FINANCIAL PLAN 2014/ /19

Transcription

1 Appendix 11a Financial Plan 2014/ /19 NHS LOTHIAN Board Meeting 2 April 2014 Director of Finance FINANCIAL PLAN 2014/ /19 1 Purpose of the Report 1.1 The purpose of this report is to seek approval of the Financial Plan 2014/ /19. This paper has previously been discussed at the Joint Management Team and the Finance and Resources Committee. 1.2 Any member wishing additional information on the detail of this paper should contact the Executive Lead prior to the meeting. 2 Recommendation 2.1 Members of the Board are asked to: Approve the Financial Plan which sets out the proposed investments for 2014/15 and beyond, based on known and anticipated additional funding; Note these proposed investments require a cash releasing efficiency target of 37.3m, to ensure financial balance is achieved; Approve a recurring Local Reinvestment Target (LRP) of 37m; split across individual business units; Approve a 13m target of non-recurring savings. The non-recurring target will be held corporately to be delivered through identification of non-recurring benefits 3 Discussion of Key Issues Background 3.1 The Financial Plan 2014/ /19 has been developed over a period of months, with an initial overview of proposals being presented to the Joint Management Team (JMT) and Finance & Resources Committee (FRC) in December That report provided the context for financial planning for 2014/15 and beyond, encompassing commentary on the Scottish Government s draft budget for 2014/15 as well as the overall health budget, as set out in the letter from the Chief Executive of the NHS Scotland to NHS Board Chief Executives on 11 September Further updates were presented to the February Board Meeting and the Finance & Resources Committee in March. 3.2 Development of the financial plan is an iterative process, taking cognisance of: planning assumptions in relation to pay, prices and drugs uplifts as shown in Table 1

2 known or anticipated cost increases which are deemed unavoidable ; planned investments which have already been approved through the Board s governance processes; and any recurring impact of issues emerging in the current financial year, including delivery of savings targets. Table 1: Planning assumptions for uplifts Base Uplift 2.69% 1.80% 1.80% 1.80% 1.80% Pay 1.00% 1.00% 1.00% 1.00% 1.00% Prices 2.1% - 3.1% 2.1% - 3.1% 2.1% - 3.1% 2.1% - 3.1% 2.1% - 3.1% GP Prescribing 3.50% 3.50% 3.50% 3.50% 3.50% Hospital Drugs 6.49% 7.79% 7.79% 7.79% 7.79% 3.3 Over the past 3 months our financial planning assumptions have been reviewed, both in light of any further information locally, and to take cognisance of guidance issued by the Scottish Government Health & Social Care Directorates. 3.4 Table 2 sets out the current draft of the financial plan for next year, confirming the anticipated gap between income and expenditure of c 37m, further detail is provided in Appendix 1. Table 2: NHS Lothian draft financial plan 2014/15 Rec Non rec Total LRP brought forward - deficit (6.6) 0.0 (6.6) Capacity & Unscheduled Care (9.3) 0.0 (9.3) Nursing (4.0) 0.0 (4.0) 2014/15 recurring commitments bfwd (19.9) 0.0 (19.9) Uplifts (as noted above) NRAC uplift Non Lothian Income/other Net position before investments Proposed investments Pay & Workforce Medicines & Supplies Capacity Service Developments Infrastructure

3 Repayment of Brokerage Other Total proposed investments Net shortfall (LRP) (24.4) (12.9) (37.3) 3.5 Recurring commitments brought forward from 2013/14 total 19.9m. These individual components combine to form the starting point for the 14/15 plan: As previously reported, it is anticipated that elements of the 2013/14 recurring savings target will be delivered on a non recurring basis only, while work on recurring plans are implemented. The recurring carry forward to 2014/15 has been estimated at Mid Year at 6.6m, and this represents the extent to which the organisation has an over commitment against available recurring funding. A further LRP forecast has been undertaken at the end of February which indicates an increase of 2.4m LRP recurring carry forward. Work is underway to mitigate this increase however ultimately LRP targets for 14/15 will be required to be adjusted to reflect actual to levels of non delivery. Investments in capacity/unscheduled care ( 9.3m) and nursing ( 4.0m) made in 2013/14 but funded non recurringly in year, recognising the further NRAC uplift in 2014/ Pay & Workforce there are a number of components addressed within the additional investment in our workforce: Pay uplift the additional pay uplift has been modelled on the basis of 1% increase for staff, including a minimum of 300 for all staff earning less than 21k. Changes both in the way we reimburse sessional medical staff within the Emergency Medical and Lothian Unscheduled Care (LUCs) services and an increase in their rate of pay. Medical staffing (terms & conditions) this investment reflects the impact of contractual arrangements for Consultant staff in relation to seniority payments, as well as discretionary points. This has been modelled on an individual consultant basis. Workforce plan there are a number of investments in clinical staff already approved through the JMT, including Emergency Department workforce redesign; obstetrics & gynaecology; and St Johns paediatric services. Patient Safety in Maternity Services This recognises the current issues in nursing staffing levels within maternity services and is the initial phase of the establishment review currently being undertaken across the organisation AHP and PTB Incremental Drift Further work is required to fully understand the underlying issues and financial consequences across the system, as well as

4 at an individual budget level. The investment proposed for 2014/15 is an estimate of the current financial pressure. 3.7 Medicines & Supplies there are a number of components addressed within the additional investment in non pay areas: Secondary care prescribing A detailed review of existing pressures, expected growth in long term conditions ( cancer, HIV, Lucentis and Biological Therapies) as well as the expected impact of new SMC Medicine Approvals during 2014/15 has concluded that a minimal investment of 5m will be required in Acute Medicines in 14/15. This reduced investment from prior years comes with associated risks. There is no investment for additional costs which may arise from changes to the Individual Patient Treatment Requests (IPTR) process, it is assumed that any increases in costs will be offset by SGHD benefits derived from the national change in drug tariffs. GP prescribing The GP Prescribing budget supports the costs of drugs for scripts written out by Lothian's GP practices. This expenditure is reviewed annually by the Medicines Management Team who prepares, with finance, an estimate of likely growth for the following year based on the particular trends in each therapeutic area. They also consider information on new drugs which will be introduced into Primary care. The forecast for 2014/15 suggests an increase in costs of c. 4.5m which includes increase in volumes along with new drugs entering into the system. Supplies inflation a general uplift of 2.1% on non pay costs has been assumed. Some specific costs that are linked to the Retail Price Index (RPI) have had an uplift of 3.1% applied. For resource transfer, the increase is 2%, as agreed in principle with Chief Executives across NHS Scotland. In relation to the PPP contracts, the inflationary uplift reflects our contractual obligations under the terms of each Project Agreement. 3.8 Capacity & service developments The level of investment required to support both elective and unscheduled care is one of the key determinants of the financial plan, the details of which are being finalised. Taking cognisance of the 9.3m brought forward, the draft plan includes 17.9m recurring investment in scheduled and unscheduled care. In addition a further 9.0m is set non-recurringly aside to support independent sector activity. It is clear that this level of investment is unsustainable in an environment where uplift is reducing, costs are increasing and the system is challenged in delivering recurring efficiency savings. Service developments of 1.6m are included in the draft Financial Plan, encompassing a range of proposals across the organisation. These are detailed in Appendix 1, and reflect investments which have already been approved via prior year financial plans or formal governance processes during this year; or relate to regional and national policy issues. 3.9 Infrastructure there is investment required to meet the revenue consequences of the capital investment programme, as well as other costs associated with the asset and property base

5 Rates this is the increase in the poundage rate for 2014/2015 on the NHS Lothian estate. Energy during the current year, there has been a significant cost pressure due to increased energy tariffs. Despite concerted efforts to improve energy usage, the impact of the price increases cannot be mitigated and requires a considerable investment. Capital developments - the planned investments reflect the revenue impact of approved business cases including fees and project team costs for the Royal Hospital for Sick Children / Department of Clinical Neurosciences and Royal Edinburgh Hospital Campus projects. In addition, the impact of business cases which are nearing formal approval have also been included, such as the St John s maternity unit and burns ward project The other proposed investments include funding to support invest to save projects along with current financial pressures and new recognised priorities for 14/ The net shortfall of 37m is a combination of a recurring pressure of 24m and a non recurring pressure of 13m. It is proposed that the associated LRP target of 37m is delivered fully on a recurring basis, to recognise the future year reduction in uplifts and NRAC growth. If the 37m is fully delivered this will provide some headroom for 2015/ There are a number of potential issues which have not been included in the financial plan. If further pressures/developments are agreed to be funded then this will result in a consequential increase in the LRP target for the organisation It is recognised that delivering 37m of recurring in year savings will be a significant task. To maximise the ability to support any emerging issues, an additional 13m non recurring target will be introduced. This will be delivered through the management of new allocations, provisions and other one off in year benefits. Therefore in 2014/15 the Board will have a combined LRP target of 50m, 37m recurring and 13m non recurring. Beyond 2014/ The current draft Financial Plan incorporates assumptions on additional income and planned investment for the 4 years beyond 2014/15. The SGHSCD guidance mentioned in section 3.4 sets out indicative uplifts to baseline allocations for 2015/16 to 2018/19. These show 1.8% in 2015/ /19; although this will be clarified during the Spending Review process in 2014/ In addition to the baseline uplift, SGHSCD have funding set aside to support the ongoing implementation of the NRAC formula. We have received confirmation from SGHSCD that NHS Lothian should plan on the basis of 7m in 2015/16, which is a 10m reduction to that allocated for 2014/15.

6 3.16 Table 3 provides a summary of income assumptions from 2015/16 onwards: Table 3 Income Assumptions 2015/ / /16 Baseline Uplift 21.4 (1.8%) 2016/ m (1.8%) 2017/ m (1.8%) 2018/ m (1.8%) NRAC 7.0m Total The detail of the 5 Year Financial Plan is presented in Appendix 2. In relation to planned investments beyond 2014/15, these are largely reflective of assumptions for pay and supplies uplifts (including medicines); the revenue implications of approved capital developments; and the balance of the brokerage funding to be repaid to SGHSCD. An assumption with regard to the level of annual pressures and the impact of demographic change costs has been included from 2017/18 to present a realistic indication of the annual LRP target of circa 40m There are significant pay issues that will impact over the next few years. In 2015/16 there is a proposed 2% increase in the employers pension contribution and this has been estimated at 11.8m for the Board. In 2016/17 changes to the employers national insurance contributions will mean a further 13.7m of pay costs. These changes combined with a lower level of uplift will result in minimal flexibility to fund further developments/pressures during 2015/ The indications are that the system needs to plan to deliver annual efficiencies of 3%-5% and this will be a key issue for the Board moving forward. Work will continue to refine the 5 year revenue plan including sensitivity analysis around uplifts and revenue consequences of the 5 year capital plan. Efficiency & Productivity For 2014/15 an overall recurring LRP target of 37.3m requires to be set, this equates broadly to 3% of NHS Lothian s Annual Recurring Budget. Table 4 below sets out the overall estimated recurring LRP target for 2014/15. Appendix 3 provides a more detailed breakdown over the business units The target includes the forecast level of LRP to be carried forward from 2013/14. The actual level of LRP undelivered or met on a non-recurring basis and therefore carried forward from 2013/14 will be confirmed as part of the year-end annual accounts process. Table 4: Overall NHS Lothian 2014/15 LRP Position 000 Carry Forward from 2013/14 6, /15 Savings Target 30, /15 LRP Total Target 37,295

7 3.22 The 6.5m estimated carry forward represents 24% of the total 27.8m 2013/14 target. This is based on the mid year review forecast. The further forecast undertaken at the end of February indicates an increase of 2.4m recurring carry forward arising from an anticipated further increase in undelivered Local LRP across Acute Services. Work is underway to mitigate this increase however ultimately LRP targets for 14/15 will be required to be adjusted to reflect any increase to levels of non delivery. The recurring shortfall will not be confirmed until the Year End Annual Accounts process is concluded Discussions at the NHS Lothian Efficiency & Productivity Group in December confirmed that the 14/15 LRP target would be allocated as follows:- 5% target for all Corporate Departments (as the first step of a 2 year 10% target) Balance of LRP (equating to 3.3%) spread equally across all business units. All undelivered LRP in 2013/14 will be carried forward at business unit level to be consolidated with new allocation to form the overall 14/15 target It was also agreed that delivery of all business unit targets would be supported by work stream opportunities including such areas as Procurement, Acute Prescribing, Outpatients, Effective Interventions and Innovation. For each work stream, nominated Executive Directors would be tasked with leading the development of plans to support LRP delivery across the organisation. Responsibility for delivery of targets would remain with budget holders at business unit level with work streams setting out the scope of opportunity and supporting budget holders to deliver thereon Programme Management support will continue to be provided to all workstreams and where required project management support will also be resourced. A full plan setting out how programme management support from the Efficiency & Productivity Team will be spread across all business units/work streams will be approved through the NHS Lothian Efficiency & Productivity Group in April Full partnership involvement will continue to be a key element of both workstream and local scheme development. Partnership working arrangements will also be finalised through the NHS Lothian Efficiency & Productivity Group in April The NHS Lothian Efficiency & Productivity Group set aside its meetings in February and March to undertake a detailed review of the 14/15 LRP Plans for each Business Unit. As at 21st February 2014 recurring plans of 8.1m have been submitted against the 37.3m target as set out at Table 5 below. Agreement was made at the February E & P Group meeting that specific review will be given of all proposals impacting on bed numbers and on Nursing staff by the Director of Unscheduled Care. Table 5: Plans submitted against 2014/15 Targets 2014/15 Recurring Target 21 February 2014 Corporate Departments 3,652 1,032

8 Scheduled Care 12,288 Unscheduled Care 6,602 Edinburgh CHP 4,977 East Lothian CHP 1,346 1,170 Midlothian CHP West Lothian CHCP 1, GP Prescribing 4,303 2,450 Facilities 2,314 2,100 Pharmacy 635 Unallocated (1,002) 37,295 8, The March meeting of the NHS Lothian Efficiency & Productivity Group will consider detailed plans for all other areas, in particular Scheduled Care, Unscheduled Care and Edinburgh CHP. These three areas together make up 24m of the overall 37m LRP target for 14/15 and it is essential that significant progress has been made by mid March to set out robust achievable proposals As previously mentioned an additional 13m non recurring LRP savings target has been set. To date 7.2m has been identified as follows: Property Sales 4.0 Rates rebate on Primary Care Premises 1.2 VAT Recovery 0.8 Allocation Review 1.2 Total 7.2 Work is ongoing to identify further sources which will become available in year including the introduction of a robust review of all Scottish Government allocations together with a top slice approach for all new allocations. 4 Key Risks 4.1 Whilst every effort has been made to ensure all likely additional costs and national, regional and local priorities for investment have been incorporated into the financial plan at this time, there remain a number of inherent uncertainties and associated risks. The financial planning process is an ongoing and iterative cycle, and it is not possible to fully eradicate all financial risks facing individual service areas, nor the wider organisation. 4.2 It is important to note that in completing the financial plan, and thus the efficiency target, there are a number of potential cost pressures which have been assumed as being manageable at an operational budget level. This is largely based on the current in year performance. Examples include: incremental drift ( 3.0m across a number of disciplines); and nursing enhancements ( 1.5m). As pressures on the

9 delivery of LRP continue, the sustainability of this approach will need to be reviewed. 4.3 Other risks to be highlighted include: The potential cost of changes to pay terms & conditions, specifically the review of the implementation of transitional points under Agenda for Change and the ongoing discussions with Consort; Availability of SGHSCD funding for nationally funded programmes & initiatives; Revenue impact of the capital investment programme including transitional or double running costs not yet identified, and development costs required to support all projects; New or changed policy initiatives emerging during the financial year, including national arrangements for procurement; and Continued management of the financial exposure on both elective and unscheduled care capacity pressures The potential cost of changes to the Individual Patient Treatment Reviews (IPTR) and additional SMC and Formulary drugs approvals Deliverability of recurring 37m and non recurring 13m LRP targets. 5 Risk Register 5.1 At this time, there is nothing to add to the Risk Register. 6 Health and Other Inequalities 6.1 There are no implications for health inequalities or general equality and diversity issues arising directly from the issues and recommendations in this paper. 7 Involving People 7.1 A workshop was held in November 2013 with key managerial and clinical representatives from across the organisation, to consider both the financial plan and efficiency & productivity issues. 8 Resource Implications 8.1 The resource implications are set out above. Craig Marriott Deputy Director of Finance 11 March 2014 craig. marriott@nhslothian.scot.nhs.uk

10 Appendix 1 NHS Lothian draft financial plan 2014/15 Appendix 2 Summary Financial Plan 2014/ /19 Appendix /15 LRP Targets