4 Financial planning and financial management
4.1 Resources within scope of the Strategic Plan
4.1.1 The legislation requires that the Integration Joint Board produce a Strategic Plan, which sets out the services for their population over the medium term (3 years) (Sections 29 & 33); see Statutory Guidance on strategic planning.
4.1.2 The Strategic Plan should incorporate a medium term financial plan (3 years) for the resources within scope of the Strategic Plan which will comprise:
- the Integrated Budget, i.e. the sum of the payments to the Integration Joint Board (see 4.2); plus
- the amount set aside by the Health Board, for large hospital services used by the Integration Joint Board population (see 4.4).
It will be important for there to be full transparency of the use of these resources by the Integration Joint Board population and the Integration Authority will be required to publish an annual financial statement setting this out (Section 39).
4.1.3 The ability to plan with the overall resource for defined populations and user groups and to use budgets flexibly is one of the hallmarks of integrated care. A premise underlying the legislation is that the Integration Joint Board will, through the Strategic Plan, be able to allocate resources within the Integrated Budget and to plan and agree transfers between the notional budget and the Integrated Budget. It will be for the Integration Joint Board, through the strategic planning process and having regard to the duties in the legislation for consultation, co-production with stakeholders and co-operation with other Integration Authorities (Section 32), to decide what capacity is required from Local Authority and Health Board in order to deliver the agreed performance on outcomes. In developing the Strategic Plan, the Integration Joint Board must have regard to the existing constraints on the use of resources by the Local Authority and Health Board arising from legislation or directions; for example resources ring-fenced for specific purposes e.g. allocations to Health Boards for Alcohol and Drug Partnerships (ADP).
4.1.4 Accordingly, the relative proportions of partners' contributions to the resources within scope of the plan will not influence the proportion of services that will be directed by the Integration Joint Board through the Strategic Plan, although it is likely that in the first years they will be similar.
Will the Integration Joint Board be required to co-ordinate the development of its Strategic Plan with other Integration Authorities for cross system services?
4.1.5 Yes; the legislation will place this duty on Integration Joint Boards (Section 30 (3)). It is recommended that Health Boards facilitate the co-ordination of the development of strategic planning for cross-system services.
4.2 The Integrated Budget
4.2.1 The legislation requires that Health Boards and Local Authorities make payments to the integration joint board for the delegated functions and that the method for determining the value of the payments is included in the Integration Scheme (Section 1(3)).
4.2.2 The legislation also requires that where the Integration Joint Board gives direction for the partner Local Authority and Health Board for the operational delivery of services, that the value of the payment or the method of agreeing the value of the payment be included in the direction (Section 27).
What process should be used to determine the initial payments to the Integration Joint Board?
4.2.3 The initial sums should be determined on the basis of existing Health Board and Local Authority budgets, actual spend and financial plans for the delegated services. It is important that the plans are tested against recent actual expenditure and that the assumptions used in developing the plans and the associated risks are fully transparent:
- The budget in the financial plan should be assessed against actual expenditure reported in the management accounts for the most recent two/three years. Ideally, the roll forward of the budget for the delegated services and the actual expenditure over this period should be understood;
- Material non-recurrent funding and expenditure budgets for the delegated services and the associated risks are identified and assessed;
- The medium term financial forecast for the delegated services and associated assumptions and risks should be reviewed;
- Savings and efficiency targets and any schemes identified should be clearly identified and the assumptions and risks understood by all partners;
- All risks should be quantified where possible and mitigating measures identified.
4.2.4 It is recommended that the first year/period is treated as transitional period and that partners agree to a risk sharing arrangement with adjustments being made through subsequent year's allocations; where it is used this provision should be incorporated in the Integration Scheme.
4.2.5 The integration authorities should carry out a process of financial assurance for the initial sums to be delegated to the Integration Joint Board. It is recommended that Health Board and Local Authority Directors of Finance and the shadow Chief Officer and shadow Chief Financial Officer of the Integration Joint Board foster an assurance process based on mutual trust and confidence involving an open-book approach and an honest sharing and discussion of the assumptions and risks associated with the delegated services.
4.2.6 IRAG has published detailed supplementary Statutory Guidance on financial assurance.
What process should be used to calculate subsequent payments to the Integration Joint Board?
4.2.7 The method for determining the allocations to the Integrated Budget in subsequent years will be contingent on the respective financial planning and budget setting processes of the Local Authority and Health Board. They should aim to be able to give indicative three year allocations to the integration joint board, subject to annual approval through the respective budget setting processes. This should be in line with the three year Strategic Plan.
4.2.8 The Chief Officer, and the Integration Joint Board financial officer where such is appointed separately, should develop a case for the Integrated Budget based on the Strategic Plan and present it to the Local Authority and Health Board for consideration and agreement as part of the annual budget setting process. The business case should be evidence based with full transparency on its assumptions and take account of:
- Activity Changes. The impact on resources in respect of increased demand (e.g. demographic pressures and increased prevalence of long term conditions) and for other planned activity changes;
- Cost inflation. Pay and supplies cost increases;
- Efficiencies. All savings (including increased income opportunities and service rationalisations/cessations) should be agreed between the Integration Joint Board, Local Authority and Health Board as part of the annual rolling financial planning process to ensure transparency;
- Performance on outcomes. The potential impact of efficiencies on agreed outcomes must be clearly stated and open to challenge by the Local Authority and Health Board;
- Legal requirements. Legislation may entail expenditure commitments that should be taken into account in adjusting the payment;
- Transfers to/from the notional budget for hospital services set out in the Strategic Plan. See section 4.3.1
- Adjustments to address equity. The Local Authority and Health Boards may choose to adjust contributions to smooth the variation in weighted capita resource allocations across partnerships; information to support this will be provided by ISD and ASD.
4.2.9 The partner Local Authority and Health Board will evaluate the case for the Integrated Budget against their other priorities and are expected to negotiate their respective contributions accordingly. The allocations will be a negotiated process based on priority and need and it should not be assumed that they will be the same as the historic or national allocations to the Health Board and Local Authority. The method for determining the contributions is required to be included in the Integration Scheme (Section 1(3)).
What process should be used by the Integration Joint Board to determine the payments to be made to the Local Authority and Health Board for operational delivery of services?
4.2.10 The allocations made from the Integration Joint Board to the Local Authority and Health Board for operational delivery of services will be approved by the Integration Joint Board. The value of the payments will be those set out in the Strategic Plan approved by the Integration Joint Board
What format will the direction take?
4.2.11 The legislation will require that a direction should be in writing and must include information on (Section 26):
- The integrated function/(s) that are being directed and how they are to be delivered; and
- The amount of and method of determining the payment to carry out the delegated functions.
4.2.12 It is anticipated that a direction from the Integration Joint Board will take the form of a letter from the Chief Officer to the Health Board or Local Authority referring to the arrangements for delivery set out in the Strategic Plan and/or other documentation. Once issued they can be amended or varied by a subsequent direction (Section 27 (5)).
How should resource transfer be treated?
4.2.14 Some social work expenditure budgets will be funded by resource transfer payments. It is recommended that partners identify these and adopt a transparent and consistent approach to their inclusion in the payment to the Integration Joint Board. The options for this are:
- For the Health Board to stop paying resource transfer to the Local Authority and instead to include it in its payment to the Integration Joint Board. The Local Authority would need to make a corresponding reduction in its payment to the Integration Joint Board to cover the loss of resource transfer income from the Health Board; or
- For the Health Board to continue paying resource transfer to the Local Authority and to exclude it from its payment to the Integration Joint Board. The Local Authority would include in its payment to the Integration Joint Board the social work services funded by the resource transfer.
4.2.15 It is recommended that the local decision on treatment of resource transfer be set out in the Integration Scheme.
Should overheads be included in the allocations to the Integration Joint Board?
4.2.16 The decision on which overheads to include and whether they are included in the Integrated Budget or as notional budgets is a matter for local decision. It is recommended that a consistent approach be adopted for Integration Joint Boards in partnership with the same Health Board.
Should hosted services be included in the allocations to the Integration Joint Board?
4.2.17 Yes; the resources used by the population of an Integration Joint Board for delegated services that are provided on a hosted arrangement, should be included in the respective Integrated Budget of each Integration Joint Board. Each Integration Joint Board will be required to include in its strategic plan the capacity required from the hosted service by its population. It is recommended that the Chief Officer responsible for managing the hosted service take the lead in coordinating the Integration Joint Boards in development of their strategic plans for that service.
4.3 Managing financial performance
126.96.36.199 The partners should include in the Integration Scheme provisions for managing in-year financial performance of the Integrated Budget. The legislation takes powers for Ministers to set this out in regulations (Section 1(3)(f)). This will require that the Chief Officer receive financial performance information for both her/his operational role in the Health Board and Local Authority and strategic role in the Integration Joint Board.
188.8.131.52 It is recommended that the Health Board and Local Authority Directors of Finance and the Integration Joint Board financial officer establish a process of regular in-year reporting and forecasting to provide the Chief Officer with management accounts for both arms of the operational budget and for the Integration Joint Board as a whole. It is also recommended that a joint appointment from the senior finance teams of the Health Board and Local Authority provide the Chief Officer with financial advice for the respective operational budgets. This would allow for the same person carry out both this role and the role of financial officer for the joint board (184.108.40.206), but this is a matter for local determination.
220.127.116.11 It is recommended that the Health Board and Local Authority agree a consistent basis for the preparation of management accounts, i.e. accruals vs. cash basis; this is a matter for local decision.
Will the Integration Joint Board be expected to break-even?
18.104.22.168 The Integration Joint Board will allocate the resources it receives from the partner Health Board and Local Authority in line with the Strategic Plan; in doing this it will be able to use its power to hold reserves (see 22.214.171.124) so that in some years it may plan for an underspend to build up reserve balances and in others to break even or to use a contribution from reserves in line with the reserve policy. This will be integral to the medium term rolling financial plan.
126.96.36.199 In her/his operational role, the Chief Officer will manage the respective operational budgets so as to deliver the agreed outcomes within the operational budget viewed as a whole. The Chief Officer will be responsible for the management of in-year pressures and will be expected to take remedial action to mitigate any net variances and deliver the planned outturn, in line with the process noted at 4.3.1. etal
Will the Integration Joint Board be able to hold reserves?
188.8.131.52 Yes; the legislation empowers the Integration Joint Board to hold reserves (Section 13) and these should be accounted for in the books of the Integration Joint Board.
How will they be used?
184.108.40.206 It is recommended that the Integration Joint Board has a reserves policy and reserves strategy, which include the level of reserves required and their purpose. This should be agreed as part of annual budget setting and reflected in the Strategic Plan agreed by the Integration Joint Board.
Will the Chief Officer be able to vire between the two arms of the operational budget?
220.127.116.11 Yes; the Chief Officer will be able to transfer resources between the two arms of the operational Integrated Budget. This will require in-year balancing adjustments to the allocations from the Integration Joint Board to the Local Authority and Health Board (Section 27(3): i.e. a reduction in the allocation to the body with the under-spend and a corresponding increase in the allocation to the body with the overspend.
18.104.22.168 The Chief Officer will not be able to vire between the operational Integrated Budget and those budgets that are managed by the Chief Officer, but are outside of the scope of the Strategic Plan, unless agreed by the partner Local Authority and Health Board.
22.214.171.124 The arrangements for the virement of budgets should be specified in the scheme of delegation within the partner authorities.
4.3.1 Budget variances
126.96.36.199 Regulations require that the Integration Scheme should include provisions for the treatment of in-year under and overspends. The following (paragraphs 188.8.131.52 to 184.108.40.206) provide advice for these provisions.
What will happen in the event of an in-year overspend on the operational Integrated Budget?
220.127.116.11 It is recommended that if an overspend is forecast on either arm of the operational Integrated Budget, the Chief Officer and the relevant finance officer (See section 1.2.2) should agree a recovery plan to balance the overspending budget.
18.104.22.168 In addition, the Integration Joint Board may increase the payment to the affected body, by either:
- Utilising an underspend on the other arm of the operational Integrated Budget to reduce the payment to that body; and/or
- Utilising the balance on the general fund, if available, of the Integration Joint Board in line with the reserves policy.
22.214.171.124 If the recovery plan is unsuccessful and there are insufficient general fund reserves to fund a year end overspend, then the partners have the option to:
- Make additional one-off payments to the Integration Joint Board; or
- Provide additional resources to the Integration Joint Board which are then recovered in future years, subject to scrutiny of the reasons for the overspend and assurance that there is a plan in place to address this.
It is advised that the provision in the integration scheme should be clear how the partners will share out the additional contributions, if required; it is also recommended that the proportion of their allocations is used as a default position.
Will the Integration Joint Board be able to retain in-year underspends?
126.96.36.199 Yes; in-year underspends on either arm of the operational integrated budget should be returned from the Local Authority and Health Board to the Integration Joint Board and carried forward through the general fund. This will require adjustments to the allocations from the Integration Joint Board to these bodies for the sum of the underspend.
188.8.131.52 The exception is for unplanned underspends that arise due to material differences between the assumptions used in setting the payments (under the process at 4.2.10) to the Integration Joint Board and actual events e.g. where the actual savings accruing from the substitution of a branded drug with a generic drug are greater than planned because the date of the drug coming off patent is earlier than assumed when setting the payments to the Integration Joint Board. This does not undermine the policy set out in 4.2.10. Unplanned underspends effectively represent overfunding by the Local Authority or Health Board with respect to planned outcomes and should either be: returned to the Local Authority or Health Board in-year through adjustments to their respective contributions to the Integration Joint Board and recurrently through the process for subsequent year adjustments noted above.
184.108.40.206 Over time, it may become more difficult to identify unplanned underspends as the resources lose their identity in the Integrated Budget.
Will the Integration Joint Board be required to contribute to the management of in-year overspends on non-integrated budgets in the Local Authority or Health Board?
220.127.116.11 Ordinarily no. In the event of a projected in-year overspend elsewhere across the Local Authority or Health Board non-integrated budgets, they should contain the overspend within their respective non-integrated resources.
18.104.22.168 In exceptional circumstances should they require the Integration Joint Board to contribute resources to offset the overspend, they must do this by amending their contributions to the Integration Joint Board. It is recommended that this provision should only be used in extremis. The Chief Officer will determine the actions required to be taken to deliver the necessary savings, to fund the reduction in contributions and should be approved by the Integration Joint Board as advised by the Integration Joint Board financial officer, where such is appointed separately.
Will the Integration Joint Board be required to contribute to overspends in other Integration Authorities?
22.214.171.124 No; the responsibility for this lies with the overspending Integration Authority who should apply the process noted above within their own authority for in-year overspends. This also applies to hosted services.
4.3.2 Risk sharing
126.96.36.199 It is advised that financial risk should be managed through the financial management process noted above and the use of reserves. It is further advised that Integration Joint Boards consider the use of risk pooling arrangements for high risk services, such as prescribing. This is a matter for local determination.
4.4 Amount set aside for directed hospital services
188.8.131.52 Integration Authorities will be responsible for strategic planning, in partnership with the hospital sector, of those hospital services most commonly associated with the emergency care pathway, alongside primary and community health care and social care.
184.108.40.206 The objective is to create a coherent single cross-sector system for local joint strategic commissioning of health and social care services and a single process through which a shift in the balance of care can be achieved.
220.127.116.11 Fundamental to this will be a clear understanding of how "large hospital" services are being consumed and how that pattern of consumption and demand can be changed by whole system redesign. As a first step it is critical that there is transparency for Partnerships and localities on how resources are being used. As a second step, there needs to be clarity about the financial impact of changes agreed through the strategic planning process.
18.104.22.168 Where more than one partnership exists within a Health Board area, the change programme for hospital services will have to be coherent across individual strategic plans (under S30 (3) of the Act). Consequently, there should be an overarching strategic plan for the hospital services delegated to Integration Authorities that is a consolidation of the individual partnership plans and this should be coordinated and held by the Health Board hospital sector.
22.214.171.124 The strategic plans produced by the Integration Authority/ies must in turn be consistent with the strategic context set by the Health Board and Local Authority. The hospital capacity and hosted services included in the strategic plan should evolve from the existing capacity and plans for those services. Strategic plans will reflect locality planning in due course.
126.96.36.199 It is recognised that this is a complex journey and supplementary Statutory Guidance has been jointly produced by IRAG and the Joint Commissioning Steering on which the following is based.
188.8.131.52 The legislation provides a choice for how the Health Board resources for delegated functions that are provided in large hospitals are to be treated in the integration arrangements (Section 1(3), Section 14). The Health Board may either:
- Exclude the resources from the payment to the Integration Joint Board and instead retain and set them aside for direction by the Integration Joint Board through the Strategic Plan; or
- Include them in the payment to the Integration Joint Board.
How should the set aside budget be determined?
184.108.40.206 Legislation requires that the method for determining the amount to be set aside by the Health Board should be included in the Integration Scheme (Section 1(3).
220.127.116.11 It is recommended that the consumption of hospital services by partnership populations should be determined by analysis of hospital activity and cost information; this approach should also be used for hosted services that are provided in hospital and for hosted community based services where the data is available.
Hospital activity is recorded on Health Board hospital patient administration systems (PAS), which are based on the individual record of each inpatient hospital episode. This data, aggregated to locality and partnership level, should be used to identify the hospital activity and capacity used by patients for each partnership; the data can be obtained from either:
- Local Health Board information teams; or
- National Services Scotland (NSS), which produce these datasets for each partnership through the Health and Social Care Data Integration & Intelligence Project (HSCDIIP).
18.104.22.168 It is recommended that an average of three years of activity is used to scope partnership consumption for the first year of the strategic plan.
Attaching a £ value to activity can be achieved in a number of ways, for example:
- Blue book admission or bed day rates;
- Local Costing methodologies;
- NSS patient level costing (PLICS) available through HSCDIIP.
22.214.171.124 It is a local decision as to which method is used, however it is recommended that a consistent method is used for all partnerships in a Health Board area.
Should cross boundary functions be included in the set aside budget?
126.96.36.199 Yes; where material; the set aside budget should include the resources for the in scope hospital services used by the partnership population in all Health Boards.
188.8.131.52 Alternatively, the respective cross boundary flow budget may be included in the payments to the Integration Joint Board.
How should 'fair share' information be used?
184.108.40.206 Using historical consumption as a starting point inevitably builds in any existing inequity of resource use in the historic position. It is difficult to avoid this without causing immediate destabilisation. Over time, issues of equity can be considered by Health Boards and may be addressed through their subsequent allocations to partnerships.
220.127.116.11 It is recommended that partnerships use fair share information based on the National Resource Allocation Committee (NRAC) methodology available from NSS (through the HSCDIIP project) for benchmarking partnership expenditure.
How should the financial consequences of planned changes in capacity be determined?
18.104.22.168 Strategic Planning will be a cyclical process of Analyse, Plan, Do and Review and this will likely involve a two stage process for developing cases for change: from considering initial proposals to full inclusion in locality and strategic plans. This will require cost and activity information at different levels of detail, depending on whether consideration is of an outline case or a full case proposal.
22.214.171.124 It is recommended that practical and easily used cost information is made available to stakeholders to enable outline cases to be developed.
126.96.36.199 It is recommended that detailed estimates of the effect of change proposals should be developed for each by a group comprising the hospital sector director (or similar post-holder) and the Chief Officers of the Integration Authorities whose populations use the hospital services (including those with a material level of cross boundary flow). A financial plan should be developed and agreed that sets out the capacity and resource levels required for the set aside budget for each Integration Authority and for the hospital sector, for each year. This should be based on an agreed implementation plan with assumptions for:
- Activity changes based on demographic change;
- Agreed activity changes from new interventions;
- Cost behaviour;
- Hospital efficiency and productivity targets;
- An agreed schedule for timing of resource released/additional resource.
188.8.131.52 It is recommended that the approach to producing detailed financial plans based on the agreed changes should be similar to those previously used for Learning Difficulty Same As You (SAY) and other major redesign exercises.
How will overheads in directed hospital services be treated?
184.108.40.206 It is a matter for local determination. It is recommended that a consistent approach is adopted for Integration Joint Boards in partnership with the same Health Board.
How will the Integration Joint Board direct use of this resource?
220.127.116.11 The legislation requires that this will be via a direction (Section 28), which will refer to the allocation of resources as agreed and set out within the Strategic Plan (developed through a co-production process involving all stakeholders, including the hospital sector).
Will resource be able to be transferred between the Integrated Budget and the set aside budget for directed hospital services?
18.104.22.168 Yes, where a planned change is delivered. In the case of an increase in consumption, the Integration Authority will need to consider how to fund the additional capacity through the Strategic Plan. Similarly, where resource is released, the Integration Authority will be able to consider how to use this resource through the Strategic Plan.
4.4.1 Reporting Performance against Plan
22.214.171.124 Partnerships and the hospital sector will require information on their performance against the plan for hospital capacity in order to flex the strategic plan and also to take remedial action if necessary. This information will need to be available at two levels: for each partnership; and for the overarching hospital plan.
126.96.36.199 It is recommended that the group comprising the Chief Officers and Health Board hospital sector director receive regular activity reports comparing the expected capacity set out in the strategic plan, for each integration authority, with actual capacity used.
188.8.131.52 Actual activity and expected activity will be available from ISD HSCDIIP reports or alternatively from local Health Board information teams.
Will there be in-year virement between the Integrated Budget and the notional budget?
184.108.40.206 The legislation enables this (Section 28). However, it is recommended that in-year resource adjustments should be avoided and that changes be made through annual adjustments to the Strategic Plan.
220.127.116.11 If partners consider that in-year resource adjustments should be made, it is recommended that minimum thresholds for activity variances are agreed, below which no resource adjustments will be required.
18.104.22.168 It is recommended that the process for making adjustments to the set aside resource to reflect variances in performance against the plan are agreed and clearly set out. This should explicitly deal with cases of offsetting variances between Integration Authorities.
4.4.2 Accountability Framework
22.214.171.124 It is recommended that there is a clear understanding of where the balance of risk lies, between each Integration Authority and the Health Board hospital sector, for delivering planned hospital capacity. There are two main risks:
- Activity and case mix: i.e. the agreed capacity set out in the plan is not delivered or not delivered on the agreed schedule; and
- Resources: i.e. the capacity set out in the plan is delivered, but the resource required is different to that agreed.
126.96.36.199 Ultimately these risks are shared between the Integration Authorities and the Health Board hospital sector (or host organisation in the case of hosted services); however, it is recommended that the primary responsibility for delivering capacity (i.e. activity and case mix) should lie with each Integration Authority; and that for providing the capacity within agreed resources should lie with the Health Board hospital sector.
188.8.131.52 It is recommended that these respective responsibilities are set out in the Strategic Plan.
184.108.40.206 The basis of the accountability framework should be a local decision.