1. FT FINANCIAL REGIME JANET BARKER/JOANNA MYERS Group Finance Managers Sheffield Teaching Hospitals NHSFT

2. Aims of Today FT Financial regime Contract income and other funding sources Monitor regulation Q&A session on “a day in the life of…”

3. FT Financial Freedoms Plan driven vs Target driven Can borrow commercially Retain surpluses Retain proceeds of asset sales Invest to serve local needs Can set up investment companies Joint ventures with the private sector

4. FT Financial duties Set out in terms of Authorisation –Must operate efficiently, effectively and economically and as a going concern –Disclose information to Monitor and relevant third parties –Comply with Operating framework, Principles of Cooperation and competition –Protection of mandatory services and protected assets –Major investments/disinvestments

5. Accounting Officer Responsibilities Chief Executive – Delegates to DoF Duty to exercise its functions effectively, efficiently and economically Preparation of accounts Witness before Public Accounts Committee High standard of Financial Management Robust financial systems and procedures Safeguard assets Financial considerations are reflected in FT policy decisions Comply with Financial Terms of authorisation

6. Department of Health Primary Care Trust -Patient Services (April 13 CCGs/SCB) Community Services Provider Acute Provider (s) Mental Health Provider Treasury NHS Funds Flow Health Authority - Education R&D - Networks

7. Sources of Income into STHFT £m NHS Clinical709.3 Non-NHS Clinical 7.6 R&D 14.3 Education & Training 66.2 Other income 62.7 TOTAL860.1 (Source: 2011/12 Accounts)

8. Clinical income £m Elective/Day cases148.0 Non-elective 158.3 Outpatients109.9 A&E 12.9 Other 227.1 Block Contract (Community) 53.1 PPI/NHSI 7.6 TOTAL716.9

9. Main PCT Commissioners % of patient services income Sheffield 56.9 Barnsley 4.3 Rotherham 4.1 Doncaster 2.7 Bassetlaw 1.2 Derbyshire County 4.3 SCGs 23.2 Others 3.3

10. How Contracts are Agreed Agreements cover: –Volume of Activity –Price of Activity –Quality of Activity –“Timing” of Activity Funding historically on a local negotiation on price Now funding largely based on Payment by Results (National Tariffs)

11. PbR / National tariffs Payment by Results – being paid for work we carry out at national tariff Tariffs are split between: –Elective inpatients/day case –Non-elective inpatients –Outpatients –A&E

12. How is tariff derived? –All Providers prepare and submit reference costs on an annual basis. –Based at Healthcare Resource Group level e.g. FZ17A – Abdominal Hernia > 19yrs with major CC. –Separate for elective and non-elective activity –Tariff is a national average of all Providers Reference Cost submissions.

13. Pricing of STH Contract – Tariff element Approximately 69.4% of the STH services are covered by national tariffs Income is calculated based on: -Activity x national tariff -Get regional price adjustment (MFF) = additional 2.9%) Contract at indicative volume and case- mix, but ultimately get paid on reported actuals

14. Sources of Capital funding Depreciation I&E surpluses Sale of fixed assets Public Dividend Capital Donations – eg University/Charitable donation Government Grants – eg Lottery/specific grant. Leases PFI FT Financing Facility Loans – Govt bank loan up to 25 year term.

15. Public Dividend Capital Direct allocations from DoH for specific initiatives Limited – mainly applies to research e.g. BRUs PDC draw down limit authorised for the year Draw down to match capital spend Must be able to demonstrate that Cap X exceeds Depreciation in that year (R&D exempted)

16. Leases Operating Leases/rental Finance leases –Recognise Fixed Asset and Creditor –“On-balance sheet” Under IFRS it is more difficult to classify as an operating lease

17. Private Finance Initiative (1) Operates on principle of primarily procuring a service rather than an asset Can take many forms – e.g., design, build, finance and service a building Payment is a unitary charge covering both service charges, interest charges and rental Pre IFRS was mainly “Off-Balance Sheet” Applies to core and non-core services – Car parks, ward blocks, equipment, whole hospitals

18. Private Finance initiative (2) Operated on principle – private sector is more efficient and innovative Reality was: –Hugely bureaucratic –Incurred high adviser costs –Long negotiation/approval processes –Private sector margins Only value for money because of VAT savings and inclusion of costed risk Sheffield FT - Sir Robert Hadfield Block

19. Private Finance Initiative (3) Prime driver was avoiding Public Sector Borrowing! Now largely discredited for major schemes Now most schemes ‘on-balance sheet’ under IFRS Potential still exists for niche schemes –CSSD Supercentres –Laboratory Supercentres –Non-care activities e.g. car parking

20. FTFF Loans (1) Non-commercial bank loans FT Financing Facility is part of DoH Loans up to 25 years Staggered draw down Interest rate fixed at date of agreement (currently 3.8% for 20 years) Half yearly repayments

21. Limits on Capital Spending Availability of capital funding Ability to afford the revenue consequences Subject to internal business case approvals process PFI > £25m needs DoH approval Prudential Borrowing Code

22. Prudential Borrowing limit (“PBL”) Approved Working Capital facility Maximum cumulative long term borrowing Applies to Loans and “On-Balance Sheet” PFI Current loans for STH = Hadfield, NGH Critical care, NGH Laboratories Predetermined as part of Authorisation/Monitor Regulation.

23. Monitor (1) Independent Regulator of Foundation Trusts Monitors performance using Compliance Framework Regulatory principles –Self certification –Risk based approach –Based on trust –Confidentiality –Minimal information requirements

24. Monitor (2) Four main components –Annual plan review (May) –In-year monitoring (Quarterly) + Accounts –Exception reporting –Escalation and intervention Essentially split between: Finance and Governance Finance returns (I&E, Balance Sheet, Cash Flow + variance analysis + CE commentary)

25. Governance risk assessment Uses traffic light system (4 lights!) Derived from a number of factors: –Performance against national targets –CQC registration and ongoing performance –Provision of mandatory goods and services

26. Finance risk assessment (1) Based on annual plan and quarterly monitoring Uses a number of primary indicators: –Delivery of Financial plan –Operating margin –Financial Efficiency (Return on assets) –Liquidity (min Cash balances) Derives score for each element Applies overriding rules and calculates FRR of 1- 5

27. Financial risk assessment (2) FRR of 5 = low risk – get benefit of fewer returns FRR of 3 or 4 = OK – quarterly monitoring FRR of 2 or lower = Monitor intervention Q4 FRR determines CQC rating 4 or 5 = “Excellent” for use of resources 3 = “Good” for use of resources

28. Interpreting FRR Based on actuals – get better results in first quarters of year Can bias plan profile to achieve better results in-year No incentive to submit an ambitious Plan Liquidity element includes overdraft facility! – can manipulate score up to limit Adds back exceptional items! Really a mixture of performance and risk of default! Easier to achieve excellent than through ALE scores Realistically cannot deliver a deficit

29. STH experience of Monitor Independent Performance management – Not advocate for FTs Generally “light touch” Information requirements not onerous (except for Annual plan) OK as long as delivering satisfactorily Quick to intervene if performance starts slipping.