Final 25th March 2011


Five Year Financial Plan

2011/12 to 2015/16

Overview

  1. NHS Grampian expects to meet its three key financial targets by 31st March 2011. These are operating within; revenue resource limit; capital resource limit; and cash requirement. In doing so, the organisation will begin the 2011/12 financial year in a position of accumulated revenue break even.
  1. When the 2010/11 revenue budget was set initially, we identified an excess of commitment over available funding of some £34 million. This was reduced by £8 million through a detailed review of provisions and non-specific cost pressure demands. The remaining £26 million will be met through a wide range of service redesign, efficiency and cost cutting measures. Of the £34 million reduction, £27 million will be achieved recurrently with about £7 million non-recurrently.
  1. NHS Grampian’s core revenue allocation uplift for 2011/12 has been confirmed at 3.8%of our Revenue Resource Limit (RRL) which appears very positive in comparison with other public sector bodies. It is useful, therefore, to analyse the make up of this figure for greater clarity:

Recurring Baseline and 11/12 Uplift
£m / Core Funding Uplift / NRAC Parity Move / Change Fund / Lost Prescription Income
665.794
25.295 / 7.089 / 4.739 / 6.763 / 6.704
3.80% / 1.06% / 0.71% / 1.02% / 1.01%

Our core funding uplift plus the additional move to NRAC parity amounts to £11.822 million or 1.77% which represents new additional recurring funding. The Change Fund allocation of £6.763 million will be allocated on the acceptance of community expenditure plans prepared jointly by the NHS, Local Authorities and Voluntary Groups and will only be released on evidence and approval of new investment. The Lost Prescription Income is not additional funding but offsets income lost to NHS Grampian as a result of the introduction of free prescriptions for all.

We expect to generate a further £4.4 million in the year through a combination of increased cost recoveries from other health bodies and freeing up provisions no longer considered necessary. Anticipated total additional funding therefore amounts to some £29.7 million.

  1. However, as has been the case for the last several years, our expected additional costs commitments will exceed anticipated additional funding. For 2011/12, current projections suggest that additional cost commitments will amount to around £43.6 million, creating an excess of cost over available funding of £13.9 million. These are best estimates based on current intelligence and as normal, are likely to change as greater clarity on such issues as national pay policy emerges. In the meantime, the constituent parts of the projected £43.6 million are:

Pay awards including national insurance rate increase 5.8

Prescription Drugs 4.7

Non-pay inflation, VAT increase, energy inflation etc 8.2

Unavoidable new cost pressures including medical supplies 5.8

Investment in meeting access targets 3.6

Carbon Reduction Tax 0.6

Investment through Change Fund 6.8

Lost prescription income 6.2

Increased clinical negligence national risk share 1.9

  1. The additional budget gap of £13.9 million added to the approximate £7 million of non-recurring cost reductions projected to be achieved in 2010/11 will present the organisation with a requirement to find around £21 million of cost efficiencies (or additional income/funding) in the 2011/12 financial year.

Territorial Health Boards have been directed to achieve a minimum of 3% of Revenue Resource Limit in efficiency savings in 2011/12 but with the luxury of being able to retain those savings for reinvestment in front line services where best value will be achieved. NHS Grampian’s financial projections, however, suggest that the 3% savings - roughly £21 million - will be required to be achieved as cash releasing savings to ensure that the books balance at 31 March 2012. In effect, this means that NHS Grampian has already reinvested the savings in the form of commitments on Drugs, Access Targets and similar “cost pressures”.

  1. Years two to five of our financial plans involve a greater degree of uncertainty than normal, perhaps. Elections to the Scottish Parliament take place in May 2011 and the public sector in general is facing an economic future much less certain than for a generation.

In setting out revenue plans over these years, we have applied conservative assumptions in terms of funding which is a low risk approach but have also assumed relatively low growth in pay costs, drugs and inflation in general. Even with such assumptions of a relatively calm financial environment within Health over the next five years, the organisation can expect to face additional efficiency challenges of between £20 million and £30 million per annum each year.

The main risk to such assumptions is that the financial environment becomes more turbulent and pay costs and health inflation (increased costs and additional activity) in general take an upward turn beyond what has been assumed.

  1. Our 2010/11 capital programme moves slowly towards the goal of investing some £60 million by 31 March 2011. £23 million on progressing the Foresterhill sited Emergency Care Centre, £5 million on the Chalmers Hospital in Banff development, £5.7 million on the Foresterhill Biomass Energy Centre and over £2 million on the Whinhill Medical Centre are among the main property improvement investments this year. Not only do such investments provide very modern facilities for those using them, they also eliminate substantial levels of backlog maintenance risks which are a constant threat to provision of safe and cost efficient services.The remaining £24 million investment focuses mainly on infrastructural improvements, eHealth developments and the provision of new and replacement Medical Equipment.

Capital allocations to public sector bodies from 2011/12 have been reduced substantially. For example, the 2010/11 Formula Allocations for health boards amounted to roughly £350 million while 2011/12 formula allocations have been announced as £86 million for Scotland. NHS Grampian will move from £28 million formula allocation in 2010/11 to less than £7 million in 2011/12.

However, we are in a better position than some in that we have also secured some £80 million of legally committed capital funds over the next two years to allow completion of the Emergency Care Centre, Chalmers Hospital and the Foresterhill Energy Centre. Boards will also have to focus attention on disposing of assets which become surplus to requirements to boost available funds for reinvestment.

Despite the dramatic drop in capital funding, the Scottish Government has secured a very substantial amount of revenue funding that will be used to support public sector bodies in financing developments through Scottish Futures Trust mechanisms such as hubco and non profit distributing (NPD) partnerships. Revenue financed investment streams of £750 million have been provisionally identified against Scottish health projects to date. NHS Grampian is a leader in the field in being prepared to take advantage of such financing facilities with plans for the Aberdeen Health Village, a replacement Woodside Medical Practice and the proposed Forres Health Centre progressing rapidly towards a successful conclusion.

Meeting the Financial Challenges

  1. Access to Outpatient and Inpatient Services

8.1.Delivering access targets that will improve the patient journey from initial referral through to final treatment will put significant additional demands on the organisation’s financial resources. What we must ensure is that we differentiate clearly between capacity required on a short term basis to eliminate waiting time backlogs and permanent capacity required to meet shorter access times on a sustainable basis. NHS Grampian’s performance in moving towards sustainable delivery of the 18 weeks referral to treatment standard by December 2011 is very good. Activity backlog, however, continues to cause concern in some specialties. How to eliminate those backlogs and the financial consequences of doing so remain to be resolved as a matter of priority for the organisation.

  1. “Shifting the Balance of Care”

9.1.This is rapidly becoming a cliché but refers to our vision of ensuring that care is delivered at the right time, in the most suitable environment by staff who are most appropriately trained and skilled to fulfil the patient’s needs.

9.2.From a purely financial perspective, it is anticipated that delivering care in this way will reduce pressure on secondary care facilities by moving activity into community and home settings. The assumption is that the cost of delivering services in this way will be reduced substantially, freeing up resources that will be required in future to allow organisations to live within their means and, where economic circumstances allow, reinvest the savings in more modern and sustainable service provision. Modelling work continues to ensure that such assumptions will be borne out in reality.

9.3.An essential element of fulfilling the vision of a less specialist based health service is collaborative working with partner bodies such as local authorities and voluntary organisations. Financial settlements for local authorities have been severe for the 2011/12 financial year and are predicted to be so for some years to come. There will probably be a significant knock on effect for voluntary groups as much of their basic funding emanates from local authority bodies and also from public subscription which may reduce as economic demands take hold.

There is therefore a risk that working in partnership to gradually transfer health activity away from specialist centres will become strained. The introduction of the pilot Change Fund is timely in offering incentive for partners to work together effectively but exceptionally short time scales in planning the use of funding and implementing those plans could well add to the stresses at least in the early stages.

  1. New Technologies – Opportunity and Risk

10.1.The Grampian Medicines Management Group performs a critical role in ensuring that the organisation is “world class” in everything it does relating to the management of prescription drugs. The Group’s report to the Budget Steering Group suggests an increase of the annual drugs budget to £127 million which represents an uplift of 5% from 2010/11 projected expenditure of £121 million.

10.2.Over the last few years, NHS Grampian’s drugs’ expenditure predictions have been very accurate in terms of both community and hospital prescribing and costs have been kept to a reasonable level assisted in part by national pricing negotiations with drug companies and more recently with the introduction of the Scriptswitch prescribing tool which GPs have found to be of benefit both financially and in terms of providing effective service and advice to patients.

10.3.There tend to be numerous opportunities for introduction of new technologies within specialist environments that go beyond use of modern drugs. These include, for example; single use medical products; improved quality prosthetics particularly within the orthopaedic field; the introduction of robotic surgery to improve patient safety and care; digital audiology solutions; advanced equipment across all services. The list is almost endless which is excellent news for all of us as patients and those delivering services but with finite resources, difficult choices and decisions very frequently have to be made.

  1. Resource Allocation

11.1.NHS Grampian’s Healthfit vision and the supporting 2010– 2013 version of theHealth Plan, are soon to joined by a more detailed Health and Care Framework. Consultation is continuing in developing the framework which will break down the Health Plan into more detailed elements that will help both members of the public and those delivering health services to better understand what has to be achieved and how it will be done over the next several years.

11.2.As a consequence of finite financial and human resource available to deliver against everyone’s expectations, there has to be a way of determining what can be achieved in full, in part, perhaps not until later in time or indeed not at all. Health economists and others have invested enormous energy over the years in devising “prioritisation” methods in an attempt to justify resource allocation decisions. There is no holy grail of a solution but NHS Grampian continues to work on developing and testing methodologies that will support decision making which will become ever more important in times of restricted economic growth.

  1. Workforce – Fit for Purpose and Affordable

12.1.NHSG as other boards spends around 70% of its core revenue resources on its directly employed staff. It is therefore essential that staff employed are suitable in terms of numbers and skills and that the cost of employing them is contained within available financial resource. NHS Grampian has focused much attention in recent months and years on modelling the future of health service demands and the staff profiles that will be best suited to meeting them.

This has involved; liaising closely with national bodies on medical workforce training, development, recruitment and retention; a review of our AHP complement, skill mix and management; the Safe and Affordable Nursing Establishment (SANE) project which has been running for some 15 months and aims to create a consistent profile of nursing establishments in all areas of the organisation; and the Safe Affordable Workforce (SAW) which covers all 16,000 staff in the organisation and aims to refine our efforts in matching supply and demand of workforce skills and competencies within available financial resource. The outcomes of the SANE project will continue to feed into the all-encompassing SAW initiative.

  1. Health Improvement and Protection

13.1.The Grampian region enjoys relatively good health in a Scottish context but not in comparison with other areas in the developed world. Within the region too, there are areas of deprivation and disadvantage where the health of the population is well below acceptable standards. Government policy sets out to increase healthy life expectancy in Scotland, to break the link between early life adversity and adult disease, to reduce health inequalities particularly in the most deprived communities and to reduce smoking, excessive alcohol consumption and other risk factors to a healthier life. Protecting the public’s health is equally a top priority and NHS Grampian is well placed to take forward this whole agenda. The Government continues to offer targeted funding in addition to core allocations to support health improvement and we must ensure that we make most effective and efficient use of such funds in innovative and imaginative ways. We look forward to the SGHD’s commitment to combine many individual initiatives together as that will allow economies of scale to deliver affordable outcomes more effectively.

  1. Clinical Governance

14.1.Patient safety and all its related topics have always beenconsidered by NHSGrampian as thefundamental responsibility for everyone in the organisation. Provision continues to be made for taking forward significant elements of the clinical governance agenda including decontamination of instruments, increased use of disposable products, infection control measures, prescription training and similar actions designed to make the patient pathway more secure and risk free.

14.2.Efforts continue across the organisation to improve the physical environment in which staff work and patients are treated. Major strides have also been taken in changing antibiotic prescribing practice and all of this has led to a very big reduction in cases of infection in all clinical areas.

14.3.Keeping patients out of hospital when there is no need for them to be there remains a key objective in improving patient safety, reducing the risk of infection and improving cost efficiency of treatment. NHS Grampian in conjunction with local authority partners have made very good progress in discharging more elderly patients to suitable care environments thereby virtually eliminating delayed discharges over six weeks. This is not only much better for patients but frees up much needed bed space to allow a faster throughput of activity which in turn improves access for new patients. There is growing concern, however, that local authorities will find it difficult in future to allocate sufficient funding to support patients discharging into the community, leading once again to “delayed discharge” difficulties. Effective use of the Change Fund may prove to be instrumental in avoiding any reversal of outcomes.

  1. Efficiency

15.1.As part of the continuing EfficientGovernment scheme, territorial health boards in Scotland must achieve year on year 3% efficiencies with effect from 2011/12. As noted previously, this amounts to some £21 million for NHS Grampian, £14 million of which equates to new cost commitments and £7 million of cost commitments that will have been met only non-recurrently in this financial year.

15.2.NHSG’s Efficiency and Productivity Programme Management Office (EPPMO) led by an Assistant Chief Executive and incorporating a core team of specialist managers, has had a successful year to date. EPPMO team members, supported from time to time by other specialists as required, have dedicated their time in supporting budget managers identify where costs can be reduced in the immediate short term by spreading best practice, avoiding wasted effort and eliminating duplication.

15.3.With that support, budget managers throughout the organisation will have delivered more than £26 million of savings by the end of the 2010/11 financial year through a variety of initiatives including extension of 12 hour nursing shifts; a revision of our vacancy management procedures; reduced overtime costs; reduced post banding; and simple “housekeeping” savings such as less expensive postage arrangements.

Savings will also have been made by working in conjunction with strategic change initiatives, managed and monitored through our Continuous Service Improvement (CSI) arrangements. Reduced procurement costs have been engineered in this way in particular. In addition, savings have been made through voluntary severance; restricting annual leave carry forward arrangements and a start made to reducing senior management costs by 25% within the next four years.

15.4.EPPMO was introduced to support managers make operational cost reductions in the immediate and short term. Service redesign and modernisation strategy is under the leadership of the Strategic Management Team supported by the CSI Leadership Group in terms of ensuring that strategy is prioritised, implemented and monitored. CSI is NHS Grampian’schange methodology of choice andis being applied widely, consistently and robustly with regard to specific projects but all members of staff are being encouraged to use the basics of the methodology in reviewing their own working practices and procedures.