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Shelagh McKinlay Clerk to the Audit Committee Room T2.60 The Scottish Parliament EDINBURGH EH99 1SP
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_____ Dear Shelagh OVERVIEW OF THE FINANCIAL PERFORMANCE OF THE NHS IN SCOTLAND NHS ARGYLL AND CLYDE Thank you for your letter of 13 October requesting some further information on behalf of the Audit Committee. As requested I attach a copy of the formal protocol for the review and analysis of all NHS Boards’ financial plans and monitoring returns at annex A. You also asked about the current position on recurring and non-recurring expenditure by NHS Boards. Table 1 provides a breakdown of the 2005-06 forecast outturn of all NHS Boards split between the recurring and non-recurring position. These figures are taken from the August 2005 Monthly Monitoring Returns as submitted by NHS Boards and as recently reported to the Health Department Management Board as well as to the Chairs and Chief Executive Business Meetings. It must be stressed that these are forecast outturn figures and the actual outturn position is expected to improve by the year end in line with the pattern of previous years. I have stressed the importance of financial balance with Chief Executives and am meeting each Chief Executive forecasting a deficit. As you are aware, the Health Department started collecting recurring/non-recurring information on a regular monthly basis from 2005-06 although Boards had previously reported this within their 5 year financial plans. As this is a new return, there may be inconsistencies between Boards in the classifiction of resources and expenditure as recurring and non-recurring. The Health Department is working closely with Boards to ensure that such inconsistencies are addressed and has recently started classifying all allocations as recurring or non-recurring as well as issuing guidance to Boards on definitions of recurring and non-recurring resources and expenditure. You will see from Table 1 that the net underlying (or recurring) forecast deficit for 2005-06 for NHSScotland is £140.7m, with the majority (72%) of this being attributed to 4 NHS Boards (NHS Argyll and Clyde, Grampian, Lanarkshire and Lothian). It should be noted that the net underlying deficits, excluding Argyll and Clyde, are less than 4.5%. We actively discourage over-reliance on
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non-recurring income, in order to minimise risks to the financial stability of Boards. Where Boards do make use of non-recurring income for legitimate short term programmes of expenditure, we ensure that they set this within the context of a robust 5 year plan. The Hospital Electronic Prescribing and Medicine Administration (HEPMA) has been established in Ayr Hospital. Their experience has been a precursor to developing standards and a statement of our requirements for electronic prescribing systems across all NHSScotland hospitals. To this end, a short life working group has been established (July 2005) under a clinical chair and with wide clinical representation to monitor and steer the work programme: This programme aims to: • • • • • • • develop a national output based specification for HEPMA, based on the Ayr experience, with a view to national procurement; . test national HEPMA standards in a live electronic prescribing site i.e. Ayr; publish information on the evaluation of the Ayr experience; commission work to define standards for clinical decision support; explore the development of a national facility to raise awareness and support “hands on “ experience of electronic prescribing; and Work with Connecting for Health (the English IM&T Programme) and National Services Scotland (NSS) to adopt the national drug, medicines and devices dictionary (dm+d)
In parallel with the work of the group mentioned above a separate exercise is underway to scope the procurement of the single information technology system. This will inform decisions about all the individual components of that system, including HEPMA, which is the most complex of all the components. I note that the Committee will be retaining an interest in the effectiveness of the new structure for health provision in Argyll and Clyde in addressing the problems faced in that area. I have also noted the committee’s suggestion that it would be helpful if, in formal responses and during evidence sessions, we could set out how we intend to monitor progress and gauge the effectiveness of new work, particularly in relation to the impact on the patient experience, when frontline staff will get the tools required to effect change and when improvements will be delivered.
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Annex A Protocol for the Review/Analysis of Financial Plans and Monitoring Returns from NHS Boards This paper sets out how financial plans and monitoring returns for NHS Boards will be reviewed and analysed by the Financial Performance Management and Accounting Division within the Directorate of Performance Management and Finance of the Scottish Executive Health Department. It sets out the routine which will be followed for financial monitoring and details the action, which will be taken when a NHS Board is not achieving financial targets. 1. Financial Plans
NHS Boards are required to submit 5 year financial plans on an annual basis. Currently a draft plan is required by 31 March with a final version by 30 June. A standard template (supplied with guidance notes) is required to be completed by all Boards, in addition a detailed supporting narrative is required to be submitted which gives information on the underlying assumptions and risks within the plan. A check list has been compiled by the Division which sets out the key areas of the plan which should be reviewed and checked by staff within the Division. A log will be maintained detailing the date of submission of both draft and final financial plans from each NHS Board. If NHS Boards fail to submit the information on time then they will be contacted and explanations sought for the delay. 2. Content of Financial Plans
NHS Boards must complete the standard template for financial plans. This allows the Department to collect key pieces of information from each Board consistently. This allows comparisons to be made and key financial targets to be highlighted. The format/content of financial plans is reviewed annually and is updated as required. A range of information is currently reported both in terms of revenue and capital expenditure. For example information is required on savings schemes, the split of non recurring/recurring resources and how additional resources issued are being utilised. It is however extremely important that a detailed supporting narrative is submitted to allow a detailed understanding of the assumptions and risks underlying the plan. This will expand upon the underlying pressure, and the efficiency programmes put in place by the Board in aiming to deliver the breakeven position. The following actions must be carried out by the Financial Performance and Accounting Division on submission of the draft plan:2.1 The plan should be reviewed and any areas of concern/queries should be raised with the NHS Board. If the plan highlights that the Board is not planning to achieve break-even either in year or during the course of the plan then this should be highlighted to the Head of Division/Director of Performance Management and Finance as soon as possible after receipt of the plan. They should also be informed of the key issues relating to the Board’s plan including any underlying overspend and details of efficiency savings.
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The Director of Performance Management and Finance will inform the Chief Executive of NHS Scotland in relation to the overall forecast position of individual Boards and the Boards as a whole. 2.3 A response should be sent back to the Board acknowledging receipt of the plan, highlighting any significant points and if the plan does not show a balanced financial position then the Board should be asked to address this prior to the submission of the final plan.
The following actions should be carried out by the Financial Performance and Accounting Division on submission of the final plan:2.4 The check list should be completed in respect of each NHS Board plan submitted. In addition the plan should be reviewed overall in conjunction with the supporting narrative. Any significant issues should be highlighted and any queries should be followed up with the NHS Board concerned. The financial plans must also be reviewed by the Finance Manager responsible for the NHS Board area, with a copy of the financial plan forwarded to the Performance Manager for comment. A formal letter should be sent back to each Board acknowledging receipt of the plans and highlighting any significant issues. This should be done within one month of receipt of the actual plan. A meeting to discuss the plan should be held with each NHS Board, involving the Director of Finance of the NHS Board and the Finance Manager responsible for the Board area. The meeting will be followed up with a detailed letter setting out the key points of the discussion and actions/follow up to be carried out. The timescale of the meeting will be dependant upon the content of the plan (see 2.8 & 2.9 below). If the Finance Manager considers that the plan is robust (based on past and current financial performance and the assumptions contained in the actual plan), that the plan reports a balanced financial position, and that they understand the risks and how the NHS Board is managing these, then a letter should be sent to the NHS Board agreeing the financial plan for the year. This letter should be signed by the Director of Performance Management and Finance for the Health Department. The plan will then be used as a benchmark for monitoring purposes and will be discussed at the next routine finance meeting. If the financial plan reports a financial position in an overspend in any year of the plan then the Head of Division/Director of Performance Management and Finance should be informed as soon as possible after receipt of the plan. A meeting should then be held with the Director of Finance and Chief Executive of the NHS Board concerned to discuss how the financial position can be improved, this should be held as soon as practicable and preferably within two months of the receipt of the plan. In advance of this meeting a letter should be sent setting out the key issues to be discussed. This meeting will then be followed up by a detailed letter setting out the actions required and a detailed time scale. If the NHS Board still fail to produce a comprehensive financial plan which addresses all known cost pressures within the timescale agreed, then the Chief Executive of NHS Scotland should call a meeting to discuss the plan with the Chief Executive and the Chair of the Board concerned.
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The subsequent actions will depend on individual Board circumstances but will include a firm set of actions and timescales in which to resolve the issues, and which will be closely monitored by the Health Department. At this point the Minister will be briefed on the actions being taken by both parties to address the reported position. 2.11 The NHS Board will then ultimately require to submit a financial recovery plan which demonstrates how the Health Board are to manage and address the financial position to achieve recovery. Once the financial recovery plan is received, and the department is content, a formal letter will be sent by the Director of Performance Management and Finance in which the department agrees to the NHS Board’s financial plan. If no resolution can be achieved and no action is evident from the NHS Board then the need for temporary support through perhaps secondments from elsewhere in the health service will be sought. If this action still fails to move the health body towards achieving its financial targets then consideration will be given to the exercise of powers in the NHS Reform (Scotland) Act 2004.
Monthly Financial Monitoring Arrangements
For monitoring arrangements to be effective it is important that robust financial plans have been submitted and agreed. Information from NHS Boards will be submitted on 13th working day following the month end, with the information contained in the monitoring forms processed as follows: 3.1 3.2 3.3 Review data and compile into the Scotland wide financial report within 10 working days. Data to be circulated to Finance, Performance Management, MB directors. A report to the Health Department Board will be prepared on a quarterly basis until December in each year and monthly for the last quarter. This information will form part of a larger report into the performance of the Department overall. Financial Performance of NHS Boards will be reported regularly to NHS Chairs and Chief Executives meetings. The Director of Performance Management and Finance will through the Chief Executive of NHSScotland keep the Minister abreast of any NHS Boards showing significant signs of substantially overspending (>£5m) against their planned outturn.
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On a monthly basis the following actions should be taken in respect of each NHS Board: 4.1 Finance managers to ensure information is received and complete (i.e. including supporting narrative). Finance managers to review information and provide commentary highlighting key issues – ensuring that BRIX notes are updated to report the latest financial position and current cost pressures. Finance managers to contact the health body and discuss any significant issues within the forms. Finance managers to meet with each NHS Boards routinely normally twice a year to discuss and review the NHS Board’s financial performance.
In addition, following each year-end, finance managers should review the reports from the external auditors to identify any significant control weaknesses or other issues which may lead to financial difficulties. 5. Variances
If the monitoring information indicates that the health body has a financial problem then the following actions should be taken: 5.1 If the figures state that the NHS Board is going to achieve financial targets but the narrative indicates otherwise. This should be highlighted in the finance manger commentary. The finance manager should also write to the health body indicating that if they believe that financial targets will not be achieved at the year-end then this should be reflected within the actual monthly monitoring return. If the NHS Board is indicating a variance in the achievement of financial targets (+/- 10% of total expenditure or £1m which ever is the lesser) then again this should be highlighted in the finance manager’s commentary and should be brought directly to the attention of the head of division. The finance manager should draft a letter for the head of division to send to the health body asking them to clarify how they intend to address their financial issues. A meeting with the health body should also be set up. If the variance is greater than 10% the Director of Performance Management and Finance should be involved in the meeting, as should a member of the performance management team. At the meeting the NHS Board should be asked to produce a recovery plan. The plan should contain specific actions with responsibility allocated to named individuals. NHS Boards will be given one month to produce the initial draft of the plan. If the initial draft is satisfactory a further two months will be allowed to finalise the plan. If, once the recovery plan is implemented, the financial position of the health body does not improve or show signs of improvement within two months then a further meeting will be held with the NHS Board. The meeting will include the Director of Performance Management and Finance. In most cases the Chief Executive of the NHS Board will also be involved.
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If the plan is not satisfactory then an independent assessment of the financial position should be requested. This assessment will normally be carried out by a major firm of accountants and other associated professionals (if necessary). The NHS Board should be asked to commission this assessment but the Executive should be consulted on the terms of reference. The independent assessment should normally be carried out within two months of the request. The SEHD should receive a copy of this assessment Future action will be dependent on the outcome of the independent review. The NHS Board will be given three months from the acceptance of the plan to act on the recommendations of the independent review. Key Milestones and targets will be agreed as part of the plan. The NHS Board should keep progress under review during that period, and should decide what additional action needs to be taken if progress falls short of target. The Scottish Executive should be kept informed of progress on a regular basis. If no action is evident at the end of three months then the Scottish Executive will discuss with the NHS Board the need for temporary support through perhaps secondments from elsewhere in the health service. If this action still fails to move the health body towards achieving its financial targets then consideration will be given to the exercise of powers in the NHS Reform (Scotland) Act 2004.
6. Other Issues
The performance management team should be consulted on all correspondence in relation to financial issues and should be invited to attend meetings with the health bodies as appropriate. All meetings should be recorded with a list of action points allocated to responsible individuals. Finance Directorate August 2005
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NHS Scotland Financial Plan Checklist NHS Board: Financial Period Covered: No. Check Yes 1. Has the financial plan been received before the 30th of June? 2. Has a supporting narrative also been submitted to accompany the financial plan? 3. Has the financial plan been completed in the standardised template supplied by the SEHD? 4. Have all the templates been return? 5. Has receipt of the plan and narrative been acknowledged by the SEHD? Template 1 – Revenue Resource Analysis 6. Has each year in the financial plans been completed? 7. Have the Clinical Services Costs been completed for each year? 8. Do the year on year uplifts within Clinical Service Cost appear reasonable? 9. Within the split of Clinical Service Costs are there any areas which raise concern or require further analysis? 10. Have the Non-Clinical Service Costs been completed for each years? 11. Do the year on year uplifts within Non-Clinical Service Cost appear reasonable? 12. Within the split of Non-Clinical Service Costs are there any areas which raise concern or require further analysis? 13. Have the Miscellaneous Costs been completed for each year? 14. Do the year on year uplifts within Non-Clinical Service Cost appear reasonable? No Comment
Have the Non-Discretionary allocations been completed for each year? 16. Has the Revenue Resource Limit been input for each year, split between the brought forward balance and the in-year position? 17. Are the uplift applied to the Revenue Resource Limit in line with SEHD expectations? 18. Does the financial plan report a breakeven position within each of the financial years? 19. Does the narrative reflect the bottom line reported within the Template 1? 20. If the financial plans reporting a forecast overspend within the lifespan of the financial plan is this acknowledged within the narrative? 21. Has the forecast overspend been explained within the narrative? 22. Does the Health Board return to financial balance within the life span of the financial plans? 23. Does the narrative explain how the Health Board return to financial balance? Template 2 – Revenue Resource Analysis 24. Has the Net Resource Outturn been completed for each year, split between recurring and nonrecurring? 25. Does the Net Resource Outturn reconcile to Template 1? 26. Has the Revenue Resource Limit been completed for each year, split between recurring and non-recurring? 27. Does the Revenue Resource Limit reconcile to Template 1? 28. Has the Brought Forward Balance been completed for each year, split between recurring and non-recurring?
Does the Brought Forward Balance reconcile to Template 1? 30. Has the Savings/ (Excess) Against the RRL been completed for each year, split between recurring and nonrecurring? 31. Does the Savings/ (Excess) Against the RRL reconcile to Template 1? Template 3a – Clinical Service Cost Memorandum 32. Has the activity information been included? 33. Has the template been populated with the HCH cost split across service categories? 34. Does the total reconcile to Template 1? Template 3b – Clinical Service Costs 35. Has the Family Health Services (FHS) Expenditure been input? 36. Do the uplifts within FHS Expenditure seem reasonable (+/- 10%)? 37. Does the FHS Expenditure agree to that detailed in Template 1? 38. Has the Family Health Services (FHS) Resources been input? 39. Do the uplifts within FHS Resources seem reasonable (+/10%)? 40. Does the FHS Resources agree to that detailed in Template 1? 41. Has the memorandum table been completed detailing the breakdown of specific elements of HCH expenditure? Template 4 – Internally Generated Funds (Savings Target) 42. Has the savings target been input? 43. Has the target been split between recurring and nonrecurring? 44. Have the details of the schemes to match against the target been input?
Has the Health Board described the schemes in sufficient detail? 46. Has a risk been attached the achievement to each of the schemes? 47. Does the sum of the schemes total to the target set? 48. Do the savings targets reconcile to the narrative supplied? Template 5 – New Resources 49. Has the Health Board detailed the level of new resources to be received? 50. Has the Internally Generated Funds (Savings Target) been included? 51. Has the section in relation to the distribution to the new resource been completed? 52. Has any reference been made in the narrative to the use of the new resource received by the Health Board? Capital Tables 53. Has the Capital Resource Limit been split over the appropriate headings? 54. Has the application of the Capital Resource Limit been completed? 55. Has the capital costs associated with the capital projects. £1.5m been completed? Statements of Key Assumptions 56. Have the Health Board completed the Statement of Key Assumptions? 57. To the uplifts reported seem reasonable? 58. Do the uplifts correspond to the narrative? 59. Are the Uplifts consistent with those of NHSScotland?
General 60. Do the financial planning templates correspond to the narrative supplied? 61. If the financial plans had not been received by the due date, had the Health Board been informed the SEHD of a delay? 62. Following review of the plans have the Health Board been updated with regards to SEHD acceptance of the position presented? Timetable for Discussion 63. Has a finance meeting been arranged to discuss the financial plan?
NHS Scotland Projected Financial Positions 2005-06
Total Revenue NHS Boards Resource Limit
Recurring Projected Outturn
Recurring projected outturn as % of Total RRL % 0.43% 2.08% 0.00% 0.00% -1.69% 0.00% 0.00% 0.00% -4.90% 0.00% -2.20% 0.00% -0.52% -1.09% -4.11% -0.48% -3.57% -2.80% -2.72% -2.78% -0.29% -4.35% -3.80% -1.81%
Non - recurring Non-recurring Projected Outturn projected outturn as % of Total RRL £000 (1,024) (3,294) 0 0 513 0 0 2,001 (44,200) 11,038 4,358 7,056 2,346 3,889 18,254 6,400 10,751 278 26,200 15,600 92 1,286 39 61,583 % -0.43% -1.06% 0.00% 0.00% 3.47% 0.00% 0.00% 5.50% -7.63% 2.12% 2.89% 3.23% 0.52% 1.09% 2.84% 0.48% 3.38% 0.04% 2.72% 2.78% 0.29% 3.54% 0.07% 0.79%
£000 NHS National Services Scotland NHS Education for Scotland NHS State Hospital NHS Scottish Ambulance Service NHS Quality Improvement Scotland NHS 24 NHS Health Scotland NHS National Waiting Times Centre NHS Argyll & Clyde NHS Ayrshire & Arran NHS Borders NHS Dumfries & Galloway NHS Fife NHS Forth Valley NHS Grampian NHS Greater Glasgow NHS Highland NHS Lanarkshire NHS Lothian NHS Tayside NHS Orkney NHS Shetland NHS Western Isles TOTAL 236,472 310,194 31,673 153,452 14,784 45,731 17,685 36,356 579,191 519,762 150,934 218,539 448,912 357,941 641,793 1,322,366 318,285 722,944 962,637 560,352 31,427 36,280 55,970 7,773,680
£000 1,024 6,463 0 0 (250) 0 0 0 (28,400) 0 (3,324) 0 (2,346) (3,889) (26,377) (6,400) (11,349) (20,237) (26,200) (15,600) (92) (1,579) (2,128) (140,684)
Source : Monthly Monitoring as at 31 August 2005 (Form 1B) (where applicable)