Agenda Item 06 Enclosure KPCT/10/152
NHS KIRKLEES Report To:
FOI Exemption Category
Bryan Machin Executive Director of Finance
Key Points to Note:
The level of financial challenge facing the PCT is significant and acute contracts are expected to over trade significantly. However, I am content that the PCT can achieve the ÂŁ9.9m surplus control total
No change arising from this report
Management cost reductions will require reduction in employed and agency staff
Finance and Performance Committee
The Board is asked to note the forecast financial position and the financial risk. The Board is asked to note the forecast over trades on acute contracts and the work being done to challenge these.
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NHS Kirklees Finance Report to August PCT Board for 4 months to July 2010
1. Purpose of this Report The purpose of this report is to update the PCT Board on NHS Kirklees’ forecast financial performance for 2010/11, including associated risks, and to advise the Board on action being taken to manage those risks. More detail is provided in the Financial Reporting Pack which is included as Appendix A.
2. Overall Revenue Position NHS Kirklees is required to deliver a surplus of £9.9m for 2010/11 and this is the same as the Control Total agreed with the StHA. The Board approved the revenue budgets at the March meeting, and an update on these was provided at the April meeting of the Board. We have now received 3 months of activity and finance information from our two main providers, both of which are showing significant over trade positions. As a result of this the delivery of the control total is at significant risk. At present there is a gap of £2.4m to be bridged if the control total is to be delivered. This assumes that we have already applied the entire £5m contingency to partially offset the over trades.
3. Significant Budget Variances Contracts have now been agreed with all of the main providers. As previously reported this created a pressure due to the value of these being higher than planned. This pressure has been funded from the review of remaining investments and corporate budgets, again as previously reported. This means that the over trade position discussed below is against these fully funded budgets. Acute contracts are forecast to be overspent at the end of the year by £6.5m. This is mainly due to forecast over trades of £4.7m with Calderdale and Huddersfield Foundation Trust and £1.5m with Mid Yorkshire Hospitals NHS Trust. Both of these are based on activity and finance information for the first 3 months of the financial year. This information has been reviewed in the usual way and this has identified a number of areas where we have challenged the acute providers. These challenges are being followed up through the normal contract management processes. Some challenges have been agreed with Mid Yorkshire and these are reflected in the over trade position. No challenges have been agreed with Calderdale and Huddersfield and the over trade is shown gross. Although the challenges are being vigorously progressed, it is highly likely that both of the main acute contracts will continue to show a significant overtrade at the end of the financial year.
The other main adverse acute variances are the £345k with Leeds Teaching Hospitals due to the one off impact of the final trading position for 2009/10, and the £376k with Yorkshire Ambulance Service due to the impact of the move to marginal charging for activity increases. The other main overspend is on Community Pharmacy of £700k as previously reported. GMS and PMS are forecasting to be under spent at the end of the year by £500k, and this is in part due to the impact of the final QoF achievements for 2009/10. Corporate budgets are forecast to be £1m under spent at the end of the year. This is due to the impact of holding vacancies and the tighter controls on non-pay spend. KCHS is reporting a balanced year end position. Uncommitted reserves are showing an overspend of £1.8m and this represents the balance of the £4.5m unidentified savings that will not be offset by the mitigating actions. More detail on the main variances is provided in the table below. Description
£000s CHFT – SLA
Mid Yorks – SLA
Leeds Teaching Hospitals – SLA Other Acute YAS Primary Care Community Pharmacy
Corporate Services and other HQ Other budgets
-325 376 -572 722
This is based on activity and finance information received for month 3. This shows a significant year to date over trade. This is the gross position and does not reflect the value of the challenges currently being pursued with the Trust. This is based on activity and finance information received for month 3. This shows a significant year to date over trade. This position is shown net of the agreed contract challenges. This relates to the impact of the final trading position for 2009/10.
This is mainly due to forecast under spends on Bradford and Sheffield Foundation Trusts. This is the impact of the marginal rates now being charged on activity increases. The impact of the final QoF settlement for 2009/10 and other smaller favourable variances. This reflects growth in prescribing over and above that forecast in setting the budget, and one off costs relating to the national role out of a new national pharmacy system and a national pricing error notified after budgets were set. This also includes the pressure devolved along with the central budgets. This relates to staff vacancies in across a number of Directorates and lower non-pay costs as a result of the current vacancy control and enhanced controls on non-pay spend. Other smaller variances.
This represents all of the contingency reserve.
NHS Kirklees’ required surplus to meet the agreed control total for 2010/11.
The balance of the mitigating actions put in place to cover the non-delivery of efficiency schemes. Remaining risk to the financial position.
4. Financial Risk Analysis In forecasting the financial position there are a number of factors that need to be considered where there is a risk that expenditure may change from that currently forecast and these are summarised below. •
It is too early to be able to predicate spend in areas the have historically been pressures such as continuing care, out of area treatments, and non-contracted activity.
The level at which actual pressures devolved from central budgets will impact on the PCT may result in pressures above the level provided for in the budgets.
The Prescription Pricing Authority is no longer providing forecast year end expenditure figures, and we are now estimating these ourselves. As we have only received information for April’s prescribing this forecast is likely to change.
The deliverability of the planned levels of efficiency within the budgets will be key to achieving the year end position.
The risk that some of the actions to bridge the £4.5m efficiency gap will not deliver at the planed level.
5. Year to Date Position The year to date financial position of NHS Kirklees is an under spend of £4,480K. 6. Delivery of Efficiency Plans A summary of the progress made in delivering the efficiency plans is included at Appendix B. This shows that we are on track to deliver the majority of the planned efficiencies for 2010/11. The gap of £4.5m relates to those areas which were identified at the start of the year as being at risk. Mitigating actions were put in place to address this gap and the remaining residual risk of under achievement is £1.8m as highlighted above. Work is ongoing to deliver these efficiencies and to identify plans for 2011/12. An update on the level of efficiencies required for 2011/12 is included in section 12 below. 7. Conclusion on Financial Performance 2010/11 The level of financial challenge facing the PCT is significant. It is now apparent that acute contracts will over trade at a level which puts the control total under significant pressure. However, I am still able to forecast that the PCT can achieve the £9.9m surplus control total. This will require the continuation, and rigorous application, of the existing expenditure controls. It is also dependent on the PCT’s ability to successfully challenge activity and finance data from acute trusts to mitigate the levels of potential over spends.
8. Cash The PCT can manage its cash position within the available cash limit.
9. Public Sector Payment Policy NHS Kirklees has paid 96.6% of invoices by number and 90.9% of invoices by value, which is broadly in line with the previous month Work continues to improve performance throughout the year.
10. Capital The PCT is forecasting to spend its capital allocation of £1,149k. Work is ongoing to progress the business case for the proposed development of the Home Valley Memorial Hospital. We have received a notional allocation for the Home Valley Memorial Development but this is subject to approval of the business case by the Strategic Health Authority.
11. Summary Performance against Key Statutory Duties/Targets Financial Duties /Targets
Achieve financial balance by containing revenue expenditure with the PCT’s revenue resource limit. Meet SHA’s £9.9m surplus control total Containing capital expenditure with the PCT’s capital resource limit. Recovery of full costs on provider activities.
To manage cash payments within the PCT’s cash limit
Public Sector Payment Policy
Forecast Financial Duty Achieved
12. Implications for 2011/12 The 2010/11 budget is consistent with the medium term financial plan developed as part of the World Class Commissioning submission. The main changes since then have been to re-align budgets to address the higher than expected contracts agreed with acute providers. This means that the original planning assumptions for 2011/12 are still valid. However, there are 2 issues which will have an impact on 2011/12 that merit highlighting to the Board at this point in the year. These are: •
The £4.5m of mitigating actions put in place to offset the under-delivery of recurrent efficiencies should be viewed as non-recurrent. This means that the efficiency gap for 2011/12 should to be £12m rather than the £7.5 in the medium term financial plan. Some of the mitigating actions may produce recurrent benefits, but it is prudent to plan on the basis that they will not.
Any failure to deliver the control total will adversely impact on the 2011/12 plan as the brought forward surplus will be reduced by the under delivery. This will further add to the efficiency gap in 2011/12 and based on the current forecast this is likely to be in the region of £2.5m.
We have not yet received the updated planning assumptions for 2011/12, and it is likely that these will be significantly different from the existing ones. However, in the interim we should be formulating efficiency plans for 2011/12 in the region of £12m to £15m.
13. Recommendation The Board is asked to note the forecast financial position and the financial risk. At this early stage in the year it is clear that the PCT will have to maintain tight control over its budgets and that some significant pressures are already emerging. The Board is asked to note the scale of the efficiency challenge for 2011/12 and to support work to develop efficiency plans to address this.
Bryan Machin Executive Director of Finance August 2010
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