Financial Regime for CSS:
CSS Workshop
Commissioning
Development
Programme
26th June 2012
Building choice of high quality support for commissioners
Objectives
The aims of this workshop are:
• To share thinking to date on the financial regime for CSS
• To understand the financial issues that are of most concern to CSS
• To help shape CSS guidance
• To improve alignment of CSS/CCG development
We would like to have an interactive and participative session.
We will try to solve issues today where we can.
Some issues will need to be parked for the day and resolved later.
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Agenda
1. Welcome & Introductions
2. Objectives
3. Context
- CSS development
- NHS CB
4. Overview of CSS financial regime
- Income & Expenditure
- Capital & Fixed Assets
- Working Capital & Cash
5. Requirements for CP3
6. CP3 Planning Assumptions
7. The Model
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Context: Checkpoint 2
At Checkpoint 2, CSS needed to demonstrate:
•
Foundations of strong leadership
•
Effective customer dialogue
•
Business mindset to form a clear, consistent and coherent outline business plan.
The financial information received at Checkpoint 2 demonstrated the relative maturity of
CSS planning.
Common issues that were discussed at Checkpoint 2 panel sessions included:
•
Weaknesses of income projections. Many CSS did not show growth year-on-year
•
Disconnections between income plans and customer intentions
•
Assumptions about retention of surplus
•
Workforce profiles that remained the same as existing cluster levels rather than those
designed and geared for new commissioning services.
As expected, Checkpoint 2 was too early to see consistent and accurate patterns of
aligned CSS/CCG intentions about the use of management cost budgets.
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Context: Checkpoint 3
At Checkpoint 3, CSS need to demonstrate credible plans for delivery
They need to show more credible financial plans aligned to business development:
• Growth
• Pricing of the service offer
• Costing delivery plans
• ‘Right sizing’ delivery teams so that each service line generates a surplus
• ‘Right skilling’ delivery teams so that the CSS can meet customer expectations
• Achieving and using a surplus
• Internal governance and management consistent with commercial delivery.
At Checkpoint 3, CSS need to demonstrate that financial plans are consistent with the
narrative contained in the Full Business Plan (FBP) and in particular the delivery model,
organisational structure and governance.
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New
CSS Growth Strategies
Growth through targeted
geographic growth and
results of market assessment
Customers
Possible ‘franchise’ models
Existing
Growth through cost
reduction
Streamlining delivery
Application of tools and
innovation
Growth through new
opportunities to extend core
business to new territories
through (measured)
diversification
Growth through proven
delivery, recognition of
quality and value, reputation
and account management
Existing
CSS will be
asked for growth
strategies in their
FBP narrative
Financial models
will need to be
consistent with
these strategies
and the overall
financial planning
assumptions.
New
Services
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‘Right Sizing’
• To ensure the cost base is sufficient to secure delivery of services to customers
• To deliver a surplus at every service line
• To ensure there is the right mix of fixed and variable costs for its business:
– Too high a proportion of fixed costs and the CSS will be less agile and inflexible
which could make it slow to adapt to new market conditions or changing customer
requirements
– Too high variable costs usually incurs pressure on surplus as variable costs are
typically more expensive than fixed costs
• To get the right balance between investment in costs that are required to directly
support customer delivery and those that support business development, marketing,
CSS administration and performance management
• If CSS get it wrong, then there is not enough investment in services that generate
short term income or not enough investment in securing future income or the current
performance.
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‘Right Skilling’ to ensure a CSS has the talent to remain successful
There is a direct relationship between the talent in the CSS and its success
People will be the most costly and most valuable assets of the CSS
The CSS needs to compete effectively in the market for skilled clinical commissioning
professionals.
CSS will ‘right skill’ through developing their staff.
CSS staff need to be trained in new business processes, new delivery models and new
ways of working.
The CSS will need to continue to develop staff so that they can provide additional value
to customers and attract new income.
It will need to use part of its surplus to invest in staff development
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The CSS Timeline
The period of CSS
development overseen by
BDU and SHAs.
The concentration is on
delivery preparation
Checkpoint 3
CSS Building/Recruitment
The period of CSS
‘testing’ and
completing
recruitment and
supply chain building
CSS Development Timeline
30 April 2012
30 June 2012
31 Aug 2012
30 Sept 2012
Oct 2012
Jan 2013
1 April 2013
End of
Checkpoint 2
Clusters start
consultation
period for
workforce
changes for
transition to
CCGs and
CSS
Start of
Checkpoint 3
End of
Checkpoint 3
Shadow
operation as a
‘trading’ CSS
FBPs
Submitted
Financial Plans
not all
reconciled to
CCG plans
This is when
there is greater
clarity on
CSS/CCG
alignment
CSS Live and
Trading as
solvent ‘profit
centres’
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CSS Timeline: Implications
The key implications of this timeline are:
•CSS/CCG Alignment will not be confirmed at Checkpoint 3.
•Financial plans will need to develop from Checkpoint 3 alongside the business
development narrative
•CSS need to secure the resources they need to operate in shadow form from 1 January
2013 and as fully operational hosted organisations from 1 April 2013
•Business plans will need to set out how resource lead times (staff, technology, supply
chain partners) will be managed.
•CSS need to be ‘right-sizing’ and ‘right skilling’ from Checkpoint 2.
•CSS development between Checkpoint 2 and 1 April 2013 funded by existing PCTs
•CSS development from 1 April 2013 will be funded from CSS surplus
•CSS Financial Plans will be continually reviewed with the BDU from Checkpoint 3 to 1
April 2013.
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Income and Expenditure
To be viable, CSSs must establish successful trading relationships with their customers and ensure
that income is greater than the costs of service delivery (expenditure).
At Checkpoint 3, CSS will need to:
• Provide current and forecast income and expenditure analysed by their main customers
• Analyse planned income and expenditure (on a full absorption basis) at service line level (see
below) and in aggregate
• Model the consequences for the CSS of both up- and downside scenarios through an analysis of
fixed and variable costs and a range of sensitivity analyses.
An individual CSS will need to plan for income growth and demonstrate the value of customers
investing in their CSS services rather than competitor service providers or instead of investing in their
own management teams.
Checkpoint 3 will be too early to confirm contract values with customers.
CSS will be asked to detail income and expenditure projections against a standard set of service
descriptions. It is recognised that these service descriptions are unlikely to be the list of services that
are used as the basis for CSS/Customer agreements.
.
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Pricing
CSS should describe their pricing strategy at Checkpoint 3 and how this strategy has been applied to
the offers presented to CSS customers.
CSS income generated by service prices will need to cover:
•
•
•
•
All costs of service delivery including hosting charges
Any redundancy costs incurred following decisions made by the CSS after 1 April 2013
Investments made by the CSS to improve services to customers and the operation of the CSS
Contingency and risk management to address fluctuations in income.
CSS need to plan for a surplus to provide organisational agility, invest in service improvement and
additional contingency management but should not plan to carryover surplus from one year to the
next.
CSS will be expected to determine and justify the size of any such surplus within a range 5-10% of
turnover
All CSS should plan for investments in new services to innovate, offer additional value to customers
and to proactively meet changing requirements of new customer organisations:
•
•
•
Providing training and development for existing staff
Introducing additional talent into the CSS
Improving the application of innovative tools, methodologies and technologies.
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Working Capital and Cash Management
Initially CSSs will not run separate bank accounts and will benefit from operating via the NHS CBs
account.
This will not only minimise any requirement to increase working capital across CCGs and CSSs, but
also enable the Board to ensure that cash flows around the new system in an appropriate way.
NHS Customers will be invoiced monthly, and CCGs will be required to transfer funds in line with the
standard terms of contract.
Customers will be able to withhold or refuse payment for poor quality services within a managed
process of performance notices.
CSSs will be responsible for managing their debtors and creditors. There will be:
• Access to balances via SBS
• Specific monthly KPIs to ensure that these are effectively managed.
• A full annual statement of the asset and liability position including a “derived” cash figure.
The intention is that as part of the migration to externalisation all CSSs will move to operating their
own bank accounts. This will enable them to demonstrate a comprehensive track record of successful
financial management.
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Capital Investment and Fixed Assets
CSSs are not expected to have significant levels of fixed assets.
CSS will need to record their assets in a register. A standard format will be used so that these can be
assimilated into a single register of assets held by the NHS Commissioning Board as host of the CSS.
Depreciation will be identifiable by CSS but consolidated into the statutory accounts of the NHS
Commissioning Board
Similarly, CSSs are not expected to have any significant capital expenditure requirements during
hosting.
CSS will prepare business cases for new capital investment for consideration by the NHS
Commissioning Board.
Each investment case should demonstrate how the scheme will:
•
Improve services to customers
•
Streamline costs of delivery
•
Generate a positive return on investment (including the provision for capital charges).
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Checkpoint 3 Financial Planning Assumptions
• CCG income based on populations approved by NHS Commissioning Board
• 2012/13 is the baseline year
• CSS income figures should be adjusted annually to reflect 2.5% uplift (based on GDP
deflator)
• CCGs are likely to look for continued efficiencies of 4% in line with management cost
reductions. CSS income projections need to recognise this and plan accordingly
• CSSs expected to plan to reinvest a surplus of between 5 -10% of turnover based on
their assessment of the contingency required for in year pressures, restructuring
costs and their plans for improving and innovating services to customers.
• Commissioning Board hosting charge to be treated as an overhead based on a % of
turnover and will be advised when the “Guide to Hosting” is published.
• CSSs should plan to break even each year
• Accommodation costs to be based on the current costs (eg depreciation, services
charges, and leases) of property occupied by the CSS as agreed with the PCT.
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Requirements of Checkpoint 3
Income and expenditure for 4 years from 2012/13 to 2015/16 identified by
standard service lines and by main customers
Expenditure for the 4 years identified by fixed, semi-fixed and variable costs.
Profitability for year by service lines and as an overall CSS position
Risk based sensitivity analysis including loss of NHS CB income.
Workforce:
• Total staff numbers and costs by year
• Transition and restructuring of the workforce and wider cost base from
2012/13
Innovation/development reinvestment plans:
• Planned capital investment cases
• Infrastructure
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