Clinical Director / Associate Medical Director Introductory Development Programme
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Clinical Director / Associate Medical Director Introductory Development Programme Finance Session John Maddison Director of Finance & Information 15/04/11. Purpose of the Session. Corporate & Financial Governance How the money flows in the NHS & PbR

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Clinical Director / Associate Medical Director Introductory Development Programme Finance SessionJohn Maddison Director of Finance & Information 15/04/11


Purpose of the session
Purpose of the Session Development Programme

  • Corporate & Financial Governance

  • How the money flows in the NHS & PbR

  • Budgets, Budgeting approaches & Budget setting

  • Board level & Directorate level Financial Information

  • Budget Control & reporting

  • Financial planning & decision making

  • Finance & Clinicians

  • Current financial climate

  • Questions


Corporate governance
Corporate Governance Development Programme

  • How the Trust is led and structured

  • Operates in line with fundamental principles of openness, integrity and accountability

  • Provide high quality healthcare

  • Trusts objectives are delivered economically, efficiently and effectively


Corporate governance1
Corporate Governance Development Programme

  • Protect interests of both the individual and the Trust

  • Protects staff against any possible accusation that they acted less than properly

  • Budget holders are required to read and understand Standing Orders and Standing Financial Instructions


Standing orders
Standing Orders Development Programme

  • Translate statutory powers into a series of practical rules:

    - Composition of Board and its sub committees

    - How meetings are conducted

    - Form, content and frequency of reports

    - Voting procedures

    - Duties and obligations of Board Members


Scheme of reservation delegation
Scheme of Reservation & Delegation Development Programme

  • The scheme of reservation specifies what powers the Board has chosen to exercise itself – e.g. land sales

  • The scheme of Delegation specifies the delegation of powers from the Board throughout the organisation


Financial governance and accountability
Financial governance and accountability Development Programme

  • Governance can be described as the rules, processors and behaviour that affect the way in which powers are exercised. It is therefore concerned with how an organisation is run, how it is structured and how it is led.


Financial governance and accountability1
Financial governance and accountability Development Programme

  • The Board

  • Accountable officer (Chief Executive)

    • Responsible for ensuring that their organisation operates efficiently economically and with probity and that they make good use of their resources and keep proper accounts.

  • Board of directors - held to account by Council of Governors! (FT’s only)

  • Audit committee (Non Execs – safeguarding assets / Internal control)

  • Annual report and accounts

  • Internal & external audit

  • Standing orders, standing financial instructions and schemes of delegation


Standing financial instructions
Standing Financial Instructions Development Programme

  • SFIs detail the financial responsibilities, policies and procedures of all transactions in order to achieve value for money

  • The role of the Audit Committee, Internal & External Audit and the role of the DoF

  • Procurement and tendering procedures

  • The SFIs allow the Chief Executive to delegate budget management to budget holders


How the money flows in the nhs
How the money flows in the NHS Development Programme

  • NHS Funding

  • PCT Commissioning

  • Payment by Results


Nhs organisations structure
NHS Organisations & Structure Development Programme


Nhs revenue funding flows
NHS Revenue Funding Flows Development Programme


How the money flows revenue
How the money Flows: Revenue Development Programme

  • A ‘weighted capitation’ formula (3 Years)

  • Attempts to takes account of the scale and characteristics of each PCT –

    • Population and demographics

    • Deprivation levels

    • Health needs & profile

  • Results in a ‘target share’ for each PCT

  • Target not the same as allocation - gradual move towards target allocations for all PCT’s from growth!

  • Stockton & Hartlepool PCT’s circa £20m away from target

  • Allocation formula currently under review – cynical perspective change in key variables to shift resources south!

  • Current formula not sophisticated / sensitive enough to disaggregate to GP / GPCC level


Pct commissioning
PCT Commissioning Development Programme

  • PCT’s commission healthcare for their local population. This can be from:

    • NHS Trusts

    • Foundation Trusts

    • PCT’s (Community Services)

    • Independent Sector / Voluntary Sector

    • Doctors

    • Dentists

    • Opticians


Nhs trusts and foundation trusts income
NHS Trusts and Foundation Trusts Income Development Programme

  • Majority of income received through commissioning process with PCT’s via payment by results tariff

  • Other funding via

    • Direct allocations from Department of Health

    • Local Authorities

    • Research & Training

    • Charitable Donations

    • Catering, Car Parking, Private Patients


Payment by results pbr
Payment by Results (PbR) Development Programme

  • PbR introduced in 2003/04 using HRG’s as currency

  • Rules based approach

  • Links payments to activity undertaken

  • Intended to support NHS Plan and reform agenda during period of unprecedented growth

    • Reduce waiting times - 18 Weeks

    • Patient Choice

  • National Tariff set annually for each type of service / HRG

  • Income reflects volume and complexity of healthcare provided. Contract negotiations focus on volumes and quality


Payment by results
Payment by Results Development Programme

  • Is it fit for purpose during period of austerity? –

    • Original structure & scope incentivised FT’s to deliver increased volumes

    • Latterly tariff tweaked for Introduction of NEL 30% threshold; recalibration downwards of tariff; move to exclude excess bed days income etc

  • Is it results based or actually just volume based?

    • Direction of travel towards best practice tariffs ; CQUIN’s; Financial penalties; readmissions penalties etc


Budget definition
Budget Definition Development Programme

“a financial plan that sets out in clear and concise terms the resources assigned to the delivery of service and operational targets for a defined period”


Budgets what they are
Budgets – what they are Development Programme

Forward planning allows the Trust to shape its future, rather than to react to events and is critical in the achievement of organisational objectives.

  • Budgets are:

    - Financial and/or quantitative statements

    - Prepared and agreed for a specific future period

    - Designed to fulfil agreed objectives

    - Drawn up for separate activities/projects and for organisations


Reasons for preparing budgets
Reasons for preparing budgets Development Programme

  • Quantify the organisation’s future plans and commitments

  • Review aims and ensure planned activities are achieved

  • Determine the resources needed to deliver services

  • Basis for controlling income and expenditure

  • A yardstick for measuring performance

  • To ensure statutory financial targets are met


When are budgets prepared
When are budgets prepared ? Development Programme

  • Each year – linked to Directorate business plans, the Annual operating plan and the FT Annual plan submission to Monitor

  • For new services

  • For major changes in the way in which services are delivered

  • Dynamic not static.


Budgeting approaches
Budgeting approaches Development Programme

  • Historic/incremental-based

  • Zero-based

  • Activity-based.


Historic incremental budgeting

Historic/incremental budgeting Development Programme

Historic/incremental budgeting

Current year budget

Less: non-recurring

items

Next year budget

Set other reserves

Add: full year

effects of

recurring items

Create inflation

reserve

Adjust for

changes

in service

Less: cost

improvement

programme


Zero-based budgeting Development Programme

Assume zero

budget for

next year

Set entirely

new budget

Review objectives

of department

Identify optimum

staff, materials etc


Activity-based budgeting Development Programme

Identify

workload

measure

Flex variable

budget by

actual activity

Estimate

planned

activity

Identify fixedcosts

Calculate budget

Identify

variable costs

Measure actual

activity

Calculate

marginal cost


Historic/incremental budgeting Development Programme

  • Advantages

  • Easy to operate

  • Simple to understand

  • Uses an established base

  • Less demanding on management time

  • Can operate with weak information systems.

  • Disadvantages

  • Perpetuates inefficiencies

  • Lack of ownership by managers

  • Changes in activity/objectives/working practices not readily reflected

  • Not responsive to changed priorities.


Zero-based budgeting Development Programme

  • Advantages

  • Identifies inefficiencies

  • Links budget to an organisation’s objectives and activity plans

  • Management ownership

  • Challenges existing practice.

  • Disadvantages

  • Time consuming

  • Difficult to implement

  • Lack of certainty

  • May raise expectations.


Activity-based budgeting Development Programme

  • Advantages

  • Links finances to activity

  • Budgets realistic compared with activity

  • Encourages management to focus on efficiency and fixed costs rather than uncontrollable workload

  • Variances easier to explain.

  • Disadvantages

  • Identifying activity levels is difficult

  • Total income may not flex to balance

  • Changes to standard costs may not be recognised

  • Case mix is often excluded.


Budget setting in the nhs
Budget setting in the NHS Development Programme

  • Combination of incremental and ZBB but needs to move towards ABC – PLICs will provide the platform to do this

  • Robust timetable

  • Set and approved before the year it relates to

  • Realistic forecasts (for pay, inflation, cost pressures)

  • Takes account of previous year’s experience

  • Budget holder involvement

  • Profiled across the year

  • Balanced.


Ft annual plan
FT Annual Plan Development Programme

  • Monitor requires FT to submit an annual plan by 31st May each year

  • The plan includes forward planning information over a three year period

  • Detailed implications i.e. development of a particular service will have implications for capital spend, tariff income etc


The budget setting process
The Budget Setting Process Development Programme

  • Comprises several basic steps:

    - Prioritisation of objectives identified in the planning process and formalised via the annual plan and underpinning Service Level Agreements

    - Assessment / quantification of total available resources, both financial and non financial


The budget setting process income
The Budget Setting Process - Income Development Programme

  • Overall budget includes income from several different sources:

    - SLA’s with PCTs and other NHS bodies in accordance with the National Tariff and PbRs

    - Private patients, RTA’s

    - Medical and non-medical training funding via the Workforce Development Directorate of the SHA

    - Commercial sources of income – car parking, catering etc


Trust income
Trust Income Development Programme

  • Contracts / Service Level Agreements (SLA’s)

    • Legally binding, very detailed

    • Standardised national format for Acute & community services

    • Specified / planned levels of activity agreed with PCT’s

    • By Point of delivery e.g.

      • Outpatients – New / review / procedures

      • Diagnostics

      • A&E

      • Emergency admissions

      • Elective – day case / General


Trust income1
Trust Income Development Programme

  • Contract types – clinical Income

    • Cost per case – trust paid for each treatment under the national payment by results tariff – a schedule of prices based on HRG v4 – circa 1400 prices e.g. Hip replacement = £4k

    • Cost & volume / Block Contract – Trust paid for a set level of service e.g. Training of junior Medical staff, community services

  • Non clinical Income – from catering, car parking(!), rents , education & training etc


The budget setting process expenditure
The Budget Setting Process - Expenditure Development Programme

  • Expenditure budgets are based on:

    - Forecast outturn at month 10 in 2010/2011 and cover direct costs under the control of the budget manager

    - Pay – detailing the agreed establishment in terms of WTE, £’s by AfC and local Trust grade

    - Non-pay – by subjective category e.g. drugs, M&SE, provisions, energy etc

    - Internal recharges for services provided / received such as pathology, radiology etc


Trust expenditure
Trust Expenditure Development Programme

  • Pay – circa 68% of costs = 4,685 wte’s of which -

    • Medical – 11%

    • Nursing & Midwives - 55%

    • AHP’s & Scientific staff - 13%

    • Admin & Estates - 17%

    • Management – 4%

  • Non pay – circa 32%

    • Clinical supplies inc drugs ,prosthesis etc – 15%

    • Premises , plant & other – 12%

    • Capital charges – depreciation / Dividend – 5%


The budget setting process cip
The Budget Setting Process - CIP Development Programme

  • CIP agreed as part of the planning process and enables the Trust to set the annual plan and budget within its resources

  • Current economic climate, outlook and Monitor efficiency assumptions outline the need for increasing levels of efficiency savings

  • Due to economic climate input sought from BDO with regard to best practice & development of schemes and governance

  • In-year monitoring process includes a monthly report to Exec Team and Trust Board with escalation to the Finance Committee


The budget setting process cip1
The Budget Setting Process - CIP Development Programme


Budgetary control financial reports to the board monitor
Budgetary control – financial reports to the Board & Monitor

  • Income & Expenditure

  • Balance Sheet

  • Cash flow


Budgetary control reporting
Budgetary control - reporting Monitor

  • Monthly reports to board and management

  • Performance against plans and targets using key performance indicators (KPIs)

  • Financial and non financial information


Budgetary control what it is
Budgetary control – what it is ? Monitor

  • Budgetary control monitors actual results against the agreed budget

  • Variances are identified

  • Corrective action taken or budget revised

  • Regular reports


Budgetary control how it is used
Budgetary control – how it is used Monitor

  • Not an end in itself

  • To identify the unexpected and investigate the cause

  • To improve value for money

  • Focus on what drives costs/generates income


Budgetary control budget holders
Budgetary control – budget holders Monitor

  • Aligned with responsibilities and the ability to control income and expenditure

  • Simple published budgetary control policies

  • Ownership – finances cannot be simply written off as ‘the responsibility of the finance department !’


Budgetary control budget holders1
Budgetary control – budget holders Monitor

What is a budget holder’s responsibility?

  • Tell the finance director there isn’t enough money ? – NO !

    - understand and manage their budget

    - what drives income/costs ?

    - what influences outcomes/outputs ?

  • What are a budget holder’s key objectives ?

    - deliver required quantity/quality of care/service

    - maximise income, minimise cost


Budgetary control budget holders2
Budgetary control – budget holders Monitor

  • So, to be an effective budget holder you must:

    - Clarify objectives – what are you required to deliver?

    - Understand what other organisation-wide targets you contribute to

    - Maximise income – look for opportunities

    - Minimise costs

    - Cash releasing savings: the same work for less money

    - Cost improvement: more work for the same money

    - Focus on VFM.


Financial planning decision making
Financial planning & decision making Monitor

  • Development of Service Line Reporting -

    • Inform areas to develop the business & market services that are profitable

    • Inform areas to apply lean principles to improve efficiency & ensure as a minimum services deliver a contribution

    • Provide a road map for investment decisions targeting Capital resource to generate sustainable revenue growth

  • Patient level information & costing –

    • Successful implementation dependent upon data warehouse of patient interventions to support costed profiles of care

    • Will provide information to constructively challenge practice – best practice tariffs

    • Provide the information to underpin business cases for new procedures; service expansion/contraction etc


Financial planning decision making1
Financial planning & decision making Monitor

  • Effective demand & capacity planning, linking PCT demand plans to Trust capacity

  • Ensure these are consistent with operational budgets

  • Utilise lean thinking principles to ensure internal capacity is utilised efficiently to deliver correct & appropriate care pathways & clinical interventions


The role of the finance department
The role of the finance department Monitor

  • Lead by the Finance Director

  • Responsible for:

    • Preparation of financial statements for external purposes

    • Transaction Processing

    • Providing management information, accounts and advice to the board, departments and budget holders.

    • Safeguarding assets

    • Cash Management

    • Assistance with business case preparation

    • Assess proposed capital developments

    • Liaise on financial contractual matters

    • Prepare & monitor budgets and financial forecasts


What i need from you
What I need from you Monitor

The purpose of the NHS is to serve patients and the public by whom it is funded. Clinicians seek to do this by using their skills to provide the best possible advice, treatment and care. But they can only do this if the money available to the NHS is used well. Failure to do so results in less care and lower quality. Money will only be used well if clinicians are fully engaged in managing it. Ultimately, it is clinicians who are responsible for the way in which services are delivered to individual patients and it is they who commit the necessary resources.


Where do we need to get to clinicians finance business partners
Where do we need to get to - Clinicians & Finance - business partners

  • “The finance team have provided me with the advice, support and business understanding to enable me to develop and expand my service; increase volume, efficiency & profit which has benefited my clinical team, benefited the Trust and resulted in health gain for my patients”


Current financial context
Current Financial Context partners

  • UK economic climate

  • NHS implications – minimal growth for next 5 years

  • DH need to generate cost efficiencies of £20bn

  • Projected savings target for Teesside of £200m over the next 5 years


Current financial context1
Current Financial Context partners

In 2010/11 CIP target was £12.8m (5%), actual delivered = £9m(3.5%)

National efficiency in tariff for 2011/12 = 4%,but due to 10/11 slippage, PCT financial position etc target = £16m(6.25%)

CIP over next 6 years = circa £51 million (not including savings required for new hospital)

New Hospital scenario – adds a further £25m of savings based on 2 to 1 site rationalisation economies


Current financial context2
Current Financial Context partners

This level of saving can only be contemplated if we look at major system transformation & radical solutions as well as tried and tested options

The need for real efficiency savings !


The key message
The key message …. partners

The Director General for NHS Finance

“ The NHS will have to deliver efficiency like never before”


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