Transcript FT FINANCIAL REGIME

FT FINANCIAL REGIME
JANET BARKER/JOANNA MYERS
Group Finance Managers
Sheffield Teaching Hospitals NHSFT
Aims of Today
• FT Financial regime
• Contract income and other funding
sources
• Monitor regulation
• Q&A session on “a day in the life of…”
FT Financial Freedoms
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Plan driven vs Target driven
Can borrow commercially
Retain surpluses
Retain proceeds of asset sales
Invest to serve local needs
Can set up investment companies
Joint ventures with the private sector
FT Financial duties
• Set out in terms of Authorisation
– Must operate efficiently, effectively and
economically and as a going concern
– Disclose information to Monitor and relevant
third parties
– Comply with Operating framework, Principles
of Cooperation and competition
– Protection of mandatory services and
protected assets
– Major investments/disinvestments
Accounting Officer Responsibilities
• Chief Executive – Delegates to DoF
• Duty to exercise its functions effectively, efficiently and
economically
• Preparation of accounts
• Witness before Public Accounts Committee
• High standard of Financial Management
• Robust financial systems and procedures
• Safeguard assets
• Financial considerations are reflected in FT policy
decisions
• Comply with Financial Terms of authorisation
NHS Funds Flow
Treasury
Department of Health
Primary Care Trust
-Patient Services
(April 13 CCGs/SCB)
Community
Services Provider
R&D
- Networks
Acute Provider (s)
Health Authority
- Education
Mental Health
Provider
Sources of Income into STHFT
NHS Clinical
Non-NHS Clinical
R&D
Education & Training
Other income
£m
709.3
7.6
14.3
66.2
62.7
TOTAL
860.1
(Source: 2011/12 Accounts)
Clinical income
Elective/Day cases
Non-elective
Outpatients
A&E
Other
Block Contract (Community)
PPI/NHSI
£m
148.0
158.3
109.9
12.9
227.1
53.1
7.6
TOTAL
716.9
Main PCT Commissioners
% of patient
services income
Sheffield
Barnsley
Rotherham
Doncaster
Bassetlaw
Derbyshire County
SCGs
Others
56.9
4.3
4.1
2.7
1.2
4.3
23.2
3.3
How Contracts are Agreed
• Agreements cover:
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Volume of Activity
Price of Activity
Quality of Activity
“Timing” of Activity
• Funding historically on a local negotiation on
price
• Now funding largely based on Payment by
Results (National Tariffs)
PbR / National tariffs
• Payment by Results – being paid for work
we carry out at national tariff
• Tariffs are split between:
– Elective inpatients/day case
– Non-elective inpatients
– Outpatients
– A&E
How is tariff derived?
– All Providers prepare and submit reference
costs on an annual basis.
– Based at Healthcare Resource Group level
e.g. FZ17A – Abdominal Hernia > 19yrs with
major CC.
– Separate for elective and non-elective activity
– Tariff is a national average of all Providers
Reference Cost submissions.
Pricing of STH Contract – Tariff
element
• Approximately 69.4% of the STH services
are covered by national tariffs
• Income is calculated based on:
- Activity x national tariff
- Get regional price adjustment (MFF) =
additional 2.9%)
• Contract at indicative volume and casemix, but ultimately get paid on reported
actuals
Sources of Capital funding
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Depreciation
I&E surpluses
Sale of fixed assets
Public Dividend Capital
Donations – eg University/Charitable donation
Government Grants – eg Lottery/specific grant.
Leases
PFI
FT Financing Facility Loans – Govt bank loan up
to 25 year term.
Public Dividend Capital
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Direct allocations from DoH for specific initiatives
Limited – mainly applies to research e.g. BRUs
PDC draw down limit authorised for the year
Draw down to match capital spend
Must be able to demonstrate that Cap X
exceeds Depreciation in that year (R&D
exempted)
Leases
• Operating Leases/rental
• Finance leases
– Recognise Fixed Asset and Creditor
– “On-balance sheet”
• Under IFRS it is more difficult to classify
as an operating lease
Private Finance Initiative (1)
• Operates on principle of primarily procuring a
service rather than an asset
• Can take many forms – e.g., design, build,
finance and service a building
• Payment is a unitary charge covering both
service charges, interest charges and rental
• Pre IFRS was mainly “Off-Balance Sheet”
• Applies to core and non-core services – Car
parks, ward blocks, equipment, whole hospitals
Private Finance initiative (2)
• Operated on principle – private sector is more
efficient and innovative
• Reality was:
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Hugely bureaucratic
Incurred high adviser costs
Long negotiation/approval processes
Private sector margins
• Only value for money because of VAT savings
and inclusion of costed risk
• Sheffield FT - Sir Robert Hadfield Block
Private Finance Initiative (3)
• Prime driver was avoiding Public Sector
Borrowing!
• Now largely discredited for major schemes
• Now most schemes ‘on-balance sheet’
under IFRS
• Potential still exists for niche schemes
– CSSD Supercentres
– Laboratory Supercentres
– Non-care activities e.g. car parking
FTFF Loans (1)
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Non-commercial bank loans
FT Financing Facility is part of DoH
Loans up to 25 years
Staggered draw down
Interest rate fixed at date of agreement
(currently 3.8% for 20 years)
• Half yearly repayments
Limits on Capital Spending
• Availability of capital funding
• Ability to afford the revenue consequences
• Subject to internal business case
approvals process
• PFI > £25m needs DoH approval
• Prudential Borrowing Code
Prudential Borrowing limit (“PBL”)
• Approved Working Capital facility
• Maximum cumulative long term borrowing
• Applies to Loans and “On-Balance Sheet”
PFI
• Current loans for STH = Hadfield, NGH
Critical care, NGH Laboratories
• Predetermined as part of
Authorisation/Monitor Regulation.
Monitor (1)
• Independent Regulator of Foundation Trusts
• Monitors performance using Compliance
Framework
• Regulatory principles
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Self certification
Risk based approach
Based on trust
Confidentiality
Minimal information requirements
Monitor (2)
• Four main components
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Annual plan review (May)
In-year monitoring (Quarterly) + Accounts
Exception reporting
Escalation and intervention
• Essentially split between: Finance and
Governance
• Finance returns (I&E, Balance Sheet, Cash Flow
+ variance analysis + CE commentary)
Governance risk assessment
• Uses traffic light system (4 lights!)
• Derived from a number of factors:
– Performance against national targets
– CQC registration and ongoing performance
– Provision of mandatory goods and services
Finance risk assessment (1)
• Based on annual plan and quarterly monitoring
• Uses a number of primary indicators:
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Delivery of Financial plan
Operating margin
Financial Efficiency (Return on assets)
Liquidity (min Cash balances)
• Derives score for each element
• Applies overriding rules and calculates FRR of
1- 5
Financial risk assessment (2)
• FRR of 5 = low risk – get benefit of fewer
returns
• FRR of 3 or 4 = OK – quarterly monitoring
• FRR of 2 or lower = Monitor intervention
• Q4 FRR determines CQC rating
4 or 5 = “Excellent” for use of resources
3 = “Good” for use of resources
Interpreting FRR
• Based on actuals – get better results in first quarters of
year
• Can bias plan profile to achieve better results in-year
• No incentive to submit an ambitious Plan
• Liquidity element includes overdraft facility! – can
manipulate score up to limit
• Adds back exceptional items!
• Really a mixture of performance and risk of default!
• Easier to achieve excellent than through ALE scores
• Realistically cannot deliver a deficit
STH experience of Monitor
• Independent Performance management –
Not advocate for FTs
• Generally “light touch”
• Information requirements not onerous
(except for Annual plan)
• OK as long as delivering satisfactorily
• Quick to intervene if performance starts
slipping.