HFMA Finance May 2009r

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Key facts 2009/10 NHS spend £91bn

11% of GDP

95% funded by tax

NHS funding is set based upon Government

policies and priorities

Three year Comprehensive Spending Review Public Service Agreement DOH and Treasury

33% real terms increase 03/4 to 08/09

35% into pay, 31% into new services, 12% into drugs

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Context

Aging and more obese population

Advances in technology

Patient expectation and choice Competition

Who rations?

Postcode prescribing v local decision making

Where did all the money go?

What does the current economic climatemean for us?

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How the Money is Divided Up

NHS allocation from DOH £91bn

Capital allocation (£5bn)

Topslice for statutory bodies (£6bn)

Primary Care Trust allocationincluding £1bn surplus

(£80bn)

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PCT allocations

@ 85% of total NHS spending

Formula to distribute funds to deliver equity

of service via(A) weighted capitation targets (population,

age related, socio economic factors, MFF)

(B) recurrent baselines

(C) distance from target

(D) pace of change

Cash limited

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What do PCTs do?

Define health needs (JSNA)

Commission services from providers

Performance manage providers

Manage market Ensure choice

Oversee GPs (new contract/QOF)

Practice Based Commissioning

Provide community services

Deliver public health targets with LocalAuthorities

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W

hat do P

CTs spend the money on?NHS Wiltshire £¶m %

NHS SLAs (Trusts) 368 60%

Primary care (GP, OOH) 68 11%GP Prescribing 62 10%

Non NHS SLAs 23 4%

Placements 16 3%

Provider services 66 11%

 Administration 12 2%

Total spend 610 100%

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Another way of looking at it

Spend area %

Urgent and emergency care 23

First contact ² GP, pharmacies etc 23Community/intermediate care 15

Elective care including outpatients 20

Specialist services 8

Mental health 8

Maternity 2

Promotion/self care 1

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R elationship between Trusts andPCTs Annual Service Level Agreement (national)

Activity plans

Financial plans Quality targets including CQ UIN

Efficiency/productivity targets

Information requirements

In-year performance monitoring (two way)

Triggers for remedial action

Dispute/arbitration processes

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What do Trusts do?

Provide services to patients based on PCT·s

requirements

Deliver national and local targetsA&E

13 weeks

Hospital Acquired Infections

Work to quality and efficiency standards

Deliver annual cash releasing savings of 3+%

Compete with other providers

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W

hat do Trusts spend their money on?£'m £'m

Income (173) PCTs (156)

Training (6)

Private Patients (8)Other  (8)

Pay 99 Medical 33

Nursing 39

AHP 12Admin/managers 15

Non pay 73 Drugs/clinical supplies 28

Estates and FM 30

Capital charges/other 15

(Surplus) (1)

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Why do we have to make savings?Tariff uplift %

Pay including working time directive 2.9

Non Pay 0.4

Clinical Negligence 0.2

Drugs/NICE 1.0 

Cost of capital 0.4

Less VAT reduction on costs (0.1)Less efficiency savings (3.0)

Total Tariff Uplift 1.7

Plus CQUIN 0.5

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Savings required in the future

08/09 09/10 10/11 11/12 12/13

PCT gross

uplift

5.3 5.3 5.3 0.0 0.0

Provider

Inflation

(5.3) (5.2) (5.2) (4.0) (4.0)

Provider CRES 3.0 3.0 3.5 4.0 4.0

Net uplift toproviders

2.3 2.2 1.7 0.0 0.0

PCT net

uplift

3.0 3.1 3.5 0.0 0.0

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Ways of making savings

Bacon slicing

Targeting savings at less efficient areas

BenchmarkingReference costs/programme budgeting

Service line reporting

Streamlining processes ² internally and across

organisations

Ensuring income due is collected

Stopping doing things which are ineffective

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But the reality is

Approx 70% of costs are pay each year we will

have to

Reduce the staffingOr reduce the pay bill

Or treat more patients without incurring

any additional staffing costs

And we won·t be able to completely stop new

investment/cost pressures which means we

will have to make higher savings than 4%

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Service line reporting

Allocate activity, income and costs to

specialities

Cost allocation includes

Direct costs

Indirect costs

Corporate overheads

This gives profitability by speciality

Options for less profitable specialities

Divest or make more efficient

Future of core services?

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Profitability of a knee replacementIncome Tariff plus MFF (£6480)

Costs Prosthesis £1800

Theatres (90 mins) £690

Ward (ALOS 3.8 days) £1100

Pre-assessment £160

Estates/FM £1100

Path, rad, HSDU etc £600

Corporate £350

Contribution to contingency £550

Profit 2% £130

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Key targets f or all NHS organisations

Breakeven or surplus on income and

expenditure

External Financing Limit (Trusts) Cash Limit (PCTs)

Capital Resource Limit

Public Sector Payment Policy Management costs

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Capital Sources

Trusts ² retained depreciation

FTs - surpluses

PCTs ² SHA allocated capital

National capital allocations

Private finance

Local Improvement Finance Trust (LIFT) Third Party Developments

Private Finance Initiative

Joint ventures

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Capital costs

Capital in NHS generally underspends

Revenue costs of capital

Capital charges

3.5% of net assets

depreciation

Revenue costs of buildings

Lack of sources for transitional funding

Capital Resource Limit ² spend in year

Uncertainty of commissioners· plans

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Any questions?

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Governance

Standing Financial Instructions, Standing Orders,

Scheme of Reservation, Scheme of Delegation

Board Assurance Framework

Risk register

Comprehensive audit programme

Internal, external and clinical audit

Counter-fraud service

Audit and assurance committee

Budgetholders/authorised signatories

Finance training programme