Interim Funding Paper. The Queen Elizabeth Hospital King s L yn n NHS FT

Transcription

1 Interim Funding Paper The Queen Elizabeth Hospital King s L yn n NHS FT 1. Overview 1.1 The purpose of this paper is to provide an update on the steps being taken to secure a sustainable solution at The Queen Elizabeth Hospital King s Lynn NHSFT ( the Trust ) and to request further interim funding of 6.0m required by the Trust to remain liquid in 2013/14. This funding request is in addition to the 8.1m of funding which was approved by the DH in October 2013 ( initial funding request ), bringing the Trust s total PDC requirement for the year to 14.1m. 1.2 The initial funding request consisted of 2.5m I&E deficit funding and 5.6m of capital funding. The capital funding approved has enabled the Trust to make business-critical investments in IT infrastructure, medical equipment and site developments that would have presented high patient safety or quality risks if left unfunded. 1.3 The increase in funding request is due to a 7.6m increase in the forecast revenue funding requirement, partially offset by a 1.6m decrease in the capital funding requirement. The increase is driven by cost pressures associated with the delivery of recommendations arising from a highly critical NHS England-led Rapid Responsive Review (August 2013) and external review of quality governance (November 2013). At the time of the initial request, Monitor highlighted a risk that the Trust s funding requirement would increase as a result of considerable uncertainties at the time. 2. Background 2.1 The Trust is a small acute trust (income c. 165m), authorised on 1 February The Trust operates predominantly from a remote single hospital site within rural East Anglia near the coast (see Appendix 1). There is an increasing and above average elderly population. 2.2 The Trust was found in significant breach of condition 2 (General Duty) and condition 5 (Governance) of its terms of Authorisation in January 2012, due to: delivery of an FRR 2 and failure to deliver successfully against the financial recovery plan (August 2011). 2.3 A number of quality, safety and performance concerns have also arisen at the Trust, particularly in relation to emergency capacity, patient flow and staffing levels. This includes the Trust failing to deliver the A&E 4-hour wait target for four consecutive quarters to Q2 2013/14. In addition, the Trust received highly critical reports following CQC inspections in May 2013 and August 2013, and a Rapid Responsive Review (also undertaken in August 2013), which led to the Trust being placed in Special Measures by Monitor. 3. Monitor s regulatory action 3.1 Following concerns identified in June 2013 during Monitor s 2013/14 Annual Plan Review process, Monitor required the Trust to commission an external review of its Financial Recovery Plan, downside risks, likely scale of CIP opportunities and cash flow projections. In July 2013 the initial analysis from the external review indicated a forecast base case net I&E deficit of 7.2m in 2013/14 at the Trust and an external cash support 1

2 requirement of 5.5m (this formed the basis for the initial PDC funding request made to the ITFF in October 2013, as explained in section 4.2 below). 3.2 In August 2013 Monitored accepted new Enforcement Undertakings from the Trust in relation to its financial sustainability concerns. This included requiring the Trust to commission an in depth financial diagnostic leading to the development of a short term turnaround plan, engage with a commission led LHE Review and appoint a Turnaround Director. The findings of the in depth financial diagnostic, reported in December 2013, are highlighted in section As part of the Special Measures Monitor has taken a number of steps to strengthen the Trust s Board capacity, including appointing a new interim Chair, interim Chief Executive and Improvement Director. The Trust has also made additional interim appointments to the following positions, Chief Operating Officer and a Director of Nursing and Patient Experience. A partnership arrangement with Guy s and St. Thomas has been established with the Trust. 3.4 The Trust has increased staffing levels to address the concerns identified during the CQC inspections and Rapid Responsive Review and A&E performance is improving. 4. Latest financial position and 2013/14 financial plan 4.1 The Trust s latest forecast projects an I&E deficit of 16.2m in 2013/14, a deterioration of 9m from the previous base case. This has led to the Trust forecasting a 2013/14 PDC funding requirement of 14.1m, an increase of 6.0m compared to the initial funding request. The revised PDC funding requirement consists of a 10.1m revenue (a 7.6m increase) and 4.0m capital (a 1.6m decrease). 4.2 The key drivers of the 7.6m revenue funding requirement increase are: Increased agency/bank ( 3.6m) largely to cover medical and nursing vacancies and to improve quality levels by increasing staffing ratios on acute wards; CIP slippage ( 1.9m) in the last three months primarily against the turnaround programme; Clinical income shortfalls ( 1.6m) due to forecast activity underperformance, over and above the PwC assumption of 0.8m, plus a further 0.9m downside risk of emergency pressures impacting adversely on elective patient flow. This is temporarily offset in 2013/14 due to payments received in advance from commissioners, which the Trust will need to issue credit notes for (+ 1.5m) Restructuring costs above plan ( 1.3m) associated with external reports covering governance and opportunities for further CIPs schemes; partially offset by 4.3 The key driver of the 1.6m reduction in the capital funding requirement is an increase in capital creditors for A&E and CCU monitors which are not due to be paid in 2013/14 (for a detailed bridge of the capital and revenue funding requirements please see appendix 4). 5. Assurance of plan 5.1 The Trust s latest year end outturn has been informed by the in depth financial diagnostic, which reported in December, and is in line with the Trust s YTD run-rate. 2

3 This funding request also takes account of identified downside risk relating to clinical income delivery, so Monitor considers the latest forecast funding requirement to be a robust maximum funding requirement for the year. 6. Key findings from the external financial diagnostic review 6.1 The Trust s financial performance has been deteriorating over the last three years, with the current deficit driven by consistently poor recurrent CIP performance; increasing agency staffing costs; and reducing revenue (primarily tariff reductions and elective activity shortfalls). PwC s projections show that the Trust s deficit will continue to increase in future years, to xxxm Redacted (S43) in 2016/17, due to an assumption that annual efficiency requirements are unlikely to be met. They have concluded that the Trust is not financially sustainable in its current form. 6.2 PwC s conclusions on the Trust s clinical sustainability are less clear cut. King s Lynn currently delivers clinical outcomes which are broadly in line with comparable trusts. However, given the relative geographical isolation of the Trust, xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx Redacted (S43), there are considerable challenges for the Trust in delivering clinical sustainability in the medium term. Given the Trust s geographical location, the majority (c.70%) of its current service portfolio is likely to be designated as Location Specific Services upon financial failure (i.e. they must be kept open at this site even if it is not economic to do so). 6.3 PwC forecasts that the Trust could deliver a deficit of up to xxx Redacted (S43) m in 2014/15 and believes that the Trust will be unable to address this gap sustainably regardless of any efficiency gains the Trust is able to deliver within its current form and service portfolio. PwC believes this is due to a complex mix of factors, including the Trust being disproportionately disadvantaged by the current PbR tariff structure, the unusually high proportion of frail elderly patients in the local population and the Trust s geographical isolation, amongst other factors. Therefore, it has become apparent that the Trust and its commissioners will need to consider more fundamental service reconfiguration options. 7. Next steps 7.1 The Trust is in serious financial distress and XXXXXXXXXXXXXXXXXXXXXXXXXXXX Redacted (S43). Monitor considers there to be three elements that need to underpin sustainable service delivery at the Trust: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxx Redacted (S33) 7.2 The recent external financial diagnostic review has provided the base for a Contingency Planning Team process. Monitor intends to commission support from an external provider to develop further alternative options for sustainable service delivery. This additional work would be analogous to a full CPT process (given the external and LHE reviews which have already taken place) and would allow Monitor to consider what regulatory framework may be most appropriate to pursuing any viable options for sustainable service delivery. 7.3 The Trust s funding requirements for any potential longer term solution will be dependent on the outcomes of the Financial Diagnostic, LHE review and any subsequent reconfigurations required to deliver a financially sustainable hospital at King s Lynn. 7.4 Further funding is likely to be required beyond 2013/14. The Trust s forecast currently indicates a year end cash deficit of xxxm Redacted (S43) in 2014/15 under the 3

4 recovery plan. This is reduced to xxxm Redacted (S43) under the financial stretch case. 8. Summary Recommendations 8.1 It is recommended that the Committee considers the Trust s latest funding request and recommends that DH approves an additional 6.0m of PDC funding in 2013/14. This would bring the total approved interim PDC funding for the Trust to 14.1m in 2013/14 and will provide the Trust with sufficient cash until 31 March

5 Appendix 1: Map of the Trust and neighbouring Trusts. Queen Elizabeth Hospital, Kings Lynn and surrounding NHS Trusts QUEEN ELIZABETH HOSPITAL 20 miles Peterborough Norfolk & Norwich Uni Hosp Addenbrookes West Suffolk Hosp. James Paget 5

6 Appendix 2: The Queen Elizabeth Hospital King's Lynn 2013/14 cash flow forecast and funding reguirement Closing cash balances 2013/ t 'j,j,j 4.9 Apr13 (5.0) (10.0) (15.0)..._ Pu blic Didend Capital - ForeGJclosing mh (broken line) - Forecast closi ng GJsh mludi ng P DC (13.0) 6

7 Appendix 3 I&E, BS & Cashflow Appendix 3: I&E, BS and Cashflow projections Actual Forecast 'm 10/11 11/12 12/13 13/14 Income and Expenditure Operating income for EBITDA Operating expenses for EBITDA (155.1) (156.3) (159.9) (170.0) EBITDA Operating margin 5.9% 4.9% 4.0% -3.9% Depreciation & Amortisation (4.9) (5.0) (5.2) (5.2) Impairments and restructuring (0.8) Finance costs (2.1) (2.1) (2.3) (2.5) Other non-operating items (0.1) Net Surplus/(Deficit) (0.9) (16.3) CIPs ( m) CIPS (% of operating expenses for EBITDA) 4.4% 4.2% 3.2% -2.8% Balance Sheet Cash and cash equivalents Total current assets Total current liabilities (17.3) (13.1) (14.4) (16.7) Net current assets/liabilities (1.2) (8.5) Total assets employed Cash Flow Cashflow from operating activities Capex (accruals basis) (8.7) (7.8) (6.9) (6.0) Asset sales Other investing cashflows Cashflow before financing (1.4) 0.9 (0.1) (14.4) PDC paid (1.8) (1.9) (2.4) (2.3) PDC received Loans* (1.2) (1.9) Other financing (0.1) (0.3) Net cash inflow/outlow (0.9) 2.0 (3.5) (4.5) Cash at period end * In 2013/14 this includes loan principle and EBITDA ( 6.5m) + Restructuring costs ( 2.3m) broadly equates to the cashflow from operating activities ( 8.6m) 7

8 Appendix 4 Bridge from previous PDC funding base case to current PDC funding. PwC Sensitised Base Case to Trust Forecast Month 8 Cashflow Implications REVENUE CASH SUPPORT INCREASE CAPITAL CASH SUPPORT DECREASE TOTAL 000s 000s 000s 000s 000s 000s 000s PWC sensitised base case - Cashflow Support (2,500) (5,565) (8,065) PWC sensitised base case - EBITDA 1,399 Previous PDC Previous PDC Further downside scenario effects on EBITDA (Post PwC Sensitised base case) I&E funding capex funding Clinical Income (1,674) Winter pressures funding & "Old maternity pathway" 1,897 1,897 CQUIN & contract penalties (1,106) (1,106) CIPs (1,913) ** (1,913) Agency staffing (3,635) ** (3,635) Pass through costs (174) (174) Clinical Supplies, Drugs and Other (1,249) (1,249) Month 8 downside forecast EBITDA (6,455) Reduction in EBITDA (7,854) Additional downside costs below EBITDA Increase in restructuring costs (1,294) ** (1,294) Other Costs Increase in Trust deficit excluding working capital mitigations (9,099) Working capital movements affecting revenue cash requirements Commissioner payments in 1,500 1,500 Other working capital movements (6) (6) Movements in capital and capital creditors Increase in capital creditors: A&E development CCU monitors & anaesthetic machines ,100 Capital programme slippage into 2014/15 Estates backlog maintenance IT network refresh scheme Reduction in capital cashflow support required 1,600 Revised Total Cashflow Support Required (10,105) (3,965) (14,070) ** due to Quality improvements from The Clinical Income shortfall is offset by commissioner prepayments (e.g. cash impact lags the I&E impact). Current PDC revenue funding request. Increase of 7.6m Current PDC capex funding request. Decrease of 1.6m 8