NHS WEST HERTFORDSHIRE AND NHS EAST AND NORTH HERTFORDSHIRE
FINANCIAL POSITION : BRIEFING TO OVERVIEW AND SCRUTINY COMMITTEE
NHS East and North Hertfordshire and NHS West Hertfordshire (the PCTs) were both
established on 1st October 2006, replacing the eight former Primary Care Trusts covering
Hertfordshire. At their inception, the new PCTs inherited a very difficult financial position.
The health system in Hertfordshire had incurred deficits for a number of years. At the start of
the 2006/07 financial year the Bedfordshire and Hertfordshire Strategic Health Authority,
shortly to be merged with others to become the East of England Strategic Health Authority,
decided that the only way to clear the accumulated deficits was to transfer them and the
responsibility for clearing them, into the new PCTs. Therefore, on their first day in existence
the new PCTs had to recover £84m of accumulated deficits.
The PCTs were successful in recovering this position, as can be seen from the table below.
Table 1 : Financial position Hertfordshire PCTs 2006/07 to 2008/09
Total for Hertfordshire
2006/07 2007/08 2008/09
Description Surplus/ Surplus/ Surplus/
(Deficit) (Deficit) (Deficit)
£000 £000 £000
Brought forward from 2005/06 (83,809) (50,259) 57
In-year performance 33,550 50,316 2,202
Carried forward to following year (50,259) 57 2,259
At the same time as recovering the financial position, the PCTs have also made deposits into
reserve of almost £19m, which will be released over the period 2010/11 to 2013/14, when the
financial settlement for the NHS will be significantly worse than at present.
2. DELIVERING QUALITY HEALTHCARE FOR HERTFORDSHIRE (DQHH)
At the end of 2007 the PCTs, East and North Hertfordshire Trust and West Hertfordshire
Trust consulted on a review of acute services in Hertfordshire. The linked aims of the
strategy were shifting care closer to home and reducing hospital demand. The PCTs’
financial plans supporting this strategy assumed annual real terms growth of 2% per annum
and envisaged spend on acute services reducing from 45% of total spend in 2006/07 to 39%
of total spend in 2013/14 as illustrated in the graph below.
Figure 1 : Change in expenditure envisaged in DQHH
Commissioning Changes from 2007/08 to 2012/13
Acute Trusts Primary Care Community Mental health Continuing Prescribing Ambulance Admin
3. STRATEGIC PLAN
In March 2009 the PCTs published their first five year strategic plan in which they set out a
shared vision for healthcare provision for the residents of Hertfordshire.
This plan was based upon three strategic priorities:
Keeping Hertfordshire healthy
Enhancing the patient experience
Commissioning high quality health care
The Strategy recognised that a combination of increased demand and lower shifts from
hospitals to primary care meant that the PCTs had not been successful in slowing down the
increase in expenditure in the acute sector as envisaged in DQHH. It therefore reviewed and
re-profiled the pace of change expected to occur over the five years to 2013/14. The revised
financial plan underpinning the Strategy showed that, over the five year period both PCTs
would still be in a balanced financial position each year and at the end of 2013/14. This
would be achieved by building up reserves in earlier years to fund investments in later years
when the level of growth was assumed to be lower. The plan also included contingency
reserves for unforeseen events
4. FINANCIAL POSITION 2009/10
Since 2007/08 spend on services provided in hospitals has continued to increase each year
at a much greater rate than that planned for in DQHH or in the Strategic Plan. The main
drivers for this additional expenditure are:
Volume increase in planned operations
Volume increase in emergency admissions
Volume increases in outpatients
Price increase from the new national tariff
This is due to a combination of more patients being referred by GPs and treated in hospital,
and changes to patient pathways affecting the way numbers are counted and charged for.
There have also been changes to the structure of the national tariff which is the price paid to
hospitals for most outpatient and inpatient activity.
As well as increases in patient activity there have also been changes to the national tariff
which mean that PCTs are paying more in 2009/10 than in 2008/09 for the same activity.
The new tariff is based on a different method of grouping activity into a tariff structure (known
as “HRG4”). This has resulted in 39% of procedures being coded with complications (and
therefore a higher tariff) compared with 22% last year.
The impact of increased patient activity and changes to the tariff is an increased real terms
spend (i.e. after removing the effect of inflation) on services provided in hospitals of 17.5%
since 2007/08, reducing to 15.3% by the end of 2009/10 if the savings in the finance recovery
plan are delivered. This is illustrated in the graph below.
Figure 2 : % increase in secondary care spend since 2007/08
2007/08 2008/09 2009/10 2009/10 2009/10
Plan Forecast revised
Month 6 plan
At the end of July the forecast year end overspend on services commissioned in hospital
settings was £38.7m across the two PCTs. Other budget headings across the PCTs were
underspending and together with in-year contingency reserves, this brought the net position
of the PCTs down to an overspend at the end of July of £8m, with the forecast for the year, if
unchecked, being an overspend of £24m. On the PCTs’ total budget of almost £1.6bn this
represented an overspend of 1.5%.
PCTs have a statutory duty to keep their expenditure within their resource limit (the funding
voted and approved by Parliament) each and every year.
In September 2009 both PCT Boards received and approved a Financial Recovery Plan, with
the objective of delivering sufficient savings to achieve financial balance in 2009/10.
5. FINANCIAL RECOVERY PLAN
The main thrust of the recovery plan is to reduce the volume of activity back to previously
planned levels, as this is at unsustainable levels both for the PCTs and their main acute trust
providers. Whilst the focus is on short-term financial savings, the opportunity is also being
taken to consider the long-term as there is no benefit to the PCTs of building up financial
difficulties for the future, when it is highly likely that financial settlements in later years will
drive the need for even greater efficiencies than has been the case to date. The PCTs also
wish to ensure that any steps taken fit in with their overall strategic objectives around making
sure people are getting the most appropriate care and in the right place. This does mean
less unnecessary care in major hospitals.
The over-arching plan contains many actions which fall within six main identified themes:
Improving information to support clinical engagement and decision making, including
the provision of benchmarking and comparative information over time e.g.
GP referral rates
consultant to consultant referrals
new to follow up ratios
out patient attendances compared to referral rates
conversion rates from outpatients
non-electives, taking account of seasonal trends:
- occupied bed days
- emergency admissions via A&E
- other emergency admissions (including GP heralded)
- other non-elective (mainly maternity and transfers)
high cost patients
patients with more than one first out patient during 6 months
coding, including impact of HRG4, particularly for orthopaedics
pathology and radiology direct access requests
Monitoring and validating contracts tightly to minimise payment and pathway
Challenging existing practice and clinical pathways and implement the changes in
service models set out in DQHH.
Spreading medicines management good practice.
Reviewing the priority of previously planned investments.
Increased efficiency within the PCT – both its provider services and corporate
6. SAVINGS IDENTIFIED
Previous recovery processes would suggest that delays in implementation and failure rates
of “demand type” initiatives require an initial target larger than the size of the savings actually
The finance recovery plan identified savings opportunities totalling £29.3m (1.8% of budget)
have been identified A summary of the savings is shown in the table below.
Table 2: Summary of Financial Recovery Plan Savings 2009/10
Acute trusts validation of activity and changes to clinical pathways 8,307
Specialist Commissioning validation and pathways 843
Clinical effectiveness (including treatments of limited clinical value) 3,245
Basis of contribution to funding ambulance targets 3,864
Pharmacy and Medicines Management efficiencies 899
Community services productivity improvements 1,000
Reductions in secondary care activity 4,101
Primary care efficiencies 1,685
Slippage on investments 2,600
Corporate services 647
Continuing care efficiencies 250
Other savings 1,923
TOTAL identified 29,363
The savings plans maintain all existing services, although utilisation of some services is
expected to be lower. The PCTs’ focus is on how those services are delivered to ensure the
best use of resources and to ensure that people are receiving the treatment that is most
appropriate for them. The majority of projects within this programme are about ensuring
services and processes are working most effectively. The PCTs expect waiting times for
treatment to continue to be within the national target of 18 weeks. Many of the plans require
the co-operation of GPs, as well as clinicians and mangers in acute trusts. The PCTs are
working with doctors to follow existing local guidance on referring patients for treatments that
have limited clinical benefits.
The position which will be reported to the Boards in March shows that the recovery plan has
been successful across a number of areas but that the position is not where we want to be
because of an underlying increased spend on acute services since the recovery plan was
agreed. This has been partly offset due to increased slippage on investments and additional
savings in primary care and corporate services but there remains a shortfall of c£3m at the
end of January. The position is summarised in the table below. Negotiations are being held
with NHS East of England about the return of some of the funding deposited with it to bridge
the remaining gap.
Table 3 : Savings achieved at the end of January 2010 compared with recovery plan
savings to erspends to
January January Variance
£'000 £'000 £'000
Better validation and payment of invoices 3,696 2,767 (929)
Specialist Commissioning 706 (155) (861)
Clinical effectiveness and demand management 2,715 2,839 124
Ambulance services contribution
Pharmacy 377 1,493 1,116
HCHS 570 (1,295) (1,865)
Primary Care 775 5,090 4,316
Continuing care 146 1,095 949
Mental health/LD 1,576 1,531 (45)
Disinvestment 500 2,052 1,552
Non recurrent savings/corporate/other 1,577 3,866 2,289
TOTAL 12,638 19,282 6,645
Increase in underlying acute overspend (9,678)
January position compared with Planned in FRP (3,033)
7. FUTURE YEARS
The importance of driving the delivery of this into future years is recognised, particularly with
the likelihood of less growth, and programmes are looking to maximise full year benefits and
have sufficient schemes to deliver expected requirements for 2010/11.
It is appropriate at this time to review the PCTs’ agreed Strategy and take stock given the
changed economic position and the effects that this will have for public sector expenditure
In 2010/11 PCTs will receive growth as previously announced (5.1% in West Hertfordshire
and 5.8% in East and North Hertfordshire). However, it will be necessary to set aside 0.5%
of funding to meet a number of costs previously funded centrally. The PCTs are also
planning to identify at least 1% of our spending as genuinely non-recurrent to drive through
the service configuration changes set out in DQHH, in particular pathways supporting care
closer to home.
The inflation uplift to the tariff has been set at 0%. This is the net impact of +3.5% inflation,
offset by -3.5% efficiency savings. This means that Trusts will have to achieve efficiency
savings regardless of any change in activity commissioned by the PCT.
Beyond 2011 public spending will rise by just 0.7% over the next comprehensive spending
review period, the lowest three year growth since April 1997 to March 2000. The specific
implications for the NHS are not yet known, but the PCTs’ updated plans will assume zero
In order to update the DQHH activity projections the PCTs have been benchmarking their
performance against the top 10% of best performing PCTs using the NHS Institute for
Innovation and Improvement (NHSII) benchmarking data. The PCTs’ aspiration, working
with PBC Groups and Provider Trusts, is to move into the top 10% of PCTs within 3 years.
Specifically, the PCTs’ purchasing intentions will reflect a determination to reach the upper
decile performance by 2012/13 for:
acute referrals and first outpatient appointment per head of population
follow up outpatient ratios
daycase and inpatient activity per head of population
Achieving this performance would reduce the level of activity in secondary care settings to
just above that envisaged in DQHH. The impact on trusts is shown in the table below.
Table 4 : Impact of reducing activity at Acute Trusts
East & North Hospitals Other acute
Herts Trust Trust trusts
£'000 £'000 £'000
2009/10 forecast before Savings Plan 209,992 200,226 246,279
2009/10 forecast after Savings Plan 204,276 193,644 239,937
2010/11 198,146 187,209 233,863
2011/12 192,018 180,782 227,781
2012/13 185,889 174,363 221,689
Movement 2012/13 v 2009/10 before
Savings Plan (24,102) (25,862) (24,589)
-11.5% -12.9% -10.0%
The PCTs’ Strategic Plan assumes reinvestment of £24m to provide care in alternative
settings. It is possible that some of this care will be reprovided by these two trusts, so
reducing the impact of the reduction. However, the planned reductions in activity will require
capacity to be reduced in trusts and additional savings made in addition to the efficiency
savings that have to be delivered.
There are already a number of initiatives underway to ensure that the PCTs’ strategy of
moving care closer to home happens The Strategic Plan agreed in January outlined a high
level work plan to ensure delivery.
A service redesign team from across the PCT and Provider organisations has been selected
and given training. This pan-health economy approach will be central to successful delivery
on system wide pathways and also to ensure sustainability in the longer term of implemented
Service redesign priority workstreams have been established following a Hertfordshire wide
clinical meeting on 28th January and discussions with the Professional Executive Committee
of the PCTs.
A high level project plan has been developed and incorporated into the PCT Operational
Plan, which identifies the following main workstreams:
Chronic Obstructive Pulmonary Disease
Critical to the approach being taken to service redesign has been the focus on each work
stream being clinically led, consequently each service redesign workstream will have a:
Senior project manager;
Public Health lead;
Clinical lead, agreed by the PEC; and
Clinical reference groups, agreed by PEC, PBC and Provider Trusts.
Project briefs have been produced and are being reviewed against key criteria. These
criteria focus on driving a clear benefits realisation approach and cover health outcomes,
activity shifts to deliver care closer to home and financial savings.
Progress is particularly being made in the following pathways:
The rollout of a new pathway is underway, the community service has been
expanded to include consultant clinics, enabling greater numbers of patients to be
treated closer to home and remove the need to refer into the acute setting. A single
point of contact has been established to triage all referrals and to direct to the most
appropriate setting. Key to success is the provision of GP and patient education
which has been commissioned from HCHS (the PCTs’ provider arm).
Chronic Obstructive Pulmonary Disease:
The rollout of new pathway underway; following a similar model to Diabetes, with
care being provided closer to home, however this service has been tendered and
is currently provided in West Hertfordshire by Barnet PCT. Work is ongoing to
agree an implementation plan for East & North Hertfordshire.
A number of pilots have been developed and are being implemented focusing on
the triage of referrals by joint GP/Consultant triage services.
A benefits case has been identified across 3 scenarios, clinical reference group
being formed and project on track to commence pilot activity in May.
The PCTs are also identifying other areas of saving such as prescribing efficiencies, the way
that intermediate care is provided, and the level of management costs. Based on
assumptions about future allocations, inflation and tariff increases, activity projections and
efficiency savings, it is likely that there will be some funding available for new investments,
although not necessarily at the level assumed in the original Strategic Plan.
Director of Finance