Operated Healthcare Facility Financial Case www.cddft.nhs.uk - - PowerPoint PPT Presentation

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Establishment of Operated Healthcare Facility Financial Case

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Background and Purpose

It describes and presents: the services to be transferred; the case to change the way these services are provided for the Trust; identifies different models of provision; evaluates these options; provides more information on the preferred option; and

• utlines the next steps in taking the proposal forward

If the Business Case receives approval it is proposed that the OHF becomes operational with effect from 1 April 2017. The business case has been developed for Trust Board approval to establish an Operated Healthcare Facility (OHF) to provide Estates, Facilities and Procurement services to County Durham and Darlington NHS Foundation Trust (CDDFT). The OHF will be branded as County Durham and Darlington Services (CDD services) and trade as part of Synchronicity Care Limited (SCL).

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A Project Team, including Ms McCree, Mr Dawson and Ms Smith, and their respective teams was established, to move the project along with the support of QE Facilities. The project team are responsible for Detailed planning and execution of the project Staff engagement Stakeholders engagement and communications Risk and issue management Progress reporting to CDDFT Board

Background and Purpose

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Objectives

Provide high quality support services Allow CDDFT to focus on its core business of delivering clinical services Allow the OHF to focus on providing Estates, Facilities and Procurement services to CDDFT Provide a cost effective service, supporting CDDFT in delivering sustainable and safe clinical services Offer opportunities and security to Estates, Facilities and Procurement staff Create more flexibility to address specific workforce pressures and risks

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Objectives

Create the opportunity to recruit staff on revised Terms and Conditions more akin to the local market Create the opportunity to change existing service models to meet the needs of the service Provide greater flexibility and freedoms to enable commercial

• pportunities to be seized and generate income

Create the opportunity to pursue trading opportunities in support

• f the better value agenda;

Meet the requirements of the Carter Report being driven by NHS Improvement to review and transform in-house services, to reduce back office costs, which includes Estates, Facilities and Procurement functions

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Scope of the Proposal (Services to transfer)

• Admin and Clerical Staff aligned to

the provision of Estates, Facilities and Procurement Services

• Car Parking
• Capital Management
• Catering Services
• Central Equipment Loans Library

Service

• Clinical Engineering
• Domestic Services
• Estates - Operational Maintenance

Department

• Estates Helpdesk
• Energy Management
• Fire Officer
• Grounds Maintenance
• Health and Safety Manager (SCL

services only)

• Linen Services
• Management of Residential

Accommodation

• Non Patient Transport (Courier

Services)

• Procurement Department
• Property Management
• Portering Services
• PFI Contract Management
• Sterile Services
• Security
• Waste Manager

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Case for Change

There is a growing imperative to review and transform in-house services, driven by Carter and national requirements to drive down back office costs which includes Estates, Facilities and Procurement functions. It is recognised that staying the same is not a realistic long-term sustainable option. The quality of the support services being provided is very good but this provides an opportunity to consider if and how they could be further improved. There is a requirement for the Trust to make significant financial savings, part of which will need to be delivered by support services, so there is a case for considering how these services could be provided in different cost effective ways, such as Terms and Conditions more akin to the local market, helping to enable the Trust to continue to provide sustainable and safe clinical services.

www.cddft.nhs.uk Carter Potential Savings Calculation Cost Efficiency Elements Unit Trust Metric 2015 - 16 Potential Savings Trust Type Median Potential Saving Per Unit Potential Saving Total Estates and Facilities running costs / area £ / m2 372.22 384.06 0.00 0.00 Energy Costs £ / unit 0.06 0.06 0.00 0.00 Building and Engineering Maintenance costs £ / m2 16.37 26.30 0.00 0.00 Portering £ / m2 20.16 16.17 4.00 690,670 Water and Sewage Costs £ / m2 3.13 3.73 0.00 0.00 Special and Clinical Waste Costs £ / tonnes 364.91 398.50 0.00 0.00 Laundry and Linen Costs £ / item 0.38 0.33 0.05 194,103 Food Costs £ / meal 3.59 3.84 0.00 0.00 Cleaning Costs £ / m2 31.99 40.87 0.00 0.00

Case for Change

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Option Appraisal

Preferred Option - Operated Healthcare Facility To assist the Trust in delivering a more commercial, incentivised, leaner and quality focused service

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Existing Costs - £33.206m

Staff Non-Staff Total £m Budget £m Budget £m Budget Estates 1.511 2.254 3.765 Increase in E&F for compliance 0.319 0.319 Facilities 8.409 2.357 10.766 Non Clinical Risk Management 0.080 0.723 0.803 Clinical Engineering 0.936 0.353 1.289 Sterile Services 1.068 0.407 1.475 Procurement 1.333 0.263 1.596 Increase in Mat Man staffing 0.207 0.207 Care Group Consumables 11.544 11.544 Care Group cleaning, provisions and maintenece contracts 0.531 0.531 Overheads 0.161 0.017 0.178 CDDFT SLAs 0.683 0.683 Apprenticeship Levy 0.050 0.050 Total 13.755 19.451 33.206

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Forecast Costs

This slide contained detailed forecast financial modelling for the Operated Healthcare Facility, which was both draft in nature (and may differ from actual operations post-implementation) and commercially sensitive, on the basis that, since it provides details of the intended operating and financial model of a commercial business, would be likely to be of interest to competitors Accordingly the information on this slide has been redacted under Section 43(2) of the FOIA – Information which, if disclosed would be likely to harm the commercial interests of the Trust or a third party.

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Revised Terms and Conditions Sickness Annual leave Enhancements New pension arrangements new employees - “NEST” More flexibility to react more quickly to market conditions Person centred reward package Addressing workforce pressures

Efficiency Savings - Pay

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Efficiency Savings - Pay

The terms and conditions for new employees have not yet been finalised for the subsidiary but we estimate: £126k reduction in overall pension cost in year 1 based on a turnover rate of 5%, with rising benefits to the company over time through normal staff turnover to £1.3m if all staff eventually move to the new SCL terms and conditions. There would be further savings achieved from a reduction in sickness absence costs. It is anticipated that sickness absence levels for new employees to be approximately 2% to 3% in comparison to the current Estates and Facilities Department rate of 5% giving a further estimated saving of £76k. (Please note that the above figures were estimates based on assumptions to illustrate potential to the Board and not firm plans)

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Materials Management Creation of a standardised managed service to ensure clinical and

• perational teams have the products and services they need to
• perate, reducing waste and freeing up clinical time to care. This

should drive out the efficiencies of circa £1m identified in the 17-18 cost improvement programme Standardisation and rationalisation of products and improved efficiency from managed spend categories Reduction in procurement leakage Improved efficiency from a managed service (Please note that the above figures were estimates based on assumptions to illustrate potential to the Board and not firm plans)

Efficiency Savings – Non Pay

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Consumables - managed service equipment - 1.9m (Estates – Utilities and consumables) - 500k In addition there will also be the ability to reclaim VAT over and above existing NHS VAT rules on past and future capital schemes (exact savings to be finalised). The main schemes being STEM DMH Energy & Infrastructure (Please note that the above figures were estimates based on assumptions to illustrate potential to the Board and not firm plans)

Efficiency Savings – VAT

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Funding Arrangements

Assets valued at £43.425m will transfer to SCL as part of a freehold sale. These assets will then be leased back to the Trust as part of the OHF

• n a 25 year finance lease.

The transfer of assets will be funded through a combination of a loan from the Trust and equity funding. The financial model is based on a 70:30 debt to equity ratio and in line with the leasehold term, the loan will be based on twenty five years with the flexibility for bullet repayments of capital.

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Funding Arrangements

A commercial interest rate will apply. Using current asset valuations the loan is calculated at £30.4m but is subject to change once revised valuations are obtained. The service contracts which support the OHF will be based on a twenty year model and these contracts will also be based on commercial terms. Corporation tax will be payable on any profits made by the subsidiary. SCL will require cash in April of an estimated £2.5m to enable the subsidiary to meet its month 1 commitments such as salaries and non-pay expenditure. This can be provided in 2 ways – a working capital loan or payment in advance of the month 1 unitary payment. This excludes £43m transferring assets and £2.5m stock transfer which will be cash neutral.

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Profit Treatment

Dividend to CDDFT Reinvest to deliver further efficiencies (subject to CDDFT business case approval) Refurbishments, subject to CDDFT business case approval Provide backlog maintenance / medical equipment replacement programmes Revise loan term Gift Aid Reduce unitary payment A mixture of the above

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Benefits

Enables the subsidiary company to deliver a fully managed service to the DMH site through a detailed contract based on commercial terms. The Trust and the subsidiary company objectives and values will be aligned. Enables the provision to provide high quality support services to continue. Enables CDDFT to focus on its core business of delivering clinical services and enables the subsidiary company to focus on providing Estates, Facilities and Procurement services to CDDFT. Provides a cost effective service, supporting CDDFT in delivering sustainable and safe clinical services. Offers opportunities and security to Estates, Facilities and Procurement staff.

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Benefits

Creates the flexibility to address specific workforce pressures and risks. Creates the opportunity to recruit staff on revised Terms and Conditions more akin to the local market and change existing service models to meet the needs of the service. Provides greater flexibility and freedoms to enable commercial

• pportunities to be seized and generate income.

Creates the opportunity to pursue trading opportunities in support of the better value agenda. Creates the opportunity to meet the requirements of the Carter Report being driven by NHS Improvement to review and transform in-house services, which includes Estates, Facilities and Procurement functions to reduce back office costs which is being driven by NHS Improvement.

Questions