Transcript Document

Clinical Director / Associate
Medical Director Introductory
Development Programme
Finance Session
John Maddison
Director of Finance & Information
15/04/11
Purpose of the Session
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Corporate & Financial Governance
How the money flows in the NHS & PbR
Budgets, Budgeting approaches & Budget setting
Board level & Directorate level Financial Information
Budget Control & reporting
Financial planning & decision making
Finance & Clinicians
Current financial climate
Questions
Corporate Governance
• How the Trust is led and structured
• Operates in line with fundamental
principles of openness, integrity and
accountability
• Provide high quality healthcare
• Trusts objectives are delivered
economically, efficiently and effectively
Corporate Governance
• Protect interests of both the individual and
the Trust
• Protects staff against any possible
accusation that they acted less than
properly
• Budget holders are required to read and
understand Standing Orders and Standing
Financial Instructions
Standing Orders
• Translate statutory powers into a series of
practical rules:
- Composition of Board and its sub
committees
- How meetings are conducted
- Form, content and frequency of reports
- Voting procedures
- Duties and obligations of Board Members
Scheme of Reservation & Delegation
• The scheme of reservation specifies what
powers the Board has chosen to exercise
itself – e.g. land sales
• The scheme of Delegation specifies the
delegation of powers from the Board
throughout the organisation
Financial governance and accountability
• Governance can be described as the
rules, processors and behaviour that affect
the way in which powers are exercised. It
is therefore concerned with how an
organisation is run, how it is structured
and how it is led.
Financial governance and accountability
• The Board
• Accountable officer (Chief Executive)
– Responsible for ensuring that their organisation operates
efficiently economically and with probity and that they make
good use of their resources and keep proper accounts.
• Board of directors - held to account by Council of
Governors! (FT’s only)
• Audit committee (Non Execs – safeguarding assets / Internal control)
• Annual report and accounts
• Internal & external audit
• Standing orders, standing financial instructions and
schemes of delegation
Standing Financial Instructions
• SFIs detail the financial responsibilities, policies
and procedures of all transactions in order to
achieve value for money
• The role of the Audit Committee, Internal &
External Audit and the role of the DoF
• Procurement and tendering procedures
• The SFIs allow the Chief Executive to delegate
budget management to budget holders
How the money flows in the NHS
• NHS Funding
• PCT Commissioning
• Payment by Results
NHS Organisations & Structure
NHS Revenue Funding Flows
How the money Flows: Revenue
• A ‘weighted capitation’ formula (3 Years)
• Attempts to takes account of the scale and characteristics of each
PCT –
– Population and demographics
– Deprivation levels
– Health needs & profile
• Results in a ‘target share’ for each PCT
• Target not the same as allocation - gradual move towards target
allocations for all PCT’s from growth!
• Stockton & Hartlepool PCT’s circa £20m away from target
• Allocation formula currently under review – cynical perspective
change in key variables to shift resources south!
• Current formula not sophisticated / sensitive enough to
disaggregate to GP / GPCC level
PCT Commissioning
• PCT’s commission healthcare for their local
population. This can be from:
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NHS Trusts
Foundation Trusts
PCT’s (Community Services)
Independent Sector / Voluntary Sector
Doctors
Dentists
Opticians
NHS Trusts and Foundation Trusts Income
• Majority of income received through commissioning
process with PCT’s via payment by results tariff
• Other funding via
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Direct allocations from Department of Health
Local Authorities
Research & Training
Charitable Donations
Catering, Car Parking, Private Patients
Payment by Results (PbR)
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PbR introduced in 2003/04 using HRG’s as currency
Rules based approach
Links payments to activity undertaken
Intended to support NHS Plan and reform agenda during
period of unprecedented growth
– Reduce waiting times - 18 Weeks
– Patient Choice
• National Tariff set annually for each type of service /
HRG
• Income reflects volume and complexity of healthcare
provided. Contract negotiations focus on volumes and
quality
Payment by Results
• Is it fit for purpose during period of austerity? –
– Original structure & scope incentivised FT’s to deliver increased
volumes
– Latterly tariff tweaked for Introduction of NEL 30% threshold;
recalibration downwards of tariff; move to exclude excess bed
days income etc
• Is it results based or actually just volume based?
– Direction of travel towards best practice tariffs ; CQUIN’s;
Financial penalties; readmissions penalties etc
Budget Definition
“a financial plan that sets out in clear and
concise terms the resources assigned to
the delivery of service and operational
targets for a defined period”
Budgets – what they are
Forward planning allows the Trust to shape its future,
rather than to react to events and is critical in the
achievement of organisational objectives.
• Budgets are:
Financial and/or quantitative statements
Prepared and agreed for a specific future period
Designed to fulfil agreed objectives
Drawn up for separate activities/projects and for
organisations
Reasons for preparing budgets
• Quantify the organisation’s future plans and
commitments
• Review aims and ensure planned activities are
achieved
• Determine the resources needed to deliver
services
• Basis for controlling income and expenditure
• A yardstick for measuring performance
• To ensure statutory financial targets are met
When are budgets prepared ?
• Each year – linked to Directorate business
plans, the Annual operating plan and the
FT Annual plan submission to Monitor
• For new services
• For major changes in the way in which
services are delivered
• Dynamic not static.
Budgeting approaches
• Historic/incremental-based
• Zero-based
• Activity-based.
Historic/incremental
budgeting
Historic/incremental budgeting
Next year budget
Current year budget
Add: full year
effects of
recurring items
Set other reserves
Create inflation
reserve
Less: non-recurring
items
Less: cost
improvement
programme
Adjust for
changes
in service
Zero-based budgeting
Assume zero
budget for
next year
Set entirely
new budget
Review objectives
of department
Identify optimum
staff, materials etc
Activity-based budgeting
Flex variable
budget by
actual activity
Identify
workload
measure
Identify fixed costs
Calculate budget
Measure actual
activity
Estimate
planned
activity
Identify
variable costs
Calculate
marginal cost
Historic/incremental budgeting
Advantages
• Easy to operate
• Simple to understand
• Uses an established base
• Less demanding on
management time
• Can operate with weak
information systems.
Disadvantages
• Perpetuates inefficiencies
• Lack of ownership by managers
• Changes in
activity/objectives/working
practices not readily reflected
• Not responsive to changed
priorities.
Zero-based budgeting
Advantages
• Identifies inefficiencies
• Links budget to an
organisation’s objectives and
activity plans
• Management ownership
• Challenges existing practice.
Disadvantages
• Time consuming
• Difficult to implement
• Lack of certainty
• May raise expectations.
Activity-based budgeting
Advantages
• Links finances to activity
• Budgets realistic compared
with activity
• Encourages management to
focus on efficiency and fixed
costs rather than
uncontrollable workload
• Variances easier to explain.
Disadvantages
• Identifying activity levels is
difficult
• Total income may not flex to
balance
• Changes to standard costs may
not be recognised
• Case mix is often excluded.
Budget setting in the NHS
• Combination of incremental and ZBB but needs to move
towards ABC – PLICs will provide the platform to do this
• Robust timetable
• Set and approved before the year it relates to
• Realistic forecasts (for pay, inflation, cost pressures)
• Takes account of previous year’s experience
• Budget holder involvement
• Profiled across the year
• Balanced.
FT Annual Plan
• Monitor requires FT to submit an annual plan
by 31st May each year
• The plan includes forward planning
information over a three year period
• Detailed implications i.e. development of a
particular service will have implications for
capital spend, tariff income etc
The Budget Setting Process
• Comprises several basic steps:
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Prioritisation of objectives identified in the planning
process and formalised via the annual plan and
underpinning Service Level Agreements
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Assessment / quantification of total available
resources, both financial and non financial
The Budget Setting Process - Income
• Overall budget includes income from several different
sources:
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SLA’s with PCTs and other NHS bodies in
accordance with the National Tariff and PbRs
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Private patients, RTA’s
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Medical and non-medical training funding via the
Workforce Development Directorate of the SHA
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Commercial sources of income – car parking,
catering etc
Trust Income
• Contracts / Service Level Agreements (SLA’s)
– Legally binding, very detailed
– Standardised national format for Acute & community
services
– Specified / planned levels of activity agreed with
PCT’s
– By Point of delivery e.g.
• Outpatients – New / review / procedures
• Diagnostics
• A&E
• Emergency admissions
• Elective – day case / General
Trust Income
• Contract types – clinical Income
– Cost per case – trust paid for each treatment under
the national payment by results tariff – a schedule of
prices based on HRG v4 – circa 1400 prices e.g. Hip
replacement = £4k
– Cost & volume / Block Contract – Trust paid for a set
level of service e.g. Training of junior Medical staff,
community services
• Non clinical Income – from catering, car parking(!), rents
, education & training etc
The Budget Setting Process - Expenditure
• Expenditure budgets are based on:
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Forecast outturn at month 10 in 2010/2011 and
cover direct costs under the control of the budget
manager
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Pay – detailing the agreed establishment in terms of
WTE, £’s by AfC and local Trust grade
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Non-pay – by subjective category e.g. drugs, M&SE,
provisions, energy etc
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Internal recharges for services provided / received
such as pathology, radiology etc
Trust Expenditure
• Pay – circa 68% of costs = 4,685 wte’s of which – Medical – 11%
– Nursing & Midwives - 55%
– AHP’s & Scientific staff - 13%
– Admin & Estates - 17%
– Management – 4%
• Non pay – circa 32%
– Clinical supplies inc drugs ,prosthesis etc – 15%
– Premises , plant & other – 12%
– Capital charges – depreciation / Dividend – 5%
The Budget Setting Process - CIP
• CIP agreed as part of the planning process and enables
the Trust to set the annual plan and budget within its
resources
• Current economic climate, outlook and Monitor efficiency
assumptions outline the need for increasing levels of
efficiency savings
• Due to economic climate input sought from BDO with
regard to best practice & development of schemes and
governance
• In-year monitoring process includes a monthly report to
Exec Team and Trust Board with escalation to the
Finance Committee
The Budget Setting Process - CIP
Budgetary control – financial
reports to the Board & Monitor
• Income & Expenditure
• Balance Sheet
• Cash flow
Budgetary control - reporting
• Monthly reports to board and management
• Performance against plans and targets
using key performance indicators (KPIs)
• Financial and non financial information
Income & Expenditure Summary as at February 2011
Income
Annua l
Budge t
Budge t to
Da te
Actua l to
Da te
Va ria nce
Va ria nce
La st Month
£000
£000
£000
£000
£000
HA/PCT Agre e me nts
Othe r Income from Pa tie nt Ca re
Othe r Income from Non Pa tie nt Ca re
226,457
1,413
25,437
206,754
1,297
21,368
209,266
1,489
21,680
2,513
193
312
2,139
100
372
Tota l Income
253,308
229,419
232,436
3,017
2,611
Pa y
Non Pa y
Re se rve s
CIP
184,965
59,189
3,603
(5,361)
169,667
53,676
812
(4,639)
169,096
53,694
571
18
812
4,639
521
186
0
3,019
Tota l Ex pe nditure
242,396
219,515
222,789
3,274
2,683
EBITDA
10,912
9,903
9,646
257
73
5,500
4,250
160
(133)
5,042
3,896
147
(122)
4,936
3,531
150
(77)
106
364
3
45
64
96
2
42
1,135
941
1,106
165
43
Expenditure
De pre cia tion
PDC
Inte re st Pa ya ble Loa ns & Le a se s
Inte re st Re ce iva ble
Surplus/Deficit from Operations
EBITDA
10,912
9,903
9,646
EBITDA Ma rgin %
4.31%
4.32%
4.2%
EBITDA % Achie ve d
I&E Ma rgin
ROA
Ope ra ting Ex pe nditure YTD
97.41%
0.41%
0.48%
4.19%
(222,789)
Statement of Financial Position as at February 2011
Assets
Assets, Non-Current
Intangible Assets, Net
Property, Plant and Equipment, Net
On balance sheet PFI assets, Non-Current
PFI: Property, Plant and Equipment, Net
Trade and Other Receivables, Net, Non-Current
NHS Trade Receivables, Non-Current
Assets, Non-Current, Total
March
2011
February
2011
January
2011
March
2010
£000's
£000's
£000's
£000's
424
118,797
456
115,729
477
115,563
251
109,315
794
803
812
899
1,085
965
1,050
1,025
121,100
117,953
117,901
111,490
4,726
5,135
4,682
4,695
4,748
167
288
7,839
187
627
7,434
212
495
5,538
395
533
7,253
4,224
4,697
2,270
3,421
2,673
3,604
1,658
21,534
23,331
19,243
19,956
Assets, Current
Inventories
Trade and Other Receivables, Net, Current
NHS Trade Receivables, Current
Non NHS Trade Receivables, Current
Other Receivables, Current
Other Financial Assets, Current
Accrued Income
Prepayments, Current
Prepayments, Current, non-PFI related
Cash and Cash Equivalents
Cash
Assets, Current, Total
ASSETS, TOTAL
42,137
44,015
40,368
35,045
163,238
161,968
158,269
146,535
(5,500)
(372)
0
(5,559)
(322)
0
(4,315)
(328)
0
(5,374)
(1,106)
0
(3,949)
(6,999)
(1,332)
(2,513)
(7,642)
(586)
(2,510)
(7,040)
(1,002)
(4,857)
(5,605)
(823)
(7,646)
(6,158)
0
(109)
0
(6,690)
(8,193)
0
(96)
(1,561)
(7,482)
(5,745)
0
(96)
(1,239)
(6,663)
(2,243)
0
(96)
0
(32,064)
(33,163)
(29,758)
(26,767)
10,073
10,852
10,610
8,278
(1,640)
(1,913)
(1,913)
(1,954)
(375)
(375)
(375)
(413)
(1,047)
(1,091)
(1,098)
(1,156)
Liabilities
Deferred Income, Current
Provisions, Current
Current Tax Payables
Trade and Other Payables, Current
Trade Creditors, Current
Other Creditors, Current
Capital Creditors, Current
Other Financial Liabilities, Current
Accruals, Current
Payments on Account
Finance Leases, Current
PFI leases, Current
PDC dividend creditor, Current
Liabilities, Current, Total
NET CURRENT ASSETS (LIABILITIES)
Liabilities, Non-Current
Provisions, Non-Current
Trade and Other Payables, Non-Current
Other Creditors, Non-Current
Other Financial Liabilities, Non-Current
PFI leases, Non-Current
Liabilities, Non-Current, Total
TOTAL ASSETS EMPLOYED
(3,062)
(3,379)
(3,386)
(3,523)
128,111
125,427
125,126
116,245
123,645
594
1,579
2,293
123,645
200
1,582
0
123,645
(127)
1,608
0
115,545
(906)
1,606
0
128,111
125,427
125,126
116,245
Taxpayers' and Others' Equity
Taxpayers Equity
Public dividend capital
Retained Earnings (Accumulated Losses)
Donated Asset Reserve
Revaluation Reserve
TAXPAYERS EQUITY, TOTAL
Financial Risk Rating 2010/11
Overall Rating
Liquid ratio
Metric
I&E surplus margin
ROA
EBITDA, % achieved
EBITDA margin
0
1
2
Rating
Actual
3
Plan
4
5
Financial Risk Rating
Metric
EBITDA margin
EBITDA, % achieved
ROA
I&E surplus margin
Liquid ratio
Weighted Average
Criteria
Underlying Performance
Achievement of Plan
Financial Efficiency
Financial Efficiency
Liquidity
Actual Rating
4.2% 2
97.4% 4
4.2% 3
0.48% 2
29.2 4
2.9
Current Risk Ratings:
Weight
25%
10%
20%
20%
25%
100%
5
11%
100%
6%
3%
60
4
9%
85%
5%
2%
25
3
5%
70%
3%
1%
15
2
1%
50%
-2%
-2%
10
1
<1%
<50%
< -2%
< -2%
<10
Budgetary control – what it is ?
• Budgetary control monitors actual results
against the agreed budget
• Variances are identified
• Corrective action taken or budget revised
• Regular reports
Budgetary control – how it is used
• Not an end in itself
• To identify the unexpected and investigate
the cause
• To improve value for money
• Focus on what drives costs/generates
income
Budgetary control – budget holders
• Aligned with responsibilities and the ability to
control income and expenditure
• Simple published budgetary control policies
• Ownership – finances cannot be simply written
off as ‘the responsibility of the finance
department !’
Budgetary control – budget holders
What is a budget holder’s responsibility?
 Tell the finance director there isn’t enough money ? – NO !
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understand and manage their budget
what drives income/costs ?
what influences outcomes/outputs ?
 What are a budget holder’s key objectives ?
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deliver required quantity/quality of care/service
maximise income, minimise cost
Budgetary control – budget holders
• So, to be an effective budget holder you must:
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Clarify objectives – what are you required to deliver?
Understand what other organisation-wide targets
you contribute to
Maximise income – look for opportunities
Minimise costs
Cash releasing savings: the same work for less
money
Cost improvement: more work for the same money
Focus on VFM.
Financial planning & decision making
– Development of Service Line Reporting • Inform areas to develop the business & market services that
are profitable
• Inform areas to apply lean principles to improve efficiency &
ensure as a minimum services deliver a contribution
• Provide a road map for investment decisions targeting
Capital resource to generate sustainable revenue growth
– Patient level information & costing –
• Successful implementation dependent upon data warehouse
of patient interventions to support costed profiles of care
• Will provide information to constructively challenge practice –
best practice tariffs
• Provide the information to underpin business cases for new
procedures; service expansion/contraction etc
Financial planning & decision making
– Effective demand & capacity planning, linking PCT
demand plans to Trust capacity
– Ensure these are consistent with operational budgets
– Utilise lean thinking principles to ensure internal
capacity is utilised efficiently to deliver correct &
appropriate care pathways & clinical interventions
The role of the finance department
• Lead by the Finance Director
• Responsible for:
– Preparation of financial statements for external purposes
– Transaction Processing
– Providing management information, accounts and advice to the
board, departments and budget holders.
– Safeguarding assets
– Cash Management
– Assistance with business case preparation
– Assess proposed capital developments
– Liaise on financial contractual matters
– Prepare & monitor budgets and financial forecasts
What I need from you
The purpose of the NHS is to serve patients and the
public by whom it is funded. Clinicians seek to do this by
using their skills to provide the best possible advice,
treatment and care. But they can only do this if the
money available to the NHS is used well. Failure to do
so results in less care and lower quality. Money will only
be used well if clinicians are fully engaged in managing
it. Ultimately, it is clinicians who are responsible for
the way in which services are delivered to individual
patients and it is they who commit the necessary
resources.
Where do we need to get to Clinicians & Finance business partners
• “The finance team have provided me with the
advice, support and business understanding to
enable me to develop and expand my service;
increase volume, efficiency & profit which has
benefited my clinical team, benefited the Trust
and resulted in health gain for my patients”
Current Financial Context
• UK economic climate
• NHS implications – minimal growth for
next 5 years
• DH need to generate cost efficiencies of
£20bn
• Projected savings target for Teesside of
£200m over the next 5 years
Current Financial Context
• In 2010/11 CIP target was £12.8m (5%), actual delivered
= £9m(3.5%)
• National efficiency in tariff for 2011/12 = 4%,but due to
10/11 slippage, PCT financial position etc target =
£16m(6.25%)
• CIP over next 6 years = circa £51 million (not including
savings required for new hospital)
• New Hospital scenario – adds a further £25m of savings
based on 2 to 1 site rationalisation economies
Current Financial Context
• This level of saving can only be
contemplated if we look at major system
transformation & radical solutions as well
as tried and tested options
The need for real efficiency savings !
The key message ….
• The Director General for NHS Finance
“ The NHS will have to deliver efficiency like
never before”