Financial Plan 2015/16
Trust Board Public Meeting
28 May 2015
Page
Executive Summary 2
Income & Expenditure 3
CIP 6
Balance Sheet 7
Capital Programme 8
Risks and Opportunity 9
Summary
2
Introduction
This paper will set out the Trust high level financial plan for 2015/16 and will build on the work undertaken during the latter part of 2014/15. This paper will take the outturn position and forecast forward. The high level plans described are replicated in detailed divisional plans agreed in large part with individual budget holders.
At its meeting on 1st April, the Board sanctioned an operating plan to deliver an operating deficit of £14.0 Million in 2014/15. This paper will describe an improvement in the planned deficit to a position whereby a £12.9 million deficit is now planned.
This report will address
• The forecast income and expenditure position • Cost Improvement Requirements and plans • Balance Sheet
• Cash and working capital • Capital Programme • Risks and Mitigation
And will describe the manner in which the Trust financial position will be managed by the executive during the year along with the support required form the department of health around the emerging cash position caused
Background
In 2014/15 the Trust moved from a deficit of £1.3 million* in 2013/14 to a deficit of £14.0 million in 2015/16. A surplus of £2.0 million had been planned. The deficit in large part was caused by :
• Reduced local price levels • Contract deductions
• New referral management pathways • Optimistic income assumptions
• Under delivery of Cost Improvement Programmes • Unplanned increases in staffing
• Excess costs of the Pathology Partnership
* Before receipt of the franchise payment
Financial Plan 2015/16
Income and Expenditure
In compiling the financial plan the Trust has reviewed a number of factors including • Non recurrent costs incurred in 2014/15
• The full year effect of operational changes
• The impact of nationally prescribed efficiency requirements • Cost Improvement Requirements and plans
• Cash
• Working Capital • Capital Programme
In reviewing these factors the executive consider that a £12.9 million deficit can be delivered although this is contingent of a number of upside and downside scenarios some of which are outside of the Trusts control. In coming up with this plan, the following bridge is evident and this will be discussed in more detail in this report
(25,000) (20,000) (15,000) (10,000) (5,000) 0
Financial Bridge
Income and Expenditure
3
Finance Report
The table above shows the position as described in the bridge diagram shown on the summary page of the report. Taking each of the areas in turn:
Activity related Income
Income in the main is derived from our host CCG. The CCG in 2015/16 have sub-contracted the commissioning of elderly services to United Care Partnership (UCP) a Limited Liability Partnership owned by Cambridge and Peterborough Foundation Trust and Cambridge University Hospitals . The £95.9 Million income described above is expected to be recovered from commissioners according to the table opposite.
At the time of writing contracts have been formally signed with the CCG but not UCP and negotiations are on-going around some key areas of contention.
Commissioner £’000 C&P 69,096 UCP 17,743 SCG 4,015 Other 5,119 Total 95,973 Original Forecast £12.9 Million Forecast Actual outturn 2014/15 Forecast Underlying adjustment Recurrent Position Deflator Commissioning
/ Growth Cost Pressures CIPS Profit on sale
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Activity Income (96,972) 2,200 325 (94,447) 63 (94,384) 1,227 840 520 (4,176) (95,973) Other Income (13,706) 0 (856) (14,562) 25 (14,537) 189 0 0 (183) (14,531) Total Income (110,678) 2,200 (531) (109,009) 88 (108,921) 1,416 840 520 (4,359) (110,504) Expenditure Pay 59,174 0 (290) 58,884 4,379 63,263 633 (294) 713 (38) 64,276 Temporary Spend 9,419 900 1,394 11,713 (433) 11,280 113 0 100 (1,730) 9,763 Non Pay 42,815 223 684 43,722 (1,503) 42,219 1,824 (158) 0 (1,364) 42,521 111,408 1,123 1,788 114,319 2,443 116,762 2,569 (453) 813 (3,132) 116,560 Operating (Surplus)/Deficit 730 3,323 1,257 5,310 2,531 7,841 3,985 387 1,333 (7,491) 6,056 Interest 2,043 0 0 2,043 0 2,043 0 0 0 0 2,043 Dividend 2,326 0 (165) 2,161 30 2,191 48 0 0 0 2,239 Depreciation 4,479 0 0 4,479 120 4,599 0 0 0 (120) 4,479 0
Profit on sale of land 0 0 0 0 0 0 0 0 0 (1,914) (1,914)
(Surplus) / Deficit 9,578 3,323 1,092 13,993 2,681 16,674 4,034 387 1,333 (7,611) (1,914) 12,903
Income and Expenditure
4 In compiling the plan due notice has been taken of the CCGs commissioning
intentions to manage some sections of our historic patient population in the community. This is important in many different ways both in ensuring only patients requiring emergency or urgent care access services through our emergency pathways and also to support the overall economy wide financial position. The CCG expectation is that in 2015/16, around £1.6 million of activity will be managed outside of an acute setting. The methodology through which the financial /impact will be managed should these measures prove unsuccessful is managed through clear clauses in the contact with commissioners. The planning assumptions extract is included at appendix 1.
Other key components of the bridge between outturn and the 2015/16 plan are • 1.3% price deflator as required by national planning guidelines
• CCG expectations on challenge on our local prices
• Increased income as part of our cost improvement programme by way of the Trust using its capacity to greater effect
Other income
Other income is expected to stay relatively constant between years and is received from number of sources.
Financial Plan 2015/16
Expenditure
Pay : The analysis of the outturn pay position for 2014/15 shows rising costs
throughout the year. The Trust finished the year with pay costs £6.3 Million higher in 2014/15 than in 2013/14. A review of the main causes of this is underway and is a key element of the Trusts Cost Improvement Plan, however the causes were gradual during the year implying a higher underlying position as shown in the chart below.
And looking at temporary staffing alone,
Source 2014/15
£’000
2015/16 £’000
Education & training 3,347 2,962 Non-patient care services to other
bodies 3,225 3,655 Other sources 7,305 6,917 Private patients 685 997 Total 14,562 14,531 4000 4500 5000 5500 6000 6500
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
£'000
Pay Profile 2014/15
Pay Temporary Spend
0 500 1000 1500
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
£'
000
Income and Expenditure
5 From the analysis we can see quarterly pay spend at the end of 2015/16 is £0.4
million above the level of expenditure in the first quarter. For the purposes of this plan £1.7m million has been assessed as avoidable nature and in need of formal review through the cost improvement plan.
Despite the CIP programme it can be seen that total pay spend in 2015/16 is forecast to exceed that incurred during 2014/15. This reflects a marked increase in quarter 4 2014/15. The opportunity to exceed the assumptions in the plan is part of an active review to be concluded during the first quarter of the year. In developing a bank of potential improvement opportunities the PMO will review areas of the Trust that saw increases in pay costs throughout 2014/15.
Financial Plan 2015/16
Non-Pay:
Analysing non pay expenditure In the same way as for pay then we see the graph below.
The main difference between 2014/15 outturn and 2015/16 lies with forecast non pay inflation and CNST premiums. This value is assessed nationally by the department of health. Over the course of the first quarter the actual inflationary pressure will be assessed and compared to the procurement activity that seeks to limit that pressure. At present a benefit equating to 1% of non pay spend from that procurement activity is predicted and has active engagement by the procurement team. This may be exceeded. 5200 5400 5600 5800 6000 6200 6400 6600 Ap r May Ju n Ju l Au g Se p Oct Nov De c Jan Feb Mar £'000
Yr on Yr Pay Comparison
2014/15 Actuals 2015/16 Plan (pre CIP) 2015/16 Plan (after CIP) 3250 3450 3650 3850 4050 4250 4450 4650 4850 Ap r Ma y Ju n Jul Au g Se p Oct Nov De c Jan Feb Ma r A xi s Ti tleNon Pay trajectory
2014/15 Actuals 2015/16 Plan (pre CIP) 2015/16 Plan (after CIP)
Cost Improvement Programme
6
Cost Improvement Programme
CIPs to the value of £9.4m are being targeted by the Trust and while the Trust has provided in the expectation that some of the plans prove optimistic or are delayed.
A newly recruited PMO team is working with divisions to identify potential Cost Improvements, scope them and agree the delivery with accountable executives and their teams. A close working relationship is being developed between the finance team and the PMO to ensure that the tracking of financial benefits is rigorous and links to project milestones and divisional actions.
Many of the schemes within the programme were initiated from within the divisions. In these instances PMO staff work to support the divisions in the development of plans and outcomes.
A number of schemes have been identified by members of the leadership team. In these instances the improvements required of divisional teams are beyond the level they anticipated. In these instances PMO staff are working to develop the necessary ownership of the schemes at a divisional level.
In recognition of the risk associated with a large programme, and in an attempt to develop a pipeline of projects the identification of opportunities continues not just for 2015/16 and into 2016/17 as well. This supports the principle of planning being an iterative (not annual) process and also engender a continuous improvement culture within the Trust.
Financial Plan 2015/16
Cost Improvement Plan
The net CIP target of £7.6m is spread across the divisions as identified in the table below. While the reserve against failure is allowed for centrally it can be seen that, having accounted for this, the level of unallocated CIPs stands at £2.5m.
Recognising that a proportion of any cost improvement programme can often be optimistic or require more management time than is available cost improvement opportunities above the £7.6 million requirement have been identified. These currently total £9.4m. Achieving all of the planned schemes would allow for an outrurn position better than the forecast all other things being equal.
CIP by Division All in £000 Forecast Elective (1,088) Non elective (1,659) Theatres (651) CSS (150) Corporate (1,561) Unallocated (2,502) Trust (7,611)
It should also be noted that the income CIPs stand at £4.2m . These are often associated with high risk CIP programmes, since these may cause commissioners financial pressure and they seek to recover their deficit in other ways. In this case the main areas of challenge are around the avoidance of penalties (£1.7 million), additional elective income (£1 million), reductions in length of stay (£0.5 million), improvements inl ocal prices (£0.5 million) and improved productivity in theatres relating to numbers per list and reduced cancellations.
Budgeted activity and the income associated with this activity (excluding penalties) is broadly in line with CCG plans and so on delivery of our quality metrics this ought not to represent a significant income risk to the trust.
Balance Sheet
7 The Trust came into the 2014/15 financial year with a cash balance of under £1m.
With a projected deficit of £12.9m for the 2015/16 financial year the Trust will be dependent on cash from the department of health to make good its financial obligations. Confirmation of this cash ahs been received from the Trust Development Authority.
Until financial recovery has been achieved the Trust will have a weak balance sheet. In particular net current assets and liquidity ratios will be poor.
In this situation it remains important to ensure that the use of debt is appropriate and does not expose the Trust to unnecessary financial risks. Ratios recommended by Monitor for the assessment of Foundation Trust financial health are incorporated into the continuity of service risk rating (COSR rating).
This measure comprises:
A rating based on the number of times a trust can cover its debt repayments A rating based on the number of days expenses it’s can cover with its working capital
Each individual rating is weighted equally in the COSRR calculation. A score of 2 is considered the minimum strength desirable with 4 being the strongest rating. The Trust scores poorly on this rating as a result of its deficit and hence its working capital position. A COSR rating has been calculated for the Trust using the debt required from the 2015/16 capital programme, along with predicted borrowing. The resulting rating in a “1” the calculation for which is shown in appendix 2.
Financial Plan 2015/16
The Trust is expecting to face a challenging cash position during 2015/16. This is primarily a consequence of the poor I&E performance over the 2014/15 and 2015/16 financial years. However, capital commitments that exceed internal funding are also a factor. On this basis an application of £22.5m of cash funding will be made to the Department of Health to support the Trust as a going concern. This arises from
• £4.4m for 2014/15 I&E deficit above cash drawn down • £12.9 m to support 2015/16 I&E deficit
• £4.4m to support the 2015/16 capital programme • £0.8 m for leases and PFI
The Trust have been advised that the capital funding is likely to be a long term loan while the I&E revenue funding is likely to be PDC. This funding is reflected in the SOFP above. The use of PDC is now reserved for Trust’s unable to afford loan capital repayments. Final confirmation as to the use of PDC/loan funding will be received at the point the funding application is made based on the anticipated recovery trajectory.
SOFP for 2015/16 31st March
2015
31st March 2016
TOTAL Non Current Assets 100,871 106,616
CURRENT ASSETS:
Inventories 1,583 1,583
Trade and Other Receivables 8,705 8,705
Cash and Cash Equivalents 999 1,076
TOTAL ASSETS 112,158 117,980
CURRENT LIABILITIES
Trade and Other Payables (12,980) (12,706)
Provisions (214) (214)
Borrowings (2,604) (597)
Liabilities arising from PFIs / LIFT / Finance Leases (725)
DH Capital Investment Loan (228) (615)
Total Current Liabilities (16,026) (14,857)
NET CURRENT ASSETS/(LIABILITIES) (4,739) (3,493)
Total Non-Current Liabilities (21,133) (23,221)
Capital Programme
8 Funding sources for the capital programme and the wider programme is set out
below. This is different to the original plan when the capital programme was initiated which expected expenditure to be generated from internal funds. The position reflects the value that takes account of the costs associated with the discovery of newts on the site.
The revised value does, however, assume that the planned key worker accommodation development at the rear of the Trust’s site takes place. This ensures that no requirement for affordable housing is included in the planning permission granted for the land held for sale.
New funding of £1.2m has been secured by the Trust’s IT team through a bid to the Department of Health (DH) technology fund. This has been secured on the basis that the Trust match the funds provided by the DH over a period of five years and enables the Trust to undertake a “Turn off paper” project. Half of this funding has been utilised in 2014/15 with the remaining balance incorporated in the 2015/16 capital plan.
Financial Plan 2015/16
The largest component of this, at £5.8m, is the estates programme. This includes £4.6m of expenditure plans to complete the Combined heat and power (£2.6 million), critical care projects (£0.5 million) and electrical infrastructure projects (£1.5 million). These are a continuation of schemes started in the 2014/15 .
Due to the anticipated I&E position it was agreed with the Trust Development Authority (TDA) that the capital expenditure plan would be constructed on the basis of completing existing projects, ensuring existing services can continue, securing the quality of services and ensuring the safety of people that use and work on the Trust premises. As a consequence of this the expenditure programme is focused on maintaining existing infrastructure rather than enhancements and service developments.
Any future requirements already identified as opportunity by the Trust will be pushed through an investment planning process and funding sources agreed.
Funding Source
Internally Generated funds (2,759) (2,371) (2,867)
Loan (4,444) (1,625) Land Sale (2,550) DoH IT Support (600) Available Cash (10,353) (3,996) (2,867) Planned Expenditure Estate 5,808 1,480 1,250 IT 1,630 400 400 Medical Equipment 2,587 1,916 1,017 Contingency 328 200 200 Total Spend 10,353 3,996 2,867 Available Cash 0 0 0 2016/17 £’000 2015/16 £’000 2017/18 £’000
Risks and Opportunities
9
Upside opportunity
The 2015/16 budget reflects the Trust’s experience of the local commissioning landscape. One consequence of this is that the assumptions relating to activity growth for all CCGs are low compared to the Trust’s own forecasts. While the budget is broadly aligned with commissioning plans these plans are reliant on a level of QIPP scheme being delivered and activity being directed away from the sector. These levels are ambitious and have not been achieved in previous years. The CCG has expressed an intention to review local price levels. While their objective is to lower price levels there is also the potential, under the contract rules, for prices to rise as a result of a review.
Within the budget, improvements in prices for SLAs are included. However, no general procurement saving is incorporated. The procurement team are confident of an opportunity and so this represents a potential for cost reduction compared to budget levels.
Downside Risk
Within the budget income line the Trust has assumed that improvements will be made with respect to the level of contract deductions the Trust is subject to in 2015/16. The budget level is £1.4m including readmissions and reflects the challenge from the TDA that previous levels were too high.
If £1.4m contract deductions were to be achieved this would represent a £2.6m improvement over 2014/15 and a level that had not been achieved by the Trust for a number of years. This is therefore a risk which the Trust will have to deploy resources to manage.
TDA staff have also advised the trust that winter pressures funding is available at 2014/15 levels during 2015/16. This has been incorporated into the budget but is inconsistent with the message received from the CCG. This represents a £1.5m risk to the budget.
Financial Plan 2015/16
The budget requires CIP delivery of £7.6m, this exceeds the level deemed safe by the TDA and has been highlighted by them as a risk. It is also higher than that achieved by the Trust in previous years. In 2015/16 the Trust delivered less than £3m of its £6.8m CIP target.
Other risks to the budget include the CCG’s anticipated challenge on local prices as well as its request to revise the MRET. The impact of a revised MRET would be to reduce the value of non-elective activity income the Trust undertakes.
Tables setting out the expected downside and upside risks are included at Appendix 3.
Mitigating actions
The Trust is working with other local providers to agree arrangements whereby excess demand for elective work is transferred to the HHCT at tariff.
This arrangement should offset any risk from contract deductions and should also have the benefit of improving value for the tax payer. Success of this scheme would ensure that public funded resources are utilised to the maximum extent possible within the health economy.
Following an internal review of the failures of the 2014/15 CIPs a PMO team has been established to improve delivery of these projects. This is a significant
investment for the trust and represents an important mitigating action against the risk of CIP failure.
Costing teams are being included in the early on in the discussions with the CCG, in relation to local prices. This is intended to reduce the risk that local price changes result in reduced income levels for the Trust.
Conclusions and Recommendations
10
Financial Plan 2015/16
Recommendations
It is recommended that the Trust should
• Develop a service based financial recovery plan to assess the opportunity to return to financial balance within a three to five year time period for presentation at the October Board
• Ensure any decisions necessary on future structures, service provision and operational capacity to achieve financial balance are fully considered
• closely monitor the rigour and financial governance associated with the delivery the Trust’s cost improvement and efficiency measures
The Board are asked to:
• Endorse the financial plan for 2015/16 and expect a revised eighteen month plan to be prepared by the executive for presentation at its October board meeting
• Formally delegate the delivery of the plan to the Chief Executive who will delegate the plan into the Trust using the scheme of delegation
• Subscribe to the overall cash requirement and endorse the executive to
approach the department of health for the additional cash that will be required. • Recognise that the Cost Improvement Programme at a net £7.6 million is at the
higher % end of what is seen nationally and that the executive is committed to exceeding this level of delivery
• Note the potential upsides and downsides included in the plan along with the other identified and unquantified risks and opportunities
• allow the Trust to access any new Working Capital Facility including PDC to a maximum of £22.5 Million from the Department of Health ( via the TDA); • accept the Terms of any additional Working Capital Support Facility including
PDC;
• authorise the Chief Financial Officer to sign the agreement;
• authorise other finance staff to undertake and submit the finance documents necessary to access the facility;
Conclusion
A deficit plan for 2015/16 is proposed and is recommended to the Board recognising some uncertainly with downside risks
The development of a longer term recovery plan during the first part of 2015/16 is important for a number of reasons. In particular
• At this point the Trust does not have a longer term financial plan to identify the savings of sufficient magnitude necessary to deliver its current service portfolio within available income
• Assuming delivery of the £12.9 million deficit in 2015/16 the Trusts cumulative deficit, will represent approximately 50% of turnover
• The Trust is dependent on cash support from the Department of Health to continue to operate at its planned levels. The trust forecasts that it will need £22.5 million of cash to continue to operate for 2015/16
• Clarity is needed to determine the feasibility of the Trust to address its cumulative deficit solely by improved efficiency and reducing costs without addressing its underlying funding, service provision and configuration
• In 2014/15 the Trust fell short of delivering its cost improvement requirement and this has to be monitored closely and action taken to ensure this does not continue into 2015/16
Appendix 1: Activity Assumptions
11
Financial Plan 2015/16
2015/16 Activity Planning Assumptions
The following patients will be given priority as part of the IAP:
Clinically urgent cases
Patients who are on an incomplete pathway for a duration of 12 weeks and above
Patients who are on an incomplete pathway and treated in turn at speciality level up to the commissioned IAP levels for that speciality
If the Provider believes that additional patients need to be treated over and above the IAP agreed with the Commissioner, Prior Approval must be sought from the Commissioner by contacting the Assistant Director Contract Lead or the Local Chief Officer. A clear rationale and evidence as to why this is necessary must be provided by the Provider. There will be, as per the requirements of the contract, a monthly reconciliation process for activity and finance however to enable better management of the APA, a formal quarterly and end of year reconciliation will be conducted by the Commissioner.
In line with Commissioner expectations, the Trust will accommodate any demand above the planned levels identified in the IAP through increasing waiting times up to a maximum increase of 1 week (by specialty) above median levels in 2014/15. Increases above this level will be funded subject to the scenarios set out below….
If approval has not been agreed and the Provider over-performs against the specialty level IAP in terms of activity and/or finance, the Commissioner will not pay for this activity at year end following the reconciliation…
Additionally the activity planning assumptions assume that;
All MSK related activity is to come via the CAS triage prior approval process. Any activity found not to be via this route will not be funded as it will not have been prior approved. Defer back to the patient’s GP if in doubt. There will be no A&E activity counted where direct GP referrals for AAU come via A&E. Any activity found to be via this route will not be funded.
The Trust shall comply with the First to Follow Up ratios at [specific] specialty levels… around Better Care Better value indicators
The Trust is required to maintain the 14/15 A&E to inpatient conversion ratio in under 65’s. The conversation rate will be monitored quarterly in line with the agreed 1.5% threshold above the same quarter performance of 2014/15. There will be non-payment of activity above the threshold if after a Utilisation Review the findings demonstrate clinically avoidable admissions have occurred.
There will be no duplicate diagnostic testing originating within the Trust within two months unless required for a rapidly changing condition or otherwise clinically indicated. Any activity found to be outside of this requirement will not be funded as per the quality metric in Schedule 4 Part C.
All ITU activity is only appropriate for ITU level of clinical input. Where audit demonstrates any activity which should legitimately be treated at an alternative level of clinical input, the level of non-compliance will be applied pro rata across the total activity for that POD. It is agreed that the audit will be of a proportion of cases which have the extent of statistical significance (defined by Public Health) in order to inform pro rata application.
The Trust fully complies with the prior approval and individual funding request processes. Where audit demonstrates any activity where the checklist does not comply with the case notes, the level of non-compliance will be applied pro rata across the total activity for that procedure, providing the audit sample was of a level of statistical significance. It is agreed that the audit will be of a proportion of cases which have the extent of statistical significance (defined by Public Health) in order to inform pro rata application.
Appendix 2: COSR Rating
12
Financial Plan 2015/16
Budget
£'000s
Capital Service Cover
Key to scoring
Revenue available for Debt Service
(6,056.0)
Capital Service Cover
50%
Capital Service
(5,311.0)
Capital Service Cover Metric
(1.14)
4
3
2
1
Capital Service Cover rating
1
2.5
1.75
1.25
<1.25
Liquidity
Key to scoring
Cash for CoS liquidity purposes
(5,076.0)
Liquidity
50%
Operating Expenses within EBITDA, Total
116,560.0
Liquidity metric
(1.3)
4
3
2
1
Liquidity rating
1
0
-7
-14
<-14
Appendix 3: Risks & opportunities
13
Financial Plan 2015/16
Upsides
£1.0m – Over delivery of CIP schemes £1.0m – Failure of CCG QIPP schemes
£0.5m- Procurement non-pay saving of 1% achieved £0.4m – Success of local price renegotiation
Downsides
£1.7m - Contract deductions £1.5m – Winter pressures £1.0m – Theatre utilisation £0.5m – Interest charges
£0.5m – local providers send work elsewhere £2.0m – under delivery of CIP schemes £0.8m – Local prices/MRET
