The Nottingham University Hospitals NHS Trust Financial Recovery Plan Version 5.0 JULY 2007

1. 1 The Nottingham University Hospitals NHS TrustFinancial Recovery PlanVersion 5.0 JULY 2007

2. 2 Table of contents Section Page Executive Summary and Conclusions 4 Finance 12 Workforce 30 Short Term Cost Containment 35 Strategic Long Term Plan 41 Financial Turnaround Team 44 Cost Improvement Schemes 56

3. Executive Summary and Conclusions

4. 4 Executive Summary Introduction Nottingham University Hospitals NHS Trust (NUH) was formed on 1 April 2006 following the merger of the Queen’s Medical Centre Nottingham University Hospital NHS Trust and Nottingham City Hospital NHS Trust NUH is one of the largest hospital Trusts in the UK. It is a major acute teaching Trust with an established local, national and international reputation for high standards in care, teaching and research. NUH provides care from two main campuses: Queen’s Medical Centre Campus City Hospital Campus The vision and ambition of NUH is to be ‘the country’s leading teaching Trust by 2016.’ During the merger process in 2005 an underlying financial gap was identified. At the start of 2006/07 this was quantified at £60m and a savings plan was put in place to achieve financial balance involving post reductions of 1,100 WTE and potentially significant redundancy costs In November 2006 the Trust, in conjunction with the SHA and the local health community, secured agreement to a longer period for NUH to achieve financial balance and some aspects of the original savings plan were deferred. Version 4.0 of this plan set out a projected deficit for 2006/2007 of £11.1m. Due to the very hard work and dedication of the staff in the Trust, the financial outturn of the Trust was successfully managed down to £6.8m This is a promising start for the Trust to secure its long term future through the financial recovery process to drive the financial strategy which remains to achieve: financial balance in 2007/08 repayment of the 2006/07 deficit in 2008/09 a Foundation Trust application in 2008 Version 4.0 was the initial Financial Recovery Plan for 2007/08 presented to and supported by the Trust Board on 5 April 2007. Many of the workstreams were still at an early stage of development with tentative savings projections. This is Version 5.0 of the Financial Recovery Plan and will be presented to the Board of Directors on 2 August 2007. It includes: The overall Cost Improvement Programme for the Trust in 2007/08. The detailed plans and milestones for workstreams in 2007/08 Assessment of progress of the workstreams over the first quarter of 2007/08 An initial projection of the effect of the plan in 2008/09 It will continue as a ‘living document’ as the plan will continue to develop and updated versions will be subject to quarterly re-approval by the Board.

5. 5 Executive Summary Plan Content The plan is structured in a format agreed with the SHA Turnaround Director and PwC as national best practice The plan: Sets out the financial position of the Trust focusing on the actions taken and financial result for 2006/07 and the requirement for cost reduction and management action to achieve financial balance in 2007/08. The plan demonstrates the monthly impact of savings and the resulting monthly run rate. Details the workforce implications and projections to secure financial balance whilst maintaining patient services and meeting national targets Identifies the need to continue with cost containment measures for at least the short term whilst the cost reduction measures come fully into effect Presents the latest position on the development of the long term strategy for the Trust including the developing medium term strategic options that will involve reconfiguration of services to ensure enhanced patient care, teaching and research within an affordable envelope. This underpins the vision and ambition for “NUH 2016” Describes the approach adopted by the financial turnaround team and executive in developing ideas into projects. It clarifies project ownership, the implementation process and timetable needed to deliver the plan whilst also managing the impacts of: Payment by Results, Practice Based Commissioning, Patient Choice, the Independent Treatment Centre and the implementation of a new managerial and departmental structure Summarises the process undertaken to develop cost reduction plans and the associated projected financial impact of their successful delivery. The plan is supported by a set of appendices. These appendices set out detailed information on each of the workstreams that make up the plan; each workstream is scoped with the current position being explained, next steps, issues and risks to delivery are articulated. A detailed project plan with steps, actions and milestones is included along with phased financial savings

6. 6 Executive Summary 2006/07 Financial Performance During late 2005/06, and during the merger of the two predecessor Trusts, NUH completed a Long Term Financial Model and the Foundation Trust Diagnostic model. These processes confirmed an underlying financial deficit A 2006/07 forecast deficit of £60m was identified that required immediate action. Even though the Trusts were not yet combined, steps were taken to identify what actions were needed to meet the statutory financial obligations for 2006/07 and beyond. Cost Improvement Projects (CIPS) were developed with the assistance of PricewaterhouseCoopers (PwC). With the agreement to a longer period for NUH to achieve financial balance, some aspects of the original savings plan were deferred. Due to the very hard work and dedication of the staff in the Trust, the financial outturn of the Trust was successfully managed down from the £11.1m projected in version 4.0 of the plan to £6.8m.

7. 7 Executive Summary

8. 8 Workforce Over 60% of NUH expenditure relates to pay costs. Control of workforce numbers is key to achieving financial balance and long term financial viability. All changes associated with the workforce are being undertaken in line with a consultation process and Workforce Change Policy which have been agreed between NUH and Staff Side colleagues. The workforce change policy is very thorough and ensures that redundancy payments are only made after strenuous efforts are made to secure alternative employment for ‘at risk’ individuals. The April 2007 starting position was 9819 WTE. The planned workforce changes are targeted to enable NUH to provide services to patients throughout 2007/8 with a workforce of less than 10,000 WTE. By March 2008, the planned workforce is around 9900 WTE. Executive Summary

9. 9 Executive Summary Management of the Turnaround Process The Turnaround Project Office (TPO) has implemented processes and tools that will ensure the delivery of all savings plans for the calendar year 2007/08 and following years. The TPO focuses on the delivery of the savings being achieved through the outputs of the workstreams but is also involved with the non-workstream saving plans to ensure there is an integrated and co-ordinated process Additional new projects will be identified to deliver savings for 2008/09 and onwards. The TPO report weekly to the Directors' Group and to the Programme Sponsor (Chief Executive). The Directors’ Group consists of the five executive directors of the Trust and the other most senior directors. Monthly reports are provided to the Financial Turnaround Committee (FTC) which is a committee of the board. The FTC is chaired by the Trust Chairman and also comprises all the other non-executive directors. In addition, many of the executive team are in regular attendance, including the CEO and Director of Finance, together with other senior officers and a representative of the external auditor.

10. 10 Executive Summary Governance The rationale for allocation of savings targets to Directorates was discussed and agreed with the Directors' Group and Operational Management Executive. This version of the recovery plan will be presented at the following key meetings for discussion and agreement: Trust Executive Team (Operational Management Executive): Financial Turnaround Committee: 26/07/07 Performance Meeting with Nottinghamshire PCTs: NUH Trust Board: 02/08/07 Next steps The document presented to the Trust Board on 2 August 2007 will be a living document as work progresses. The updates will be managed through a strict version control. Updates will be reported internally as outlined below to ensure continued support and buy-in from key internal stakeholders: Weekly: Directors' Group

11. Finance

12. 12 2002/03 to 2006/07 Financial Background Introduction Queens Medical Centre Nottingham University Hospital NHS Trust and Nottingham City Hospital NHS Trust reported break even financial positions for all years during the period 2002/03 to 2005/06. However, this was only achieved through implementing a range of non recurrent measures which mainly consisted of balance sheet flexibility, revaluation of the estate, holding vacancies, slippage on developments, and counting new stock lines. During late 2005/06, and during the merger of the two predecessor Trusts, NUH completed a Long Term Financial Model and the Foundation Trust Diagnostic model. These processes confirmed an initial financial gap of £60m. This 2006/07 forecast gap required immediate action. Even though the Trusts were not yet combined, steps were taken to identify what actions were needed to meet the statutory financial obligations for 2006/07 and beyond. Cost Improvement Projects (CIPS) were developed with the assistance of PricewaterhouseCoopers (PwC).

13. 13 2002/03 to 2006/07 Financial Background Conclusions The underlying deficit has increased from £7.5m in 2002/03 to £11.8 m in 2006/07. The figures reported in the remainder of this document relate to NUH in totality following the merger of the previous two organisations.

14. 14 2006/07 Income and Expenditure Introduction The table opposite sets out the 2006/07 performance against budget. This is broken down further in the chart opposite. Overall the adverse variance of expenditure over income was £6.8m. Variance analysis Patient care SLA income over performance of £17.0m, offset by net other income shortfalls of £3.1m, explains the significant over achievement of income against target, particularly in the last two months and explains the marked increase in the surplus position reported for March 2007. Expenditure deviated from plan by £20.7m as a result of: The extremely challenging CIP target imposed on all divisions. Although significant progress was made with its delivery, it was agreed with the SHA and PCTs not to implement a number of the high risk and workforce reduction programmes as originally planned, resulting in a delay in the implementation of savings. A significant provision for credit note/bad debts. Additional costs incurred due to activity over performance. Agenda for change and consultant contract incremental drift costs in excess of funding received. Significant one off costs associated with redundancy (£1.8m).

15. 15 2006/07 Income and Expenditure by Clinical Division

16. 16 2006/07 Savings Plan Performance Introduction NUH implemented a financial recovery plan to address its recurrent financial deficit and meet the aim of providing sustainable clinical services. There were a number of elements of the recovery plan: corporate department merger savings. clinical reconfiguration savings. cross hospital workstream savings procurement initiatives workforce reductions The opening budgets issued for 2006/07 were based upon a savings requirement of £60m in order to eliminate the financial gap. Allocation of the Target This target was allocated to directorates and divisions in its entirety. With the move towards income based budgets, this allocation was primarily based upon the directorates distance from its ‘tariff’ income position. Divisions were tasked with identifying savings plans from amongst the aforementioned elements and were supported in this task by the turnaround management team. 2006/07 Performance The table above summarises the forecast level of CIP delivered in 2006/07 through a combination of cost savings and income generation. Overall there was a £6.8m deficit between plan and savings delivered. Significant adverse deviations from plan are however also associated with: The £11.4m that remained unidentified in the CIP plans. workforce reductions – reflecting the deferment of the planned programme to allow a longer period for workforce transition (£4.4m). patient care income – The Trust was unable to secure agreement with commissioners for a number of the higher risk elements of the plan (£4.5m). Offset by: the significant SLA over performance (£17m).

17. 17 2006/07 Savings Plan Performance Conclusion The Trust achieved £37.1m of the £60m savings target in 2006/07 and in addition it obtained £17m additional SLA income. £9m of this SLA income has been secured recurrently within the baseline SLAs agreed for 2007/08 which contributes to the expected savings to be delivered of total effect £48.4m

18. 18 2006/07 Balance Sheet Introduction The table opposite sets out the 2006/07 year end Trust balance sheet in comparison to the 2005/06 balance sheet. The position at March 2007 reflects a loan taken out in January 2007 from the Department of Health of £9.6m to support the Trust’s cash position. Variance analysis Fixed Assets The increase in tangible assets is due to indexation (£30.2m), additions (£22.4m), revaluations (£0.1m), less depreciation (£21.4m), less impairments (£7.2m), less disposals (£0.3m). Current Assets Cash at bank increased reflecting the loan Creditors have increased in part due to the loan repayment and Inland Revenue liabilities being paid on the due date In terms of Creditors falling due after more than one year this relates to the loan repayments (principal) due in years 2 & 3. Equity movements reflect the EFL, asset revaluations and I&E deficit The revaluation reserve is nil at 1 April 2006 as the position of the new Trust. Conclusion These figures reflect the audited accounts.

19. 19 2006/07 Cash Flow Introduction The table opposite sets out the 2006/07 cash flow for the Trust. Cash requirements At the end of January 2007 liquidity was such that the Trust became short in cash terms by £10m, with the result that payments were not made to suppliers for two weeks. This had a detrimental effect on Better Payments Practice Code (BPPC) performance. Under the new DH Financing Regime for 2006/07 the Trust took a £9.6m working capital loan. The term was for 3 years which will incur interest of circa £900k during this period. The increase in creditors reflects the requirement to balance cash. Conclusion The I & E deficit resulted in a net cash requirement during the 2006/07 financial year, particularly given the ‘back loading’ of SLA over-performance income.

20. 20 2007/08 Income and Expenditure Introduction The table opposite sets out the NUH forecast 2007/08 financial plan compared with the 2006/07 outturn position. Budget assumptions Patient care SLA income is expected to increase by £5.9m (1.2%), primarily due to an inflationary increase in tariffs. The Trust is also receiving the benefit of additional investment to meet the 18 week wait target. However these increases are offset by income lost due to the transfer of a patient activity to the treatment centre (£6.4m). The increase is lower than would be expected, given the significant level of non recurrent SLA over performance delivered in 2006/07. There is an £6.2m increase in other income associated with service recharges to the treatment centre and an increase in MADEL funding following the reductions made in 2006/07, although these increases have also been partially offset by an additional 20% transitional reduction on R&D funding. Pay costs are expected to increase by £7.1m (1.9%). This is mainly due to pay inflation, but also the further incremental impact of agenda for change and the consultant contract, offset by the full year effect of 2006/07 workforce CIP programmes and new CIPs proposed for 2007/08. Currently there are no costs factored in for redundancy or protection costs within the plan. Additional funding is expected to be secured from the Nottinghamshire PCTs strategic reserve to address this. Drugs and clinical supplies are expected to increase by £2.7m (2.5%), which is largely largely due to non pay inflation, above inflation cost increases on NICE drugs, the impact of the 18 week referral to treatment target and the transfer of activity to the private sector.

21. 21 2007/08 Income and Expenditure The budget also assumes the Trust will achieve its £20.5m CIP to deliver breakeven position in 2007/08. The chart opposite sets out the monthly budgeted I&E position in order to achieve overall in year financial breakeven for 2007/08. The Trust is budgeting to move from an £800k in month deficit in April 2007 to a £400k in month surplus in March 2008. This £1.1m improvement in the monthly I&E will be achieved through the implementation of the recovery plan. The savings from a number of schemes start or increase during the financial year so the Trust secures in monthly run rate balance in August 2007. In the first three months of 2007/08 the Trust has a cumulative deficit of £1,633K, which represents an underspend against the planned deficit (£2,031K) of £398K. The adverse movement in the run rate from a surplus in March 2007 (£4m) to a deficit in April 2007 (£800k), is explained by the impact of the prior year SLA income over performance impacting in the latter two months of 2006/07 and the loss of benefit of non recurrent savings programmes delivered in 2006/07. The Trust’s income base has also been reduced by the impact of a further tariff reduction. The run rate reflects the workforce projections required to deliver the service and meet targets, however the costs are partially offset by the increased phasing in of CIPs as the year progresses. Run rate balance is expected in August and in-month surpluses generated thereafter to fund the deficit incurred in the first 4 months.

22. 22 2007/08 Savings Plans

23. 23 2007/08 Risk Analysis Savings Target - The budget for 2007/08 assumes £20.5m of savings. The Trust initially appointed PricewaterhouseCoopers to assist in identifying new ideas and completing implementation plans. The schemes and the risks associated with them are discussed in more detail later in the report. In addition to the delivery of a challenging turnaround and financial recovery programme, the Trust is also exposed to a number of risks, as summarised below: Treatment Centre – The forecast assumes a cost neutral impact of the TC, but with key outstanding risks associated with the loss of additional activity and the adequacy of transitional relief income Workforce – Although target workforce reductions are being achieved at present, they continue to be closely monitored to ensure service deliverability and activity targets are not compromised. Redundancy Costs – Potential redundancy costs associated with the workforce reductions have not been included within the forecast. Protection Costs – No allowance has yet been made within the forecast for the impact of protecting staff on existing salaries, in the event of them being transferred to a lower banded role, following the implementation of workforce change. As with unfunded redundancies, these costs are also of a potentially high risk, given the potential magnitude of the cost involved Both redundancy and protection costs are expected to be resourced through the PCTs’ strategic reserve. Agenda for Change and Consultant Contract Progression - National guidelines have been assumed, in terms of applying a percentage to Trust turnover to estimate these costs. Historical evidence would suggest that costs exceed these advised levels Conclusion There are significant risks to the Trust budget which will require robust management during the year.

24. 24 Service Level Agreements 2006/07 SLAs There are no material outstanding issues from 2006/07 SLAs. 2007/08 SLAs 2007/08 SLAs to the value of £468.3m with NUH main commissioners have been agreed. Additional activity has been purchased by PCTs to achieve the 18 week referral to treatment targets. There are some specialties where PCTs require to purchase additional activity above the agreed 2007/8 SLA to achieve the 18 week targets. This activity has a value of approx £2m. NUH are currently unable to identify the capacity to deliver the level of activity required but are working to improve efficiency to free up capacity. Negotiations are continuing with main commissioners to secure additional funding to support service developments (eg cytology and digital hearing aids). The following risks have been mitigated within local terms and conditions for commissioners within the East Midlands: Non payment for legitimate activity by associate PCTs as the risk of this is transferred to the co-ordinating PCT Tariff not covering the costs of delivering activity as PCTs have agreed to apply PbR flexibility for pass through payments in exceptional cases as allowed under the PbR guidance The need to use private sector capacity as SLAs have been agreed on the basis of NUH capacity The main financial risk which remains is that local prices do not cover the costs of delivering activity. However, it has been agreed that work will be ongoing during 2007/08 to move towards the indicative tariff.

25. 25 2007/08 Balance Sheet Introduction The table opposite sets out the 2007/08 year end Trust balance sheet as per the FIMS plan submission. Variance analysis Fixed Assets The increase in tangible assets is due to indexation (£31m), additions (£25m) less depreciation of £24m. Additions are in accordance with the Trusts forecast capital programme Working Capital This is forecast to remain relatively constant in the model from year to year, reflecting inflationary increases In terms of creditors falling due after more than one year this relates to the loan repayments (principal) due in year 3 Equity movements reflect the asset revaluations and I&E position at break even. Conclusion The variances are based on the June forecast.

26. 26 2007/08 Cash Flow Introduction The table opposite sets out the cash flow for the Trust based on the latest FIMS plan submission (June 2007). Key variances The cash position reflects the movements in I&E, balance sheet and the delivery of the CIP programme The CIP programme is currently back loaded. There is a risk that the late delivery of these will impact on the in year liquidity position. As a result the Trust will need to ensure a robust debt collection policy is followed In year variations in debtors and creditors will reflect this policy Donated additions are estimated to be £1.5m, however the final figure may be lower. Conclusion Phasing of income & expenditure will affect debtors and creditors during the year and consequently at year end.

27. 27 2008/09 to 2009/10 Income and Expenditure Financial Plan 2007/08 to 2009/10 The chart overleaf sets out the medium term forecast for the reported financial position. This shows the generation of an in year target surplus in 2008/09 in order to repay the 2006/07 deficit and the achievement of a break even position in 2007/08 & 2009/10. Both forecasts are dependent upon the delivery of significant financial savings over the next two years. It has been assumed that the Trust will as a minimum deliver a 2.5% efficiency saving in these years, together with further workstream and service reconfiguration savings. The full year effect benefit of any 2007/08 CIP schemes has also been factored into the recurrent projections for 2008/09 and 2009/10 In order to achieve headcount reductions we will need financial support from PCTs. Key Assumptions Inflation - National and local SHA guidelines have been followed in applying inflation (cost at 5%) and tariff uplifts (2.5%) to income and expenditure forecasts for each of the three years. These are identified in the table opposite. Income – In 2008/09, total income reduces by £640K, which results from: An increase in the tariff /inflation uplift of £12.8m, offset by a full year effect net loss of income in relation to the treatment centre (reduced patient care income, but increased other income) of £4m.

28. 28 2008/09 to 2009/10 Income and Expenditure

29. Workforce

30. 30 Workforce Implications Introduction Over 60% of NUH expenditure relates to pay costs. As efficiency gains are achieved through the delivery of process improvements and service redesign, a significant proportion of the resulting cost savings will be directly related to pay The major challenge is to continue with the integration programme and service reconfigurations in order to meet the required efficiency improvements and expected income reductions over the coming years. This will inevitably require a restructure of the workforce, resulting in improved productivity and changes in working practices To date there are over 230 schemes that require changes to the workforce. Workforce change in this context includes: A reduction in the total number of WTE for a particular staff group A change to the skill mix for a particular staff group All workforce change implemented within NUH will be carried out in accordance with the workforce change and associated policies.

31. 31 Workforce Changes achieved during 2006/07 A formal staff consultation process commenced on 15 May 2006 with the announcement of potential workforce reductions of 1,200 posts resulting in a pay cost reduction of £45m. In order to achieve recurrent financial balance it was identified that workforce reductions needed to take place as quickly as possible. Some 600 schemes were developed across all staff groups and departments/services. The schemes identified potential savings of £34m and a reduction of almost 1100 posts, still leaving a gap of £11m against the original target. The implementation of workforce change at this pace would have inevitably resulted in significant redundancy costs. Following the agreement with the Nottingham Health Community to enable a longer period for NUH to achieve financial balance a total review of all 600 schemes took place. Many schemes were deferred to enable full utilisation of the additional time available and others were able to be progressed without significant redundancy costs. During 2006/07 a total of 24 staff were made redundant at a total cost of £1.8m. Strict vacancy control processes remained during the whole of 2006/07, with recruitment taking place for only those posts that were absolutely essential to maintain service delivery. The stringent vacancy control process led to a significant number of posts not being replaced in the short term. Between 1.4.06 and 31.3.07 the total workforce reduced by 870 WTE. The graph opposite shows the total WTE employed by NUH during 2006/07

32. 32 The Implementation of Workforce Change Introduction All changes associated with the workforce are being undertaken in line with a consultation process and workforce change policy which have been agreed between NUH and staff side colleagues. Implementation Process The implementation of workforce changes commences with discussion at the Workforce Change Consultation Group and the identification of staff side leads. A detailed implementation plan is then developed which includes full consultation with those affected, the identification of staff at risk with confirmation of the guaranteed employment date and the search for suitable alternative employment. Where no suitable alternative employment has been identified at the end of the guaranteed employment date, staff are dismissed by reason of redundancy. Workforce Change Policy The workforce change policy states that as far as possible, workforce reductions will be achieved by turnover and natural wastage, redeployment, absorption, retraining, early retirement and voluntary redundancy – thus avoiding compulsory redundancy wherever possible During previous workforce reduction programmes there have been opportunities for staff to move to other organisations within the local health community. As many health care organisations are working to reduce their costs, there are currently fewer opportunities for the redeployment of staff outside the Trust We therefore recognise there may be a need for some compulsory redundancies and the Trust’s redundancy selection procedure is designed to ensure that there is a defendable and fair logic being applied to all posts being made redundant. Legal advice has been, and will continue to be, taken throughout the process in order to ensure that redundancy costs are kept to a minimum and suitable alternative employment secured where appropriate. Redeployment Policy In order to allow NUH to implement the necessary workforce changes during 2007/08 and further minimise potential redundancy costs an additional process has been agreed The agreed framework provides staff affected by workforce change an employment guarantee date. This will give staff some certainty in terms of timescales for changes, during which time all efforts to redeploy staff will be made Whilst it is accepted that this framework may incur additional revenue costs in the short-term, it should significantly minimise the need for compulsory redundancies as NUH will use the guaranteed employment period to secure suitable alternative employment. Protection Policy A jointly agreed protection policy is in place which will support the implementation of skill mix changes.

33. 33 The Implementation of Workforce Change Actions being undertaken to minimise redundancies The Trust continues to hold vacant posts wherever possible to enable the redeployment of “at risk” staff The Trust has and will continue to critically review all fixed term contracts and requests from staff to work beyond retirement age Comprehensive arrangements are in place to assist staff under notice of redundancy in securing suitable alternative employment, this includes: the identification and notification to individuals of suitable alternative posts access to dedicated vacancy intranet site support packages on preparing a CV, preparing for interview and considering career options the establishment of a redeployment “compact” with other organisations within the Nottingham health community

34. 34 Workforce Changes 2007/08 Introduction The table overleaf sets out the planned workforce changes for 2007/08, together with the actual staff in post for the first quarter. The anticipated April 2007 starting position of 9,882 WTE represented an increased workforce from the end of 2006/07. This was due to the need to recruit externally to 180 WTE critical medical, nursing, midwifery and allied health professional posts to ensure the ongoing delivery of patient care and took into account staff that had been appointed but had not yet taken up post. Whilst a number of posts were filled, many have been difficult to fill and the recruitment process is ongoing. In addition, a significant proportion of the external recruitment has been offset by natural turnover. As a result of the above factors, the actual whole time equivalent staff in post for the first quarter of the year is below the projected levels. It is anticipated the WTE staff in post numbers will increase as recruitment to the outstanding posts takes place. The CIP schemes identified to date describe workforce reductions of 264 WTE. A number of schemes identify the need to implement skill mix changes which will potentially lead to protection arrangements for some staff. The total number of affected staff and the associated revenue implications are currently being identified, It should be acknowledged that further workforce changes will be identified as the year progresses.

35. 35 Workforce Changes Planned during 2007/08

36. Short Term Cost Containment

37. 37 INTRODUCTION Over 60% of NUH expenditure relates to pay costs. Control of workforce numbers is key to financial control in the short-term whilst the cost improvement schemes are being fully implemented. BACKGROUND The success of the Trust in reducing the potential 2006/2007 overspend from £60m to £6.8m is directly connected to the control of workforce numbers and costs. From March 2006 to March 2007 NUH reduced contracted wte staff from 10,773 to 9903. The reduction in workforce numbers in 2006/2007 was achieved through a vacancy control process led by Executive Directors. This process effectively stopped external recruitment in all, but the most essential cases. Control of spending on agency and locum staff ensured that the reduction in workforce numbers was fully reflected in the financial position. This process is set out on the chart opposite. Short Term Cost Containment

38. 38 Short Term Cost Containment CONTROL IN 2007/2008 The vacancy control procedure has continued to be managed by the Human Resources Department. Approval for any post for internal and exceptionally external recruitment is by the Directors of HR and Service Improvement acting jointly. When a post becomes vacant, the need to fill is reviewed by the Line Manager and funding is confirmed by the Directorate Accountant. The Vacancy Approval Form (VAF) has to be approved by the Directorate Management Team before submission to the HR Department. Even if there is no option but to approve external recruitment to a post, the responsible Directors manage the phasing of recruitment to ensure that overall staff numbers are maintained within a maximum of 10,000wte. Spending on agency, bank and locum staff is controlled through the Divisional Accountants based on the existing recruitment controls. This expenditure is reported in detail in the monthly finance report. THE FUTURE The vacancy control procedure will be reviewed when robust and affordable establishments have been agreed across the Trust. Version 4.0 of this plan had a target date of 31 May for this. The process has been extended to ensure robustness, equity and that the new establishments incorporate new ways of working. The new target date for completion of the establishment exercise is 31 August.

39. 39 Appointment Approval Process

40. Strategic Long Term Plan

41. 41 Strategic Long Term Plan Since merger on 1st April 2006, the Trust has undertaken work to determine what kind of organisation we want to be in moving forward. We now have a vision whereby: “ NUH will be the country’s leading, teaching acute provider by 2016” In addition we have a defined set of strategic aims that we will achieve: Excellence in: Clinical Outcomes Patient Experience Teaching & Training Research Value for Money We have also undertaken a considerable amount of preparatory work to inform the development of a Strategic Long Term Plan. This work includes: Analysing national policies and determining the opportunities and challenges these policies afford NUH in moving forward Analysing the local context within which we’re working and the associated opportunities and challenges (including an appraisal of our market) Developing initial planning assumptions for the future Assessing our current services against a range of criteria including productivity, profitability and KPIs Working with our partner health organisations, in particular Nottingham City and Nottinghamshire County PCT, to agree a joint approach to health service planning locally Implementing a clinical management structure which will be best able to plan and take forward the future direction of the Trust Developing a process through which a 5-year robust, credible, viable and do-able business plan can be progressed

42. 42 Strategic Long Term Plan Next steps We are now ready to commence work on the actual development of our long term plan. Our timetable for the next steps are: Commence the 5-year integrated business planning and reconfiguration planning process by Sept 2007 First cut draft business plan ready by the end of November 2007 for discussion at the Trust’s December Board meeting Consultation on proposed reconfiguration options between January and March 2008 Detailed 5-year plan on preferred option ready by April 2008 for approval by the Trust’s Board and presentation to NHS East Midlands as the first stage of the Trust’s application to become a NHSFT Conclusions Following merger in April 2006, The Trust has undertaken considerable preparatory work to inform its future strategic direction Work is due to commence on the development of our 5-year integrated business plan and supporting reconfiguration plans. It is expected that a range of options will be developed for consideration in the autumn with a view to holding a public consultation in early 2008 and implementation starting in the spring / summer 2008.

43. Financial Turnaround Team

44. 44 Financial Turnaround Activities 2006/07 Cost improvement projects (CIPS) were developed with the assistance of PricewaterhouseCoopers (PwC) to address a projected gap of £60m The CIP plans were developed in conjunction with staff across NUH and signed off at the Risk Management Executive. They were progressed across 2006/07 contributing to the significant reduction in the forecast deficit to £6.8m at outturn The CIPS were managed, monitored and reported on by an executive sponsor who was allocated a specific target to deliver. They were performance managed by the Finance Review Group chaired by the Director of Finance and a Procurement Board, chaired by a Non-Executive Director

45. 45 Financial Turnaround Planning for 2007/08 In the preparations for 2007/08, discussions were undertaken with other organisations as suggested by the SHA Turnaround Director to ensure that NUH benefits from lessons learned elsewhere and also to confirm that the planned workstreams covered all main areas of potential benefit Also from mid February to end March, PwC were appointed to assist the Trust with three key workstreams (Theatres, Admin and Clerical, Length of Stay), to set up the TPO, and to identify any additional saving opportunities The planning, management and delivery of the workstream savings for 2007/08 is the responsibility of the Turnaround Programme Office (TPO). The purpose of the TPO is to plan and ensure delivery of savings through a rigorous, formally managed process. The TPO comprises a Turnaround Director and a small staff and it holds the workstreams to account for the achievement of their plans. In the development of new savings plans the main focus of work in 2007/08 is on cost reduction rather than income generation. The only assumed volume growth relates to activity which PCTs have identified they need to commission in order to achieve the “18 week” RTT target The overall cost improvement savings to deliver financial balance in 2007/08 were constructed through two approaches:

46. 46 Financial Turnaround Management 2007/08

47. 47 Reporting structure

48. 48 Internal and External Stakeholder buy in There are internal and external communication processes in place to support the development, reporting and management of the financial recovery plan These processes are key to ensure engagement and buy-in of all internal and external stakeholders to the plan. Internal Stakeholders There was an ongoing process of staff engagement and consultation during the turnaround process in 2006/07 To launch the 2007/08 turnaround process the Chief Executive held a number of staff briefing events across both campuses during one week in April 2007. These events were attended by over 500 staff who had the opportunity to see a presentation and to put questions to the Chief Executive directly. The powerpoint presentations, a pod-cast of the event and answers to the collated questions were then available for all staff to view on the Trust’s intranet and heavily promoted via the weekly Trust briefing. Staff were also encouraged to make their own suggestions for ways to improve efficiency. A subsequent survey measuring the effectiveness of these communication channels showed that 80% of staff surveyed were aware of the Trust’s financial turnaround plans. The majority of staff understood the key messages regarding the need for savings and workforce change. When asked about which information sources they used to find the information, 72% cited the weekly Trust briefing, 31% mentioned the Chief Executive’s briefing sessions and 45% mentioned departmental briefings or information direct from their chief manager. Future communications plans include a publication to highlight progress with Turnaround, reiterate the need to keep on track with savings and explain how the Trust has taken forward staff suggestions. External Stakeholders The recovery plans have been discussed with the Nottingham Health Community Leaders Financial Recovery Group and a small working group representing the two local PCTs The board also takes its communication with PCTs very seriously and detailed engagement will take place and continue across 2007/08 to ensure shared understanding of, and buy-in to, the plan NUH and PwC staff met with the SHA turnaround director to share the format of the plan and the approach being taken (up to 31 March) Nottinghamshire Overview and Scrutiny Panel will be engaged as required Pro-active media communications are being progressed through the NUH Communications & Marketing Department.

49. 49 Financial TurnaroundPlan Creation 2007/08 The chart above demonstrates the route through which the savings plans which constitute the financial turnaround plan were created. Opportunities were identified by divisions, directorates, departments and workstream leads. PwC supported workstream leads in identification of opportunities and construction of project plans. PwC also scoped additional potential saving areas. Saving plans were discussed with clinical and managerial leads at the Operational Management Executive, with executive directors at the Directors' group and with non-executive directors at the Financial Turnaround Committee. The discussion and sign off of the savings plans and financial turnaround plan at these internal groups ensure internal stakeholder buy-in to the plan. Version 4.0 of the plan was presented to the Trust Board on 5 April 2007. The Turnaround Plan is a living document as work progresses. The updates are managed through strict version control. Updates are reported internally as outlined below to ensure continued support and buy-in from key internal stakeholders: Weekly: Directors' Group Monthly: Trust Executive Team, Financial Turnaround Committee and Trust Board Quarterly: An in depth detailed update will be provided to the board for re-approval on a quarterly basis

50. 50 Financial Turnaround External Communication and Governance Structure

51. 51 Trust Communication plans to all stakeholders Trust Communication Principles Honest in the use and sharing of information by ensuring the quality of its work and published information is accurate Open to enquiry and sharing information Accessible to all members of the public, stakeholders, users, potential users, their carers and families Corporate and consistent in style Relevant and targeted to the audience(s) by recognising their particular requirements and interests and the different communication needs of diverse communities Timely and regular, with publications following an agreed schedule Involve patients wherever possible, in line with the Trust’s Patient and Public Involvement Strategy Clear and concise Trust’s key objectives will be reflected in the communications priorities. Communication programme with stakeholders Key stakeholders identified and communication needs assessed Internal and external communication mechanisms established: Web site Bespoke briefing Team briefing Business plan publication Media relations Staff side engagement via human resources supported by communications. Key messages Trust continuing to successfully implement recovery programme All staff have been the key to successful delivery Patient focussed – more patients treated, faster and to highest standards We must continue to address our finances so that we can realise our future ambitions for service reconfiguration Getting best value for taxpayers money.

52. 52 Mechanism for monitoring savings performance During the creation of their project plans, project owners have been responsible for identifying: Milestones; Key tasks required to complete those milestones; Completion dates of key tasks and milestones; Key performance indicators; Financial impact of savings. Project owners together with their executive sponsors will be responsible for delivering the milestones they have identified. Project plan delivery and achievement of milestones will be monitored by the turnaround programme office. Missed milestones are likely to have an impact on the quantum and/or the timing of savings. If milestones are not on target to be achieved, the project owners, their executive sponsors and the turnaround programme office will work together to clear any blockages and to bring those specific projects back on track. Progress reports are provided by the TPO to the directors' group on a weekly basis. Risks and issues are escalated by the TPO to the directors' group on a weekly basis. The chart overleaf outlines the reporting and escalation processes which will be in place Key Next Steps Present Version 5.0 to Financial Turnaround Committee 26 July Present Version 5.0 to Trust Board 2 August Finalise establishments (except A&C) and report to Trust Board 2 August Finalise A&C establishments end August Performance management meeting with PCTs 20 August Report monthly to PCTs Ongoing Prepare Version 6.0 Plan September Present Version 6.0 Plan to Trust Board October These are demonstrated in a Gantt chart overleaf

53. 53 Key Next Steps:

54. 54 Financial Turnaround Reporting and Issue Escalation structure

55. Cost Improvement Schemes

56. 56 Cost Improvement Schemes 2007/08 Introduction As part of the annual budget setting exercise each Division and Directorate built up their forecast costs for 2007/08 on a bottom up basis Cost improvements delivered in 2006/07 reduced the underlying financial income and expenditure gap from the £60m forecast at the start of the year to an outturn deficit of £6.8m The recurrent effect of CIPS delivered in 2006/07 reduced the opening deficit for 2007/08 to £11.8m Tariff reductions, pay agenda cost pressures and reductions to income increased the forecast deficit to £35.3m

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59. 59 Turnaround Workstreams – Summary of Scope - Admin & Clerical Staffing Introduction of electronic discharge summaries Development of a medical secretary workforce model Review of the opportunities for transcription services Centralisation of waiting list management Consultant Productivity Introduction of job planning guidance Bottom up job planning that reviews activity and resources required to deliver Junior Doctors Introduction of Hospital at Night concepts Nursing & Midwifery Review of ward based staffing to agree acceptable, affordable staffing levels Review and rationalisation of non ward based staffing

60. 60 Turnaround Workstreams – Summary of Scope  Procurement To identify savings within clinical, IT, pharmacy, estates and HR categories of expenditure Flexible Benefits Extend the car parking scheme with communication strategy Develop catering scheme Pathology Build project at the Queens campus to develop a more appropriate environment thereby realising economies of scale and increased efficiency Review of services across campuses to realise benefits of service integration Other Opportunities (developed with PwC) Tactical procurement opportunities E-Procurement Targeted suppliers Review of clinical recharges Review of non clinical service level agreements Review of estate; staff accommodation and other property

61. 61 Other Ideas in work up Portfolio Management Development and devolvement of a tool that reviews overall specialty performance with internal benchmarking of individual performance and cost drivers Corporate and Divisional restructure Commercial Contracts Pharmacy production units and commercial opportunities Re-negotiation of lease agreements PFI refinancing Private Patient Income Opportunities Review of processes in place within the Trust Opportunities to grow prior to achievement of FT status

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