Creating a sustainable culture NHS financial resilience review 2015 - Efficiency Demand
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Creating a sustainable culture
NHS financial resilience review 2015
Summary findings from our financial health checks of English NHS trusts, foundation trusts and CCGs
March 2015
Efficiency
Demand
FundingContents Introduction 1 Executive summary 2 Key indicators of financial performance 6 Strategic financial planning 9 Financial governance 11 Financial control 13 Clinical commissioning groups 15 Appendix – Four year analysis 20 About us 23
Introduction
Purpose of this report Table 1 Themes and categories for analysis for trusts
In increasingly financially challenged Theme Category
times, it is vital for NHS organisations to
Key indicators of • Strategic financial targets
gain the best possible understanding of the financial performance • Monitor financial risk ratings
challenges and potential solutions, and to • Public Sector Payment Policy/Better Payments Practice Code
benchmark against their peers. This report • Workforce
sets out our insight into how resilient NHS
Strategic financial • Focus of the medium-term financial strategy
finances are and provides a summary of planning • Adequacy of planning assumptions
the key themes and best practice that have
• Links to other plans
emerged from our national programme of
• Review processes
financial health reviews. • Responsiveness of the plan
Our approach Financial governance • Understanding
Our analysis is based on a review of the • Director and non-executive director (NED) engagement
delivery of 2013/14 (FY14) budgets and • Overview of key cost categories
planning for 2014/15 (FY15) and beyond • Risk management reporting
• Cost Improvement programme reporting (CIP)
at 63 foundation trusts (FTs) and non-FTs,
• Budget reporting – revenue and capital
collectively referred to as trusts throughout
• Internal audit recommendations
this report. Our analysis also covers 69
• Self-assessment
clinical commissioning groups (CCGs).
Our bespoke methodology for Financial control • Budget setting/monitoring – revenue and capital
trusts assesses financial resilience across • CIP programme setting/monitoring
26 categories, drawn together in four • Accounting systems
key themes: key indicators of financial • Finance department resourcing
performance; strategic financial planning; • Internal audit arrangements
financial governance; and financial control • External audit arrangements
• Assurance framework/risk management
(Table 1). For each category a risk rating
was given (Table 2), and combined to
provide an overall rating for each theme.
Strategic financial targets (Table 2)
Sections two to five of this report set out
our findings for NHS providers.
The methodology for CCGs differed
as these were in their first year and we
therefore assessed and risk-rated seven
categories designed to assess that first year.
Arrangements meet Potential risks and/or High risk
Detailed findings for CCGs are set out on
or exceed adequate weaknesses The trust’s arrangements
page 15. are generally inadequate
standards Adequate arrangements and
Summary ratings over time are provided characteristics are in place
or may have a high risk
Adequate arrangements of not succeeding
in the appendix. Figures and trends quoted identified and key in some respects, but not
are based on our sample unless otherwise characteristics of good all. Evidence that the trust is
practice appear to be in place taking forward areas where
indicated. A year on year comparison can arrangements need to be
be found in the appendix. strengthened
NHS FINANCIAL RESILIENCE REVIEW 2015 1Executive summary
The NHS is at a financial impasse, arising from the ever increasing demands of an elderly population
and long-term complex conditions. Encouragingly, the ‘NHS five year forward view’ (Forward view),
published last October, set out a welcome and more upbeat vision for the future of our publicly
funded English health service. Our second annual financial health review considers key indicators
of financial performance, financial governance, strategic financial planning and financial control,
to provide a summary update on local NHS bodies’ financial resilience.
NHS financial headlines
Since our last report, in November In many respects, our own analysis supports increasing financial
2013, much has been written about pressure facing the sector:
the state of NHS finances. News of non-FTs and 25% of FTs recorded a FY14 deficit – a quarter of these
media increasingly tells alarmist tales 44% unplanned and indicating the strain on many FTs
of an NHS in crisis. Reports from the
National Audit Office (NAO), Audit 9% of CCGs reported an overspend against allocation in FY14
Commission and many others describe of trusts did not meet their CIP target, including after relying on
a sector that is feeling the financial 48% non-recurrent measures
strain of sustained long-term trends
of trusts required non-recurrent savings in their FY14 CIP programmes
in demand, coupled with the cost 72% (50% FY13)
of addressing access and service
quality standards. of CCGs did not meet their savings target (QIPP) with heavy reliance
40% on non-recurrent savings
of trusts that met their CIP target relied on planned or unplanned
63% non-recurrent savings (44% FY13)
In our sample, based on identified issues with financial resilience:
“Closing the gap between the least 51% of non-FTs received a qualified auditor’s value for money conclusion
and most efficient and introducing 15% of CCGs had a ‘matter to report’ on their value for money conclusion
new and more efficient ways
of non-FTs and 26% of CCGs were subject to a referral to the Secretary
of delivering services offer the 26% of State for Health
opportunity to continue achieving
2% efficiency over the next 13% of FTs had a modified audit opinion.
Parliament.”
Source: Grant Thornton analysis
‘The forward view into action:
planning for 2015/16’
2 NHS FINANCIAL RESILIENCE REVIEW 2015Affording the future vision Government. For now, the ‘Forward Reducing variation between
The ‘Forward view’ set out a vision view’ states that “action will be needed more and less efficient providers and
based on a number of ideas, many not on ... three fronts – demand, efficiency delivering care in more efficient ways is
necessarily new or radical, but based and funding”. All are crucial and the needed in order to continue to sustain
on common sense and an increasingly report is clear that underachievement up to 2% annual efficiencies. NHS
accepted view of how public healthcare on one will place greater demands on England believes efficiency could rise
needs to develop and innovate. The key the others. to 3% by the end of the next Parliament
principles include a focus on prevention if preventative approaches and new care
over cure, breaking down the health The need for rapid change models are implemented at pace.
and social care divide, encouraging In recent history, the NHS has been Wider questions around how
better partnership with communities able to achieve up to 2% efficiency massive transformational change will
and voluntary organisations, providing per annum. ‘The Forward view into be funded and what share of the public
more support to older people living in action: planning for 2015/16’, planning purse will be devoted to the NHS
care homes, incentivising and developing guidance published in December, over the next five years will need to be
NHS people and embracing 21st century suggests that 40% of this efficiency answered in the next Parliament.
technology in providing healthcare. has been achieved through top-down
How can we afford this encouraging initiatives such as pay restraint and “To sustain a comprehensive
future vision for the NHS? The drug price caps. The guidance high-quality NHS, action will be
Forward view does not contain detailed recognises that these types of measures needed on ... three fronts – demand,
financial projections for how the £30 cannot be solely relied upon for the efficiency and funding.”
billion funding shortfall can be bridged. medium-term.
These are questions for the next ‘NHS five year forward view’
Funding
‘NHS five year forward view’ –
Key questions raised:
Three fronts for action
• How will the necessary transformational
change be costed and funded?
• How will economic conditions and
policy impact the level of increase
in NHS funding?
Efficiency
• Breaking organisational silos
Demand • New models of care
• Prevention and public health • Innovation
• Patient control over their care • Payment and regulatory
• Primary and community focus flexibility
• Third sector involvement
NHS FINANCIAL RESILIENCE REVIEW 2015 3Implementing accepted good Nineteen CCGs (9%) reported an commissioning sector are starting to
practice overspend against allocation in FY14 and impact upon leadership capacity within
In the short-term, we believe that the a slightly greater number are reporting CCGs. Finding sufficient time and
“non-transformational” 2% per annum potential overspends in FY15. However, skills to manage key developments
savings presents a challenge. Our analysis there is a mixed picture with some health in service redesign, collaborative
indicated that trusts’ deteriorating economies reporting a balanced position commissioning of specialised services
position for FY14 looked set to continue: while in some areas both the NHS and co-commissioning of primary care
commissioners and the providers are in is challenging. CCGs are investigating
deficit. options to address this capacity including
Trusts and CCGs struggling with using the legislative reform order to
CIP and QIPP performance can make create ‘mergers’ or ‘joint committees’.
65% 58% some progress in moving towards
their more efficient peers through the
The wider challenge of ensuring the
engagement and support of NHS people
did not have their looked unlikely to
adoption of accepted good practice during what will be a sustained period
CIP programme be able to deliver
disciplines for CIP planning, delivery, of change should not be underestimated.
ready in advance their FY15 CIP
reporting and control. These are set out Modern inclusive and collaborative
of FY15 target
in the body of this report. leadership and behaviour will need
to become the new norm across the
Engaging the NHS’s greatest asset NHS. The NHS Leadership Academy
Indeed, delivery of savings has been a On workforce, our analysis indicates recognises this need and the 2013
continued issue in FY15. The HFMA’s improvement in sickness absence in Healthcare Leadership Model includes
December 2014 ‘NHS financial FY14, but high and increasing levels these expected behaviours. The model is
temperature check’ found that the two of agency spend. Finance directors not mandatory and any approach is only
main reasons for deteriorating trust recognise this as a priority area for in- as good as how well it is applied in the
financial performance in FY15 were year savings, but fear the impact on local context. Therefore, it will be critical
CIP under-delivery and rising pay costs, access to services. The Forward view that, at a local level, a focus on the right
particularly agency. talks of moving away from such costly sort of behaviours is maintained. This
CCGs reported their main cost staffing solutions and to better staff is the only way to ensure that all NHS
pressures as coming from continuing planning across the system to deliver people are fully engaged in the shift away
healthcare costs and emergency care the service of the future, but this will from historical and familiar models of
costs. Our analysis demonstrated that take time. care to a truly patient-centred approach
48% of CCGs did not have their FY15 There are early signs that the that challenges previous organisational
financial plans ready by the start of the financial and other pressures in the cultures and boundaries.
year. 40% of CCGs did not deliver in
full against their FY14 QIPP targets and
there was heavy dependence on non-
recurrent savings.
“We can design innovative new care models, but they simply won’t
become a reality unless we have a workforce with the right numbers,
skills, values and behaviours to deliver it.”
‘NHS five year forward view’
4 NHS FINANCIAL RESILIENCE REVIEW 2015Nineteen CCGs (9%) reported
an overspend against allocation
in FY14 and a slightly greater
number are reporting potential
overspends in FY15.
Making collaboration real “It is ... essential that providers and commissioners work together, with
Since the NHS structural reforms in partners in primary and social care, to develop accurate demand and
2013, the responsibility for the strategic capacity plans that fulfil both the planning requirements and ensure
leadership across health economies has patients have access to high quality services.”
become fragmented. The roles previously
‘The Forward view into action: planning for 2015/16’
carried out by primary care trusts
(PCTs) and strategic health authorities
(SHAs) have been split out across local
better progress in the use of the fund Closing comment – Success rests
authorities, the Trust Development
were those where there were already on embracing change
Agency (TDA), the new CCGs and
well-established relationships based on The Forward view suggested that
different parts of NHS England.
mutual empathy and trust. Without this continuing with a comprehensive,
Occasionally tensions can surface
focus on relationships and alignment of tax-funded NHS in England was
within this structure, particularly where
behaviours at a local level, the extent of ‘doable’. Achievement of this aim will
there are differences in opinion as to how
genuine collaboration needed will never rely on a number of factors, including
to work together to ensure the overall
be achieved. national policy, funding and the actions
health system holds together. Some
For next year and beyond, this need of other players in the wider system.
CCGs comment that they miss the co-
for close and productive collaboration What is clear is that the NHS will need
ordination role previously carried out by
with a focus on system-wide to play its own very significant part.
the former SHAs.
sustainability will be key to success. Doing existing things better, learning
To avoid the game of ‘who fails first’
This will remain challenging and will from the best, will go some way.
– referred to in December 2014 by TDA
require substantial discipline from all However, locally tailored and locally-
director of finance, Bob Alexander –
parties to not retreat into tribalism led (rather than nationally determined)
providers and commissioners will need to
at the first, second or third sign of transformation to the way patient/
work together closely and collaboratively
trouble. The interim chief executive of user-centred care is delivered is the real
to ensure that the interests of the health
the emergent UnitingCare Partnership prize. The success of this exciting new
system are put above individual bottom
in Cambridgeshire and Peterborough phase in the development of our care
lines. A tightening financial position can
recently captured the challenge perfectly: services will fundamentally depend
reinforce silo thinking and, in some areas,
“We are having to unlearn 20 years of on how local leaders and their teams
we have seen this increasing. Consistency
competition and, boy, can that be painful seize the opportunity to embrace
between commissioner and provider
at times.” essential change.
planning assumptions is, rightly, being
promoted by NHS England with greater
vigour through the FY16 planning “There are viable options for sustaining and improving the NHS
guidance. over the next five years, provided that the NHS does its part, allied
Our September 2014 report, with the support of government, and of our other partners, both
‘Pulling together the Better Care Fund’, national and local.”
highlighted some of the challenges
‘NHS five year forward view’
involved in working together across
health and social care and demonstrated
that those areas that were making
NHS FINANCIAL RESILIENCE REVIEW 2015 5Key indicators
of financial performance
Consistent with FY13 results, this theme contains the highest percentage of trusts with a red rating.
Nationally, the NAO has reported that 22% of non-FTs and 28% of FTs recorded a FY14 deficit. Of the
trusts in our sample, 39% were in deficit, and a quarter of these deficits were unplanned.
We have seen further polarisation in Strategic financial targets
relation to trusts’ financial performance, In FY13, we saw a downturn in
with red ratings and green ratings having performance, with red ratings emerging
risen by a similar proportion. Only for 17% of trusts. This trend continued
25% of trusts now sit somewhere in the into FY14 with a further 6% assessed as
middle, compared with 60% in FY12 red – making nearly a quarter overall. All
and 40% in FY13. the reds were acute non-FTs. The three
Improvements made under the key reasons for trusts being assessed
48%
themes of financial planning, governance as red this year are that they reported
and control tend to contribute to a deficit, needed to rely on financial
improvements in key indicators, as trusts of trusts did
support during the year or materially
not meet their
are better able to mitigate the worsening failed to meet their CIP targets. Perhaps
CIP target
financial climate. Those trusts that can unsurprisingly, in most cases it was all
(44% FY13)
improve do, and the trusts that do not three combined.
have the capacity to make changes get
deeper into difficulty.
Strategic financial targets criteria
This category reviews performance against the following financial criteria:
72%
of trusts required
• statutory requirements: non-recurrent savings
– breaking even on the income and expenditure account in their 2013/14
– meeting the external financing limit (EFL) – the difference between the CIP programmes
amount a trust plans to spend in a year and what it can generate through (50% FY13)
its operations
– meeting the capital resource limit (CRL) – the amount of capital
expenditure a trust may incur in a year
• performance against the cost improvement programme (CIP)
• levels of liquidity.
63%
of trusts that
met their CIP target
relied on planned
or unplanned non-
recurrent savings
(44% FY13)
6 NHS FINANCIAL RESILIENCE REVIEW 2015The widespread use of non-recurrent To inform our RAG ratings in this
Continuity of services risk rating
savings measures is increasing the category we considered the results of
(COSRR)
financial challenge for FY15 and beyond, the ratings framework adopted by each
This contains two components:
when many trusts are already having to trust in FY14, whether the FRR or the
• Liquidity: how many days
identify stretch savings. COSRR, as the requirement to be able to
expenditure can be covered
In FY14, 38% of trusts needed progress to foundation trust status is the
by readily available resources
revenue funding support and 50% same – an overall rating of 3.
(cash or cash-equivalent forms),
needed balance sheet cash support, with Performance against the Monitor
including wholly committed lines
three-quarters needing both types. All risk rating is the strongest category
of credit available for drawdown:
of the trusts requiring support were within this theme with green ratings
rating from 1 (bad) to 4 (good)
acutes. Without this financial support rising from 59% to 77%. This figure is
relates to the number of days
from elsewhere within the NHS, trusts’ much higher for FTs, with 94% rated as
cover
reported financial performance would green and none as red. All of the trusts
• Capital servicing capacity:
have been a lot worse in FY14. In FY13, rated as red (12%) reported a deficit and
the degree to which the
revenue funding support was only those rated as amber (12%) achieved low
organisation’s generated income
needed by 27% of trusts. scores in respect of their liquidity. Under
covers its financing obligations:
There were no reported breaches of FRR, the score-capping regime in place
rating from 1 to 4 relates to the
the CRL during FY14. However, this prevented a trust from qualifying for FT
multiple for cover
potentially masks slippage in capital approval status if it had major liquidity
programmes during the year. While issues. However, under COSRR the These components are equally
it may be tempting for trusts to make capping regime no longer applies and weighted in the calculation of the
immediate cash savings by delaying the assessment gives equal weighting to overall rating, which is the average
capital spend, and also avoiding the liquidity and capital servicing capacity. rounded up. This determines
additional recurrent revenue expenditure Despite better performance on Monitor’s regulatory approach,
associated with capital developments, this Monitor risk ratings in FY14, 25% of with an overall 4 meaning no
is not necessarily a sustainable longer- FTs (44% non-FTs) recorded a FY14 evident concerns and no regulatory
term solution. deficit. FY15 figures show the FT sector action, and a 1 meaning serious risk
as being significantly further off plan this and potential investigation and/
Monitor financial and continuity year than their non-FT counterparts, or appointment of a contingency
of services risks ratings indicating the increasing financial strain planning team.
Monitor’s financial risk rating (FRR), as on many FTs. A successful application for FT
set out in the Monitor’s FY14 compliance status requires a COSRR of 3.
framework, was replaced on 1 October Unlike the former FRR, there
2013 by the continuity of services risk are no caps, so it is possible for a
rating (COSRR). trust with a liquidity rating of 1
and a capital servicing capacity of 4
to achieve an overall COSRR of 3,
whereas the FRR would have been
capped at 2.
NHS FINANCIAL RESILIENCE REVIEW 2015 7Public sector payment policy (PSPP) Sickness absence levels remained above
target in 60% of all trusts in our sample, Good practice
The PSPP requires all trusts to pay
95% of their invoices within 30 days. compared to 89% in FY13, though it Regular monitoring of key indicators
While the number of trusts rated as is not clear whether this improvement of financial performance:
red has increased slightly from 11% to reflects real reductions or simply more • Progress against statutory targets
15%, trusts’ performance overall has realistic targeting.
• Progress against agreed CIP/QIPP
improved, with 50% rated as green in In contrast to sickness absence,
programme
FY14 compared with 30% in FY13. significant board turnover levels rose
• Effective liquidity management
Trusts’ ability to pay invoices within the in FY14 to 37% of trusts (24% FY13).
We define significant board turnover as • Levels of long-term borrowing
required timeframe is clearly related to
compared to prudential borrowing
any liquidity issues as we noted that 85% three or more changes in the year. This
limits
of those that were rated amber or red for can result in a number of issues including
reduced scrutiny if non-executive • Performance against Monitor’s
PSPP also had poor liquidity. However,
Continuation of Service Risk Rating
not all trusts that had poor liquidity also director (NED) posts are vacant, or
components
had PSPP issues, demonstrating that it is possible over-involvement by NEDs in
• Performance under the Better
still possible for some to better support operational rather than strategic matters
Payments Practice Code
suppliers through prompt payment. if executive positions are experiencing
high levels of turnover. ‘Acting up’ A robust organisational approach and
Workforce focus on absence management to
arrangements and the use of interims can
NHS trusts continue to face significant improve productivity, reduce costs and
also impact continuity and effectiveness.
enhance customer service.
challenges in managing their workforce, The FY14 temporary staff cost to
although our work found a mixed total staff cost ratio rose slightly in non-
picture. Compared with the other areas FTs to 11%. In FY14, this fell in FTs
assessed, there were proportionately from 8% to 6%. However, Monitor’s
fewer red ratings in FY14. performance report for the six months
One of the reasons for this is the ending 30 September 2014 showed that
improvement in levels of sickness spending on contract and agency staff
absence. For FY13, we reported that was 120% above plan (£453m). We
43% of non-FTs had seen a rise in their recognise that some of this increase is
sickness levels, whereas this year the driven from central directives on ward
figure is 21%. For FTs, 56% saw a rise staffing numbers.
in sickness in FY13, with only 39% The forward view recognises the
experiencing this rise in FY14. Absolute critical importance of workforce in The absolute levels
reductions in sickness absence were a delivering the vision of a modern and of sickness absence in trusts
factor in achieving an improved rating comprehensive tax-funded NHS. There – at an average of 4.21% –
in some trusts. However, the absolute is much to do. remains higher than many
levels of sickness absence in trusts – at an other sectors and is an area
average of 4.21% – remains higher than for continued attention and
many other sectors and is an area for improvement
continued attention and improvement.
8 NHS FINANCIAL RESILIENCE REVIEW 2015Strategic financial planning
Strategic financial planning remained the second weakest performing theme in FY14. The small
deterioration in performance (more red, less green) is due largely to a poorer performance in respect
of the focus of trusts’ medium-term financial strategies.
FTs continued to out-perform NHS Adequacy of planning assumptions Improvements in ratings were
trusts, in our assessment areas, and Trust planning assumptions is now the associated with trusts making positive
while their levels of green ratings have weakest category across all four of our changes to the processes for identifying
not improved there were no red ratings theme areas. Despite an improvement and calculating assumptions, especially
recorded this year. in the percentage of greens from 35% CIP.
to 43%, red ratings have also increased,
Focus of the medium-term financial Links to annual plan (Non-FTs only)
from 17% to 21%. It is also a very
strategy (MTFS) volatile category for non-FTs, with 50% This category considers the extent to
This category considers whether trusts getting changed ratings – 25% getting which the proposals set out in trusts’
are focusing on the most important better, and 25% getting worse. FTs are MTFS are reflected in their budget
priorities at a local and a national level. more consistent, with 75% staying the setting as well as in key strategic
FY13 saw red ratings for the first same and the majority of the remainder documents such as the workforce,
time in this category, relating solely to getting better. This is perhaps reflective information and IT strategies.
non-FT acute trusts. In FY14 the number of the historically tighter focus from In FY14, a quarter of all non-FTs
of red ratings for trusts increased from Monitor on the robustness of planning. have amber ratings, from 15% in FY13,
10% to 36% and, for the first time, there Red ratings were very closely mainly as a result of not keeping their
are mental health trusts with red ratings. associated with a combination of an strategies updated to remain consistent.
All red ratings for this category are expected deficit in FY14 and issues with Red ratings for non-FTs remained static
associated with trusts forecasting a deficit the proposed CIP programme for FY15, at 15%. Lack of alignment in strategies
position at some point over the medium- the latter also being the primary cause of threatens effectiveness as insufficient
term. amber ratings. consideration of any one dimension can
The percentage of FTs rated as green Common CIP issues resulting in a undermine an otherwise successful plan
fell from 92% to 81%. Although a much continuation of, or a move to, poorer or initiative.
better performance than for non-FTs, ratings included:
the worsening ratings for all types of • the programme not being ready at the
trust indicate an increasingly challenging start of the year
financial environment in which to • having to compensate for the use of
produce robust financial strategies for the non-recurrent CIP in the prior year
medium-term. • not having any headroom in the plan
• a higher required level of CIP than
the typical 4%.
NHS FINANCIAL RESILIENCE REVIEW 2015 9Review processes (Non-FTs only)
Top tips – planning CIP/QIPP Good practice
Clearly it is important for trusts to keep
their plans properly updated, as this is • Put in place a suitably independent • Focus on achievement of
the only reliable way of maintaining an team – a programme management office corporate priorities is evident
(PMO) – that has the project management through the financial planning
understanding of the potential future
expertise and the organisational influence process. The medium-term
options in order to avoid short-term to set up and manage the process. As financial strategy (MTFS) focuses
decisions that may lead to problems later. QIPP plans are more and more about
resources on priorities
Although red ratings were up from 3% service redesign, PMOs with CCG
to 9%, the proportion of green ratings representation, or run jointly with the • The MTFS includes the
CCG, are advised assumptions that would be
remains high at 76%. Red rated trusts has
• Ensure the prior approval of every expected
known problems and were forecasting
constituent QIPP scheme which involves: • CIP/QIPP are developed alongside
deficits for FY15.
– detailed project identification forms the MTFS and the annual budget.
– the complete case for the scheme There is an effective approach
Responsiveness of the plan – its clinical and financial impact for developing CIP/QIPP projects
(Non-FTs only) – allocation of project responsibility to an
which considers how robust and
It is good practice for trusts to consider individual with the necessary experience,
realistic they are
skill and influence to see it through –
alternative options prior to finalising • The trust is managing its financial
which, depending on the scheme,
their MTFS and their budget. This can may mean someone from the CCG risks, including the financial
only be done reliably in the light of – milestones for implementation positions of its contractors
for example detailed risk identification and delivery
• Annual financial plans follow the
and mitigation, scenario planning • Require headroom in the programme. Ask longer-term financial strategy
against proposed options and exploring for more schemes to be approved than
are strictly necessary to reach the target • There is regular review of the
alternative delivery models. Some non- MTFS and the assumptions made
so that there is built-in scope to deal with
FTs have improved their rating by doing slippage. Without this approach, slippage within it. The trust responds to
precisely these things. However more can only be dealt with by developing extra changing circumstances
failed to keep their plans updated or did schemes during the year. These can only • The MTFS includes scenario
not employ scenario planning. Therefore, have a part-year effect and are often non-
planning and benchmarking
in FY14 the proportion of trusts rated as recurrent
• The MTFS is linked to, and
green in this category is down from 64% • Ask for all schemes to be rated – at
commencement and then at regular is consistent with, other key
to 55%. strategies, including workforce
intervals – on their likelihood of success.
For the first time, there was a red This will help everyone understand where • KPIs can be derived for future
rating in this category for a mental the potential weak areas are and mitigation periods from the information
health trust, related to failing to respond strategies can be developed in advance included within the MTFS
adequately to a deficit position. and deployed in a timely fashion
• Ensure cooperation between providers
and commissioners on QIPP schemes, to
ensure that provider CIP schemes are safe
for patients with no reduction in quality
• Providers and commissioners should work
together to ensure that they take adequate
account of each other’s assumptions
underlying their respective CIP and OIPP
schemes
10 NHS FINANCIAL RESILIENCE REVIEW 2015Financial governance
Financial governance remained the best performing theme in FY14 and the only one with no overall
red ratings. There was a year-on-year increase in green ratings from 78% to 82%. Each individual
category within this theme has seen improvement in the number of green ratings.
Budget reporting – revenue and Risk management
capital Top tips –
Effective risk management cannot be
reporting CIP/QIPP
This category considers whether the achieved unless boards receive clear and
budget reporting which underpins up to date information to enable them • Use your PMO to determine and
decision-making at board and committee to challenge the trust’s identification, manage the process by which
level contains appropriate information monitoring and mitigation of risks. individual projects are reported.
that is accurate, reliable and timely. Reversing a trend reported for • Improve progress reporting to:
In FY14, this became the strongest FY13, there has been an increase in – reflect the position on every
financial governance category, with 92% green ratings (74% to 87%); the highest project not just progress against
of trusts rated as green, up from 85%. proportion of green ratings in this theme. the overall target
This shows that trusts are addressing This was typically due to improved risk – detail the issues affecting
the improvement areas identified in our management processes. However, our progress to data and potential
FY13 report, for example around more wider work with the NHS and other progress in the rest of the year
comprehensive reporting and better use sectors highlights the importance of – estimate the expected outturn
of service line reporting. looking beyond process. on each project.
Discussions in our recent NHS
Director and NED engagement non-executive workshops suggest
Director and NED involvement in that risk management still needs to be
financial governance processes is key better focused on the key risks facing
to trusts making the right decisions. the organisation. It is recognised that
This category considers the extent of registers are widespread and regularly
leadership and challenge in respect of updated, but some question over the
the budget setting and CIP approval extent to which this is demonstrably
processes. improving the management of risk on the
Last year’s red ratings have ground. Some audit committees bring
disappeared and the green ratings departmental directors into meetings
have increased from 83% to 87%, to challenge on these questions, and
driven largely by these trusts’ ability conduct ‘deep dives’ on particular risks
to minimise board turnover (working to improve the quality of the assurance
against the wider sector trend). When they receive. We believe that this level
considering the ratings specifically for of challenge will become increasingly
FTs, performance is even stronger in this important in an increasingly complex
area, with green ratings for 94% in FY14, and risky operating environment.
up from 85% in FY13.
NHS FINANCIAL RESILIENCE REVIEW 2015 11CIP reporting
Good practice
CIP reporting showed some
improvement in FY14 but remained the • Regular reporting to NEDs and executive directors
weakest category within this theme. The • Actions have been taken to address key risk areas
primary movement within this category • Use of a rolling 12 month cashflow forecast
is in respect of FTs, where there are now
• Directors and managers understand the financial implications of current and
no red ratings (17% in FY13). There
alternative policies, programmes and activities
was a less significant deterioration in
• There is engagement with stakeholders including budget consultations
respect of non-FTs, where the red ratings
increased from 4% to 6%. • There are comprehensive policies and procedures in place for NEDs, executive
directors and budget holders, which clearly outline responsibilities
Red and amber ratings on CIP
reporting are largely due to reporting and • Internal and external audit recommendations are not overdue for implementation
challenge not being sufficiently robust • Board and relevant committees regularly review performance and are subject to
to prevent slippage against savings plans. appropriate levels of scrutiny
This sort of rating is clearly associated • There are effective recovery plans in place (if required)
with other issues with CIP processes, as • The board has the capacity and capability required to perform its role effectively
94% of those rated red or amber relied
on non-recurrent schemes in FY14 and
92% did not have their FY15 plans ready
by the start of the year.
12 NHS FINANCIAL RESILIENCE REVIEW 2015Financial control
While the effectiveness of trusts’ financial control and the reliability of their systems for managing
and monitoring their financial positions remains the second strongest theme this year, performance
has fallen marginally overall.
Finance department resourcing Board assurance framework (BAF) discussions also indicated that board
An effective, efficient and stable finance As a key risk management tool, the agendas may be too rigid, not allowing
team is pivotal to maintaining strong BAF supports trusts in understanding for sufficient focus on discussing the
financial control in any organisation. and mitigating against risks which may priorities and objectives in the BAF.
This is becoming increasingly relevant to threaten effective financial control. Overall, on the BAF (and on risk
the NHS with ever increasing pressures For FY13, we reported that 75% of management) there appears to be a real
not only to reduce costs, but also to trusts were rated green for maintaining desire for simplification of processes
improve the quality of patient care. effective BAFs. We also reported that and language, to enable a focus on what
With these two potentially conflicting many of those rated as amber were in really matters.
objectives, it is important for finance the process of improving their BAFs
departments to work closely with to include more information on how
frontline services in order to develop a gaps in control are being mitigated and Top tips –
clear understanding of the impact any monitored. Trusts rated green in FY14 Controlling CIP/QIPP
financial decisions could have on the increased to 84%. The remaining 16%
quality of care being delivered. of trusts either failed to keep their BAFs • Introduce a dedicated CIP team,
usually chaired by the chief executive
In FY14, we saw a slight downturn in up to date and relevant or the BAFs were
or NED, to review progress and
green ratings by four percentage points not fit for purpose. A number of trusts
ensure remedial action is identified
to 70%. However, there are still no red still have work to do to use the BAF as a
and implemented when CIPs go
ratings, suggesting finance departments live document and a process which drives off track
are largely coping for now. the board agenda.
• Ensure a process of post-
Lower ratings tended to relate to Discussions in our recent NHS non-
implementation review of CIP
a lack of finance department capacity. executive workshops suggest that the schemes to learn from what has
Of particular interest is that this is one BAF remains a document shrouded in worked and what has not, to
of only two categories in which FTs mystique in respect of what it means and strengthen future CIP management
performed worse than non-FTs, with how boards should be using it. Much of and control.
only 63% rated as green, down from the discussions at audit committees and
77% in FY13. Some FTs seem to have board meetings are currently focussed
been affected by high turnover, limited on presentational issues rather than
capacity and, in some cases, capability using the BAF as a tool to support
Finance department
issues. In these instances, independent active management of assurance over
resources is one of only
reviews of the finance function may be key strategic risks. Our non-executive
two categories in which
appropriate.
FTs performed worse
than non-FTs.
NHS FINANCIAL RESILIENCE REVIEW 2015 13Controlling the CIP Good practice
Where there is effective control over • Budgets are robust and prepared in a timely fashion and the trust has a good
a trust’s CIP, savings plans will be track record of operating within its budget
prepared prior to the start of the financial • Budgets are monitored and officers are held accountable for budgetary
period and the planned savings will performance
exceed requirements so that there is • Financial forecasting is well-developed and forecasts are subject to regular
headroom to accommodate potential review, including trend analysis, benchmarking of unit costs, risk and sensitivity
slippages. The programme will be analysis
underpinned by robust monitoring • There is a robust process for the management and monitoring of CIP/QIPP and
arrangements enabling the board to ensuring that planned savings are being delivered
proactively manage its delivery.
• Key financial systems have received satisfactory reports from internal and
In FY14, 11% of trusts were red external audit
rated in this category (15% in FY13) and
• Financial systems are adequate for future needs
amber ratings have grown from 37% to
• The capacity and capability of the finance department is fit for purpose for
42%, demonstrating a continued area of
effective financial planning and financial management
challenge for some trusts.
• There is an effective internal audit which has the proper profile within the
Issues related to trusts either not
organisation and agreed internal audit recommendations are routinely
having fully developed and agreed
implemented in a timely manner
their savings programmes by the start
• There is an assurance framework in place which is used effectively by the trust
of the financial year or not having
and is how business risks are managed and controlled
strong enough arrangements in place to
address slippage against planned targets • The Annual Governance Statement gives a true reflection of the organisation
throughout the year.
There is still a considerable difference
in this category between FTs, for which appropriate degree of challenge when did not maintain that rating and the red
there are no red ratings and 73% green setting the budgets and throughout ratings are all new this year. We believe
ratings, and non-FTs, with 15% rated the year. Adapting to changing that some of this turbulence arises from
as red and only 38% as green. This is circumstances, reviewing and revising turnover at board level and in finance
likely to be a product of FTs historically spending forecasts and taking corrective departments.
having had to demonstrate strong action on variances are all essential Where a trust’s performance has
financial control arrangements as part requirements. deteriorated, it is because the trust either
of FT authorisation and subsequent In FY14 we saw a degree of failed to keep its costs under control,
monitoring. polarisation in this category with or its budgetary control processes were
increases in green ratings from 63% to inconsistently applied across the trust.
Budget setting – revenue and capital 66% and in red ratings from 5% to 11%. Once again, there were no red ratings for
Budget management is about more than Beneath this overall net picture, there FTs in this category.
just setting budgets at the start of the has also been significant movement by
year and then monitoring whether they trusts from one rating to another. Thirty
are delivered as planned. It requires an per cent of trusts previously rated green
14 NHS FINANCIAL RESILIENCE REVIEW 2015Clinical commissioning groups
Having formed on 1 April 2013, CCGs faced a number of significant challenges during FY14,
including getting the relevant processes in place and embedded and to get workable first-year
contracts up and running. The level of funding for CCGs for FY14 was 2.3% above the equivalent
share of PCT funding in FY13. This was reviewed for FY15 in order to better reflect population
change and include a specific deprivation measure to address unmet need. We considered whether
CCGs were learning from their FY14 experience in planning for FY15 and beyond.
Commissioning plans In the future, the role of the CCGs memory required to make effective
CCGs needed to develop their is likely to include some responsibility commissioning decisions in these areas
commissioning plans from scratch for for primary care co-commissioning may not be readily available or affordable
FY14. The plans had to take into account and specialised secondary healthcare to the CCGs. Close collaboration with
the needs of the local population while commissioning. This is likely to pose neighbouring CCGs, with specialist teams
aligning to the existing plans of the local further challenges for CCG management in NHS England and with the local CSU
health economy and the local authority, time and capacity. Some of the skills, will be essential.
as well as other third sector parties. historical knowledge and corporate
NHS England’s publication ‘The
NHS belongs to the people: A call to
action’ tasked CCGs with formulating Example questions for CCGs to challenge their commissioning plans
three-to-five year plans to help solve a Has the CCG:
funding gap of £30 billion by 2020/21. • provided a very clear vision of commissioning intent?
In the context of this significant • focussed on delivering improved outcomes for the population and reduced
challenge, for FY14 there were only a health inequalities?
small number of CCGs (3%) rated as • assured itself that it is commissioning the right care for patients, at the right
red in relation to their commissioning time and provided in the right place?
plans and 80% rated as green. These • ensured health and social care services are working closely together wherever
red ratings were related to the plans not this is to the benefit of our patients and their carers?
containing sufficient detail, presumably • considered commissioning care closer to home for patients?
on account of the CCGs being newly • encouraged innovative ways of providing care, through better use of
formed organisations so, in some cases, technology, a wider skills-base and team support for individual members
not having sufficient time or capacity to of staff, or development of shared care-planning with patients?
develop robust plans in this first year. • commissioned accessible, high quality, efficient patient care?
Some CCGs had made a very clear • secured best value for money in care from a wide range of providers?
statement of commissioning intent • given patients a choice of providers wherever appropriate?
following consultation with patients and • addressed the specific needs of patients with the most serious long-term
there had been strong involvement and conditions?
engagement from board members in • achieved a balance between prevention and treatment?
developing the commissioning plans.
NHS FINANCIAL RESILIENCE REVIEW 2015 15Financial planning and management
Good practice Statutory financial requirements
Equally as challenging as developing the
challenge • To achieve revenue breakeven or
CCG commissioning plans in the first
questions for managing better against the revenue resource
successful QIPP programmes year was developing the financial plans limit
that underpin them. 48% of CCGs did
• To achieve capital breakeven against
• What are the clinical gains that the not have their FY15 financial plans ready
the capital resource limit
CCG is trying to deliver through by the start of the year.
QIPP? • To achieve breakeven on the cash
Consequently, financial planning and
limit
• What is the size of the gap between financial management proved to be the
budgeted QIPP and schemes • To manage within the running cost
worst performing category for CCGs in
agreed? allowance
FY14. Only 68% of CCGs were assessed
• Are the CCG and its governing body as green, while red and amber ratings
agreed on the amount of savings made up 16% each. This is the second worst performing
required? Three-quarters of the red ratings were theme in FY14, with 75% of CCGs
• What contingency plans are in place associated with the extent of the financial rated as green and 15% as red. The
should QIPP not be delivered in full? challenge facing some CCGs as reflected majority of the red ratings were the result
• How will the CCG monitor the in their setting a deficit budget for FY15. of CCGs having posted deficits, two-
delivery of savings and clinical Of those planning deficits, half also had thirds of which were unplanned. 40%
outcomes for each scheme and QIPP programmes that were considered of CCGs did not deliver in full against
how regularly? Are these built unreliable or unrealistic because of their their QIPP targets, and there was heavy
into agreements with providers dependence on non-recurrent savings.
high levels of risk.
with associated Key Performance Savings also appear in many cases to
Of the amber ratings, over 80% were
Indicators? have been identified by top-slicing
associated with unreliable or challenging
• How robust are QIPP plans? Are budgets rather than through a carefully
QIPP programmes.
there project managers for each thought-out programme of savings.
The red ratings were predominantly
scheme and a defined project plan While this approach was inevitable
and timeline? Are the clinicians and associated with the extent of the financial
challenge facing some CCGs as reflected in the first year of the CCGs, more
local partners fully engaged?
in their setting a deficit budget, and the sophisticated approaches to savings need
• Are the CCG and its governing body
amber ratings with QIPPs that were to develop as the organisations mature.
assured that each QIPP plan will
considered unreliable or unrealistic This is particularly important, given
contribute to patient safety and
because of their high levels of risk. the challenges of meeting the quality
care quality?
improvement aspects of QIPPs.
FY14 key indicators As FY14 was the first year of
We considered outcomes against the operation for the CCGs, all the board
statutory financial requirements that members and lay members were new in
CCGs are required to meet, namely, post. Nevertheless, turnover of Board
delivery of savings plans (QIPPs) and members has been an issue for some
workforce-related indicators including CCGs, with 10% reporting 3 or more
sickness absence and turnover at Board changes in the year. While this is
board levels. less than the level experienced by NHS
providers, it increases the challenge of
16 NHS FINANCIAL RESILIENCE REVIEW 2015maintaining a clear strategic vision across on which to base decision making. This supports our findings on the
the health economy. Although 96% of CCGs were rated turnover of CCG board members and
Average sickness levels across CCGs as green and there were no red ratings, also on the amount of time that GPs and
were generally low, and approximately there are some indications that the other clinicians are spending attending
half the level being experienced by capacity of CCGs is becoming stretched CCG board and committee meetings,
NHS providers. by the agenda CCGs are managing. and the challenge for these clinicians
CCGs are investigating options to of balancing their time between direct
Leadership address this capacity including using patient contact time and their duties as
Since the NHS structural reforms in the legislative reform order to create CCG board members.
2013, the responsibility for the strategic ‘mergers’ or ‘joint committees’. Some CCGs have also taken steps to
leadership across health economies has For example, NHS Gateshead CCG, enhance the specialist financial expertise
become fragmented. The roles previously NHS Newcastle North and East CCG at board level by appointing an additional
carried out by PCTs and SHAs have and NHS Newcastle West CCG will lay member or associate lay member with
been split out across the new CCGs, become a single statutory body from 1 a background in finance or accountancy.
local authorities and different parts of April 2015. In other areas, CCGs are This has helped relieve some of the
NHS England – for example primary exploring closer working short of a workload of the existing board members.
healthcare commissioning, specialised formal merger.
healthcare commissioning, dental services Some CCGs have concerns that External relationships and the
and some public health services. Many management capacity is too stretched Better Care Fund
other public health responsibilities to deliver important strategic change Since FY14 CCGs have been working
transferred to local authorities who also programmes. The capacity of some audit closely with their local authorities and
maintain their responsibility for social committees to effectively fulfil their provider trusts to develop joint plans to
care services. governance role has also been questioned address the requirements of the Better
Some funding to NHS providers is by some CCGs. In other areas we have Care Fund, with the aim of reducing
also now channelled to provider trusts noticed issues around the capacity hospital admissions. The strength of the
from the TDA. in finance teams, with difficulties in relationships which CCGs have with
Occasionally tensions can surface permanently filling senior posts. their stakeholders plays an important
within this structure, particularly where part in their ability to develop and agree
there are differences in opinion as to how Recent research from the the plans, particularly given the key role
to work together to ensure the overall King’s Fund played by the local health and wellbeing
health system holds together. The role A recent King’s Fund report1 highlighted board (HWB) in overseeing and
of the CCG in providing local clinical a range of challenges in respect of the approving the Better Care Fund plans.
leadership is essential. clinical leadership provided by the GPs We rated 93% of CCGs as green
All CCGs should now have an on CCG boards. This was particularly for the effectiveness of the external
effective governing body in place that evident in terms of recruitment relationships, although there was also
provides strategic direction, has a BAF and retention, GP engagement and evidence from CCGs that some of these
which addresses the risk for its strategic influencing the wider GP community. relationships were becoming strained,
priorities and objectives and receives as a result of the financial pressures in the
good quality performance information health economies.
1
http://www.kingsfund.org.uk/sites/files/kf/field/field_publication_file/risk-or-reward-the-changing-role-of-CCGs-in-general-practice.pdf
NHS FINANCIAL RESILIENCE REVIEW 2015 17Key Actions
The health and wellbeing boards The health and wellbeing boards Fully
need to: and those organisations involved approved
6
in planning and delivering the
Better Care Fund outcomes
4%
should:
• understand their role and • understand the strength of
responsibilities to enable them to relationship with partners, the impact
be focused and effective and have that various cultural differences can
clear direction and purpose have and the benefits to be gained
from improving these relationships
• establish who is responsible for
managing risk and performance • consider how they can work more
Approved
managing the Better Care Fund effectively together, including NHS
with support
outcomes providers, primary care, the third
• ensure that NHS providers are fully
engaged and aware of the planned
sector and other health and social
care providers. 91
changes if the plans are to achieve
their agreed objectives. 60%
There are also significant variations in findings strongly support the widespread
the profiles of the health and wellbeing view in the sector that the plans, while
Approved
boards within each local authority. containing suitable outcomes over their
with conditions
In some areas, we observed that the time scale, lack operational detail and
meetings were relatively infrequent,
with mixed levels of commitment and
robust implementation arrangements,
including key milestones and targets,
49
attendance from its membership. Our
recent report ‘Pulling together the Better
which would make the visions realistic
and achievable: 45% of the amber ratings 33%
Care Fund’ highlighted the large variety related to this point. A further 27% of
in the composition of the local health and amber ratings related to plans being late,
wellbeing boards and the extent to which and in one case to the plan not being
the arrangements had been established to approved in the first place.
Not
support effective collaboration across the Given the ratings from our own
approved
health economy. research, it was perhaps not surprising that
On CCG approaches to the Better
Care Fund, our research showed a large
the approval process from NHS England
in October 2014 also raised concerns 5
number of amber ratings, indicating
that there is still much to be done. Our
when it approved the 151 plans submitted
by the health and wellbeing boards: 3%
18 NHS FINANCIAL RESILIENCE REVIEW 2015You can also read
