Developing Strategic Options for Provider Arm Board Workshop

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Developing Strategic Options for Provider Arm
Board Workshop
CONFIDENTIAL
04 March 2009
This report is solely for the use of client
personnel. No part of it may be circulated,
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the client organization without prior written
approval from McKinsey Company. This material
was used by McKinsey Company during an oral
presentation it is not a complete record of the
discussion.
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AGENDA
Topic
Content
Time

• Group introduction
• Context for the work and brief overview of
  Wandsworth PCT progress to date
• Discussion of national policy context and
  implications of separation for finance,
  governance, operations and strategy functions
• Review of current arrangements at Wandsworth PCT
  along each of these dimensions

930
3
WORKSHOP OBJECTIVES

• Develop criteria for decision making
• Understand externalisation options for community
  services
• Align on preferred shortlist of options
• Understand process going forward from now through
  implementation
• Discuss immediate impact and actions

4
OUR PERSPECTIVE ON KEY ISSUES PROVIDER
SEPARATION PROCESS WILL TAKE SEVERAL STAGES
Horizon I Arms-length managed organisation (ALMO)
Horizon II Autonomous provider organisation
(APO)
Horizon III Externalised organisation and
competition

• Finance
• Separate income and expenditure only
• Governance
• Provider subcommittee with dedicated
  non-executive chair
• Strategy
• Limited contestability (no real incentive to
  create contestability)

• Finance
• Shadow separate financial statements (IE, cash
  flow, balance sheet)
• Governance
• Provider subcommittee with dedicated
  non-executive chair
• No cross-over with PCT Board
• Clear scheme of delegation, MoU and ToR in place
  for Provider Board
• Strategy
• Commissioning of service increasingly for
  individual services, fewer block contracts

• Finance
• Separate audited financial statements
• Governance
• Two independent boards, without overlap
• Strategy
• Contestability in system
• National policy context will influence true
  degree of freedom

Time
Productivity and quality improvements should be
sought throughout transition
5
EXTERNALISATION WILL REQUIRE FURTHER DEVELOPMENT
OF PROVIDER FINANCE, GOVERNANCE AND STRATEGY
FUNCTIONS
Description of current position

• Provider services has done a service line costing
  exercise and understands income and expenditure
• Formal splitting of ledgers planned for April 09,
  including separation of balance sheet
• Estates have been temporarily resolved, with the
  commissioning arm holding them until a final
  solution is found

Finance

• There is currently a transitional Governance
  arrangement in place with a Provider Development
  Board chaired by a NED
• PCT and Provider Services are producing a paper
  on future APO Governance arrangements, due in
  January
• Terms of reference and Scheme of delegation
  between PCT Board and Provider Managing Board in
  place

• Approximately 45 of income is generated from
  services at Queen Marys Hospital, of which 65
  is commissioned from outside Wandsworth
• Approximately 55 of income relates to typical
  community services (e.g. district nursing, health
  visiting, etc). No contestability is planned in
  the near future in these areas
• Provider services is currently comprised of 34
  distinct service lines
• The PCT is currently commissioning a separate
  piece of work to address service line strategy

• Day-to-day operations managed internally by
  Provider organisation
• Few occasions that may require operational
  matters to be referred to PCT executive or Board
  (e.g. reporting of serious untoward incidents,
  annual approval of Provider Business Plan)

• Working with KPMG to provide a long list of
  possible options for the April 2009 Trust Board.
• Aim is to ensure that options are based on
  service line analysis and principles of
  Transforming Community Services.
• Intensive programme of staff engagement in
  progress to ensure involvement in decision making.

6
THE PRINCIPLES WE AGREED IN SEPTEMBER SHOULD
UNDERPIN THE CRITERIA FOR DECISION MAKING
Principles for externalisation
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INITIAL CRITERIA FOR ASSESSMENT OF OPTIONS
PRELIMINARY
As a minimum
At its highest level
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OUR PERSPECTIVE ON KEY ISSUES ORGANISATIONAL
FORMS
Considered social enterprises
Direct provision/APO
Hybrid solution are likely by service line
NHS Trust
Community Foundation Trust
Public Sector
Vertical integration with FT/MHT
Vertically integrate with GPs
Potential organisational forms
Horizontally integrate with LA
Charities and other Third Sector
Third sector
Community Interest Company (ltd by guarantee)
Community Interest Company (ltd by shares)
Private Sector
Other company
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EACH OF THE VIABLE OPTIONS PRESENTS CHALLENGES TO
MANAGE (1/2)
Model
Description
Issues
Direct provision
Continue to provide services directly by PCT at
arms length

• Not a full externalization
• Higher risk for PCT of partial solution
• May not be acceptable in London

NHS Trust
Establish NHS Trust to manage community services

• DH is reluctant for this options to go ahead
  considered to be a step back
• Multiple governance changes can lead to
  management and staff distraction

Community Foundation Trust
Similar to acute FT hospital model

• DH pilot underway, although thought to be at
  least 18-24 months away from being possible for
  other provider arms

Acute or MH merger
Provider services either fully integrated into
acute/MHTor operated as subsidiary of FT/MHT

• Highly dependent on appetite of local FTs (acute
  and mental health) and NHS trusts
• Monitor concern regarding capacity of many FTs to
  integrate provider arm, given financial and
  managerial risk and lack of commissioning

Public Sector
Integration with GPs
Community services integrated into either
individual practices or GP clusters to function
as primary and community care hub

• Ability of GP practices or clusters to manage
  community care staff
• Willingness of community staff to be integrated
  into GP practices and managed by GPs

Integration with Local Authority
Partnership agreement allowing Local Authority to
directly provide community health services

• Requires strong appetite and readiness from Local
  Authority partners for absorbing community
  services staff and associated risks
• Potential for reduced integration with acute FTs
  and specialist services

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EACH OF THE VIABLE OPTIONS PRESENTS CHALLENGES TO
MANAGE (2/2)
Model
Description
Issues
Third Sector
Private Sector
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GROUP SESSION CHALLENGES, POTENTIAL RISKS AND
MITIGATIONS OF EXTERNALISATION

• Prioritise most likely/feasible options
• Define key benefits and risks of each option

• Place your 3 sticky dots against the options on
  the longlist which we should exclude based on
  feasibility
• Break into two groups to discuss the remaining
  options in terms of
• What do you find most attractive about each of
  the options?
• What are the biggest risks for each of the
  options?
• How do you mitigate those risks?

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DHs guidance envisions several possible models
for community services organisations (1/6)
1
Direct provision
Type of entity
A
Not a separate legal entity, part of PCT
B
Fully part of the NHS
Relation to NHS
Financial freedom
C

• No shareholders, no dividends
• Lock on assets and retention of
  surpluses/proceeds at disposal
• A separate provider organisation budget on
  service line data
• Shadow separate financial statements (IE, cash
  flow, balance sheet)

• To PCT commissioners through legally binding
  contracts
• To PCT Board through governance /delegation
  arrangements
• PCT Board remains ultimately responsible to SHA
  and DH

D
Accountability

• SHA approves plans to keep community services
  in-house and monitors performance
• Care Quality Commission ensures quality and
  safety of care

E
Regulators powers

• NHS London will allow London PCTs to continue to
  provide services directly
• Contestable market can be created despite
  ultimate PCT accountability for the provider arm
  

What you would need to believe to choose this
Source Department of Health, Transforming
Community Services Team analysis
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DHs guidance envisions several possible models
for community services organisations (2/6)
2
Community Foundation Trust
Type of entity
A
Public benefit corporation
B
Fully part of the NHS
Relation to NHS
Financial freedom
C

• No shareholders, no dividends
• Lock on assets and retention of
  surpluses/proceeds at disposal
• Year-end flexibility, surplus reinvested
• Restriction on private income
• Access to capital based on ability to service debt

• To commissioners through legally binding
  contracts
• To members through board of governors
  (composition fixed)
• To Parliament through annual accounts

D
Accountability

• Monitor agrees on terms of authorisation, ensures
  compliance and intervenes when necessary
• Care Quality Commission ensures quality and
  safety of care

E
Regulators powers

• Monitor will authorise CFTs in time for NHS
  London guidelines on externalisation, treasury
  will allow sufficient number of CFTs
• CFT has sufficient assets to ensure viability and
  to comply with FT rules (currently minimum 30
  milling in income)

What you would need to believe to choose this
Source Department of Health, Transforming
Community Services Team analysis
14
DHs guidance envisions several possible models
for community services organisations (3/6)
3
Integration with FT or Trust (acute or MH)
Source Department of Health, Transforming
Community Services Team analysis
15
DHs guidance envisions several possible models
for community services organisations (4/6)
4
Integration with GPs
Source Department of Health, Transforming
Community Services Team analysis
16
DHs guidance envisions several possible models
for community services organisations (5/6)
5
Integration with LA
Source Department of Health, Transforming
Community Services Team analysis
17
DHs guidance envisions several possible models
for community services organisations (6/6)
6
Social enterprise
Source Department of Health, Transforming
Community Services Team analysis
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BREAKOUT SESSION GOVERNANCE

• Discuss key governance issues, risks and
• Identify key next steps in each of these priority
  areas

• Questions for discussion
• Robustness of current governance arrangements if
  APO were to exist for the next 3 years?
• What are key risks?
• How do we mitigate them?

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PROPOSED NEXT STEPS
Timeline for decision making
2009
Oct
Sep
Aug
Jul
Jun
Mar
May
Apr
Activity
PCT Board (seminar) Agree likely shortlist
Sub committee Review shortlist
Refine and clarify proposals
Formal Board Present short list
Stakeholder engagement to finalise shortlist
PCT Board (seminar) Review short list
PCT Board to agree Proposed option/method