Financial Budget 200809

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Financial Budget 200809 Powered By Docstoc
					                                                                        Agenda Item:     TB(08)31

                                 EAST CHESHIRE NHS TRUST
                                   TRUST BOARD - 27 MARCH 2008

Report of                                 Director of Finance

Paper prepared by                         Director of Finance

Subject/Title                             FINANCIAL BUDGET 2008/09

Background papers (if relevant)

Purpose of Paper                          To propose the 2008/09 Financial Budget for the Trust

Action/Decision required                  The Trust Board is requested to approve the Financial
                                          Budget for 2008/09

Links to:
    NHS strategies and policy

Links to:
    Trust’s Strategic Direction          Turnaround Plan and Integrated Business Plan
    Corporate Objectives

Resource impact

You are reminded not to use RAB - Resource Accounting & Budgeting the
acronyms      or     abbreviations Department of Health Accounting regime.
wherever possible. However, if
they appear in the attached paper,
please list them in the adjacent

                                     FINANCIAL BUDGET 2008/09

1. Introduction
   During 2007/08 the Trust has continued to deliver its Turnaround Plan achieving a surplus of £900
   k thereby reducing the historic deficit of the Trust to £5.0 m. The Trust is planning to achieve a
   surplus of £5.1 m in 2008/09 in order to clear the remainder of the historic deficit. This paper
   outlines how the Trust plans to achieve this surplus in 2008/09 taking into account funding uplifts,
   known financial pressures and service commitments necessary to meet key national access

2. Inflation and other cost Pressures and developments
   Department of Health guidance is that inflation and other cost pressures are anticipated to be
   5.3% in 2008/09. The Trust has undertaken a detailed analysis of the pressures the Trust is likely
   to face and has reached a similar conclusion. These pressures can be summarised as follows:-


             Pay Pressures                     2972
             Non Pay                           600
             Cost of Capital                   430
             Impact of PbR changes             450
             Quality & Reform                  600
             Drugs incl. NICE                  200
             CNST                              70

             Total                             5322               5.3%

    The Trusts income will be uplifted by 2.3% to fund these pressures with an expectation that Trusts
    will deliver recurrent CIP’s of at least 3.0 % in order to cover the shortfall in funding.

3. Service Level Agreements with commissioners.
   In order to simplify commissioning arrangements, Central and Eastern Cheshire PCT have been
   classified as Lead Commissioner for agreement of all patient related SLA’s with East Cheshire
   Trust. This has meant that agreements reached between ourselves and our host PCT regarding
   contract terms and principles regarding the setting of baseline activity levels have been applied to
   all other such SLA’s . It is pleasing to note that utilising this process has enabled the Trust to sign
   off its 6 SLA’s as follows:-

             Central and Eastern Cheshire PCT              71.4
             North Staffordshire PCT                       5.1
             Derbyshire County PCT                         4.1
             Stockport PCT                                 2.5
             Stoke PCT                                     0.4
             Trafford PCT                                  0.1

             TOTAL                                         83.6

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    In addition the Trust anticipates it will receive £1.1m from all other Commissioners for non contract
    activity, and will receive £6.4 m from the Department of Health for the Market Forces factor, giving
    a total income from patient care of £91.1 m.

4. Assumptions underpinning the patient care SLA’s
   The following assumptions with regard to patient activity have been reached with commissioners
   which underpin the 2008/09 SLA’s:-

    a) Non Elective Activity
       It has been agreed with our host commissioner to plan on the basis that in 2008/09 we will
       have the same level and case mix of non elective activity as in the calendar year 2007. This
       approach is broadly consistent with the commissioner assumptions used in the trust Integrated
       Business Plan. It is important that the Trust identifies and quantifies the impact any actions
       being taken internally to facilitate the sustainable achievement of the 98% A&E target may
       have on Emergency activity including case mix and length of stay, which could potentially
       impact upon the actual level of income received.

        Accident and Emergency attendances are also being commissioned at 2007 calendar year
        outturn level. It is anticipated that in future years there will be a reduction in A&E attendances
        at the Trust if an Urgent Care Centre is developed in East Cheshire.

    b) Elective Activity
       The key driver for the determination of the level of elective activity required in 2008/09 is the
       achievement on a sustainable basis of the 18 week access target. This means that throughout
       2008/09, 85% of pathways where patients are admitted for hospital treatment should be
       completed with 18 weeks, and by December 2008 this performance will have improved to 90%
       and be sustained thereafter. Similarly, for pathways that do not end in an admission, 90%
       should be completed within 18 weeks throughout 2008/09, with performance rising to 95% by
       December 2008.

        In order to sustain the achievement of the admitted care performance target, the SHA has
        advised that in patient / day case waiting list clearance times of c 5 weeks should be sought.
        The Trust has confirmed that the commissioned levels of activity will enable the Trust to reduce
        inpatient/day case waiting times to 5 weeks apart from three specialties, Ophthalmology, ENT
        and Trauma and Orthopaedics.

        In the case of Ophthalmology, it has been agreed to be appropriate given the lack of a
        requirement for a diagnostic step in the care pathways. However, for ENT and Trauma and
        Orthopaedics the Trust has indicated the level of use of the independent sector will be
        necessary to ensure the delivery of the targets is sustainable. It is understood that
        commissioners have made commitments to utilise the independent sector to support the
        achievement of the 18 weeks target.

        Commissioners have broadly commissioned a similar level of activity to 2007/08 in order for
        the targets to be sustainably achieved. However, it should be noted that the Trust had invested
        in additional consultants in General Surgery, Breast Surgery and Dermatology, the benefits of
        which were not fully realised in 2007/08. These investments need to fully deliver planned
        activity levels in 2008/09 to justify the investment decisions made. It is assessed that a further
        £500k income should be generated through such activity.

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    c) Outpatient activity
       Our analysis shows that outpatient activity commissioned in 2008/09 is broadly in line with that
       delivered in 2007/08, apart from Diabetic Medicine, where the PCT are introducing a nurse led
       outpatient service from within primary care with effect from 1 April 2008. This change has a net
       adverse impact of c£300k.

    d) Rehabilitation Services
       Reaching agreement on the appropriate means of commissioning Rehabilitation services has
       been the major difficulty in finalising the SLA with our host commissioner in both 2006/07 and
       2007/08, and an appropriate long term solution has not yet been agreed. To that end, Central
       and Eastern Cheshire PCT have written to both Mid Cheshire Trust and ourselves regarding
       the commissioning of Rehabilitation services.

        The implications of this proposal are that instead of purchasing rehabilitation services per se,
        the commissioner will purchase:-

           Acute care including Acute Rehabilitation through the HRG with reimbursement for excess
            bed days where relevant, and then where appropriate:-
           Intermediate Care - summarised as a range of integrated services to promote faster
            recovery from illness, prevent unnecessary hospital admission, support timely discharge
            and maximise independence.
           Transitional Health Care - summarised as a period of recovery to enable recuperation from
            illness or injury prior to rehabilitation back to their normal home and preventing prolonged
            hospital stays.
           Primary care delivered services such as Stroke Care in a patient’s home through an Early
            Supported Discharge Team, and pulmonary rehabilitation in a community setting.

        In reaching agreement of the 2007/08 SLA, the Trust accepted a reduction in income of
        c£550k for the provision of rehabilitation services which the Trust covered through non
        recurrent means. However, it is clear that this is now a recurrent funding issue and is therefore
        addressed as such in the budget proposed for 2008/09. It should also be recognised that
        further losses of income may occur in future years.

5. Contract Terms
   For 2008/09 a new national contract has been implemented. Key features introduced by this
   contract include:

    a) Contract Sanctions
       A number of nationally mandated sanctions are included in the contract to ensure delivery of
       key national priorities and targets. These include:-

           Breaches of the 18 week target. A financial adjustment of 0.5% of income for every 1% by
            which the 18 week target is breached up to a cap of the lower of 5% of elective income or
            2% of contract income.

           Inappropriate Excess Activity. Non payment for activity which has breached an agreed prior
            approval scheme or activity management plan.

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           Failure to provide required information within required timescale. The sanction is the
            temporary withholding of 10% of the monthly contract value until the information is
            provided. It should be noted that the timescale for providing fully coded activity data to
            commissioners is being reduced from an indicative 20 working days after the month end, to
            a mandatory 5 working days by the last quarter of 2008/09.

           Breaches of the c-difficile target. A financial adjustment of 0.2% of contract income for each
            1 percentage point by which the target is under-achieved up to a cap of 2 per cent. High
            providing performers will be exempt as long as they maintain current performance.

        It is critical that we ensure that none of these penalties are applied, as they would all have
        material adverse financial consequences which would constrain our ability to meet essential
        targets. It is important that we have effective communications with our PCT so that any
        concerns regarding delivery are highlighted at an early stage and their assistance sought to
        help resolve issues where appropriate.

    b) New Mandatory Requirements
       In addition to the targets and information requirements outlined above for which sanctions may
       ultimately be applied for non delivery, there are a number of other significant mandatory
       requirements which have been introduced into the contract. The most significant of these
       requirements are:-

           Discharge Summaries. There is a requirement for provider Trusts to complete and issue
            Discharge summaries within the following improving timescales:-

                Within 72 hours from 1st April 2008
                Within 48 hours from 1st April 2009
                Within 24 hours from 1st April 2010

            This may require a different way of working in order to achieve this requirement.

           Emergency Preparedness
            The Trust must have robust plans in place to deal with a Flu pandemic by December 2008
            which link into a robust Health Economy wide plan.

           Clinical Quality Reviews
            There is a new requirement for the coordinating PCT to chair a monthly meeting with
            providers to review clinical performance and identify any performance problems. A joint
            clinical investigation will be conducted into any clinical performance problem which has not
            been resolved, leading to the agreement and implementation of a remedial clinical action
            plan. These meetings should be led by clinicians and will be distinct from the monthly
            contract monitoring meetings.

6. Quality and Reform
   Trusts have been provided with 0.6% funding from within tariff to fund specific quality and reform
   initiatives. This equates to approximately £600k for East Cheshire Trust from which we are
   expected to fund the following quality and reform initiatives:

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    a) Healthcare associated infections (HCAI’s)
       Trusts are expected to invest in modern matrons and ward housekeepers in order to improve
       the quality of hospital cleanliness and therefore reduce the level of HCAI’s. The Trust is also
       required to undertake a deep clean of every ward over the next 12 months, and to introduce
       MRSA testing for all elective patients during 2008/09. Proposals have been developed to
       increase the number of Modern Matrons by 3, and the number of ward housekeepers by 7 at a
       total cost of £275k per annum. It is suggested that implementation of the deep clean and
       MRSA testing requirements will cost a further £25 - 50k, giving a total cost of £300 – 325k.

    b) Increased Security
       Whilst no formal announcements have yet been made, it is anticipated that there will be a
       significant increase in the checking of staff for security purposes. As a minimum it is
       anticipated that all staff will need to have up to date ID badges, with badges being required to
       be updated on an annual basis. As a worst case scenario, it has been suggested that all staff
       will be required to undergo a Criminal Records Bureau check on an annual basis. It is
       suggested that £25k be set aside to finance the minimum likely requirement, with an
       acknowledgement that further sources will need to be identified if more onerous staff security
       requirements are imposed.

    c) Pay Reform
       Nationally an agreement has recently been reached with Trade Unions regarding out of hours
       reimbursement under Agenda for Change. These proposals will result in a significant increase
       in reimbursement for lower graded staff with a slight reduction in reimbursement for bands 4
       and above. However, for more senior staff there is a potential increase as there is no cap to
       the application of the out of hours arrangements. It is also indicated that protection
       arrangements will apply to staff facing a reduction in the level of reimbursement.
       Implementation of these proposals will result in significant increases in the payments to ISS, in
       particular for domestic services, where the majority of staff are classified as Agenda for
       Change band 1. The impact of the proposals has not yet been costed by the Trust.

        In addition reformation of the non consultant career grade contracts is almost concluded and
        the anticipated implementation date is 1st April 2008. These changes provide a window of
        opportunity for Staff Grades to apply for regarding as Associate Specialist and consequently
        for all Associate Specialists to transfer onto the new contract. The new contract provides an
        opt-out clause for Out of Hours or shift working.

        It is suggested that £200k be set aside to cover the likely impact of the 2 pay reform initiatives.

    d) Local costs of IM&T Programme
       It is suggested that £50k be set aside to cover the potential revenue implications of further
       IM&T developments during 2008/09. The Trust has set aside £250k Capital for such initiatives
       and £50k is the likely revenue consequences of such a level of investment in IT equipment and

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        The proposed allocation of the quality and reform monies is as follows:

              Healthcare Associated Infections             325
              Increased Staff Security                     25
              Pay Reform                                   200
              IM&T                                         50

              TOTAL                                        600

    7. Non Recurrent Income / Pressures
       The Trust has identified non recurrent resources of £838 k from a CNST rebate and other non
       recurrent income, which it is proposed to utilise as follows:-

              Net Interest Payments                        241
              Service Improvement                          177
              Communications                               35
              Car Parking                                  140
              FT / Organisation Dev                        205
              Digital Imaging                              40

              TOTAL                                        838

        Any slippage in the implementation of these commitments will be utilised to create a
        contingency fund to cover any further pressures which may arise.

        In addition the Trust is planning to generate a non recurrent surplus of £5.1m through the
        disposal of the Blue Zone in order to clear the historic deficit of the Trust. This disposal is
        critical to the financial strategy of the Trust as it should enable the Trust to complete its
        financial turnaround as agreed with the Strategic Health Authority and local commissioners.

    8. Cost Improvement Programme
       The Trust has been developing plans to achieve a 3.5% Cost Improvement Programme in
       2008/09. This enables the Trust to cover the 3.0% shortfall in funding of inflation and pressures
       and the £550 k recurrent loss of income for Rehabilitation services. This equates to a total CIP
       requirement for the Trust of £3.5m. The Trust will performance manage delivery of the required
       level of CIP through a “traffic light” assessment process as operated successfully in 2007/08.
       The first assessment will be shared with the Board in April.

    9. Risks
       The key financial risks for the Trust in 2008/09 are as follows:-

        9.1     Delivery of the 2008/09 Cost Improvement Programme
                Clinical Divisions and Corporate functions have been set a recurrent Cost Improvement
                target of 3.5% for 2008/09 which requires delivery of £3.5m of savings by the Trust
                during 2008/09. Although the Trust has an excellent recent history of delivering
                challenging levels of Cost Improvement, having achieved savings of £3.8 m in 2006/07
                and £2.8m in 2007/08, there is a risk that the required level of savings will not be

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                achieved. The Trust will be closely monitoring progress with regard to delivery of the
                required levels of savings.

                                                                                      Size of Risk £3.5m
                                                                       Risk Score : Likelihood 3 Impact 5
                                                                                                 Score 15

        9.2     Land Sale
                The disposal of the Blue Zone at an appropriate value is critical to the Trust clearing its
                historic deficit. Until the sale arrangements have been finalised there is a degree of
                uncertainty as to whether the disposal will generate the level of funds required, or an
                excess of funds. The Trust has identified a number of contingency measures which
                would be considered should the disposal proceeds prove to be less than required, and
                is also identifying opportunities for investment by the Trust should proceeds prove to be
                more than planned.

                                                                                      Size of Risk £5.1m
                                                                        Risk Score Likelihood 3 Impact 5
                                                                                                Score 15

        9.3     Cash
                The generation of a surplus of £5.1m during 2008/09 is essential in order to enable the
                Trust to repay the outstanding Capital and Working Capital Loans which the Trust has
                taken out over the past 2 years primarily to finance the historic deficit. Delivery of the
                proposed financial plans will enable the Trust to clear these loans

                                                                                       Size of Risk £5m
                                                                        Risk Score Likelihood 2 Impact 5
                                                                                               Score 10

        9.4     Contract Sanctions
                Non delivery of key performance targets could result in the application of contract
                sanctions. The Trust will be working proactively with our host commissioner to highlight
                any risks of non delivery of key performance targets and will work with commissioners
                to implement any necessary measures to resolve any such issues which may arise.

                                                                                    Size of Risk £1.8m
                                                                        Risk Score Likelihood 1 Impact 5
                                                                                                 Score 5

    10. Cash
       In order to fund the deficit in 2006/07 the Trust took out a loan of £7 m of which £2.33 m was
       repaid in 2007/08. The Trust also took out a Capital loan of £3.8 m in 2007/08. It is planned
       that the Land Sale will enable the Trust to repay these loans.

    11. Conclusion
        Appendix A contains a summary of the Financial Budget for 2008/09 with expenditure analysed
        by Division. This budget reflects all the assumptions outlined in the above report and
        demonstrates how the Trust will clear its outstanding historic deficit by achieving a surplus of
        £5.1m. This summary also identifies the Pay and Non Pay expenditure, whilst Appendix B

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        provides a summary subjective analysis of Trust Non Pay Expenditure. Appendix C provides a
        summary of the activity the Trust has been commissioned to deliver in 2008/09.

        The Trust will be further refining the Financial Budget over the next month to reflect proposed
        changes to the Trusts management structure.

    12. Recommendation
        The Trust Board is requested to approve the financial budget for 2008/09.

Stuart North
Director of Finance

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