SW Acute CEOs Meeting Background Presentation Kings Fund

SW Acute CEOs Meeting Background Presentation

King’s Fund: How is the NHS performing? TOP WAYS TO MEET PRODUCTIVITY TARGETS Which means. . . % selected by FDs FRONTLINE EFFICIENCY Length of stay Internal service redesign Review of prescribing 77% WORKFORCE Stop agency dependency Headcount reduction through rationalisation 62% WHOLE SYSTEM EFFICIENCY Community service redesign Service reconfiguration across providers Clinical service improvement 50% CLOSE WARDS OR SERVICES Bed closures Service divestment 46% BACK OFFICE EFFICIENCY Significant back office reductions 23% REDUCE ACTIVITY Demand management 19% EXTERNAL CONTRACTS Non-pay procurement savings 12% April 2011

Agenda for Change aspirations (March 2003) v Pay system which leads to more patients being treated, more quickly and higher quality v Assist new ways of working – promoting efficiency and effectiveness, meeting needs of patients v Achieving a quality workforce with the right numbers, right skills and diversity, organised in the right way v Improve recruitment, retention and morale v Improve all aspects of equal opportunities and diversity v Meet equal pay for equal value v Implement new pay system within the management, financial and service constraints 3

Example NHS Foundation Trust Acute district general hospital Turnover: £ 150 m Workforce: 2500 staff (£ 100 m salary bill) Vacancy rate = 5%; turnover = 8% (excluding doctors) Sickness absence rate = 3% Temporary staffing spend = £ 10 m Savings target (cost reduction): £ 15 m 2011 -13 Savings profile: workforce £ 9 m (60%); nonpay/infrastructure £ 6 m v Average unit employment costs: £ 40, 000 v 5% management costs v 200 consultants v v v v

Ready reckoner: impact of 2% pay cut on pay packets 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Column 2 20 k 30 k 40 k 50 k 60 k 70 k 80 k 90 k 100 k

Ready reckoner: the actual impact Net pay NI-employee NI-Employer Pension-employee Pension-employer

Ready reckoner: jobs and savings Savings required Jobs equivalent % pay cut equivalent £ 400, 000 10 0. 4% £ 800, 000 20 0. 8% £ 1, 200, 000 30 1. 2% £ 1, 600, 000 40 1. 6% £ 2, 000 50 2% £ 4, 000 100 4% £ 6, 000 150 6% £ 8, 000 200 8% £ 10, 000 250 10%

Pay compressor options • • • • Pay inflation (uplift) Increments Temporary staffing rates Two-tier workforce Annual leave Sickness absence Unsocial hours allowances Flex-release Premium sick pay Recruitment and retention premia (RRP) On-call Supporting PAs Remuneration for extra clinical work

Labour cost compressors Compressor Unit price Notes Cost of living pay Already zero for 2011 -12 No opportunity to reduce in 2011 -13 Increments Average 2% (£ 800) per job costs Average masks range per band position Pay levels 2% pay cut = £ 2 m See ready reckoner Bonus scheme CEA (local): £ 120 -210 k annual cost Based on 200 consultants – range between. 2 to. 35 awards per consultant at average £ 3 k per award Annual leave £ 150 per day: one day removed across 2500 staff = £ 375 k plus cover costs Assumes workforce can reduce if entitlement reduced to make savings. Each post which needs cover incurring extra cost, doubles the saving Sickness leave £ 150 per day Calculated from average temp costs and/or attendance increase allowing for workforce reduction New Knowledge, Skills and Performance Framework £ 300, 000 saving on increments 10% of staff assumed not to be performing RRP £ 100 k annual cost Immediate saving on new posts – protection period will determine rate of saving on existing staff Sickness premium pay £ 100 k annual cost Flex-release Voluntary release of contracted working time on temporary or permanent basis with/without subsidy

Sample contrasting savings programmes (over 2 years) Delivers £ 9 m Pay cut 1% = £ 2 m Redundancy = £ 2 m Conditions reductions = £ 2 m Jobs freeze (5% vacancy rate) = £ 5 m Flex-release = £ 1 m Outsourcing savings = £ 1 m Temp remuneration reduced = £ 1 m Skill mix changes = £ 1 m Selective vacant post reductions = £ 2 m

Sample contrasting savings programmes (2011 -2013) Assumptions Delivers £ 9 m 2 years pay cut at 1% across workforce 50 staff 2 day annual leave – 2 days of sickness absence/premium rate unpaid – suspended bonus scheme - no RRP - Jobs freeze (5% vacancy rate) = 125 posts 50 staff release 50% of contracted hours without subsidy 10% savings from £ 10 m of staffing 10% temp pay rate cut 10% shift of responsibilities downwards from bands 7 to 6 to 5 to 4 to 3 equivalent to 50 posts 25 posts removed selected after reasonable changes have been made

Possible handling principles • Comprehensive, resourced, undiluted engagement and involvement of staff and their representatives • Widest possible, and reasonable, definition of suitable alternative employment • Investment in training and professional development • Reversal of pay and conditions compression if circumstances allow • Introduction of a new Knowledge, Skills and Performance Framework to promote advancement and withhold increments from under-performance • Bonus scheme for all staff (% unconsolidated pay rise) when trust delivers financial and service objectives, and generates available surplus