ANNEX 8

AFFORDABILITY

  1. In the first consultation material we identified the estimated capital and revenue costs of the proposals. We observed that the capital costs were based on a high level quantification of functional content set against nationally available Design Guide costing norms.
  2. Since then the work has been refined in several ways:
  1. in assessing likely PFI\PPP costs we have drawn on the experience of such schemes at Law, Hairmyres and the Southern General’s current PFI scheme and revised the PFI charge rate to a level of 11.63% per annum.
  2. we have updated the price base to recognise inflation.
  3. we have incorporated an assumption about equipment costs based on the experience of Hairmyres and Law. At Hairmyres 75% of the equipment was new, 25% was transferred. This equated to 12% of the construction cost. At Law it was 14%. We have modelled a cost of 10% into the figures (reflecting that we expect that in the next few years better flows of capital for equipment replacement will start to reduce the backlog of dilapidation).
  4. we have added a laboratories replacement element to the programme in North and South Glasgow.
  5. we reviewed the potentials for compressing the phasing of construction at the Southern General and Gartnavel. We have also taken into account interim manoeuvres such as the move of gynaecology in South Glasgow and enabling schemes needed to clear site space (e.g. at the Southern General).
  6. we have developed an outline planning approach identifying how additional ward space can be built at GRI (on the sites of the Lister and Walton Buildings) which would allow the closure of the old GRI ward block and the transfer of medical and surgical in-patient services from Stobhill.
  7. we have reduced the estimates of revenue savings to reflect that fewer beds will be closed than originally estimated.
  8. we have included provision for the replacement of the Dental Hospital.
  9. we have assumed that a number of smaller elements will be funded from Exchequer pool capital allocations but that the major schemes will be PFI\PPP. There are two reasons for making the latter assumption at this stage:
  1. The schedule of schemes included in the whole set of reconfiguration proposals is a follows:

 

£m

At Stobhill

Ambulatory Care

 

30.4

At Gartnavel

- Phase II of Beatson Oncology Centre

- Additional capacity to allow closure of the rest of Western Infirmary, creation of single cardiothoracic centre plus some patient flows formerly attending Stobhill

- Laboratories (two schemes)

- Car Parking

 

44.1


80.2


23.4

6.0
_____
153.7

At GRI

- Extra floor on new ward block for orthopaedics

- Refurbishment to allow interim changes

- Enlargement of new A & E

- Multi-storey car park

- New ward block on Lister\Walton sites

- Gynaecology

 

8.9

5.9

5.0

6.0

48.4

3.9
___
78.1

At the Southern General

- New hospital to replace all old buildings and Victoria Infirmary in-patient services.

 

198.3

At the Victoria Infirmary

- ACAD + rehabilitation beds

 

40.0

At the Western Infirmary

- Refurbishment to allow interim changes (The need to do this may be avoided if Gartnavel main scheme proceeds without undue delay).

 

1.5

Replacement of the Dental Hospital

18.7

  1. The overall total amounts to £520.7 million.
  2. Capital expenditure on the replacement or refurbishment of the Royal Hospital for Sick Children is not included in this schedule, nor is the cost of providing capacity at either the Southern General or Yorkhill for Glasgow’s second maternity unit. This is because these issues are still subject to further consideration. However, phasing of construction of the new Southside hospital on the Southern General site and the revenue consequences has been incorporated in this paper on the assumption that site space needed for Children’s Services would need to be left available for their construction, hence delaying the construction of the second part of the Southside Hospital single contract. By the time Outline Business Cases are prepared there should be clarity on this issue and timings can be adjusted accordingly.
  3. Dr. Dunnigan, writing on behalf of the Health Service Forum (South-east) has said that he regards the figures previously published by GGNHSB as "not credible". He cites the 1994 Glasgow Acute Services Strategy which postulated the construction of 3 new hospitals for £700 million at 1999\2000 prices. He also quotes £400 million for an 800-bedded teaching hospital in central London.
  4. We can only say that the capital estimates we have used are based on a mixture of experience of the cost of current schemes under construction at GRI (Maternity and Emergency Receiving\Plastic Surgery Blocks) and Gartnavel (Beatson Oncology Centre Phase I), Outline Business Cases already developed (Stobhill ACAD, Southside transfer of gynaecology), advice from specialist planning consultants (W.S. Atkins advised on most of the North Glasgow schemes) and advice from the architects appointed to develop the Southern General\Victoria ACAD scheme profile. Some of the costs are admittedly high level but to describe them as being "little more than back of the envelope guestimates" (as Dr. Dunnigan does) is a slight on the professionalism of the architects and planning consultants employed by the two Trusts.
  5. Dr. Dunnigan’s comparison of GGNHSB’s proposals with "a teaching hospital in central London" misses the point that GGNHSB’s proposals involve utilising a significant amount of existing hospital infrastructure built within the last 30 years at the GRI, Gartnavel and, to a lesser extent, at the Southern General, whereas the London scheme (probably the new University College Hospital) entails completely new infrastructure. To compare hospital construction costs just in the currency of their bed numbers is simplistic.
  6. The key question for the Glasgow Health economy is whether the magnitude and timescale of the planned investment are affordable within which the revenue framework the Board operates.
  7. Table A shows the expected revenue consequences of the schemes in the schedule. It is important to make several points about the figures:

     

    1. they make presumptions about the speed of business case planning, approvals and construction times which are based on current experience. This is a good predictor for the future but not perfect.
    2. they reflect Trust assessments, as yet untested in detailed interrogation by Health Boards (a process which takes place during the Business Case stages of planning). The figures are Trust figures and the basis on which they would impact on different West of Scotland Health Boards would depend on volumes of work and patient case mix undertaken for each Board. This analysis will be undertaken during the next few weeks. The largest costs will fall on GGNHSB.
    3. they exclude the life cycle maintenance costs associated with PFI\PPP schemes – which will add to the burdens of cost to some extent. On the other hand they exclude any allowance for efficiencies in plant provision, logistics and facilities management that the PPP partner introduces.
    4. there are three principal sources of savings shown in this schedule:
  • savings in capital charges as existing buildings are vacated and replaced by new.
  • savings in overhead costs (rates, heat, light and power, maintenance and cleaning).
  • efficiency savings reflecting new ways of working (such as those already identified for the Stobhill ACAD) and reductions in bed numbers arising out of changes in organisation and clinical practice as described in Annex 7.

These are shown in aggregated form for South Glasgow in line 4 (and amount to £5.94 million) and by each category for North Glasgow in lines 19, 20 and 21 (totalling £19.67 million – of which £15.52 million relates to capital charges savings and overheads).

 

Table A

The Revenue Consequences of Capital Schemes to Improve

The Service Environment for Acute Hospital Services in Glasgow

Elements

(Sums are in £million recurrent figures in brackets represent savings)

 

02\03

03\04

04\05

05\06

06\07

07\08

08\09

09\10

10\11

Notes

SOUTH GLASGOW

1. Early schemes (gynae, labs; max- fac; maternity

 

1.06

                 

2. Victoria ACAD

     

2.61

2.61

       

Assumes Sept.05 opening

3. SGH new wards etc.

       

6.08

6.09

 

11.47

 

Assumes Sept. 06 opening for first phase

4. Savings

         

(3.94)

   

(2.0)

 

GARTNAVEL

5. Beatson Phase 2

     

 

6.72

           

6. Car parking

     

0.60

           

7. Remainder

     

3.1

6.2

         

8. Haemo.lab

 

0.47

               

9. Laboratories

     

2.52

           

WESTERN

10. Refurbishment

 

 

0.16

               

11. Closure of G Block

     

(0.98)

           

STOBHILL

12. ACAD

   

 

3.92

             

GRI

13. Orthopaedics

 

 

1.11

               

14. Gynaecology

 

0.51

               

15. Car park

 

0.61

               

16. Transition refurb.

 

0.54

               

17. Expand A & E

   

1.08

             

18. Lister\ Walton Ward Block

         

5.89

       

NORTH GLASGOW SAVINGS

19. North efficiency savings

       

 

(3.9)

         

20. Capital charge savings from closed buildings at GRI, WI and Stobhill

           

(8.27)

     

21. Overheads savings from WI, GRI and Stobhill

           


(7.25)

     

DENTAL HOSPITAL

22. Reprovision

     

 

1.3

           

TOTAL

1.06

3.4

5.00

15.87

10.99

8.04

(15.52)

11.47

(2.0)

 
  1. The profile of cost on the Total line is what we need to relate to the question of what revenue might be available to meet the increase in running costs. By the end of the implementation period the running costs of acute services, related to the basic shape of configuration, will have risen by £30.27 million recurrently. As previously indicated most, but not all, of this will be borne by GGNHSB. The impact on other Health Boards has still to be calculated.
  1. The GGNHSB draft Health Improvement Programme for 2001\2 to 2005\6 will include an analysis of the resources expected to be available based on:
  1. the government’s Comprehensive Spending Review for the period up to 2003\4 inclusive and the indicative figures given to GGNHSB by the Scottish Executive regarding its likely allocations in that period.
  2. a projection of a similar rate of financial growth for the two years beyond that (2004\5 and 2005\6); reflecting the Prime Minister’s commitment that UK spending on healthcare will reach the EU average. This is an upwardly moving target; if the political commitment is maintained it is highly likely to require financial growth at broadly the same level as being experienced in the current Comprehensive Spending Review period.
  3. three expectations about inflation. Firstly that meeting the cost of inflation will normally be a first call on available growth within cash allocations. Secondly that NHS inflation is likely to be higher than the GDP deflator (mainly due to labour market and pay pressures). Thirdly that inflation in the cost of medicines can be contained within an annual increase of 10% made by the Health Board (which has to be financed mostly from general growth allocations). As far as the second assumption is concerned, GDP has been assumed at 2.5%, with inflation on supplies expected not to exceed GDP. Salaries have been assumed at GDP + 1.5%. In addition in 2005\6 the second instalment in the increase in employer’s superannuation contributions has to be met (£6.5 million recurrent).
  4. a policy that the amount of money available for different elements of GGNHSB’s health service responsibilities will broadly reflect the proportions identified within the Arbuthnott formula for national resource allocation in Scotland. In this model, after provision for inflation, 48.7% of funds available for service development are earmarked for acute services development, 15.8% for mental health services, 8.8% for child and maternal health services and 26.7% for other services such as chronic disease management, general primary care development, community development, services for ethnic minorities, homeless people and people with addictions. This approach provides better certainty for forward planning and helps to protect services which in the past have been financially disadvantaged by the more populist financial needs of acute hospital services. The model provides a fair and protected financial planning environment for the whole local healthcare system.
  1. On the basis of this framework the Acute Hospital services share of the growth in resources expected to be available during the five year Health Improvement Programme period are:

Table B

 

£m

2001\2

12.91

2002\3

9.62

2003\4

11.92

2004\5

12.46

2005\6

9.91
  1. These appear to be (and are!) significant sums. What sort of demands would normally be made on them? Table C gives an example of some of the service aspirations for the next two years. It is not yet complete and some of the estimates within it are still subject to review by various working groups. It also omits several areas of service need still to be costed but which we can expect to cost at least £10 million in 2001\2 with a further £6 million in 2002\3. (These are listed in Table D).

Table C

Examples of Acute Services Development Aspirations
2001\2 and 2002\3

 

£ thousand

 

Year 1

Year 2

1. Increased capacity in Intensive Care and High Dependency Units

1,000

1,000

2. Running costs of new capital facilities at GRI and Southern General opening in 2001\2

2,900

2,900

3. Extra capacity in radiology services

500

1,000

4. Extra capacity in cancer services\drug expenditure

500

1,000

5. Hepatitis C – new drugs

100

100

6. Increase Neurology capacity

100

100

7. SPECT scanning

115

115

8. Improve stroke services

600

1,200

9. Strengthen A & E services

154

154

10. Chlymidia screening

100

200

11. CJD single use instruments

103

103

12. Increased workload in Genito-Urinary Medicine

90

90

 

6,262

7,962

Thus Year 1 shows the initial increase in funding; Year 2 shows funding increasing by £1.7 million reflecting a continuing development in the service areas concerned (items 3, 4, 8 and 10)

 

Table D

Examples of As Yet Uncosted Service Needs
2001\2 and 2002\3

  1. Meeting new Waiting Time Targets.
  2. Improved nurse staffing levels on wards.
  3. New expensive medicines used in hospitals.
  4. Specialist services for the elderly.
  5. Development of epilepsy services.
  6. Increased numbers of patients on dialysis.
  7. Costs of strengthened clinical governance.
  8. Costs of new electronic records and communications systems.
  9. Increased cost of junior doctors hours.
  10. Dealing with Trust deficits.

  1. What Tables C and D indicate is that dealing with normal service development aspirations – and especially addressing the accumulated service constraints inherited from the past – will easily require the full sums likely to be available. In fact difficult choices will continue to have to be made.
  2. Before we can make judgements about the affordability of the programme of capital configuration summarised in Table A, we need to address the fact that its revenue consequences extent to years beyond the current Health Improvement Programme period. What assumptions can we make about resource availability in the years 2006\7 to 2010\11?
  3. Clearly predictions stretching so far ahead are difficult. We can make three levels of prediction:
  1. that NHS growth levels continue to "chase" the EU average, requiring growth levels the same as we see for the next three years. This has been modelled making the same assumptions as are included in the 2001\2 draft Health Improvement Programme.
  2. or we can assume that the UK government can no longer sustain such rates over such a lengthy period. We can substitute a more typical historical rate of real terms growth of 2% per year.
  3. or we can take, as a worst case scenario, a return to severe financial restriction with real terms growth at 0.5% per year.
  1. In the cases of scenarios (b) and (c) we should assume that general inflation provision made by GGNHSB would equal, but not exceed, GDP deflator. This would mean that any "belt-tightening" needed to meet a higher rate of inflation would need to be managed within existing hospital budgets. However, inflation in GP prescribing would still need to be funded and if the experience of past years continues (10% per annum), that significantly erodes the amount of money available for service development. This assumption has been built into Table E. In the case of scenario (c) it consumes all the available money, leaving nothing for any other service development.
  2. Table E shows the development money that would be available to GGNHSB in these years, both in total and what the acute services' 48.7% share would be:

Table E

 

£ millions

 

2006\7

2007\8

2008\9

2009\10

2010\11

Scenario (a)

  1. Total for development
  2. Acute Services share

 

28.03
13.66

 

29.34
14.30

 

30.68
14.95

 

32.01
15.60

 

33.32
16.23

Scenario (b)

  • Total for development
  • Acute Services share
  •  

    10.05
    4.90

     

    9.51
    4.64

     

    8.88
    4.33

     

    8.22
    4.00

     

    7.32
    3.57

    Scenario (c)

  • Total for development
  • Acute Services share
  •  

    NIL
    NIL

     

    NIL
    NIL

     

    NIL
    NIL

     

    NIL
    NIL

     

    NIL
    NIL

    1. If we now bring all this together what does it tell us?
    2. Table F

      £m

     

    2002\3

    03\04

    04\05

    05\06

    06\07

    07\08

    08\09

    09\10

    10\11

    Total over period

    Expected availability of resources for all developments in Acute Services

    Scenario (a)

    (Current HIP framework rolled forward to 2010\11)

    Scenario (b)

    (Current HIP framework to 2005\6. 2% growth thereafter)

     

     

     

    9.62

     

     


    9.62

     

     

     

    11.92

     

     


    11.92

     

     

     

    12.46

     

     


    12.46

     

     

     

    9.91

     

     


    9.91

     

     

     

    13.66

     

     


    4.9

     

     

     

    14.3

     

     


    4.64

     

     

     

    14.95

     

     


    4.33

     

     

     

    15.6

     

     


    4.00

     

     

     

     

     

    16.23

     

     


    3.57

     

     

     

    118.65

     

     


    65.35

     

    Required for capital-led reconfiguration

     

     

    1.06

     

    3.4

     

    5.0

     

    15.87

     

    10.99

     

    8.04

     

    (15.52)

     

    11.47

     

    (2.0)

     

    38.31

    Balance\(Shortfall)

    Scenario (a)

    Scenario (b)

     

    8.56

    8.56

     

    8.52

    8.52

     

    7.46

    7.46

     

    (5.96)

    (5.96)

     

    2.67

    (6.09)

     

    6.26

    (3.4)

     

    30.47

    19.85

     

    4.13

    (7.47)

     

    18.23

    5.57

     

    80.34

    27.04

      N. B. These sums show the full cost impact falling on GGNHSB. In reality some costs would need to be borne by other West of Scotland Health Boards.

    1. I the period 2002\3 to 2004\5 the principal cost impacts are associated with various transitional and enabling schemes. They should be capable of being accommodated within the sums available for acute hospital services development. The bulk of their cost would be borne by GGNHSB rather than by other West of Scotland Boards.
    2. The years 2005\6 to 2007\8 are burdensome. Some of the cost would be borne by all West of Scotland Boards proportionately because it relates to the transfer of the Beatson Oncology Centre and the creation of the single regional cardiothoracic unit. Calculation of these shares of costs will be undertaken in January, 2001. Nevertheless GGNHSB’s room for manoeuvre would be tight – but not impossible if present levels of NHS growth are sustained that long. It will be essential to conserve recurrent funds in 2003\4 and 2004\5 (using them non-recurrently in those years) in order that they contribute to meeting the cost impact of the new facilities in 2005\6 and 2006\7 especially.
    3. On the gloomier resource scenario (b), the positions in 2006\7 and 2007\8 would require some nationally provided bridging in advance of the savings arising in 2008\9. The alternative of zero service development in non-acute services in those two years would plug the gap in 2006\7 (zero development in such services would release a total of £5.16m). In 2007\8 a maximum £4.89 million could be released, which would more than cover the requirement for acute services. This is a contingency which the Health Board would clearly with to avoid since two years’ zero growth in such services as primary care, mental health, children’s services, addictions and community development would be very damaging to a range of health improvement needs arising from sections of the population facing the greatest problems of social deprivation and inequalities in health.
    4. If the position in 2005\6 to 2007\8 can be sustained in these ways, then the savings arising from site rationalisation in 2008\9 would assure that the funding for the final element of the Southside provision in 2009\10 can be met even if at that time the NHS is in a period of lower financial growth (e.g. scenario (b)).
    5. This ten year scenario does emphasise several points:
    1. that the two in-patient site configuration in North Glasgow generates savings in capital charges and overhead costs at the Western Infirmary, GRI and Stobhill which make a significant difference to the affordability of the whole programme in the middle years of the decade. Capital charge savings at Stobhill alone would be £3.2 million, with a further £2.9 million saving in overhead costs associated with in-patient accommodation no longer in use.
    2. the unavoidably more expensive Cowglen option would fall in a single impact in the middle of the decade. Either it would collide with the Gartnavel scheme and render the whole burden unaffordable in that mid-decade period or one of the two would have to be delayed (Gartnavel or Southside) in order to smooth the affordability profile. Either way it would have a high opportunity cost, also denying other aspects of acute service development access to funding for several years. This issue will be more thoroughly reviewed during the Option Appraisal element of the South Glasgow Outline Business Case.

     

    15.12.00

    Last modified: August 15, 2002

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