) / (43,490)
BedfordHospital Trust / (11,887) / 4,000
Beds & Herts Ambulance Trust / 147 / B/Even
Beds & Luton Partnership Trust / 1,282 / B/Even
E & N Herts Hospitals Trust / (22,379) / (8,000)
Herts Partnership Trust / 55 / B/Even
Luton & DunstableHospital Trust / 396 / B/Even
West Herts Hospitals Trust / (28,284) / (12,000)
Total Providers / (60,670) / (16,000)
SHA WDC & Central Budgets / 19,320
CPLNHS* / (11,500)
TOTAL / (107,853) / (70,990)

* Commissioning a patient led NHS costs

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