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Commissioning Development Programme Building choice of high quality support for commissioners Financial Regime for CSS: CSS Workshop 26 th June 2012.

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Presentation on theme: "Commissioning Development Programme Building choice of high quality support for commissioners Financial Regime for CSS: CSS Workshop 26 th June 2012."— Presentation transcript:

1 Commissioning Development Programme Building choice of high quality support for commissioners Financial Regime for CSS: CSS Workshop 26 th June 2012

2 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. CSS Financial Regime2 Objectives

3 CSS Financial Regime3 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

4 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. CSS Financial Regime 4 Context: Checkpoint 2

5 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. 5 Context: Checkpoint 3

6 6 CSS Growth Strategies Growth through cost reduction Streamlining delivery Application of tools and innovation Growth through targeted geographic growth and results of market assessment Possible ‘franchise’ models Growth through proven delivery, recognition of quality and value, reputation and account management Growth through new opportunities to extend core business to new territories through (measured) diversification Customers Services Existing New Existing New 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.

7 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. 7 ‘Right Sizing’

8 CSS Financial Regime8 ‘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

9 The CSS Timeline 9 CSS Development Timeline 1 April 2013 CSS Live and Trading as solvent ‘profit centres’ 30 April 2012 End of Checkpoint 2 Jan 2013 Shadow operation as a ‘trading’ CSS The period of CSS ‘testing’ and completing recruitment and supply chain building 31 Aug 2012 Start of Checkpoint 3 FBPs Submitted 30 June 2012 Clusters start consultation period for workforce changes for transition to CCGs and CSS The period of CSS development overseen by BDU and SHAs. The concentration is on delivery preparation 30 Sept 2012 End of Checkpoint 3 Financial Plans not all reconciled to CCG plans Checkpoint 3 Oct 2012 This is when there is greater clarity on CSS/CCG alignment CSS Building/Recruitment

10 CSS Timeline: Implications 10 CSS Financial Regime 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.

11 CSS Financial Regime11 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.. Income and Expenditure

12 CSS Financial Regime12 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. Pricing

13 CSS Financial Regime13 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. Working Capital and Cash Management

14 CSS Financial Regime14 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). Capital Investment and Fixed Assets

15 CSS Financial Regime15 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. Checkpoint 3 Financial Planning Assumptions

16 CSS Financial Regime16 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 Requirements of Checkpoint 3

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