Agenda Item. NHS Cumbria CCG Governing Body. 3 June Financial Plan (Budget) 2015/16. Purpose of report:

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1 POLICY REFERENCE NO: CORPORATE IDENTITY GUIDELINES NHS Cumbria CCG Governing Body Agenda Item 3 June Financial Plan (Budget) 2015/16 Purpose of report: The purpose of the report is to provide the Governing Body with the CCG s financial plan for 2015/16. The financial plan represents the proposed CCG budget for 2015/16 to be approved by the Governing Body. The information was presented in detail to Finance & Performance Committee on 20 May and the Committee: RECOMMENDED the 2015/16 budget for Approval by the Governing Body in June. This is consistent with the NHSE financial planning process that required CCGs to submit final financial plans for 2015/16 by the end of May. Key Issues/Considerations: The CCG was required to submit a final financial plan for the financial year 2015/16 in May to NHSE. The plan is reflected in the attached report and is intended to form the budget for the CCG for the financial year 2015/16. The plan has been updated over a number of months to reflect the impact of issues carried over from 2014/15, NHSE planning guidance and the agreement of contracts with providers. The plan reflects challenging improvements in quality and productivity to deliver the planned surplus. However, to support this delivery the Clinical Leads have agreed an approach based upon a methodology recommended by NHSE that has demonstrably improved quality and reduced costs in other health economies. Similarly, through the Better Care Fund the plan reflects significant investment in services out of hospital that commenced in 2014/15. Nevertheless, it is important to note that the CCG will continue to work to identify further potential savings opportunities in the current year reflecting the levels of financial risk and reductions in contingency. Recommendations: The Governing Body is asked to APPROVE the financial plan.

2 CCG Objectives Financial Control: Improve value for money through the most effective deployment of resources while maintaining financial balance Statutory/Regulatory/Legal/NHS Constitutional Implications The CCG has a statutory obligation to spend within its allocated revenue resource limit. Assurance Framework: Financial balance and the associated risks are reflected in the CCG s corporate assurance framework presented to the Governing Body in April. Finance/Resources Implications: These are included in the report. Implications/Actions for Public and Patient Engagement: This issue will need to be considered as initiatives continue to be developed. Equality Impact Assessment: Before implementation of any significant an equality impact assessment will be required to assess the service and health consequences of the programme. Lead Director Hugh Reeve, Interim Chief Clinical Officer Presented By Charles Welbourn, Chief Finance Officer Contact Details Charles.welbourn@cumbriaccg.nhs.uk Date Report Written 26 May

3 Financial Plan 2015/16

4 Introduction The purpose of this paper is to present the CCG financial plan for 2015/16. The CCG was required to submit a final financial plan in May 2015 to NHS England. The plan for 2015/16 forms the CCG s budget for the financial year, and reflects agreed contracts with providers. The headline budget has been constructed from a bottomup basis and the underlying methodology and assumptions have been reviewed in detail by the Finance & Performance Committee. Hence this report covers the general approach to financial planning and key assumptions, with the overall budget shown in Appendix 1. The CCG s Financial Strategy Update in June 2014 identified a significant amount of financial risk facing the CCG in 2015/16. However, issues arising in 2014/15 have a significant impact on the position, and this is reflected in the plan that has been developed over a number of months. Similarly, the risk associated with delivering the planned surplus has been acknowledged in the CCG s assurance framework (from the risk register) by the Governing body in April Approach to Planning 2015/16 The CCG was required, as noted above, to submit a two-year financial plan in 2014, and this plan identified that 2015/16 was going to be a very challenging year. This was because in 2015/16 CCG is required to transfer 36 million into the Better Care Fund (BCF) with Cumbria County Council. After taking into account the existing commitments also transferred into the fund then the unallocated resources represent essentially the entirety of the CCG s growth funding for 2015/16 (circa 12 million) so there would be no new funding available to address cost pressures and activity growth. The CCG achieved a surplus of 5 million for 2014/15, being the surplus broughtforward of 8.4 million less an agreed transfer of 3.4 million to NCUHT, meaning that the CCG spent its allocation for 2014/15 in full. Behind this position the CCG experienced significant on-going cost pressures in a number of areas in 2014/15 over and above those originally planned for, as noted below, which were managed through a series of non-recurring measures and use of the contingency budget: Prescribing pressures Continuing care including high cost mental health & children s packages over and above planned growth funding of 7% on 2013/14 spend High cost drugs excluded from payment by results Out of area hospital activity (e.g. Newcastle, Northumbria & non-contract activity) 2

5 Other pressures in the out of hospital sector. Essentially the impact of these changes, along with expected growth and the reductions in activity planned from the BCF show the CCG in recurring balance. However, to maintain the existing surplus of 5 million and to address non-recurring commitments (e.g. CHC provision funding, 18 week RTT backlogs) then the budget reflects a QIPP (Quality, Innovation, Productivity &Prevention) target of around 16 million. Summary Financial Plan for 2015/16 The updated plan therefore continues to show a planned surplus of 5 million based upon the following key assumptions, and is shown at Appendix 1. Again, in simple terms, this means that the CCG intends to apply all allocated resources in 2015/16 to support the health needs of Cumbria. The level of surplus is therefore less than the 1% of revenue resources that CCGs were nationally asked to plan for in 2015/16 by NHSE. Revenue Resources The assumptions around resource allocations are set out below: The recurring resources are in line with the CCG allocations published in December 2014 (and no further additional resources assumed). It is assumed that the surplus of 5.0 million achieved by the CCG in 2014/15 will be brought-forward into 2015/16 in full. The CCG is assuming the revenue top-slice applied by NHSE will be in line with NHSE planning guidance figure of 3.2 million to cover the impact of legacy CHC (continuing health care) provisions established in predecessor PCTs. The plans reflect the published CCG running cost allowances for 2015/16 that have been reduced by 1.1 million since 2014/15. Cost Projections 2015/16 The following paragraphs provide a summary of the underlying assumptions behind the figures shown in Appendix 1. The impact of the CCG s QIPP programme is reflected in the budgets shown in Appendix 1. Primary Care Budgets ( 97 million) The most significant budget is for GP prescribing at nearly 92 million. The prescribing budget has been set based upon 2014/15 costs, allowing for anticipated growth offset by the continuing impact of prescribing efficiency and medicines management, so a net overall increase of 1.7% The remainder of the budget of 5 million covers the costs of the GP practice incentive scheme (being the final year of the scheme approved by the Governing Body in April 2013) and former local enhanced services that were re-procured 3

6 locally in accordance with NHSE guidance during 2013/14. The CCG also receives funding (as income rather than a resource allocation) for GPIT services and the budget reflects the expected funding from NHSE. Secondary Care Activity ( 330 million) The plan reflects contracts agreed with NHS providers, the largest being North Cumbria (around 170 million) and UHMB ( 120 million). The contracts with these two providers reflect planned activity reductions linked to the impact of the BCF. There are also corresponding contingency arrangements within the BCF agreement with Cumbria CC should these activity reductions not be achieved. The CCG is also providing resilience funding in line with the allocated funding (i.e. tranche 1 resilience funding from 2014/15). Contracts with providers outside of Cumbria predominantly reflect 2014/15 out-turn and there is a further contingency of 1 million for growth in PBR excluded drugs. The original CCG plan identified a contingency of 0.5% established over and above the planned surplus (i.e. an uncommitted budget of circa 3.6 million). It is expected that around 3 million of this funding will be used to address RTT backlog and other identified pressures from the planning process, leaving a balance of circa 500,000. Work undertaken with the CCG s Clinical leads has identified that by working with practices to improve the quality of referrals into secondary care (supported in a systematic way and aligned to benchmarked best practice ) suggests that this can deliver significant savings (circa 4 million). (It is noteworthy the cost of elective activity has increased by 11%, or 14 million since 2012/13). It is also important to note that to support the movement of services (in line with the CCG s strategic aims) away from the acute hospital sector into the community, the CCG budget includes the full-year impact of the investments in community services as agreed by the Governing Body and Localities during 2014/15. These are included in the CCG s contribution to the BCF, recognising the path towards an integrated planning approach with Cumbria CC. Mental Health Services ( 80 million) The majority of the budget (75%) represents the contract with CPFT ( 61 million). There has been further investment through the BCF on psychiatric liaison in acute hospitals to ensure that the CCG delivers the 1.4 % net parity of esteem funding growth for mental health services as per NHSE planning guidance. Services Delivered in the Community ( 149. million) The largest component of the community services budget is the contract with Cumbria Partnership of nearly 70 million. The budget has been reduced to reflect some of the services are now funded through the Better Care Fund, although it should be stressed that this represents a transfer between budgets rather than a reduction in services commissioned by the CCG. Out of Hospital Urgent Care covers ambulance services (both emergency and PTS), GP out of hours and the NHS 111 contract. The latter service has been re- 4

7 tendered and the new contract will commence from October The emergency ambulance contract with NWAS ( 21 million) includes a forecast growth contingency of 2.5%, although in 2015/16 the payments will depend upon actual activity levels. The PTS contract is in the final year of a three-year contract and will be subject to a re-tendering process. CHC & packages commitment based upon full year effect of current cases plus a growth contingency of circa 800,000 (being similar to the current underlying growth rate since actions put in place to manage costs in 2014/15). Reserve Programmes The largest component is the Better Care Fund ( 36 million in total) based upon a formal Section 75 agreement with Cumbria County Council. As stated previously, there are a number of aspects of the BCF that have a direct impact on other CCG budgets: A number of services previously commissioned within the community services contract (e.g. support for carers, etc) are now transferred to the BCF. The investments in new out of hospital services in localities and across networks approved in 2014/15 are reflected in the BCF. The agreement includes contingency arrangements for 2015/16 should the planned reductions in secondary care not occur. The agreement reflects clearly the areas that both the CCG and Cumbria CC will apply the resources The most significant element of the non-recurring investment identified is the 3.2 million contribution to the residuary CHC provisions as previously noted. This potentially will result in a reduction in revenue allocation in the year, but is shown as an expense at this stage. Running Cost Allowance The budget for running costs reflects planned reductions in management costs and is below the allocation of 11,373,000 that is the maximum spend, thus delivering a further contribution to cover the cost of clinical services. Financial Risks 2015/16 The current financial plan identified the following contingencies within the overall total financial plan at 3.6 million (including prescribing, CHC, non-pbr drugs). In addition, outside this amount a contingency of circa 5.3 million in total has been established within the Better Care Fund (BCF) to offset the potential impact of the planned non-elective activity changes not being achieved from the impact of scheduled investments. In summary the plan shows an overall position whereby the CCG maintains it overall surplus in 2015/16 in a year that was always identified as being of significant risk, notably owing to the impact of the BCF. The areas of significant risk fundamentally remain: 5

8 The overall level and hence cost of elective care required to achieve constitutional targets (including mitigation by reducing the underlying levels of referral). The volume and cost of non-elective activity, and the impact of the Better Care Fund in enabling patients to be managed more effectively out of hospital. The CCG identified overall levels of contingency in line with recommended business rules (as shown in the table below), but nevertheless will face substantial risk in achieving this position if schemes put in place to manage patient demand are not implemented effectively to deliver the planned reductions in activity. Therefore, the CCG will continue to explore further options for cost improvements in-year, including both potential savings that have an impact in 2015/16 and those for the longer term, acknowledging the significant underlying financial risk with the Cumbria health economy. Contingency 2015/16 '000 Remaining 0.5% contingency 539 Prescribing contingency 1,212 Continuing Health Care contingency 800 Drugs & Devices 1,000 Total Budget 3,551 6

9 Allocations Appendix 1 Financial Plan 2015/16 '000 CCG Baseline Allocation (699,595) Agreed Adjustments 483 Running Cost Allowance (11,373) Sub-total (710,485) Non-recurring Allocations Surplus carried forward (5,042) Revenue Resource Limit (715,527) Expenditure Budget Primary Care Prescribing & Medicines Management 91,729 Other Primary Care 5,012 Total Primary Care 96,741 Secondary Care NHS Acute Providers (North & West) 189,175 NHS Acute Providers (South) 134,476 Non Contract Activity & Independent Sector 6,684 Total Secondary Care 330,334 Mental Health & Learning Disabilities NHS Providers 63,210 Packages of Care 11,618 Learning Disability Pooled Fund 4,965 Total Mental Health & Learning Disabilities 79,793 Services Delivered in the Community Community Services 71,875 Out of Hospital Urgent Care 36,276 NHS Funded Continuing Care 33,600 Other Care 7,563 Total Community Based Services 149,314 Reserves Planned Investments 1,474 Non-recurring Investment 3,893 Planned Contingency 539 Better Care Fund 36,013 Total Reserved Funds 41,919 Programme & Running Costs Running Costs 11,209 Other Specific Programmes 1,180 Total Costs 12,389 Total Expenditure Budget 710,490 Planned Surplus (5,037) 7