Budget for 2015/16
Trust Board
Item: 8.1
25th March 2015
Enclosure: G
Purpose of the Report / Paper:
This paper sets out the Revenue and Capital budgets for 2015/16.
For Information
For Decision
Sponsor (Executive Lead):
Nigel Baker, Interim Director of Finance
Author:
Nigel Baker, Interim Director of Finance
Author Contact Details:
[email protected]
Financial / Resource Implications:
See below
Quality Governance:
N/A
Risk Implications - Link to Assurance
Framework or Corporate Risk Register:
Objective 4: To deliver the 2014/15 financial
plan
Document Previously Considered By:
Finance and Investment Committee - 24th
March 2015
Recommendations & Action required:
The Board is recommended to approve this budget subject to further discussion on the cost
pressures in the Part 2 meeting.
Budget for 2015/16
This paper sets out the Revenue and Capital budgets for 2015/16.
The national context is that over 70% of acute Trusts are in deficit in 2014/15. It appears that
even more are likely to set deficit budgets for 2015/16.
The national planning deadlines have been put back following the late changes to the tariff
proposals. A draft plan has to be submitted on 7th April 2015 with a final version on 14th May
2015. Between those dates NHS England, Monitor and the NTDA are planning to triangulate
and review plans between commissioners and providers and may arbitrate and require plans
to be changed.
A. REVENUE BUDGET
The proposed budget has been set following a rigorous bottom up review with each service
line and corporate department. Where provided, national guidance has been used in
calculating the impact of price changes, both on income under the tariff and for pay and nonpay costs.
Negotiations with commissioners on the Service Level Agreement and Contract for next year
have not yet concluded. The Trust has therefore set its activity and income levels based on
the information it currently has.
Nationally and locally commissioners are setting standards for quality and safety including
defining staffing levels. These have been critically examined and proposals made for
increases in staff numbers where it is considered essential. Some further increases have
also been made following patient and staff feedback through their surveys.
There are significant cost pressures relating to the electronic patient record system, both in
revenue and depreciation, and from the estates capital maintenance programme.
All services were set the challenge to find cost improvements of 6% which is similar to
previous years. However this has not been achieved in all areas and overall 3.6% of
improvements have been identified. This is above the nationally efficiency factor of 3.5% set
in the tariff.
Modelling all these elements has produced a proposed budget deficit of £8.8m for 2015/16.
The table below shows the movements from the recurrent surplus brought forward from
2014/15 of £0.2m to the proposed budget deficit for 2015/16 of £8.8m. Each item is analysed
and explained in the notes following the table.
The setting of a deficit budget has an adverse impact on cash. As this deficit is greater than
the level of cash balances held the Trust would need to take out a working capital loan to
enable it to operate on a day to day basis. This eventuality has been notified to Monitor who
are collating similar information from a number of Trusts to assess the situation nationally.
Budget Movements
£m
Recurrent surplus b/fwd
Tariff deflator
Pay inflation
Non pay inflation
Capital charges
CNST premium
0.2
(0.3)
(3.4)
(1.2)
(1.7)
(2.4)
Note 1
Note 2
Note 3
Note 4
Note 3
Cost Improvement Plan
8.6
Note 12
Activity changes
Other income changes
0.5
0.7
Note 5
Note 6
Cost pressures
Costs moved from national to local
Estates maintenance strategy
London Quality Standards
7 day working and improved quality
Admin
(2.0)
(0.7)
(1.7)
(2.3)
(0.1)
Note 7
Note 8
Note 9
Note 10
Note 11
Contingency
(2.3)
Note 13
Recurrent Deficit 2015/16
(8.1)
Non recurrent costs
(0.7)
Deficit 2015/16
(8.8)
Note 14
Notes
1. National Tariff
The national tariff guidance for 2015/16 was initially published in December but
following the consultation which resulted in a majority of providers challenging the
proposals, Monitor and NHS England have now issued alternative proposals.
Providers were given the choice of an ‘Enhanced Tariff Option’ which gave 3 key
improvements against the original proposals, or to stick with the 2014/15 tariff
although this would be effectively deflated by not paying the 2.5% CQUINs. The
Board has decided to opt for the ETO which is more favourable than the alternative
for KHFT. Over 85% of Providers have made the same choice.
The impact for 2015/16 is:
 Net deflator 1.6% (gross 3.5%)
 CNST uplift
 Specialist services growth only paid at 70%
 Increase in non-elective threshold payment
£(3.1)m
£ 2.3 m
£(0.3)m
£ 0.8 m
Total
£(0.3)m
2. Pay inflation
The pay bodies are concluding their negotiations so we have set the budget based
on the latest information. There are four elements to the pay inflation figure. The
national pay award at 1%, annual increments for staff through the pay bands at 1.1%,
clinical excellence awards for consultants, and finally a national increase in the
employer pension contribution of 0.3%.
The impact for 2015/16 is:
 National pay award
 Annual increments
 Clinical excellence awards
 Employer pension contribution
Total
£1.3m
£1.5m
£0.2m
£0.4m
£3.4m
3. Non-pay inflation
The national guidance issued with the tariff suggests appropriate levels of non-pay
inflation to be budgeted for. They have indicated 1.6% for general items, 4.5% for
drugs and £2.4% for PFI contracts and we have adopted these levels. The figure
below for drugs is only based on in tariff drugs as any increase in excluded drug
prices will be passed onto commissioners.
The impact for 2015/16 is:
 General
 Drugs
 PFI
Total
£0.6m
£0.3m
£0.3m
£1.2m
The other element of non-pay facing a significant increase is the CNST premiums.
Nationally these are facing a 35% increase, which is reflected in the funding uplift
built into the tariff. We have therefore budgeted for a cost increase of £2.3m to match
the extra funding. However due to the excellent claims record of the Trust we have
been notified that there will be virtually no change in our premium in 2015/16 over
2014/15. This saving will be recorded as an achievement towards the Cost
Improvement Plan.
4. Capital charges
Capital charges are the depreciation and Public Divided Capital (PDC) costs on our
fixed assets. There is an inflationary allowance of 0.2% within the tariff, which would
be £0.4m. However the increase in these costs for KHFT in 2015/16 will be £2.4m
which includes the £0.7m shown under the Estates cost pressure below. The most
significant element of the increase relates to the capitalisation of the Electronic
Patient Record implementation which has been carried as an ‘asset under
construction’ for the past two years and has therefore not previously been
depreciated. A further increase arises due to an increase in the valuation of the
estate of £1.5m recently made by the District Valuer.
5. Activity changes
Whilst the Trust expects there to be the normal levels of demographic growth, there
has also been recent increases over and above that. Commissioners have indicated
that they will be setting out to deliver a level of QIPP schemes to match overall
growth. However past performance does not reflect that and so we have included a
modest level of net growth of less than 1%, offset by the relevant costs, giving a net
benefit of £0.5m.
6. Other income changes
There are some small favourable movements in other income, particularly in
education funding where there is a reduction in the transitional adjustment.
7. Costs moved from national to local
A number of costs that were previously borne nationally have been effectively
transferred to be incurred directly by the Trust.
 The largest of these is the Trust’s contract with the national programme in
respect of CRS, the electronic patient record system. From 2015/16 the Trust
has to re-procure the system directly with the supplier. This results in an
annual cost pressure of £2m but will only be effective from October 2015, so
an additional cost of £1m in 2015/16
 A number of junior doctor posts are being reallocated and the Trust will need
to employ a number directly to maintain effective shift cover, £0.4m
 Elements of the maternity pathway which were previously commissioned
directly from other providers now have to be borne by the Trust, £0.6m
8. Estate maintenance strategy
The increase in the estates maintenance programme that commenced in 2014/15
continues in 2015/16. To provide the necessary cash to undertake this work the Trust
took out a loan of £10m at an interest rate of 2.27% over 20 years. In 2014/15 £3.2m
of this was drawn down and the balance will be drawn down during 2015/16 in line
with the expenditure profile. No repayments are due in 2015/16 as they commence
once the works are complete. Interest payments start immediately.
The revenue impact of this increased programme in 2015/16 will be £0.7m in
depreciation and interest charges.
9. London Quality Standards
As discussed at the November Board the Trust needs to increase staffing levels in
Maternity, Paediatrics, Emergency Medicine and Emergency Surgery to meet the
LQS set by commissioners. A thorough review of options in each case has been
explored, and mitigations sought where possible. The proposals included in this
budget are considered to be the most appropriate way forward towards meeting
these standards. The net additional cost is £1.7m.
10. 7 day working and improved quality
To ensure that patients receive the same standard of care throughout the week it is
proposed to invest across a range of staff groups to enable 7 day working. This
includes inter alia doctors, physician assistants, therapists, pharmacists, and ward
clerks.
There are also proposals to invest in some other quality improvements, e.g practice
development nurses, HCAs on AAU, and toast for patients
11. Admin
Some small increases are proposed in specific areas to improve services, £0.1m
12. Cost Improvement Plans
At the beginning of the budget setting process all service lines and corporate
departments were set a CIP target of 6% of their cost base, which was a target of
£9.8m. Over a period of several months and review meetings with executive
directors, and finally a meeting with the Chief Executive, not all have managed to
achieve this. Schemes totalling £6.3m has been identified and implementation plans
and quality and equality impact assessments have been prepared and reviewed. This
value has been included in the budget proposed for next year together with the
£2.3m from the CNST saving, a total of £8.6m. Further work is being undertaken on
three cross Trust schemes, length of stay, theatre utilisation and procurement in a
continued effort to increase the level of savings achievable.
13. Contingency
A contingency of 1% has been included, £2.3m
14. Non recurrent costs
To tackle recruitment difficulties in some areas it is planned to incur non-recurrent
spend to improve this situation. A sum of £0.7m has been set aside
A bridge diagram of the movements is shown on the following page.
-9,000
Deficit 2015/16
Non recurrent costs
Contingency
Admin
7 day working
LQS
Estates
Other income
Activity changes
Capital charges
Costs moved from national to local
CIPs
CNST CIP
CNST inflation
Non pay inflation
Pay inflation
Tariff deflator
Recurrent Surplus b/f
3,000
2,000
1,000
0
171
-1,000
-2,000
-3,000
-4,000
-5,000
-6,000
-7,000
-8,000
-8,767
-10,000
The overall Income & Expenditure plan for the Trust will be as follows:
Income & Expenditure 2015/16
£m
Patient Care Income
Other Income
202.2
23.5
Total Income
225.7
Pay
Non-Pay
(144.1)
(74.4)
EBITDA
7.2
Depreciation, PDC and Interest
Deficit
(16.0)
(8.8)
CAPITAL BUDGET
The Capital budget was reviewed at the January Board meeting where some changes were
agreed. The final plan is shown below:
£'000
Equipment
A&E monitoring
ITU monitoring
Endoscopy
Theatre Instruments
Other
IM&T
Clinical Systems
Infrastructure
Information Management
Admin systems
Estates Maintenance
Ventilation plant
Lifts
Pipework
Electrics
Esher nurse call sytem
Fire Alarm system
Estates Maintenance
Esher windows
Outpatients
Command centre reprovision
Theatres
Dementia
280
280
137
100
130
927
CRS Reprocurement
Other
Servers
PCs
Network
Other
Data warehouse
1,641
320
232
350
300
388
159
180
3,570
1,200
300
1,080
400
100
50
3,130
3,492
1,880
200
400
175
6,147
SUMMARY
However, being in deficit has consequences in itself. It is unclear what these would be given
that almost all Trusts are likely to be in deficit in 2015/16. However, the Trust is taking the
following actions:
1. The Trust has co-commissioned with the CCGs a piece of work to understand
why, if the Trust is the most efficient in the country, it is unable to put together
a balanced budget. This will support the development of a recovery plan.
2. The Trust has proposed a new approach to developing a productivity
programme that is much more granular and looks at profitability by HRG.
This may enable a more strategic approach to the development of the Trust’s
portfolio of services.
3. SWL acute providers programme is already considering joint work to help
reduce costs. This includes options for sharing clinical services and rotas.
4. Work with local GPs, community services, mental health and social services
to develop a new model of care. This is aimed at keeping people well and
sufficiently supported in the community by working together rather than in
organisational silos. This should reduce activity in the hospital and reduce
duplication of services and enables clinical staff to spend more time caring for
patients rather than filling in forms to access services for patients from one of
the other providers.
This budget proposal reflects many of the issues affecting the provider sector nationally.
Setting a deficit budget will have consequences both in the short and longer term, however it
is essential that the Trusts services are delivered to the required standards of care across
quality, safety and access. Furthermore the Trust’s staff must be supported to do their jobs
effectively.
The Board is recommended to approve this budget subject to further discussion on the cost
pressures in the Part 2 meeting.