Financial Recovery Report

1

• Financial Recovery Report
• June 2006
• Overall objective of the work plan is to
  formulate a turnaround plan that is deliverable
  and achieves sustainable positive savings and
  profitability in 2006/07, while ensuring long
  term viability is maintained.

2
Executive Summary

• The Objective of this turnaround plan is to
• Achieve positive underlying run-rate and
  sustainable positive in year recurrent balance
  in 2006-07
• Secure ongoing operational viability and
  extinguish historic deficit
• The Strategy to achieve this objective is to
• Focus on the EBIT or in year profitability as
  the key target to achieve in 2006-07. The
  turnaround plan gravitates around this measure of
  performance. It is used as the fundamental and
  established yardstick of measurement in a
  commercially led environment that enables
  management to make operating and restructuring
  decisions on a sound basis.
• Understand the make-up of the cumulative historic
  deficit under the unique RAB accounting rules
• Repay the historical deficit once underlying
  profitability is achieved
• WSH occupies a prime position in the local
  economy as the only acute hospital within a 30
  mile radius that captures an ageing population of
  250,000. The number of presentations overall have
  remained at the same level as the previous year.
  According to the Office of National Statistics
  the total population growth is expected to be in
  excess of 12 over the next 15 years to 2021. The
  proportion of over 85 year olds is significantly
  higher than the national average and will
  increase by 80 over the next 15 years.
  Therefore, the demand for its services is set to
  grow for the foreseeable future.
• Savings of 14.5m (11.4m recurring) have already
  been delivered by this Trust over the last 3
  years. Savings achieved in 2005-06 amount to
  7.1m (5m recurring) in addition to 5.5m (5.2m
  recurring) achieved in 2004-05 and 1.9m (1.2m
  recurring) in 2003-04. This Trust has been in
  'cost cutting mode for 3 years now and therefore
  there are limited 'quick' wins because the
  obvious areas have been previously addressed. 
  Management are therefore working very hard at
  squeezing further savings out of the system but
  few of the initiatives identified will
  individually have a significant impact.
• Savings totalling 3.7m have been identified for
  2006-07 through Turnaround Initiatives which
  restore underlying in year balance in 2006-07
  and, following a steady improvement from the
  beginning of the year, break-even is achieved in
  Nov-06 (See graph on next page). However, it
  should be noted that even the cumulative effect
  of these recurring savings (i.e. 15.1m over 4
  years) is not of a magnitude sufficient to allow
  repayment of the historical deficit (as
  calculated under the RAB rules) in the short
  term. This issue is discussed in more detail in
  the following two paragraphs.

3
Executive Summary

• Importantly, using normal commercial accounting
  rules and the accounting rules that apply to FT
  Hospitals, compared to the RAB accounting rules,
  the Trust can pay back its actual historical
  deficit or accumulated losses within 3 years
  i.e. by Mar-09. Deficits calculated under the
  RAB rules do not represent the actual accumulated
  losses. This method multiplies deficits year on
  year distorting the true underlying financial
  position and does not, therefore, represent the
  actual financial position.
• It is worth noting that even allowing for a lower
  level of income by performing a sensitivity
  analysis in 2007-08 and 2008-09, the sustainable
  positive monthly run-rate achieved in 2006-07
  continues to get the Trust into in year
  profitability, thus enabling it to continue to
  reduce the historic deficit year-on-year.
• Under standard commercial accounting rules the
  cumulative historical deficit (known under
  standard accounting rules as Accumulated C/F
  Losses) would be restated to the actual accurate
  financial position of 12m, instead of a balance
  sheet position of 21.9m (under RAB rules) as at
  Mar-06. This restated figure is arrived at after
  correcting the distortion to the actual financial
  position caused by the double-counting of the
  deficit that occurs under the RAB accounting
  rules specific to NHS Trusts, i.e. once as a
  reduction to income and then the same deficit is
  counted again in calculating the C/F losses.

4
Executive Summary

• The Trust continues to explore opportunities for
  further savings for both 2006/07 and beyond.
• Disposal of estates offers a further significant
  opportunity to raise c9m cash over the next 2-3
  years. This relates to 4 sites, namely, Harps
  Close Meadow, Churchfield Road, St. Leonards
  Hospital and Walnuttree Hospital. An estimated
  5m-6m is accounted for by Harps Close Meadow
  which could be completed in this financial year.
  The majority of this upside has not been included
  in the plan as an IE benefit and, although the
  cash benefit is not in doubt, it is not clear
  whether and how much of the profit on disposals
  will be allowable as a IE benefit under the NHS
  accounting rules and by the auditors. The ability
  to use funds generated by asset disposal to pay
  off historic debts is not possible under current
  NHS accounting rules.
• The disposal of St Leonards Hospital and
  Walnuttree Hospital are subject to a judicial
  review.
• It has been strongly recommended that the Trust
  undertake Zero-Based Budgeting in time for next
  years budget. This process will challenge
  historical budget assumptions and is likely to
  reveal further opportunities for savings. A work
  programme is being established to take this
  forward.
• There is a dependency on SWPCT which is in
  deficit and therefore also subject to a
  turnaround. Protracted negotiations have now been
  concluded with the PCT to finalise the income for
  2006-07. This has resulted in a clinical income
  for 2006-07 of 100.8m. Total income for 2006/07
  is 114m which includes education, private
  patients, catering and RD.
• As a hospital with an Reference Cost Index (RCI)
  below the national average at 91 it stands to
  benefit from the introduction of PbR. This is
  forecast to increase income by c9m over the 4
  years transition to full PbR from 2005-06 to
  2008-09 based on current national policy. The
  majority of the movement in income between the
  years is due to more activities falling under the
  PbR tariff. However, there remains a risk that
  current tariff policy will be adapted in a way
  that reduces this projected gain.

5
Executive Summary

• Financial Performance
• To accurately measure this the profitability or
  loss needs to be defined as the underlying in
  year profitability and separated from the
  historical deficit.
• Due to the unique way it is accounted for in the
  NHS as a deduction from income, the historical
  deficit causes a major distortion to the
  measurement of underlying profitability due to
  the multiple counting of C/F deficit under the
  RAB rules. The in year profit/loss is the
  relevant commercial measure of performance that
  determines long-term financial viability and its
  is this that is used in the report as the key
  focus of this turnaround plan.
• It is important to note that calculation of the
  historical deficit includes non-controllable cost
  pressures of which the most significant ones are
  NICE, Superannuation and CNST increase. It should
  be noted that the local implementation of AfC,
  EWTD, NICE, and Consultant contract had a
  significant impact on the deficit.
• The underlying profitability as measured by EBIT
  after adjusting for non-recurring CRES (one-off
  items) shows an improving trend over the last
  year from a 7m deficit to 4.6m deficit. During
  this period the Trust posted recurring CRES
  savings of 5.2m and 5.0m respectively.
  Significantly, the run-rate has improved over the
  last 24 months from a monthly loss of 800k to
  400k as at 31 March 2006.
• The turnaround plan shows that break-even
  position will be achieved in Nov-06 after which
  the run-rate improves to a sustainable level of
  c.0.3m by Mar-07 and c.0.6m by Mar-08.
• The following financial summary table
  illustrates the improving trend

6
Executive Summary

• CRES programmes achieved in 2005-06 amount to
  7.1m (5.0m recurring) in addition to 5.5m
  (5.2m recurring) achieved in 2004-05
• Reduction of 61 beds (in addition to 33 closed in
  2004-5)
• Closed 2 theatres
• Headcount reduction of 123 staff as at 31 March
  2006 compared to 31 March 2005
• Managed vacancies of 173 WTEs
• Bank costs reduced by 24 (0.8m)
• Agency costs reduced by 55 (1m)
• Centralised outpatient services Thetford to WSH
• Total 157 CRES schemes including Consultant PAs
  and procurement savings
• Achieved access targets
• 2006-07 Initiatives and CRES
• Initiatives across Revenue generation,
  Operational Services and Infrastructure
• 3.7m turnaround savings identified.
• Excludes 1m transition costs, turnaround fees
  0.2m, historic deficit 12m and 1.2m usage
  recharge.
• Even allowing for sensitivity of income in
  2007-08 and 2008-09, the positive monthly
  run-rate continues to get the Trust into in year
  profitability and thus enabling it to continue to
  reduce the historic deficit year-on-year.

7
Executive Summary

• Implementation
• The key success factors are
• Commitment from the Chairman, Board and Executive
  Directors exists
• The Trust Turnaround Team. Realistic turnaround
  timescales need to be agreed with the DoH
• Active engagement of key stakeholders to gain
  buy-in and drive through the changes
• Management capacity
• Changes will be driven through by local managers
  who will be supported by the Board and Turnaround
  Team
• Their performance will be managed through the
  fortnightly FRG (Financial Recovery Group)
  performance review meeting, directorate
  performance reviews, directorate management team
  meetings and individual objective setting
• Actions, responsibilities and timescales have
  been agreed as part of the turnaround plan and
  will be used to track performance
• Communication Plan. This has been established and
  Trade Unions and MPs have been briefed
• Making it happen. There exists a recent track
  record of delivering since new Chief Executive
  and Operations Director were appointed in October
  2004.
• The estimated transition costs of 1.2m. Every
  effort will be made to ensure the redundancy
  costs are kept to a minimum through vacancy
  management and redeployment.

8
Overview Introduction and Background
Well established and reputable DGH offering a
full range of acute and diagnostic services that
meets all access targets

• West Suffolk Hospitals NHS Trust is a District
  General Hospital which encompasses a population
  of approximately 250,000 and provides a
  comprehensive range of acute (secondary) general
  hospital services. According to the Office of
  National Statistics the total population growth
  is expected to be in excess of 12 over the next
  15 years to 2021.
• It provides care for some patients in the
  neighbouring counties of Norfolk, Cambridgeshire
  and Essex.
• The Trusts principle catchment population has a
  prevalence of older residents, with a greater
  proportion of females. The proportion of over 85
  year olds is significantly higher than the
  national average and will increase by 80 over
  the next 15 years. (Source Office of National
  Statistics).
• As well as the main hospital site (Hardwick
  Lane), the Trust provides outreach outpatient and
  radiology services at St Leonards Hospital,
  Sudbury, outpatient services from Walnuttree
  Hospital, Sudbury and Newmarket Hospital.
• The Trust has 481 beds (including maternity) and
  employs 2,063 Whole Time Equivalents (WTE) (as at
  March 2006).
• The majority of wards in the catchment area are
  more affluent than the national average, however,
  there are pockets of rural deprivation.
• The total income for 2006-07 is 114m. Suffolk
  West PCT (SWPCT) is the main commissioner for
  West Suffolk Hospitals services accounting for
  80 of the Trusts 100.8m clinical income. The
  balance of 13.2m of income is generated from
  Education, Private patients, Catering and RD.
• SWPCT is also in deficit. Its turnaround plans
  have not yet been communicated to the Trust but
  given the level of dependency on the PCT, any
  plans by them to materially reduce the level of
  commissioning will have a material impact on the
  Trusts ongoing financial position.
• There are currently no concerns over the Trusts
  clinical safety based on existing risk
  assessments or plans for the wholesale relocation
  of acute services. The Trust does not provide
  specialist/tertiary services.
• The Trust has a range of well developed clinical
  networks, largely with Cambridge, but in addition
  Papworth (cardiology) and Ipswich (oral surgery).
  

9
Overview Methodology

• This plan has been prepared by a turnaround team
  led by the Chief Executive and supported by the
  External Turnaround Director. The team consists
  of the Chief Executive, Finance Director,
  Operations Director, Medical Director, HR
  Director, Nursing Director, Facilities Director
  and four General Managers representing each of
  the directorates. Consultation has also involved
  the clinical directors and other managers.
• There has been significant input from this team
  and their staff to each initiative and
  workstream.
• Deloitte have provided support and technical
  expertise to the turnaround team.
• The external Turnaround Director has provided
  extensive turnaround expertise in developing and
  project managing the completion of the plan
• The turnaround plan has been developed in the
  following stages
• Historical Financial Performance and analysis of
  deficit
• Assessment of underlying recurring profitability
• Base Case Business Plan or Budget 2006-07 to
  2008-09
• Turnaround initiatives and further opportunities
  including operational productivity improvements
• Analysis of CRES schedule to test for robustness
  (where appropriate utilising Dr Foster
  benchmarking information e.g. LoS)
• Impact of Turnaround initiatives on Base Case
  Business Plan
• Development of Financial Turnaround Plan
• Determination of break-even position, run-rate
  and in year profitability
• Key risks and sensitivities
• Identification of key stakeholders

10
Overview WSH Market Position
Occupying a central position for 30 miles
servicing the increasing needs of an ageing
population of 250,000

• WSH occupies a strong central position being the
  only main DGH and AE hospital in the area for 30
  miles. Other sizeable DGHs in the area include
  Ipswich (c30 miles), Addenbrookes (c30 miles),
  Colchester (c40 miles) and Hinchingbrook (c50
  miles).
• The Trusts competitive advantage derives from
  its
• Dominant position in the local economy with a
  large captive population
• Excellent reputation as a District General
  Hospital providing acute services (including AE)
  
• Loyal local residents and primary care
  practitioners
• Its main weakness comes from
• Dependency on one PCT for 80 of its income
• Management capacity and pace of change
• The number of patients presenting at the hospital
  has remained the same as previous year. However,
  the demographics of the population suggest that
  this trend is expected to rise significantly over
  the next 15 years. The demand for its services
  is therefore set to increase year-on-year.
• Local residents and primary care practitioners
  remain loyal to the Trust.

11
Historical Financial Performance
12
Historical Financial Performance 2003/04 to
2005/06
The Trust has been in a recurring underlying in
year deficit from 2003/04 which peaked at 7.0m
in 2004/05 but has been reduced to 4.6m in
2005/06 as a result of significant CRES

• 2003/04
• The Trust reported a deficit of 2.5m in 2003/04.
• The underlying in year result after adjusting
  for Historical deficit and non-recurring CRES
  items is 3.2m. The previous year was not in
  deficit although to achieve this a number of
  non-recurring CRES had been implemented in
  2002-03.
• Non-recurring CRES in 2003/04 were 0.7m out of a
  total CRES for the year of 1.9m.
• 2004/05
• The Trust reported a deficit of 7.6m in 2004/05.
• The underlying in year result after adjusting
  for Historical deficit and non-recurring CRES
  items is 7.0m.
• Historical deficit payments of 0.9m relating to
  the deficit in 2003/04 was adjusted to give a net
  income of 103.7m.
• Non-recurring CRES in 2004/05 were 0.3m out of a
  total CRES for the year of 5.5m.
• 2005/06
• The Trust has reported a deficit of 11.8m in
  2005/06.
• The underlying in year result after adjusting
  for Historical deficit and non-recurring CRES
  items is 3.8m.
• Historical deficit payments of 9.0m relating to
  the deficit in 2003/04 and 2004/05 was adjusted
  to give a net income of 99.2m.
• Non-recurring CRES in 2005/06 were 1.9m out of a
  total CRES for the year of 6.6m. Non-recurring
  CRES mainly relates to 1.6m from the review of
  asset life.

13
Historical Financial Performance 2004/05 and
2005/06 Monthly Run Rate
The Trust has improved from an in year monthly
deficit of c.800k at the beginning of 2004/05 to
c.400k by the end of 2005/06

• Surplus/Deficit Monthly Run Rate from 2004/05 to
  2005/06

• The monthly in year surplus/deficit has been
  adjusted to allow for any historical deficit
  payments, agenda for change back payments, SLA
  agreement changes and non recurring CRES and
  costs.

• The Trust was running at an average monthly in
  year deficit of c.800k at the beginning of
  2004/05.
• By the end of 2005/06 the Trust was running at an
  average monthly in year deficit of c.400k.
• The movements in March 05 and April 05 relate to
  no management accounts adjustments in April due
  to processing the previous year end results.
  These adjustments were processed through May
  instead.

14
Historical Performance Cost reduction programme
14.5m of CRES has already been saved over the
past three years, of which 11.4m is recurring.
A total of 94 beds have been reduced over the
past two years (18). The majority of all
relatively easy savings have been made over the
past three years which will limit the
opportunities in the forthcoming years

• 2004/05
• The main CRES achieved in 2004/05 related to
• 200k of HDU reductions
• 450k from closing ward G6 (Sept 04)
• 212k from reduction in ward F7
• 427k increase in catering, accommodation, car
  parking prices
• 140k from alternative Npfit funding source
• 600k from SLA changes
• 238k from a depreciation review
• The under achievement of CRES mainly relates to a
  1m CRES for additional Treatment Centre income
  that was not realised.
• Total bed number were reduced by 33 beds in
  2004/05.
• 2005/06
• Achieved 7.1m of savings with a reduction of 61
  beds, 123 staff, two wards, two theatres and
  managed vacancies of 173 WTE. Bank costs were
  reduced by 24 (0.8m) and agency costs by 55
  (1.0m) and outpatient services were repatriated
  from Thetford Cottage Hospital.
• 5.0m of the achieved CRES were recurring, mainly
  relate to
• 1.9m of staff reduction, vacancy savings and
  staff mix changes
• 0.9 of ward and theatre closures
• 0.4m from asset life review
• 0.8m of the total under achievement in the
  planned CRES, 1.0m relates to central
  initiatives not met, with operational directorate
  savings saving 0.2m more than planned.
• The main under achieved CRES were 0.5m of
  further staff reductions and 0.2m of delays in
  closing an additional ward and two theatres,
  through extended staff consultation.

- Initial 2005/06 budgeted recurring CRES of
8.0m. 1.1m of CNST premium holidays have
been stripped out of the budget figure as this
was an unrealistic central CRES and not ever
deliverable.

• 2003/04
• A break down of the 2003/04 CRES was not
  available. The figures were taken from the FT
  diagnostics.

15
Historical Performance Operational Performance
The operational performance of the Trust has
continued to improve with all targets either
achieved or exceeded in 2005/06

• Performance Area
  2004/05 2005/06
• AE
• of patients seen or discharged within 4 hours
  96.3 98.2 (target 98)
• Waiting lists
• Inpatient waiting time
  Max 9 months Max 6 months
• Day case waiting time
  Max 9 months Max 6months
• Outpatient waiting time
  Max 17 weeks Max 13 weeks
• Nos on waiting list
  4542 3513
• Day case rates
  73 78
• Cancer
• 2 week wait
  100 100
• 31 day diagnosis
  100 100
• 62 day treatment
  80 (Oct 05) 96 (Feb 06)
• Data Completeness
  58 (Nov 05) 100 (Feb 06)
• MRSA
• No. of Bacteraemia
  43 28
  (Target 30)
• Booking direct and partial
• Outpatients
  71.3 100 (Dec
  05)

16
Base Case Business Plan 2006-07 to 2008-09
17
Base Case Business Plan Overview to 2008/09
The base case forecasts the Trust to be in an
underlying in year surplus by 2007/08, however
2006/07 would show an underlying in year
recurring deficit of 2.4m before any turnaround
savings are overlaid

• Please Note The reduction in income of 2.7m is
  included in the turnaround plan and not in the
  base case budget and the reduction in unfunded
  drug costs is deducted from this income.
• 2006/07 budget shows an in year recurring deficit
  of 2.4m with a reported deficit of 15.8m after
  a 12.0m historical deficit adjustment and a
  1.2m deficit usage charge.
• Total income was budgeted to increase by 8.5m
  (base case), mainly as a result of clarity in
  commissioning, with in year costs increasing by
  4.7m across all expenditure areas. There are no
  CRES or transition costs included in the base
  case.
• The base case also assumes no reduction in
  commissioning levels from SWPCT

18
Base Case Business Plan Surplus/(Deficit) Bridge
The base case forecasts the Trust to be in an
underlying in year surplus by 2007/08, however
2006/07 would show an underlying in year deficit
of 2.4m before any turnaround savings are
overlaid

• Underlying In Year Surplus/deficit Bridge from
  2004/05 to 2007/08

19
Base Case Business Plan Key Budget Assumptions
The 2006/07 budgeted income has been calculated
using PbR and the expenses have been calculated
based on saving and cost pressure built over the
2005/06 budget

• 2006/07
• The clinical income level was based on 103.5m
  for the base case budget. Negotiations with the
  PCT were still progressing as at the date of
  completing the final draft of this report. These
  negotiations have just been concluded with the
  final offer of clinical income from the PCT
  being 100.8m.
• 13.2m of other income is from education (5.4m),
  private patients (0.9m), research and
  development (0.1m) and other operating income
  (6.8m).
• The historical deficit adjustment of 12m to the
  income received for the year is calculated using
  the historical deficit from 2005/06 of 9m,
  2005/06 reported deficit of 2.8m and 2004/05
  audit adjustments of 0.2m.
• The expenditure for the 2006/07 budget has been
  calculated from the 2005/6 budget allowing for
  the full year effect of planned CRES in 2005/06
  and any cost pressures in 2005/06. This rolled
  forward 2006/07 budget has then been adjusted for
  the expected increase in cost pressures and any
  decreases for any released costs expected during
  the year.
• An in depth review has been performed with Budget
  Holders and Financial Performance Managers
• on all adjustments to the 2005/06 budget and cost
  pressures assumed in the 2006/07 budget and
• of the 2006/07 budgeted expenditure against the
  actual costs in 2005/06
• The 2006/07 base case has stripped out all CRES
  and transitional costs that were not achieved or
  spent in 2005/06 but assumed in the 2006/07
  budget. These have been included in the
  turnaround plan.
• This means that the 2006/07 budget base case does
  not include any potential CRES or transition cost
  that need to be achieved .
• 2007/08 2008/09
• This has been model from the FT diagnostic model
• Income calculated from 2006/07 figures through an
  income model. This model takes into account the
  expected movement on activity on each speciality.
  The tariff is assumed to increase by inflation.
• Expenditure is assumed to increase by inflation
  with some adjustment for significant known cost
  changes.
• The 2007/08 and 2008/09 base case has assumed no
  CRES or transition cost although based on the
  recovery planning process additional CRES is
  achievable in these years.

20
Base Case Business Plan Forward Monthly Run Rate
05/06 to 07/08
The forward expected run rate on the Turnaround
base case shows the Trust returning to an
underlying surplus in March 2007

• Surplus/Deficit Monthly Run Rate from 2005/06 to
  2007/08

• The monthly in year surplus/deficit has been
  adjusted to allow for any historical deficit
  payments, agenda for change back payments, SLA
  agreement changes and non recurring CRES and
  costs

• The 2006/07 budget and the 2007/08 forecast have
  been phased across the year.
• The base case is indicating a run rate of c.200k
  deficit a month through 2006/07 and c.200k to
  c.300k surplus in 2007/08.
• The base case indicates that the Trust should go
  into a positive monthly run rate in March 2007 by
  100k.

21
Base Case Business Plan Income
Clinical income was budgeted to increase by 7.8m
(8) from 2005/06 to 2006/07 mainly as a result
of clarity around commissioning, with other
income budgeted to increase by 0.6m (5) from
2005/06 to 2006/07. However, the final outcome
of negotiations with the PCT is an increase of
5.1m or 2.7m less than the base case budget.

• Clinical Income Bridge from 2005/06 to 2006/07

• Income
• See following page for detail of Income
  calculation
• The Trust has just finalised negotiations with
  Suffolk West PCT (SWPCT) over the commissioning
  level for 2006/07. This has resulted in a 2.7m
  gap in income than originally budgeted. This
  reduction has been dealt with in the turnaround
  section from p.23 onwards. The implication of
  this under-funding is that the Trust has had to
  find additional savings from more turnaround
  initiatives.
• SWPCT commission 80 of the clinical income
  directly and therefore heads the commissioning
  negotiation on behalf of the other PCTs.
• The majority of the movement in income between
  the years is due to clarity in the commissioning
  of activities between PbR and Non-PbR.
• Other income has increased from 12.6m to 13.2m
  in 2006/07.

• Clinical Income
• Clinical Income was budgeted to increase from
  95.7m to 103.5m as follows
• Gain of 5.5m due to clarity in commissioning
  arrangements.
• Inflation increase of 1.5m relates to the tariff
  inflation impact based on the previous year level
  of activity.
• The reduction in the level of activity
  commissioned by the PCT of 0.6m
• The central MFF and clawback adjustment of 1.2m
  (net)

22
Base Case Business Plan Expenditure
Recurring expenditure is budgeted to increase by
6.2m (5.5) from 2005/06 to 2006/07, 4.0m of
which is pay costs and 0.8m of drug costs

• 2006/07
• Recurring expenditure budgeted to increase by
  6.2m (5.5) from 2005/06 to 2006/07.
• Total expenditure budgeted of 119.2m in 2006/07
  which is an 8.1m (7.3) increase from 2005/06.
• Pay costs are budgeted to increase by 4.0m
  (5.2) from 2005/06. The increase is due to
  0.9m of uncontrollable incremental drift
  pressures and the remaining 3.3m (4.3) from
  inflationary pay increases.
• Drug costs are budgeted to increase by 0.8m
  (13.5) from 2005/06. The large increase from
  2005/06 is due to an increase in NICE approved
  high cost drug pressures such as Herceptin, anti
  TNFs and Imatinib.
• Due to the reduction in income of 2.7m some high
  cost drug pressures are no longer being funded
  thus reducing the total drugs budget . These
  adjustments have been put through in the
  turnaround plan section.
• Other costs are budgeted to increase by 1.0m
  (3.9) from 2005/06 which mainly relates to and
  increase in clinical supplies and services of
  0.8m (10).
• The PDC dividend is expected to increase to 2.4m
  from 2.1m in 2005/06.

• Expenditure breakdown from 2003/04 to 2008/09

23
Base Case Business Plan Cash Flow
Base Case budget shows a cash outflow of 0.1m in
2006/07 and cash neutral in 2007/8

• Cash flow
• The table illustrates that the Trust is budgeted
  to stay within its cash targets throughout the
  forecast period.
• The main risk to the cash flow relate to the cost
  of redundancies and reliance on 2.7m brokerage
  from the SHA.
• Upside to the cash flow come from the proceeds
  from asset (mainly estates ie Harps Close Meadow)
  disposals.
• These events will occur and provided they happen
  in the same financial year they will offset and
  the Trust will remain within its cash targets.
• The reduction in the PCT income of 2.7m has not
  been included in the base case but as a
  turnaround adjustment.

24
Impact of Turnaround Plan on Base Case Business
Plan 2006-07 to 2008-09
25
Turnaround Business Plan Reconciliation to the
Base Case
The turnaround plan improves the underlying base
case in 2006/07 by 2.4m giving a recurring in
year breakeven position for 2006/07. In 2007/08
the base case is improved by 4.2m giving a
recurring in year surplus of 7.2m

• The PCT net adjustment of 1.4m is the net
  position of 2.7m reduction in income and
  reduction in unfunded drugs budget.
• The turnaround initiatives that have been
  identified are summarised on page 28.

26
Turnaround Business Plan Overview to 2008/09
The Turnaround Plan forecasts the Trust to break
even on a recurring in year basis in 2006/07,
however this will not be sufficient to repay the
Historic Deficit in the short term

• Although the plan achieves a balanced position by
  the end of 2008/09, under the current RAB rules
  the debt remains outstanding on the balance
  sheet.
• The split of CRES between pay costs and other
  costs were assumed as 75 to pay costs and 25 to
  other costs.

27
Turnaround Business Plan Forward Monthly Run
Rate 05/06 to 07/08
The forward expected run rate on the Turnaround
business plan shows the Trust in a recurrent
monthly run rate surplus by November 2006

• Surplus/Deficit Monthly Run Rate from 2005/06 to
  2007/08

• The monthly in year surplus/deficit has been
  adjusted to allow for any historical deficit
  payments, agenda for change back payments, SLA
  agreement changes and non recurring CRES and
  costs

• The 2006/07 turnaround plan is indicating a run
  rate from c.200k deficit at the start of the
  year to c.100k surplus by the end of the year
  and that the Trust will go into sustainable
  positive monthly run rate by November 2006.
• The 2007/08 turnaround plan is indicating a run
  rate of c.500k-600k surplus across the whole
  year (excluding any new CRES).

28
Turnaround Plan
29
Turnaround Plan Initiatives Summary
Directorates have identified 3.7m of cost
savings, however they are finding it increasingly
difficult to identify further costs saving
initiatives all quick wins have been identified
and saved in the prior years

• Detailed action plans are in place to support
  each initiative.