Five Year Financial Plan

2010/11 to 2014/15

Overview

  1. NHS Grampian (NHSG) is projected to end the 2009/10 financial year in a cumulative breakeven position, representing a planned £6.4 million deficit for the year. Risks to reaching this position include securing funding from the SGHD Access Unit that is dependent on NHS Grampian meeting its key access targets by 31 March 2010. Meeting these access targets is proving to be very challenging and there is no room for any unexpected interruption of service flow.
  1. Non-recurring resources will have played a part in NHSG’s 2009/10 financial performance including some net expenditure slippage on targeted funding and receipt of rates rebates from local authorities. Use of the brought forward surplus also represents reliance on non-recurring funding, in effect. In all, we have to “make good” in 2010/11, £16.8 million of non-recurring support deployed in achieving 2009/10 financial targets.
  1. NHS Grampian’s Healthfit vision focuses on shifting the balance of care from acute settings to more appropriate community based alternatives. The Strategic Management Team is held responsible for developing the Grampian Health Plan incorporating Health & Care, Workforce and Property strategies which in turn inform the key supporting financial strategy.
  1. NHS Grampian’s core revenue allocation uplift for 2010/11 has been confirmed at 2.42%of our Revenue Resource Limit (RRL). Thisconsists of a 2.15%uplift provided to all territorial boardsand 0.27%as a further move to bring all boards into line with allocations determined by the NRAC formula. In financial terms, the basic uplift amounts to £14.2 million with £1.8 million additional funding from the NRAC adjustment. Based on recent calculations, NHS Grampian’s funding allocation is around £25 million per annum below funding parity.
  1. Funding uplifts of £16 million, however, will not cover the cost of pay awards which are projected at around £16.8 million. When unavoidable cost pressures including Drugs, Medical Supplies and meeting access times are added, along with the need to make good £16.8 million of non-recurring support from 2009/10 as noted above, NHSG faces a £34 million cost reduction target in 2010/11. Further expenditure cuts will be required in following years although the extent of them will remain unclear pending announcements on future funding and public sector pay policy in particular as part of the next comprehensive spending review for the three years commencing 2011/12.
  1. Capital allocations are now under review across Scotland. NHSG has been advised to plan for a 20% reduction in most recent plans in 2010/11 and the following year, a 17% reduction in 2012/13 and no uplift from that position thereafter. Such reductions will require a very substantial change to our well formed strategic capital investment plans. Planning workshops are being set up to allow debate on revised priorities that will ensure least possible adverse impact on our health plan objectives. The introduction of IFRS accounting from 2008/09 has resulted in us having to capitalise most of our third party lease arrangements for the provision of primary care premises. This will impact on our capital availability in 2009/10 and beyond. The servicing costs of existing leases are increasing significantly and, with no uplift to our GMS funding stream in the last four years, a recurring gap of almost £2 million has opened up between inflows and outflows. This has triggered a further review of our primary care premises strategy including financing options.

Demand and Capacity Planning

  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 lower access times on a sustainable basis. The Health Directorates, through its Access Unit, is prepared to invest in providing additional capacity butthere must be assurance and evidence that all clinical and non-clinical working practices are as efficient as possible. We must continue to prioritise our Continuous Service Improvement efforts to ensure that they are focused where most needed.
  1. By December 2011, patients can expect to wait no longer than 18 weeks in total from initial clinician referral to final treatment. NHS Grampian, along with other boards, is devoting much time, energy and experience in plotting demand patterns in a very complex multi-faceted environment and redesigning service delivery from start to finish. External factors such as the European Working Time Directive and the Modernising Medical Careers programme add to the overall complexity of the planning process. Availability of physical theatre capacity is frequently a serious limiting factor in the effective flow of patients through the system. We are investing heavily in mobile capacity to clear backlogs and modelling activity continues to determine the level of capacity required to maintain 18 week RTT times beyond December 2011.
  1. £2.5 million of our £34 million budget gap in 2010/11 relates to the cost of meeting access targets. Over the last two years, we have invested in permanent staff capacity considered essential to deliver safe and effective patient care while avoiding any breaches in timed patient pathways. That investment is in excess of anticipated funding from the SGHD Access Unit in 2010/11 which demands that we either reduce our delivery costs or transfer resource from elsewhere in the NHSG system to compensate.
  1. Better Health, Better Care emphasises the importance of Community Health Partnerships (CHPs) in shifting the balance of care where appropriate to do so from acute hospitals to community and home settings. CHPs are encouraged to work with all partners to tackle health inequalities, enhance anticipatory and preventive care and provide a wider variety of services at a local level. NHS Grampian has been working effectively as a single system for several years with Public Health, CHPs and Acute services working collaboratively, along with external partners such as local authorities and the voluntary sector, to develop services fit for the 21st century.
  1. Planning, implementing and resourcing fairly radical changes, however, is complex and demanding. Particularly challenging is finding the financial, human and infrastructural resource to function effectively in community settings, leading eventually to lower demands on specialist services, while simultaneously maintaining acute services until such reductions are achieved on a sustainable basis. Significant cultural and behavioural changes by both patients and those that serve them are essential to success. There is also the risk that resources continue to be consumed by ever-increasing demands from hospital services, hampering efforts to invest in wider ranging community services.
  1. Current and predicted resource pressures on the public sector are having an impact on ways of working by partner bodies. For example, NHSG is already facing increased delayed discharges as a result of a slow down in local authorities arranging transfer of elderly patients into a suitable community setting such as a care home. With separate corporate accountabilities, there is a risk that bodies will seek to retrench rather than work collaboratively for the benefit of the public.
  1. Other service demands pushing for financial resources include opportunities arising from technological advance where equipment, medical supplies and acquisition of high cost expertise are sought by service providers. NHS Grampian is further refining its business processes to ensure that best value is achieved in its use of resources. This includes what is referred to as prioritisation but which must be, in effect, value assessment of all resource use. Therefore processes must not look only at how we might invest additional funds but also at the value obtained by the £900 million or so of revenue funds that we invest currently. This is not only essential in terms of financial and practical efficiency but also to help release funds from lower value activity to invest in higher priorities. Needless to say, it is much more difficult to be motivated to rationalise to re-invest than it is to invest new, uncommitted funds.
  1. As a key part of the financial planning process, a group of senior clinical and non-clinical managers were involved in a workshop to review demands for additional financial resource to accommodate “unavoidable cost pressures”. The costs relate to pay and non-pay commitments that are considered to be essential to NHSG in meeting its objectives. In total, around £16.0 million of requests were submitted with £10.2 million supported by the group. Managers across the organisation must ensure that the risks of committing any of the unapproved £6 million are fully addressed.
  1. NHS Grampian has assessed that it faces backlog maintenance liabilities across the entire estate in excess of £100 million. All capital investment plans must provide evidence that they will contribute substantially to the elimination of such backlog. The requirement for NHSG to substantially reduce its capital programme in the coming years will hamper plans to replace assets no longer fit for purpose with modern alternatives designed to current standards. Some revenue funding has been set aside to cover the most immediate high risk challenges but does not go far enough.

Workforce Planning

  1. As with all health boards, the bulk of NHS Grampian’s recurring financial commitments relate directly or indirectly to employing a wide range of staff and related support services such as recruitment processes, training and occupational health. It follows therefore that realistic planning of numbers, grades, professions and skill mix is fundamental to the creation of meaningful financial plans. Recent years have seen substantial financial turbulence arising from new employment contracts. With implementation of Agenda for Change in NHSG virtually complete, there is an assumption that similar turbulence over the next few years is less likely providing an environment where workforce planning and directly related financial planning can be relied upon more credibly. Public sector pay policy from next year may have a fundamental impact on health boards’ ability to attract and retain staff in future.
  1. NHSG is taking forward a fundamental review of its workforce and future requirements entitled “Safe Affordable Workforce”. The objective is to consider the shape of future service provision, the skills required to deliver those services and the affordability of skill mix structures. To cover the entire workforce is a massive and complex exercise that will require a great deal of human effort over a considerable elapsed period of time. An initial review of senior staff on Agenda for Change bands 8A and above and all those on senior manager terms and conditions will test the concept and methodology. The process will then be rolled out throughout the remainder of the organisation.

Health Improvement and Protection

  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.

Clinical Governance

  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. The organisation was a little shaken by the conclusions arrived at by members of the Healthcare Environment Inspectorate following visits to ARI towards the end of 2009.

A very comprehensive remedial action plan was set up and is making good progress in terms of implementation. Infection rates have already reduced significantly as a result of the combined efforts of staff across the organisation.

  1. 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.

Efficiency Savings

  1. As part of the EfficientGovernment scheme, health boards in Scotland must achieve year on year 2% efficiencies. Most boards have to achieve this on a cash releasing basis as allocations have in effect been reduced to reflect the savings requirement. Boards are permitted to retain savings for reinvestment. In NHS Grampian’s case, we will be required to achieve more than the 2% target to break even in 2010/11 and beyond. This is largely due to the fact that savings achieved in past years have been non-recurring in nature, thereby increasing our target above the 2% at the start of each financial year. At the present stage of the 2010/11 budget setting process, it would seem likely that a savings’ target of around £34 million will be required which represents around 5% of our Revenue Resource Limit.
  1. NHSG has set up an Efficiency and Productivity Programme Management Office (EPPMO), lead by an Assistant Chief Executive and incorporating a core team of specialist managers. EPPMO team members, supported from time to time by other specialists as required, will dedicate their time over the next two years as a minimum to supporting budget managers identify where costs can be reduced in the immediate short term by spreading best practice, avoiding wasted effort and eliminating duplication. Budget managers have struggled in the past to devote dedicated time and effort to reducing costs. With the financial situation projected to be much tougher in future, the need to create focus of effort is so much more important.
  1. EPPMO is designed to support managers make operational cost reductions in the immediate and short term. Service redesign and modernisation strategy is the responsibility of the Strategic Management Team supported by the CSI Leadership Group in terms of ensuring that strategy is prioritised, implemented and monitored. CSI, or Continuous Service Improvement, 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.

Island Board Collaboration

  1. NHS Grampian has continued to work closely since July 2008 with NHS Orkney and NHS Shetland in collaborating on clinical and non-clinical support services.The nominated Island Board Coordinator has been reporting regularly to the three board chief executives, with the role of coordinating activity between NHS Grampian and the two island boards. Initial challenges in identifying resource to support the Islands have been overcome and the process is now on a care and maintenance basis with networked arrangements working effectively.

Capital Programme

  1. NHS Grampian’s exciting capital investment programme planned over the next ten years in conjunction with SGHD will now require significant recalibration. In addition to the standard formula allocation, we had secured around £120 million of additional capital over the next few years that would have lead to major modernisation of our estate to improve patient and staff experience but also eliminate much of our current backlog maintenance risk.
  1. As a result of the country’s recession and poor general economic projections, the availability of capital is likely to be severely restricted. We have been asked to plan for a 20% reduction in our investment in 2010/11 and 2011/12, a 17% reduction in 2012/13 and “flat-lined” at that level in years thereafter.
  1. With the planned Emergency Care Centre taking up around £110 million of our resources over the next 5 year period, our flexibility is somewhat curtailed in terms of the remainder of our capital strategy. Focused workshops are being held in the next few weeks to allow us to consider options that will have least adverse impact on our service strategy and provide an opportunity to reprioritise.
  1. NHS Grampian’s experience of the Frameworks Scotland procurement process is generally positive although lessons are being learned along the way from this new way of working. We have appointed a Principle Supply Chain Partner (PSCP) to work with existing board staff for several projects with the Emergency Care Centre and Combined Heat and Power projects the most advanced. In financial terms, there will be greater certainty throughout the project about construction cost once a “target price” has been agreed by the board and the PSCP.

Assumptions

  1. Key assumptions underpinning the financial plans are set out in detail in the appendices to the financial templates accompanying this narrative. Some of the more significant and higher risk assumptions include:

29.1.Core allocation funding uplifts:2.42%in 2010/11with minimal uplift in future years. Even a 1% assumed uplift may be optimistic. We have assumed a1% net pay uplift in future years. If a strict pay settlement is not achieved, there is clearly a risk to the Board’s financial plans.