Financial Management for Budget Holders January 2015

Contents An overview of NHS Structure Who we are and what we do An overview of NHS Finance Budget holder responsibilities Budgeting Forecasting Interpreting Finance, Establishment, Nominal roll & Group Finance reports Raising Purchase Orders and Authorisation Limits Cost Improvement Programme (CIP) Audit Overview of Contracting and Commissioning Overview of Payment by Results (PbR) Overview of Service Line Reporting (SLR)

An overview of NHS Structure http://www.nhs.uk/NHSEngland/thenhs/about/Pages/nhsstructure.aspx

Contracting and Service Who we are and what we do Chief Finance Officer Gail Nolan Deputy Chief Finance Officer Susan Rollason Director of Performance & Programme Management Office (PPMO) Jonathan Brotherton Associate Director of Private Finance Initiatives Steve Noon Associate Director of Finance Corporate Services & Financial Governance Alan Jones Associate Director of Finance Operations Antony Hobbs Associate Director of Finance Contracting and Service Line Reporting Craig Cook Head of Financial Planning Jonathan Gamble Private Finance Initiatives (PFI) Team Financial Services Teams Financial Management Teams Contracting, Commissioning and Costing Teams Financial Planning Team Performance & Programme Management Team

An overview of NHS Finance Do you know……. The age of the NHS? How many employees work in the NHS? The size of the NHS budget? How many organisations are in the NHS? What UHCW’s total budget is? How many patients are treated by the NHS in a 36 hour window? http://www.nhsconfed.org/resources/key-statistics-on-the-nhs Answers The NHS was founded in 1948 and has been in existence for 66 years (this being the 66th year) The NHS employs more than 1.7m Circa £100bn Number of NHS Organisations approx 500 [101 NHS Trusts; 147 NHS Foundation Trust Status; 212 NHS England and Counterparties (CCG’S); UHCW total budget for 2014-15 is £537m 1m patients every 36 hours

Budget Holder Responsibilities Understand and manage your budget Keep finance managers up to date with developments and issues Identification of efficiencies (CIP) & cost pressures Participate in budget setting and forecasting Validate financial information (e.g. nominal roll, establishment, reports) Operate within financial policies Budget holders have a duty to break even but we recognise that there may be cost pressures outside of your control, therefore it is your responsibility to manage your budget as best as you can – inform your finance manager of any issues or developments that they need to be aware of for reporting and budget setting purposes. Regular meetings with your finance team are crucial for identifying both cost efficiencies and pressures affecting your area.

What is a Budget? It is a ‘plan’ or envelope of resources required to deliver an agreed level of output. Usually the first year of an agreed 3-5 year plan and are determined by the amount of income a Trust earns. Budgets allow improved financial planning and monitoring of performance against the plan. A typical financial plan includes: - Pay budget (£’s and WTE) - Non Pay budget - Income target Notes: A budget is a financial plan of resources to deliver a level of output. Analogy: Just like at home we budget for how much we are going to spend on our holiday, shopping and household expenditure. In a hospital environment we have to set budgets at the start of the financial year and split into 3 categories: Pay – Budgets for Pay are based on staffing levels. Non Pay- Budget for non pay is based on expected usage of Consumables, maintenance, stationary Income: Level of income the hospital will receive from CCG’s, Private Patients, Research Bodies & Other Stakeholders. Accurate budget setting allows for greater financial planning – so we know what we can spend and save (efficiencies). This allows budget holders to identify prioritises and to better utilise their resources. Budget holders are involved in the budget setting process so they understand how budgets are set and agreed. Measure Performance Budgets allow for the trust to monitor areas that are doing well and those that are over spending. This allows the trust to monitor how well it is doing against its annual target. Authorise Expenditure & Control Budgets allow budget manager's to authorise expenditure up to their designated limit. Whether this be purchase orders, expenses, claim forms. Budgets are prepared to ensure only the amount authorised is spent. Any expenditure above or below this level should be monitored corrective action can be taken.

What is a Forecast? “The use of historic data to determine the direction of future trends.” Benefits Provides a forward look of resources & spend To identify and reduce risks Allows valuable decision making Aids budget setting What information should budget managers provide? Predicted changes in their services Upcoming pressures Up to date recruitment plans Purpose of forecasting: (Ask the audience what is it and what’s the purpose? Make a joke about it not being a weather forecast!!!!) In finance, we use forecast to estimate the year end financial position based on current trends of expenditure and activity with the addition of management information. We also have to think about how this links in with workforce, activity and capacity. E.g. with increasing emergencies, we may need more beds, staffing and consumables for example. Forecasting allows for the hospital to monitor its performance against budget and what the likely impact will be at year end. This then allows the group to identify and reduce any potential risks of not achieving targets and to take action to ensure corrective decisions are made to achieve targets. For example – reduce the expenditure on locums costs to ensure that the department recruits a substantive member of staff to reduce premium costs. What can budget managers do to ensure an accurate forecast? Investigate budget variances to understand and explain why they are occurring and if they are likely to continue. Provide useful information that can help construct an accurate forecast: - dates of staff leavers, -dates of new starters, predicted changes to your service that might affect the finances, e.g. opening of a day unit or more elective surgery? Remember the impact that service changes might have on income and costs expenditure incurred in year not likely to be incurred again. expenditure incurred which will allow for stock for several months. any future expenditure that is likely to be incurred. any risk of potential non payment of income ( such as cease of external income)

Stop and Think 1. Suggest examples to be included in a forecast; Pay Non pay Income 2. What are the possible impacts of an incorrect forecast?

This includes other operating income (e.g. teaching and training) Interpreting Finance Report This includes other operating income (e.g. teaching and training) NON PAY Expenditure – Expenditure incurred through invoices paid for non stock requisitions and stock requisitions (Recharges and payroll) Annual, Monthly and Cumulative (Year to Date/YTD) Budget is shown on the report. Budget is usually phased (split) equally over 12 months. Monthly and Cumulative Spend is provided on the Budget Report which then gives the Monthly and Cumulative Variance (Position). (Negative) = OVERSPEND Non Pay Variances – Activity related / Price related / Budget Setting related / New lines Pass through items – recharged to commissioners Mid Year Review Funding Variances are analysed to understand operational and performance issues that need to be addressed in order to improve the financial performance. INCOME (Non Contract) Income received into Expenditure budgets is “non contract”. This Includes: Recharges / SLAs – with other organisations NHS/Non NHS Non Contract income – sponsorship/screening income etc Education and Training – SIFT and MADEL Ad hoc / Miscellaneous income – examples – Audiology Lost Aids Drill down ability Pay – individuals pay elements – arrears/overtime. Agency invoices and timesheets Non Pay – invoices/orders Income – invoices/payments received The Budget Report should be reviewed on a monthly basis and all variances investigated

Interpreting Nominal Roll

Interpreting Establishment Report Establishment (Excel Spreadsheet) Provides details of: Total Funded Establishment, Total Staff in Post, Total Vacancies Establishment, In post and vacancies by staff grade/type Staff details – WTE (Hours), Band/Grade, Assignment Number, Position Number Should be checked and updated on a monthly basis

Interpreting a Group Report Talk about the KEY Numbers on this page i.e. year to date variance, forecast variance, annual budget CIP reasons for variances and why the position has worsened in the year to go.

Stop and Think Reading the budget reports, can you spot the issues and suggest possible reasons for the variances? Reading the establishment, can you spot the issues and suggest possible reasons for the variances? Reading the nominal roll, can you spot the issues and suggest any possible solutions or reasons? Discuss the Group Finance Summary. Why is the position getting worse in the latter part of the year?

Raising Purchase Orders The Trust’s Standing Financial Instructions (SFIs) state all goods and services require an official order Orders can be raised (in order of preference) via: Integra NHS Supply Chain Requisition form Process: - Complete order prior to commencement of service Obtain authorisation and forward to Supplies An SFI waiver must be completed for orders more than £10,000 For further assistance, contact Supplies Department

Authorisation Limits Scheme of Reservation & Delegation All budget holders should be aware of their authorisation limits Delegated levels List of Officers Limits Level 4 officers Trust officers (budget holders) £10,000 Level 3 officers Modern matrons General managers Service managers £10,000 to £49,999 Level 2 officers Clinical Directors Director of Pharmacy (pharmaceuticals) Head of corporate departments Direct reports to an executive director# Director of Operations (Pathology) Associate/assistant directors £50,000 to £99,999 Level 1 officers Executive directors# for their own departments/areas £100,000 to £499,999 Executive directors# £500,000 to £999,999 Chief Executive Officer with Chief Finance Officer Over £1,000,000 For further assistance please contact your finance team

Cost Improvement Programme (CIP) Demand for NHS services is rising and funding is not increasing at the same rate. NHS needs to save £20bn by 2015 UHCW’s target for 2014/15 is £33.5m. Groups are monitored on a weekly basis on: - Value of opportunities identified - Forecast delivery Group’s responsibilities are to: - Identify and deliver efficiency schemes such as reducing waste, increasing income and productivity - Regular meetings with your finance team to monitor progress Annually the trust has to find cost savings and efficiencies as part of the need for the NHS to save £20 billion by 2015. The trust will face a reduction in income as result, so in turn trusts must reduce their expenditure or find more efficient ways of providing services. This is to ensure that we are spending public monies efficiently and ensuring its best use. A successful CIP may not necessarily be about reducing costs but could include growth in services, short or long term plan to improve patient care, satisfaction and safety. The target is split between the groups of the trust and each group is responsible for identifying and delivering its cost improvement target. (circa 10% of budgets) CIP are reported weekly and as part of the monthly finance reporting to the Trust. Meaning that CIP identification and delivery is under heavy scrutiny and is closely monitored. Budget managers and Group managers are responsible for delivering CIP and efficiencies with support from Finance and other Core functions. Examples of services improvements can include: Improved coding and counting of activity Negotiation with suppliers to bring down costs of supplies consumables Reconfiguration of staff and duties to ensure efficiencies. Redesigning services that create new income streams for new or existing patients. e.g hot clinics Review rotas or job plans Review the use of drugs, consumables and ordering tests and investigations Reducing waste and premium costs such as agency, locum and bank expenditure All budget manager will be set up on the Online CIP reporting tool where all plans and performance of CIP’s are recorded and monitored and evaluated.

Stop and Think Can you suggest a possible CIP for; Pay? Non Pay? Increases in Non contract Income?

Audit Internal and External Audit are key elements in every NHS organisations Governance Framework. Internal Audit ‘provides independent assurance to an organisation that its risk management, internal control and governance are operating effectively and helping it in achieving its objectives’. External Audit ‘carry out annual check on organisation’s accounts and give an opinion on whether they give a true and fair view of the financial position’ . Governance Framework is a framework of systems, procedures and controls underpinning everything the organisation does and how its run. pp Inter

Overview of Commissioning and Contracting Who’s involved? Commissioners – Clinical Commissioning Groups (CCGs) & Specialist Commissioning Groups (SCGs) Healthcare Providers – Trusts (e.g. UHCW) Roles & Responsibilities Both parties agree ‘volumes’ and ‘budgets’ for patient care as part of an annual planning process. Consider size and demographics of the population Agree funding of new service developments. For further information contact the Commissioning Team Priorities for healthcare are shaped by things like :- National Policies and Government reforms – attempting to address health inequalities Quality of care - e.g. 18 week targets NHS Frameworks – e.g. Renal Services Public health priorities - Coronary Heart Disease, Cancer Demographics and local health needs of patients Research and best practice – e.g. Diabetes Collaborative working between healthcare organisations (!!!) National Policy indicates a drive towards providing integrated health and social care packages

Overview of Payment by Results (PbR) Money follows the patient Hospital services are paid for by either a locally agreed price or the national tariff Prices and payments are based on the type of procedure and appointment type (day case, outpatient, emergency) Adjustments are made depending on the complexity of care e.g. length of stay. Further incentives for meeting best practice and quality indicators Commissioning for Quality and Innovation (CQUIN) – penalties if not met Quality, Innovation, Productivity and Prevention (QIPP) – admission avoidance schemes For further information contact the Contracting and Commissioning Team CQUIN – Commissioning for Quality and Innovation About 2.5% of value of bottom line contract value re-invested in the Trust if we achieve specific schemes (50% local schemes; 50% national schemes).  There is a financial penalty incurred if not achieved QIPP- Quality, Innovation, Productivity and Prevention. Commissioner led set of hospital activity avoidance schemes intended to result reduction in hospital activity .  The risk lies with the commissioners not the trust to achieve the schemes. No penalty incurred by Trust if not met. E.g. the number of GP referrals.  More can be done by the GP to avoid the patient being seen at UHCW therefore reducing our activity. HRG – Health Resource Group

“SLR is a measure of the profitability of a service.” Overview of Service Line Reporting (SLR) “SLR is a measure of the profitability of a service.” Measured at either; - Group - Specialty Consultant Healthcare Resource Groups (HRG) Point of delivery Patient level (PLICS) Income generated less the costs of delivering the service including overheads. UHCW reports this information using a system called ‘Qlikview’ For further information contact the Costing Team

Example of Qlikview / SLR

Example of Qlikview / SLR

Stop and Think If we were to open an new ward, what do you think the impact will be on; Pay? Non Pay? Contract Income? When might a hospital service not be paid? What do you think are the benefits of SLR? Money follows the patient therefore, what would you expect to see in a patient level costing?

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