nlg(14)116€¦ · this report covers the trust’s financial performance to date for the financial...

NLG(14)116

DATE March 2014

REPORT FOR Trust Board of Directors – PUBLIC

REPORT FROM Mike Rocke, Director of Finance & Business Support

CONTACT OFFICER Mike Rocke, Director of Finance & Business Support

SUBJECT Current Trading Position – February 2014

REPORT PREVIOUSLY CONSIDERED BY & DATE(S) Finance Committee – March 2014

EXECUTIVE COMMENT (INCLUDING KEY ISSUES OF NOTE OR, WHERE RELEVANT, CONCERN AND / OR NED CHALLENGE THAT THE BOARD NEED TO BE MADE AWARE OF)

The report sets out the Trust’s trading position to the end of February. The Trust deficit has increased to £4.83mil, mainly as a consequence of the cost of additional nurse staffing brought in to sustain services over the winter period. The additional bed base presently in place to meet demand is not capable of being funded via the system of marginal rate income and therefore the Trust is pursuing additional income from commissioners before the end of the financial year. As such, the year end forecast position remains in line with previous estimate of between £4.20mil to £4.80mil although this could increase if commissioners are unable, or unwilling, to fund these costs.

HAVE THE STAFF SIDE BEEN CONSULTED ON THE PROPOSALS?

HAVE THE RELEVANT SERVICE USERS/CARERS BEEN CONSULTED ON THE PROPOSALS? N/A

ARE THERE ANY FINANCIAL CONSEQUENCES ARISING FROM THE RECOMMENDATIONS?

IF YES, HAVE THESE BEEN AGREED WITH THE RELEVANT BUDGET HOLDER AND DIRECTOR OF FINANCE, AND HAVE ANY FUNDING ISSUES BEEN RESOLVED?

ARE THERE ANY LEGAL IMPLICATIONS ARISING FROM THIS PAPER THAT THE BOARD NEED TO BE MADE AWARE OF?

WHERE RELEVANT, HAS PROPER CONSIDERATION BEEN GIVEN TO THE NHS CONSTITUTION IN ANY DECISIONS OR ACTIONS PROPOSED?

WHERE RELEVANT , HAS PROPER CONSIDERATION BEEN GIVEN TO SUSTAINABILITY IMPLICATIONS (QUALITY/FINANCIAL) CLIMATE CHANGE

THE PROPOSAL OR ARRANGEMENTS OUTLINED IN THIS PAPER SUPPORT THE ACHIEVEMENT OF THE TRUST OBJECTIVES AND COMPLIANCE WITH THE REGULATORY STANDARDS LISTED

ACTION REQUIRED BY THE BOARD 1. Review financial performance; and

2. Consider any further action required

Report to the Finance Committee

Financial Performance Update 2013/14 For the Year to 28th February 2014

This report covers the Trust’s financial performance to date for the financial year 2013/14. The variances and trends outlined in this report are based upon the detailed financial plans contained within the current three year plan submission made to Monitor. The financial report contains the following sections:

● Financial headlines ● Risk rating analysis & contingency utilisation ● Income & expenditure account ● Pay trend analysis ● Balance sheet ● Cash balance ● Contract trading position ● Budgetary variance analysis ● Key risk summary

This report is supplemented by two reports presented separately to the Finance Committee; one outlining the position against the Trust’s cost improvement programme and the other a quarterly update of the Trust’s investment programme position. SECTION ONE Financial Headlines

Trading Surplus/ (Deficit) (£4.83)mil Forecast FY Trading Surplus/ (Deficit) (£4.43)mil Cash Balance £27.61mil Continuity of Service Rating (New System) 3

The Trust reports a trading deficit of £4.83mil for the period to 28th February 2014 which is £5.03mil behind plan. This position shows a further material net deterioration in-month predominantly due to expenditure pressures associated with agency nursing cost levels, continuing from December and January. Nevertheless, the forecast deficit of between £4.20mil to £4.80mil (prior to any end of year revaluation adjustment) is still valid assuming the Trust can reach a settlement with commissioners for the premium costs of increasing the bed base during the winter period. The Trust held cash balances of £27.61mil at the end of the February. This is a £2.12m increase on the January position, although this still falls short against the original plan by £2.75mil. The overall cash position includes £5.72m received from the Foundation Trust Financing Facility and the DH, covering the first tranches of the funding for the energy efficiency investment programme and the funds to support the DPoW land sale programme. Liquidity remains affected by the difficulties experienced in recouping NHS debtors, though some progress has been made ahead of the year end.

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SECTION TWO Risk ratings and contingency utilisation The new Risk Assessment Framework’s Continuity of Service ratings came into use from 1st October. Trust performance against the new measurement regime is shown below:

NLAG 4 3 2 1

Debt Service Cover Rating 155.2% 250.0% 175.0% 125.0% <125% Liquidity Rating +7.4 -2.0 -7.0 -12.0 <-12.0 Weighted Average 3.0

The deficit I&E position means that the debt coverage rating, the key measure of on-going financial performance, is now rated at 2 out of 4. This highlights the difficulties facing the Trust in year. The slight improvement projected for year end will place the Trust on the border between a rating of 3 and 2. The Trust’s strong opening cash position allows a top rating of 4 on liquidity, despite reduced balances through the year. This gives a combined rating of 3, a satisfactory position. The new more flexible system is designed to consider both measures together. The Trust used no further contingency or flexibility in February. The Trust continues to work with Monitor in respect of the 2014/15 position, as the contracting and planning processes continue.

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SECTION THREE Income & Expenditure Account YTD Actual Variance from

Plan £mil £mil Income 289.21 3.04

Expenditure – Pay (205.96) (14.34)

Expenditure – Non Pay (77.90) 5.60

EBITDA 5.35 (5.71) Post EBITDA Items (10.17) 0.68 Trading Surplus/(Deficit) (4.83) (5.03) Exceptional Items 0.00 0.00 I&E Surplus/(Deficit) (4.83) (5.03)

The in-year deficit deteriorated by a further £1.25m during the month, the Trust still intends to pursue dialogue with commissioners over the case for additional income in order to meet the cost of the extended bed base, and nursing capacity, over the course of the winter period. The Trust therefore continues to forecast a deficit of between £4.20mil to £4.80mil although this position will remain dependent upon the securing the forecast income agreements with the two South Humber CCGs. The income position exceeds plan, but this is complicated by the additional expenditure commitments linked to much of the additional income received. The underlying contracting position remains below the point set in the trust’s plans at the start of the year, reflecting a markedly different approach from Commissioners in 2013/14, with surpluses held rather than deployed. The expenditure position has been affected by savings plan slippage, significant labour market pressures for skilled clinical staff, activity pressures in key areas such as diagnostics and high cost drugs, and additional requirements linked to the response to the Keogh review process, both clinical and non clinical. This has been increased in recent months as agency nursing pressures have increased, in response to the need to support additional capacity and activity through the winter period. The non pay position continues to include the impact of an ongoing review of the Trust’s balance sheet position, which has delivered a positive adjustment. Though a degree of savings delivery slippage has contributed to an underlying overspend, costs have also been incurred supporting the Keogh review process. Though savings plan slippage and cost pressures were within the tolerances available at the start of the year, with the addition of the other factors linked to activity and demand pressures, the difficult contracting environment and the Keogh review process, the Trust has been unable maintain on plan delivery. 2014/15 remains difficult, given the underlying position and the continuing adverse contracting environment. The contracting and planning processes remain ongoing.

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SECTION FOUR Pay Trends Total Spend – Pay: The Trust’s total pay bill continues on a rising trend, with clinical staff costs the key issue. Agency nursing pressures have continued, and medical staffing costs remain severe. Savings slippage on non clinical staff is also a factor in the pay spend position. Medical Staffing Spend - Pay: Medical staffing costs further in February, with a marked upward trend through the year reflecting pressures in recruitment and in the market costs of locum cover staff:

Nursing Spend – Pay: Nursing pay saw a further small increase during the month, after a series of sharp rises driven by agency spending. Expansion to nursing numbers has accompanied rises in bank and agency, rather than being offset, as activity and capacity expansion put medical services under pressure. There are however significant issues around the control of nursing agency spend. The increase in cost is both not affordable and poses significant staffing control issues for ward managers. The reliance on agency nursing is large enough to threaten delivery of 2014/15 financial forecast if this is not brought immediately under control.

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Admin and Clerical – Pay: The quality investments required as part of the Keogh response plan have pushed up costs in this area, and savings slippage had also seen a drop behind the spend reductions required. The last two month have been positive, however:

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Support Staff – Pay: Support staff spending remains stable, but has yet to deliver the savings set out in plan due to implementation delays. There is also significant work to do to improve roster controls. The transformation programme is progressing, but not at the required pace:

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WTE Trend: The contracted WTE position saw a further significant increase which is predominantly a consequence of the nursing recruitment process which the Trust has being pursuing since autumn. However the figures below relate to substantive posts only and do not take into account the recent increase in agency nurse spend. This therefore masks the real scale of the overall increase in nursing posts across the Trust and therefore compels the Trust to rapidly regain the control of its nursing staffing levels. Contracted WTE:

March 2012: 5,075 September 2012: 5,050 March 2013: 5,094 June 2013: 5,037 September 2013: 5,097 December 2013: 5,153 January 2014: 5,195 February 2014: 5,217

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SECTION FIVE Balance Sheet

Last Month This Month Variance From Plan

£mil £mil £mil Total Fixed Assets 136.61 136.30 (4.21) Stocks & WIP 2.52 2.53 0.05 Debtors 13.95 14.37 6.89 Prepayments 4.65 3.74 1.26 Cash 25.49 27.61 (2.75) Total Current Assets 46.62 48.25 5.46 Creditors : Revenue 18.46 18.85 (1.62) Creditors : Capital 1.92 1.62 (2.45) Accruals 10.00 10.32 5.48 Deferred Income 1.88 1.75 0.48 Finance Lease Obligations 0.02 0.02 0.01 Provisions 6.38 6.79 3.42 Total Current Liabilities 38.66 39.35 5.32 Net Current Assets/(Liabilities) 7.96 8.90 0.14 Debtors Due > 1 Year 0.01 0.01 0.00 Creditors Due > 1 Year 0.03 0.06 0.02 Finance Lease Obligations > 1 Year 0.41 0.41 0.08 Loans > 1 Year 3.85 5.72 0.00 Provisions - Non Current 5.55 5.55 (0.35) TOTAL ASSETS/(LIABILITIES) 134.74 133.49 (3.82) TOTAL CAPITAL & RESERVES 134.74 133.49 (4.87)

The NHS debtor position remains significantly above plan, a reflection of greatly tightened cash positions across the NHS. This is still a major liquidity issue for both commissioner and provider to provider income streams. Some success has been achieved in securing improvements ahead of the year end. The Trust has taken further steps to increase creditor levels and optimise cash. The Trust has also seen lower than plan utilisation of provisions held, particularly the restructuring provision. Further work on provisions is a key part of the year end work for next month. The remainder of the balance sheet is stable, with a small variance in fixed asset levels reflecting the slower capital programme trajectory adopted early in the year. The work on asset revaluation is now underway, with an external review process having been completed, ahead of confirming the March 2014 position. .

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SECTION SIX Cash Balances

The Trust held cash balances of £27.61mil at the end of February 2014. Though debtor levels have increased, and the Trust has suffered the impact of greater than plan cash reductions form operations, this has been in part mitigated by the slower pace of capital spend and the receipt of loans ahead of spending in 2014/15 – a temporary effect which does mean that headline cash levels exceed the true underlying liquidity position. Cash management methods adopted include a tighter approach to creditor payment times.

This Month Year To Date YTD Variance from Plan

£mil £mil £mil Opening Balances 25.49 32.57 0.00 Income Levels 27.48 289.12 3.18 Shift In Debtors, Accruals, Prepayments (0.55) (5.46) (6.41) Total Income Impact 26.93 283.65 (3.23) Expenditure Levels (27.72) (290.61) (15.49) Contingency Support 0.00 9.10 9.10 Shift in Creditors, Accruals, Provisions 1.64 (1.06) 5.81 Total Expenditure Impact (26.08) (282.57) (0.59) Capital Programme (0.32) (6.43) 4.73 Shift In Capital Creditors (0.30) (1.35) (2.45) Total Capital Impact (0.62) (7.78) 2.28 Other 1.89 1.74 (1.22) Closing Balances 27.61 27.61 (2.75)

The Trust cash balance remains held primarily in the Government Banking Service account – low interest rates, but optimal for reducing PDC dividend payments. Bank Balances by Organisation: Bank £mil Access NatWest 0.35 Instant Access CitiBank (Government Banking Service) 27.25 Instant Access Bank of Scotland 0.00 Instant Access Other/Cash in Hand/Postage 0.01 Instant Access Total Bank Balances 27.61

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SECTION 7 Investment Programme:

Current Full Year

Plan

YTD Plan YTD Actual

YTD Variance

£mil £mil £mil £mil Major Schemes DPoW Reconfiguration Programme 3.13 2.80 1.39 (1.40) SGH Reconfiguration Programme 1.80 1.60 0.05 (1.55) GDH Reconfiguration Programme 0.00 0.00 0.00 0.00 Planning and Feasibility Works 0.08 0.08 0.03 (0.05) Community Equipment Facility 1.06 0.60 0.01 (0.59) DPoW MRI 0.00 0.00 0.00 0.00 Energy Collaborative 0.23 0.10 0.37 0.27 Facilities Maintenance Programme 1.67 1.57 1.18 (0.39) Equipment Renewal Programme 3.12 3.00 2.12 (0.88) IM&T Programme 1.50 1.42 1.28 (0.14) Capital Programme Total 12.59 11.16 6.43 (4.73) Revenue Programme 0.40 0.36 0.28 (0.08)

The investment programme follows the plan agreed midway through the first half of the year, with unallocated funds frozen and a retiming of the reconfiguration programmes. The equipment, facilities maintenance and IM&T programmes remain on track to match their revised plan targets. Again, no plan element is expecting any material overspend in year, though the timing of the energy programme will mean a relatively greater spend in 2013/14, offset by reduced spend in 2014/15. The outline programme for 2014/15 and 2015/16 is now drafted, ahead of final approval. The proposed 2014/15 Financial Framework which is due to be presented to the Finance Committee in March does highlight the potential that the Trust’s future investment plans may need to be curtailed should the Trust be unsuccessful in securing an adequate income agreement with commissioners as part of the 2014/15 contract negotiation process.

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SECTION 8: Trading Report Income The income position continues to fall short of Trust plans, once offsetting expenditure commitments linked to service expansion are taken into account. Negotiations with commissioners are now judged to be close to securing a moderate end of year additional income settlement, which if secured will allow the Trust to remain at or near the mid year review deficit projection. The Trust still faces the potential application of penalties for performance in 2013/14. The Trust has continued to follow a policy of challenge on penalties, particularly where they cannot be tied directly to the performance of the Trust alone. The Trust’s year end forecasts assume a negotiated solution to those penalty issues raised to date. No assumption is included in the trust position for 2012/13 penalties, which, though raised by commissioners, are subject to legal challenge by the Trust. The Trust continues to work through negotiations with commissioners to secure a more advantageous year end position, and has had some success in month, though progress has been limited by the confused financial picture across the wider system. Activity 2012/13

Activity 2013/14

Plan

2013/14 Actual

Variance Against Plan

Non Elective Spells Elective & Daycase Spells Unbundled Activities Outpatient Attendances Critical Care Days A&E Attendances Diagnostics (£’000) Excluded Drugs & Devices (£’000)

42,629 51,206 13,547

343,479 16,741

124,699 24,700 15,119

43,665 51,103 13,374

336,803 16,780

124,786 28,690 14,955

43,134 52,620 14,283

354,277 17,625

124,650 30,530 15,312

(531) 1,517

909 17,474

845 (136) 1,840

357 Emergency activity levels and A&E attendances remain marginally below plan on headline numbers, but this does not take into account casemix shifts in acuity. The activity pressures facing the Trust in maintaining above outturn capacity for emergency admissions must be views in the light of the 30% marginal rate payment applied to a significant proportion of activity – sufficient to force the Trust to invest in additional capacity not accommodated within that level of payment. Elective activity and outpatient activity again remain above target. This reflects efforts made to meet on-going demand increases, and maintain waiting times. The Trust faces pressure to maintain 18 week waiting times, so cannot curtail activity at contracted levels, despite any contract terms affecting payment. Diagnostic demand continues to rise fast, and put pressure on the Trust’s abilities to create additional capacity. Again, fines and penalties apply for extended waiting times, despite the significant additional activity.

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SECTION 9 Budgetary Performance – Variances

Variance In Month Change

(£000s) (£000s) Clinical Income 1,182 1,376 Education Income 15 (39) Other Central Income (44) 39 Sub Total – Income 1,153 1,376 Trust Management (1) 1 Medical Director's Office (2) (0) Governance (7) (13) Finance and Business Support (35) (1) Organisational Development & Workforce (29) (27) Chief Nurses Office (11) (3) Facilities Management & Soft Services (1,423) (271) Sub Total - Corporate Directorates (1,508) (315) Operations (7,669) (2,318) Diagnostics & Therapeutics (285) 19 Sub Total – Clinical Directorates (7,954) (2,299)

Corporate & Capital Charges 3,283 585 Sub Total - Other Prime Budgets 3,283 585 TOTAL (5,025) (652)

The budgetary position again reflects the wider I&E issues of CIP delivery slippage in both front line clinical Directorates and in Facilities, and pressures on clinical staffing costs. The increased pressures of nursing capacity increases and increased use of agency nursing are driving up the variance in Operations. Though there are clear links to the quality and safety improvement programme, and to activity pressures, there are also issues to address in terms of improved rostering control in many nursing areas. Diagnostics pressures in securing additional capacity, often at premium costs, have created small variances in this area too, despite strong underlying financial performance. Facilities show significant variances, though improved on last year despite a significant additional CIP requirement. Transformation projects are progressing slower than original plan, and there are rostering process issues to resolve to optimise staff spending in support services. Corporate directorates do show adverse variances, but they are small and largely controlled, and do not at this stage show a significant overall threat to financial performance. The technical budget position again reflects the use of balance sheet review supporting overall financial performance, and delivery of technical CIP schemes.

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SECTION 10 Key Risk Analysis The Trust remains subject to severe pressures from both a tightened contracting environment and from significant pressures from activity demand, which are driving up costs, particularly clinical pay costs. Despite maintaining a forecast position close to that identified at mid-year, the underlying position remains challenging, and the Trust will need to secure delivery in full of the 2014/15 savings programme, with delivery from the start of the year meeting plan. In order to do this, the trust will need to significantly upgrade the support infrastructure for CIP delivery, and also deal with those remaining systemic and control issues that affect spend, particularly in terms of pay. The Trust will present its plans for 2014/15 over the remainder of the run up to the 4th April submission date, and this will include the full CIP plan, with delivery support proposals designed to ensure effective delivery of all schemes. The plan will also be subjected to external scrutiny as part of the Financial Governance review that the trust has chosen to commission. This will look at both the content of the plan and the adequacy of delivery support mechanisms. Even given full delivery of savings, 2014/15 will prove challenging given the contracting environment, and the failure at this point to agree a contract with local CCGs reflects the difficulties which are apparent locally – as in many health economies. It should again be noted that the health community remains in significant net surplus, and will receive further allocation growth for next year. Planning work for 2014/15 continues to progress, and will be presented to the Trust through the rest of March. Mike Rocke Director of Finance & Business Support March 2014

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APPENDIX 1 Creditor and debtor day analysis

Ratio November December January February Debtor days 22 21 22 21 Creditor days 39 42 43 44 APPENDIX 2 Facilities Branch Variances

Facilities Management & Soft Services YTD Variance £000s

Facilities Management (114) Facilities Services 69 Soft Services (1,378) Total (1,423)

APPENDIX 3 Operations Branch Variances

Operations YTD Variance £000s

Operations Central (95) Operations Directorate (227) Surgery & Critical Care (781) Medicine DPOW (2,456) Medicine SGH (3,357) Women & Childrens Services (690) Therapy & Community Services (63) Total (7,669)

APPENDIX 4 Diagnostics and Therapeutics Branch Variances

Diagnostics & Therapeutics YTD Variance £000s

Diagnostic Services Central 0 Pathlinks 404 Diagnostics (761) Pharmacy 132 Blood Services (15) Medical Engineering (44) Total (285)

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nlg(14)116€¦ · this report covers the trust’s financial performance to date for the financial...

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