Pennine Care NHS Trust Presentation of Trusts Financial Situation for the Trust Board

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Pennine Care NHS TrustPresentation of Trusts
Financial Situation for the Trust Board

• PRESENTATION MADE TO JMHOSC ON 10 MAY
• Diana Sanderson
• Mill Mount Consulting
• 27 June 2006

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Introduction

• To me
• Health Economist with almost 20 years experience
  working for NHS and other clients
• Formerly with York Health Economics Consortium
• Working on a freelance basis since July 2004
• My brief
• Money spent by the Trust
• Value for money
• Effective and efficient use of money

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Sources of Evidence

• Trust Annual Accounts for 2002/03, 2003/04 and
  2004/05
• Trust Annual Reports for 2003/04 and 2004/05
• Local Implementation Team (LIT) results of
  financial mapping in Autumn 2004 and 2005 for
  Bury, Oldham, Rochdale, Stockport, and Tameside
  Glossop
• Minutes from meetings of the Joint Mental Health
  Overview and Scrutiny Committee for the Trust
  during 2005 and 2006
• Financial Reports to the Trust Board during 2005
  and 2006
• (financial data to 31 January 2006)
• Various websites (e.g. for Reference Costs and
  Indices of Deprivation)

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Key Financial Requirements

• As part of its statutory duties, the Trust has to
  meet four key financial targets
• Break-even on income and expenditure
• Borrow within its External Financing Limit (EFL)
• Maintain capital expenditure within its Capital
  Resource Limit (CRL)
• Absorb the cost of capital at a rate of 3.5 of
  average relevant net assets

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Income Expenditure

• See Table 3.1
• Break-even (eventually) achieved in accounts for
  2002/03, 2003/04 and 2004/05
• Fluctuations during 2005/06, but seemed to be on
  target early in 2006
• Higher than expected non-patient care income
  (e.g. training and research) during 2005/06
• Considerable reliance each year on non-recurrent
  funds to achieve break-even

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External Financing Limit

• Given each year by DoH (may be ve/0/-ve)
• ve value means Trust can borrow money (up to
  EFL) to finance (approved) capital programmes,
  rather than relying on internally-generated
  income (e.g. from selling services)
• Can be undershot
• Met by Trust each year to date (Table 3.2)
• Considerable variation in EFL each year

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Capital Resource Limit

• Given each year by DoH
• Relates to gross capital expenditure (adjusted
  for any capital gains etc)
• Cannot be overspent
• Met by Trust each year to date (Table 3.3)
• Considerable variation in CRL each year
• Generally approx 1.2 2.0 times gt EFL

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Rate of Return on Capital

• Trusts must absorb the cost of capital at a rate
  of 3.5 (previously 6) of average relevant net
  assets
• Level playing field with private sector
• Capital no longer a free gift from NHS (since
  1991)
• gt more efficient use of NHS land/buildings
• Nominal rather than real payments (circular flow
  to/from HM Treasury and NHS)
• Public Dividend Capital dividends payable from
  annual surplus show relevant rate of return
  achieved each year (Section 3.4 and Table 3.1)

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Better Payments Practice Code

• Aim to pay at least 95 (ideally 100?) of all
  valid non-NHS invoices by value and volume within
  30 days of receipt of goods or a valid invoice
  (whichever is later)
• Trust consistently achieving gt 95 (and usually gt
  97.5)
• gtTrust meets its invoice-related financial
  obligations

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External Financial Pressures

• All NHS Trusts face pressure due to
• Increased superannuation contributions
• The new consultant contract
• Agenda for Change (a new pay system for
• over 1 million NHS staff)
• Incremental drift up salary scales
• Drugs inflation
• Trust received uplift of 9.3 in 2004/05, but
  calculated it needed 14.8
• Trust keen to seek Foundation status (requires
  sound financial situation but gives greater
  financial freedoms)

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Specific Problems

• Relatively low contributions from its main
  commissioning PCTs generally well below the
  GMSHA average, which in turn is below the
  national average for England
• Backlog maintenance of more than 3 million
  (after the Business Cases for Bury and Rochdale,
  with a total value of about 13 million, have
  been competed)
• A lack of investment in its infrastructure (e.g.
  in finance and human resources departments)
  this has been a problem since the formation of
  the Trust, when insufficient resources were
  transferred from the parental Acute Trusts
• A current Reference Cost Index (RCI) in low 90s

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Reference Cost Index

• RCI lt 100 indicates below-average costs (takes
  account of complexity of care provided)
• RCI can be adjusted to reflect local market
  forces factor (MFF)
• MFF-adjusted RCI (Table 5.7)
• 2002/03 103
• 2003/04 97
• 2004/05 92
• Trust under-funded for services
• Situation is worsening

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LIT Financial Returns I

• Commissioners contributions per weighted head of
  population for adult services (population
  adjusted for age profile and need) (Tables 5.3
  and 5.4)
• Generally lower than for similar LIT areas
• Generally lower than for LITs within GMSHA
• Consistently lower than national average for
  England

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LIT Financial Returns II

• Approximately 60 of LIT spending on adult mental
  health services to NHS providers (Table 5.5)
• If each LIT paid national average per head and
  half of the amount paid to NHS providers was
  received by Trust (i.e. 30 of total), Trust
  would have received (Table 5.6)
• Additional 7 million in 2003/04
• Additional 6 million in 2004/05
• Trust appears to be seriously under-funded for
  its services

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Overall Conclusions

• Trust consistently meets its externally-imposed
  financial requirements over each financial year
• Trust not receiving sufficient funds to meet
  external cost pressures
• Underlying financial situation is precarious,
  with heavy reliance on non-recurrent financial
  solutions each year
• Trust keen to seek Foundation status
• RCI values and LIT financial returns show that
  Trust is seriously under-funded for the services
  it provides
• Currently providing very good value for money and
  making very efficient and effective use of its
  monies
• It needs higher recurrent funding to address
  underlying financial problems and deliver and
  develop sustainable services