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FT FINANCIAL REGIME. JANET BARKER/JOANNA MYERS Group Finance Managers Sheffield Teaching Hospitals NHSFT. Aims of Today. FT Financial regime Contract income and other funding sources Monitor regulation Q&A session on “a day in the life of…”. FT Financial Freedoms.

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ft financial regime

FT FINANCIAL REGIME

JANET BARKER/JOANNA MYERS

Group Finance Managers

Sheffield Teaching Hospitals NHSFT

aims of today
Aims of Today
  • FT Financial regime
  • Contract income and other funding sources
  • Monitor regulation
  • Q&A session on “a day in the life of…”
ft financial freedoms
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
ft financial duties
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
accounting officer responsibilities
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
nhs funds flow
NHS Funds Flow

Treasury

Department of Health

R&D

- Networks

  • Primary Care Trust
  • Patient Services
  • (April 13 CCGs/SCB)

Health Authority

- Education

Community

Services Provider

Acute Provider (s)

Mental Health

Provider

sources of income into sthft
Sources of Income into STHFT

£m

NHS Clinical 709.3

Non-NHS Clinical 7.6

R&D 14.3

Education & Training 66.2

Other income 62.7

TOTAL 860.1

(Source: 2011/12 Accounts)

clinical income
Clinical income

£m

Elective/Day cases 148.0

Non-elective 158.3

Outpatients 109.9

A&E 12.9

Other 227.1

Block Contract (Community) 53.1

PPI/NHSI 7.6

TOTAL 716.9

main pct commissioners
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

how contracts are agreed
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)
pbr national tariffs
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
how is tariff derived
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.
pricing of sth contract tariff element
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
sources of capital funding
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.
public dividend capital
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)
leases
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
private finance initiative 1
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
private finance initiative 2
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
private finance initiative 3
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
ftff loans 1
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
limits on capital spending
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
prudential borrowing limit pbl
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.
monitor 1
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
monitor 2
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)
governance risk assessment
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
finance risk assessment 1
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
financial risk assessment 2
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

interpreting frr
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
sth experience of monitor
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.
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