/KPCT-08-59%20Medium%20Term%20Financi

KIRKLEES PCT

Medium Term Financial Plan 2008/09 to 2010/11 and

Financial Plan 2008/09 1.

Introduction

1.1

The purpose of this paper is to set out the PCTs financial strategy for the next 3 years, 2008/09 to 2010/11 and, in that context, the proposed financial plan for 2008/09. The resultant revenue budget for 2008/09 is detailed in a separate paper.

1.2

The Finance and Performance Committee considered the contents of the plan in detail at its meeting on 19 March 2008.

1.3

The PCT’s capital plan for 2008/09 to 2010/11 is detailed in a separate paper.

2.

National Context

2.1

The 2007 Comprehensive Spending Review (CSR) in October 2007 announced that spending on the NHS will increase by 4% in real terms over the next three years. Between 2002 and 2007 the average real terms growth in NHS spending was 7.4% so growth over the next three years is significantly less than that enjoyed in recent years.

2.2

The growth in NHS resources is accompanied by a continuing increase in expectation of improved services. The increased funding is expected to deliver: • a reduction in health inequalities in life expectancy and infant mortality and action on child obesity • new services for people with long term conditions • improved GP access with new GP practices and new services open 7 days a week • further reductions in cancer waiting times • MRSA screening for all elective patients in 2008/09 and all emergency admissions within the next three years • Increased spend on psychology therapies

2.3

In addition to a 4% a year increase in spending, the CSR expects value for money reforms to deliver net cash releasing efficiencies of 3% per year. The CSR suggests the more significant areas of opportunity are: • Improving community based services to help people with long term conditions • Reducing variations in productivity areas of the NHS • Improving procurement practices

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3.

Local Context

3.1

Kirklees PCT was established in October 2006 and inherited a challenging financial deficit from two of its predecessor PCTs. The new PCT delivered a surplus of £906k for the full financial year 2006/07.

3.2

Through the hard work of staff throughout the PCT and through prudent financial planning, the historic deficit has been recovered and there is now a firm financial base from which to plan service and health improvements across Kirklees.

3.3

The PCT is forecasting a surplus of £2.7m for 2007/08 and will have a deposit of £19m in the regional Strategic Reserve.

3.4

The PCT has received growth in revenue resources of £28.8m (5.5%) for 2008/09 plus an increase in dental funding of £1.4m. The PCTs recurrent revenue baseline for 2008/09 is £556.3m.

3.5

Allocations for 2009/10 and 2010/11 will be announced in summer 2008 after the announcement of a new funding formula. In the absence of allocations post 2008/09, and in the knowledge that the allocation formula will change for those allocations, the medium term financial strategy assumes growth of 5.5% for 2009/10 and 2010/11.

4.

National Financial Regime

4.1

The financial regime for the NHS is described in the 2008/09 Operating Framework. The key features of this are: 4.1.1 Surpluses The national aggregate surplus delivered in 2007/08 will be carried forward to 2008/09. Each SHA should plan for a surplus in 2008/09 at least equivalent to that total. This means the full allocation of resources for 2008/09, including growth, should be spent.

4.1.2 Contingencies Unlike 2007/08 there is no national prescription of the level of contingency required in each PCTs plan; it is for SHAs to determine.

4.1.3 Revenue Allocations All PCTs have received a cash increase of 5.5%. The Operating Framework explores the relationship between the increase and the headline 6.7% growth in the CSR 1 .

The Department of Health believes that although allocations have only been announced for the first of the three years under the CSR, PCTs should not feel prevented from making three year agreements with local partners that establish 1

4% real terms growth = 6.7% cash – 2.7% inflation assumption. The cash increase to Kirklees PCT for 2008/09 is £28.8m F&P

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practical measures to maximise their capacity to deliver health and well-being outcomes.

4.1.4 Central Budgets In addition to PCT allocations, a number of budgets are held centrally by the Department of Health or devolved to SHAs for their local management. The most significant remaining control budget is for PCTs’ commissioning of primary dental services; the figure net of patient charge income has increased by 11% nationally.

A number of budgets that were delivered to SHAs in 2007/08 will now be allocated directly to PCTs. The most significant being QoF and national specialist commissioning.

4.1.5 Payment by Results The revised PbR package, including the 2008/09 tariff, was published with the Operating Framework.

The tariff uplift is 2.3% which includes the 3% efficiency requirement. The tariff recognises the importance of tackling health acquired infections and improving cleanliness by providing flexibility to allow organisations to accelerate their work to reduce infection.

One of the significant changes to the tariff is in regard to specialist top-ups which are paid to providers of certain specialist services. The number of providers eligible for the top-up payments has been reduced which has a potentially adverse impact on the income of our main local providers.

5.

Yorkshire and the Humber SHA Financial Regime

5.1

The SHA has advised Kirklees PCT that its control total for 2008/09 is £12.4m.

The control total is defined as the level of underspend plus the sum remaining on deposit in the strategic reserve at the end of the financial year.

5.2

This control total means that the PCT needs to spend all its recurrent allocation plus £10.2m of the money currently held in the strategic reserve. The financial plan for 2008/09, presented later in this report, shows that £14m more than currently planned needs to be spent to achieve the proposed control total.

5.3

The SHA has not determined a level of contingency to be planned in the revenue budget.

6.

Kirklees PCT Medium Term Financial Plan

6.1

The PCTs medium-term financial plan has been developed taking into account the national, regional and local context.

6.2

The objective of the financial plan is to keep the PCTs hard won financial stability over the medium and long term. The plan delivers a recurrent surplus of £2.8m or ½% of the PCTs recurrent allocation in 2008/09. Once delivered

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this surplus will be achieved in each future year if there is no over-commitment of new resources in those years.

6.3

In addition to the £28.8m growth available to the PCT in 2008/09, the PCT has a further £17.2m of recurrent resources available to it that were not recurrently used in 2007/08; effectively, this recurrent resource was used non-recurrently for the required deposit to the strategic reserve. A total of £46.1m (plus dental growth) is available for recurrent commitment in 2008/09.

6.4

The control total set by the SHA means £10.2m of non-recurrent resource must be withdrawn from the Strategic Reserve and spent. Assuming the forecast 2007/08 surplus of £2.7m is brought forward there is £12.8m of non-recurrent resource available for spending in 2008/09.

6.5

The availability of this level of new resources in 2008/09 will not be repeated in years 2.and 3 of the period covered by this financial plan. The PCT can anticipate new resources of only £30.7m in 2009/10 and £32.3m in 2010/11 in line with our growth assumption of 5.5% in each year. Having withdrawn £10.2m from our £20m Strategic Reserve, £9.8m non-recurrent revenue would remain available in 2009/10.

6.6

The PCT therefore has an opportunity in 2008/09 to make a significant change in health services and health improvement as well as delivering the national and local “vital signs”.

6.7

The financial plan for 2008/09 has been constructed from the PCT’s plans as developed by Health Improvement Teams and meets other inflation and cost pressures and other commitments. The following section of the report describes the 2008/09 financial plan.

7.

Financial Plan 2008/09

7.1

This section of the report informs the Board of the investments and assumptions included within the 2008/09 financial plan. The PCT’s 2008/09 financial plan is included within the Medium Term Financial Plan at Appendix 1.

7.2

Planned Financial Surplus The PCT is planning for a £2.8m (0.5%) recurrent financial surplus in 2008/09.

This is shown as the last figure in the 2008/09 column of the Plan. .

Strategic Investment Reserve The PCT currently holds £20m in the strategic reserve. As described above the control total that has been set for the PCT will require us to spend all our recurrent allocation plus a further £10.2m more than our recurrent allocation.

The Plan therefore includes £10.2m as non-recurrently available resources.

The financial plan as currently constituted requires a further £14m to be spent than is currently committed. This is highlighted in the plan as ‘Developments still to commit’, £13.6m non-recurrent and £0.4m recurrent.

7.3

The PCT has been planning to use the Strategic Reserve in three main ways:

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• •

•

To pump prime major service change over the medium term in response to our own plans and taking into account outcomes from the current NHS review.

The capital regime for PCTs is currently unclear. If possible the PCT could utilise non recurrent revenue resources to support capital expenditure on our own assets or on contractor premises. There may also be a need to add to the Community Hospital capital resource allocated to the PCT to support a significant enhancement of plans to transfer services from a secondary care setting to the community. However, current guidance is that transfers of revenue resources to capital are no longer available.

To carry forward the balance of the reserve to give some head-room in terms of delivering efficiency savings to provide investment funds when the recurrent position is not as positive as it is in 2008/09.

The setting of the 2008/09 control total and the changing capital regime mean that further work is required on the strategy for the use of non-recurrent resources.

The rest of this section seeks to provide explanatory detail for the significant figures included in the 2008/09 plan.

7.4

Available Resources For 2008/09 the PCT will receive £29m of recurrent growth (5.5%). In addition to this the PCT has a brought forward budget recurrent surplus of £17m, in the main due to the £15m of resource deposited into the strategic reserve in 2007/08. There is also £1.4m of ‘dental growth’.

7.5

Brokerage / PBR Adjustments There are three items included within this section of the financial plan: • £2.7m non recurrent surplus carried forward from 2007/08, available to cover non recurrent commitments in 2008/09.

• £1.3m final year of transitional benefit from the introduction of payment by results • £0.6m benefit from a reduced market forces factor in 2008/09, from that currently held in recurrent reserves.

7.6

Recurrent Surpluses brought forward • £1.7m of the 2007/08 recurrent contingency budget remaining uncommitted • £1.6m reserves held recurrently in 2007/08 but no longer required.

7.7

National Guidance - Inflation and Efficiency Inflation and generic cost increases uplifts have been applied in line with Yorkshire and the Humber guidance. For 2008/09 PCT £26m of inflationary uplifts are included within the plan. The PCT requires all of its commissioned services budgets to deliver 3% efficiency savings; these are detailed within the plan and amount to £8m.

The inflation uplifts and efficiency requirements included within the plan are detailed in the table below:

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Calderdale and Huddersfield Trust Mid Yorkshire Other Commissioning Provider Prescribing Other

% Gross Inflation Uplift 5.25 5.25 5.25 4.70 8.00 5.00

% Efficiency Saving Required 3.00 3.00 3.00 3.00 3.00 3.00

% Net Uplift 2.25 2.25 2.25 1.70 5.00 2.00

7.8

Strategic Commissioning £2.9m of additional investments are included within this section these include: • £920k tertiary drugs – this is based on an indicative forecast of potential growth on non tariff medicines for 2008/09.

• (£400k) interest owing to the PCT following investment in the strategic reserve in 2007/08.

• £300k pet scans – based on a recommendation by the specialist commissioning group to increase the number of PET scans in 2008/09.

• £204k – to cover the costs of the drug Eculizumab coming off trial.

• £755k existing specialist regional services commitments – Kirklees PCT share of the Specialist Commissioning Groups planned expenditure on pre commitments for 2008/09.

• £191k new specialist regional services commitments – Kirklees PCT share of the Specialist Commissioning Groups expenditure on developments for 2008/09.

• £716k Lucentis (AMD) - The estimated pressure for AMD based on the new clinical guidance for KPCT is £1.6m, within service level agreement reserves there are recurrent budgets of £884k that were estimated for 2007/08, therefore the additional funding required is £700k. At this stage is has been allocated against CHFT budgets as they are currently our main provider of this service.

• £200k burns consortium - Kirklees PCT share of consortium is approximately 11%, estimate put into plan until actual pressure confirmed.

7.9

Service Level Agreements (all these figures are provisional pending SLA negotiations) Calderdale and Huddersfield NHS Foundation Trust (CHFT) •

£3.4m of expenditure in addition to the net inflation uplift is included within the plan for Calderdale and Huddersfield Foundation Trust

Mid Yorkshire NHS Trust (MY) £3.1m of expenditure in addition to the net inflation uplift is included within the plan for Mid Yorkshire Trust: Leeds Teaching Hospitals NHS Trust •

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A reduction in expenditure of £300k in addition to the net inflation uplift is included within the plan for Leeds Teaching Hospitals Trust

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Bradford Teaching Hospitals Foundation Trust •

£1.4m of expenditure in addition to the net inflation uplift is included within the plan for Bradford Trust.

Other NHS Service Agreements Additional expenditure included in the plan in respect of other NHS Service Agreements includes: • £937k 2007/08 over spend - £600k of which relates to Sheffield Teaching Hospitals.

• £170k Yorkshire Ambulance Services - Community Paramedics scheme £20k shortfall, plus £150k extra funding agreed for 2007/08 assumed to be recurrent pressure. It should be noted that there remain significant outstanding issues with funding levels of YAS which will probably require further PCT investment.

7.10

Continuing Care Budgets £6m additional recurrent expenditure is included within the plan in addition to the inflation uplift and comprises: • £2m 2007/08 overspend - estimated outturn as at month 10 principally due to in-year impact of new guidance • £2m full year estimated impact following re-assessment under new guidance • £2m further potential impact. The local authority is understood to be reviewing all residential care patients and there is a risk of financial liability transferring to the PCT. However, a £2m non-recurrent reduction to the financial plan has been made to recognise the time period of which this change may take place. I have taken the view that any risk can be managed within the PCT’s overall contingency budget.

7.11

Provider Services £2.6m of expenditure in addition to the net inflation uplift is included within the plan for Provider Services and comprises: • £1.5m Route to Solution – this work is still underway and this sum represents a preliminary estimate of the likely scale of investment. It is not a guaranteed increase in funding.

• £470k health visiting - review of health visiting service in north Kirklees.

• £300k Intermediate Care – budget pressure for spot purchasing of intermediate care beds • £132k mattress replacement – non recurrent funding to replace mattresses held in the loan store.

• £90k for establishment of an on-call rota • £86k housekeeper costs for Holme Valley Memorial Hospital to provide improved overnight staffing levels which will improve care and provide improved fire evacuation in the event of an incident.

• £350k recurrent investment in the family nurse partnership pilot programme, offset by £265k DH funding and slippage in 2008/09 but requiring a further £150k recurrent investment in 2009/10

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7.12

Mental Health Additional expenditure included within the plan for mental health consists of: • £574k Early Intervention in Psychosis - This is a 3 year development to enable the PCT to meet its target of treating 192 cases by 2009/10. The service began during 2007/08 and £574k is the cost of implementing the second year developments in the service.

• £500k St Anne’s - 2007/08 overtrade £400k due to increased staffing levels to meet Commission for Social Care Inspection (CSCI) criteria. £100k for further expected increases in staffing levels. Smithies & Oxfield Court (5 bungalows) are properties that have received poor ratings in their latest CSCI reports.

St Anne’s are to meet the non recurrent refurbishment costs but the recurrent pressures of the extra staffing required will be passed onto the PCT. • £500k for the consequences of a switch of financial responsibility from MYHT to SWYHMT for the Priestley Unit at Dewsbury Hospital.

7.13

Primary Care • Allocation of the dental growth received • £678k premises costs based the PCT Estates Strategy.

• £575k to cover the current 2007/08 over spend, principally due to budgets not having been increased for a couple of years to reflect increased Quality and Outcome Framework payments to GPs. • £268k for the overspend on the Home Oxygen Service in 2007/08. There was a national change in the contractual basis of this service in 2006/07 and the PCT’s budget has not previously been increased to take account of the implications.

• £250k urgent care – to cover potential additional costs for urgent care services currently being tendered.

7.14

Practice Based Commissioning • £99k for the new incentive scheme for 2008/09 • £50k to cover improved clinical engagement allowances • £126k, non-recurrently, to cover freed up resources from 2006/07 that have not yet been spent.

7.15

Miscellaneous Developments and Commitments £2.0m of other recurrent PCT developments are included within the plan: • £552k for increased capital charges. The PCT has submitted a capital plan to the SHA for funding approval. If funding is made available an increase in the PCT’s capital charges budget will be required.

• £250k children’s community specialist services, pending approval of a developing business case.

• £206k long term conditions – the recurrent full year impact of funding agreed in 2007/08 to appoint additional case managers.

• £200k for enhancement of training and development • £150k enhanced infection control support to including nursing and care homes • £100k choose and book staffing support.

Other individual recurrent investments of less than £100k are not specified but were considered at Finance and Performance Committee.

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£882k of non recurrent PCT developments are included within the plan these include: • £500k public health advertising campaign planned for 2008/09.

7.16

Developments available to commit There are still additional resources available to commit in the plan as described at 5.2 and 7.3 above • £13.6m non recurrent resources • £0.4m recurrent resource

7.17

Director of Finance Planning Assumptions I have identified potential calls on recurrent and non recurrent funding that have not yet been subject to the formal business planning process. Together they amount to £1.9m.

7.18

2008/09 Business Planning Process £6.6m of developments are currently included in the plan following the 2008/09 Business Planning process within the PCT. This is the gross figure and £700k of efficiency savings have been reflected within the plan as a consequence of these developments. In my view this is a prudent assumption for 2008/09 as I anticipate significant slippage in commencing some of the investments. These developments have been considered by a wide range of stakeholders prior to inclusion in the plan.

7.19

Contingency Reserve A 0.5% contingency reserve has been included in the financial plan (equating to £2.8m in 2008/09). The assumption is that this reserve will be used to manage in year financial risks. The medium term plan assumes that the contingency reserve will be utilised each year, i.e. it will need to be re-created each year from new growth. Clearly, with a significant level of non-recurrent resource remaining uncommitted in 2008/09, this is a prudent planning assumption.

7.20

Efficiency Plan Schemes £6.6m of cash releasing efficiency schemes are detailed within the plan, these have been identified through the efficiency work programme which will be monitored by the Finance and Performance Committee.

7.21

Key Message for 2008/09 The key message for 2008/09 is that the PCT still has £13.6m of nonrecurrent resource to commit to meet our control total and this, combined with a set of prudent recurrent financial spend assumptions means that the PCT has a significant challenge to spend its resources.

The PCT has been discussing with the SHA its potential role in resolving the deficit that the Mid Yorkshire Hospitals Trust has accrued in recent years. The Director of Finance at the DH has stated that he expects local health economies to provide solutions to resolve such issues. It would therefore be prudent to anticipate some call being made on PCT resources in this respect.

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8.

Financial Plan 2009/10 – 2010/11

8.1

The financial plan for the two years following 2008/09 is based less on firm planning commitments and more on a set of assumptions. The financial information presented serves to highlight how much less new resource is available in these years for ‘discretionary’ investment, that is, investment that is over and above inflation and unavoidable cost pressures.

8.2

In 2009/10 the plan highlights how net inflation (after efficiency gains) consumes £19.8m of anticipated growth of £30.7m. The significant planning assumptions are: • £1.7m strategic commissioning – less than the 2007/08 investment • £3.0m for additional acute capacity – significantly less that the 2007/08 investment, reflecting the fact that, as far as is currently known, there will be no centrally dictated improvement required in waiting times • £1.2m in respect of treatments for age related macular degeneration • £1.0m planned for improved coding by our main providers • £2.0m for growth in continuing care costs • £1.0m for premises developments as described in the PCT’s Estates Development Strategy • £0.4m for the new “equitable access” GP Practice • £1.0m for revenue consequences of the PCT’s investment under the Community Hospitals programme, perhaps better generally described as the strategy for moving care closer to patients homes

8.3

The overall picture is that these investments slightly over-commit new recurrent resources whilst there is £3.1m of non-recurrent resource still available for spend (effectively the 2008/09 surplus brought forward plus The Gables net proceeds). The required annual surplus was created recurrently in 2008/09 and remains achieved if total new spend is less that total new resource.

8.4

The position is similar in 20010/11 and the level of assumed investment shown in the plan similar to 2009/10.

8.5

In both years there has been no call on the £9.8m remaining in the Strategic Reserve.

8.6

Prudent financial planning dictates that non-recurrent resources should not be committed recurrently so the PCT has the following key financial and business planning challenges for 2009/10 and 2010/11: • There is likely to be minimal recurrent resources available after “must-bedones” and pre-commitments are funded • Only by delivering efficiency savings and/or redirecting existing recurrent resources can further investment be made • There will be a continuing challenge to make best use of non-recurrent resources.

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9.

Summary of Medium Term Financial Plan for Revenue

9.1

The following table presents a high level view of the Medium Term Financial plan as detailed in Appendix 1.

Available Resources (incl bfwd surplus) Utilisation of Resources Efficiency Still to Commit to achieve control total Surplus

2007/08 N/R Rec £m £m 12.9 47.5

2008/09 N/R Rec £m £m 2.8 30.7

2009/10 N/R Rec £m £m 2.8 32.4

(0.7) 0 13.6

50.9 (6.6) 0.4

0.7 (1.0) 3.1

34.8 (3.7) (0.4)

0 0 2.8

36.0 4.1 0.5

0

2.8

0

0

0

0

recurrent surplus created in 07/08 still achieved

recurrent surplus created in 07/08 still achieved

9.2

The key conclusions are: • In 2008/09 the PCT still has £13.6m of non-recurrent resource to commit to meet our control total and this, combined with a set of prudent recurrent financial spend assumptions means that the PCT has a significant challenge to spend its resources • In the following years: o There is likely to be minimal recurrent resources available after “mustbe-dones” and pre-commitments are funded o Only by delivering efficiency savings and/or redirecting existing recurrent resources can further investment be made o There will be a continuing challenge to make best use of non-recurrent resources.

10.

10.1

Recommendation The Board is asked to approve the Medium Term Financial Plan for 2008/09 to 2010/11 and thereby approve the inclusion in revenue budgets of the financial plans for 2008/09.

10.2

The Board is asked to note the conclusions listed in 9.2 above.

Bryan Machin Director of Finance 16 March 2007

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