Supplementary 2
Argyll and Bute Council · 25 September 2024
Back to Argyll and Bute HSCP Integration Joint Board (IJB) — 25 September 2024 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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20 September 2024 SUPPLEMENTARY PACK 2 ARGYLL AND BUTE HSCP INTEGRATION JOINT BOARD (IJB) - BY MICROSOFT TEAMS on WEDNESDAY, 25 SEPTEMBER 2024 at 1:00 PM I enclose herewith item 7 (b) (FINANCE - Budget Outlook 2025-26 and Update) which was marked to follow on the Agenda for the above meeting. ITEM TO FOLLOW 7. FINANCE Reports by Head of Finance (b) Budget Outlook 2025-26 and Update (Pages 3 - 18) Argyll and Bute HSCP Integration Joint Board (IJB) Contact: Hazel MacInnes, Senior Committee Officer Tel:01546 604269 Public Document Pack
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1 Integration Joint Board Date of Meeting: 25 September 2024 Title of Report: Budget Outlook and Budget 2025/26 Update Presented by: James Gow, Head of Finance The Integration Joint Board is recommended to: • Note that budget planning for 2025/26 is on-going and national budgeting intentions are not yet available; • Note the HSCP is not currently operating on a financially sustainable basis. • Note the estimated budget gap and provisional savings target of £11.5m for 2025/26. • Note the on-going work and next steps in the budget preparation process. 1. EXECUTIVE SUMMARY 1.1 This report provides the IJB with an estimate of the budget gap for 2025/26 and a summary of progress made in developing plans to achieve a balanced budget. The report summarises the current national context and notes that the assumed position has been developed without the assistance of firm planning assumptions from the Scottish Government. It is clear that public finances are under severe pressure and the Health and Social Care sector as a whole is not operating on a sustainable basis. 1.2 The budget gap for 2025/26 is estimated at £11.5m, assuming the HSCP has access to £2.8m of non-recurring pension fund savings. It is anticipated that some of this gap will be addressed through increased funding. The cost and demand pressures are significant and take account of Social Care cost pressures experienced in the current year. It is anticipated that the HSCP will not be able to develop savings plans which address this gap without impacting on access, availability or quality of services. The savings proposals will be progressed on the basis that it will seek to minimise adverse impacts on the most vulnerable. The estimated budget gap will be refined as improved planning information becomes available. 2. Recommendations • Note that budget planning for 2025/26 is on-going and national budgeting intentions are not yet available; • Note the HSCP is not currently operating on a financially sustainable basis. • Note the estimated budget gap and savings target of £11.5m for 2025/26. Page 3 Agenda Item 7b
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2 • Note the on-going work and next steps in the budget preparation process. 3. DETAIL OF REPORT 3.1 Budget Context 3.2 The HSCP is not operating on a sustainable basis at present, this situation that is common across the sector with many IJBs reliant upon the use of reserves to achieve financial balance. As a consequence of the scale of the issue, the budget planning cycle for 2025/26 has commenced early. There is a lack of firm planning assumptions, however it is clear that public finances are under severe pressure in the coming years. At the time of writing: • The Scottish Government have not published an updated Spending Review, initially scheduled for summer 2024; • The UK Government budget is scheduled for 30 October 2024; • The Scottish Government are expected to publish a draft budget for 2025/26 in November / December 2024; • Pay offers for 2024/25 have been made but not fully accepted nor the funding confirmed, current offers exceed budget; • The Scottish Government have again made in-year reductions to a number of budgets, including Health and Social Care; and • Audit Scotland have reported that funding allocated to IJB’s has been reduced in real terms, contrary to previous planning assumptions. The HSCP is therefore estimating its likely resourcing gap for 2025/26 in this context. Circumstances will change as national budgeting processes progress and pay awards are finalised. Along with the Programme for Government and budget update from the Scottish Government, recent reports published by the Fiscal Commission and Audit Scotland further highlight the wider public funding challenge. Audit Scotland have also stressed the requirement for IJB’s to conduct robust financial planning for future years. Assumptions • Current and future pay and SLA uplifts in the NHS will be fully funded; • NHS re-grading costs (particularly nursing) will be fully funded; • Increases to the national minimum pay rate for social care staff will be fully funded; • The excess (above 3%) for the 2024/25 local authority pay award will be funded; • The non-recurring pension fund saving from the Strathclyde Pension Fund will be available to the HSCP in 2025/26; and • The HSCP will no longer hold material levels of reserves it can use to contribute to the budget gap. It is therefore assumed that other cost pressures, driven by inflation and demand for service remaining high or increasing will require to be funded from within existing budgets. Page 4
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3 3.3 NHS Formula Funding (NRAC) Analytical work was undertaken recently to understand how the NHS resourcing model (NRAC) operated and influenced HSCP resourcing. The model is population based and takes into account a range of factors including rurality, demographics and the health of the population. Funding for the HSCP was reduced due to an estimated decline in the population. The recent Census data indicated this population reduction was overestimated. The NRAC funding shares for 2025/26 were recently published and the national share for the HSCP has increased from 1.87% to 1.91% (a 2.1% increase). There are further detailed calculations required to convert this into cash allocations as the HSCP receives a share of NHS Highland funding and there are adjustments to smooth changes across Boards. A reasonable assumption is a £1.5m improvement. This should be recurring and reverses the reductions in recent years, arguably based on incorrect assumptions about the population. Estimated Budget Gap – 2025/26 The first element of the gap is the underlying budget deficit. This is funded in 2024/25 through the use of non-recurring resourcing and reserves. Social Care Gap £1.3m NHS Gap £4.3m Opening Underlying Gap £5.6m The HSCP methodology for the medium-term plan is to look ahead 3 years and create a best case, mid-range and worst case analysis of cost and demand pressures. These seek to align with planning assumptions used by both partners. The mid-range cost and demand pressures are summarised below, appendix 1 provides detail. These make an allowance for recurring elements of overspending this year. No allowance is made for further increases to staffing (for example relating to the Health and Care Staffing Act). Social Care Net Cost & Demand Pressures £4.5m NHS Cost & Demand Pressures £5.7m Total New Pressures £10.2m Financial Planning Estimate 2025/26 NHS £m Social Care £m IJB Total £m 2024/25 Underlying Gap 4.3 1.3 5.6 Estimated Cost & Demand Pressures 5.7 4.5 10.2 Total Gap 10.0 5.8 15.8 Funding Contributions NRAC Improvement (estimate) (1.5) - (1.5) Reliance on Pension Saving (non-recurring) - (2.8) (2.8) Savings Target 8.5 3.0 11.5 The savings target is therefore £11.5m, equivalent to just over 3% of spend. If there was to be some general uplift in funding for non-pay inflation and Page 5
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4 3.4 3.4.1 cost and demand pressures then the situation would improve. It should also be understood that the reliance on the pension fund saving presents an additional recurring problem in 2026/27 and beyond. It is difficult to assess that the HSCP can realistically achieve savings at this level next year. Savings of this magnitude cannot be achieved without impact on provision. The priority is to minimise the impact, but it is clear that there would be adverse impacts on the availability of services, access and waiting times. Thresholds for receiving care will also require to be reviewed. This is a common situation across the system at present. Some of the challenges in planning for this scale of saving include: • Budgets where savings cannot be realised - Service Level Agreements including the one with Glasgow, much of the Primary Care budget, Justice services and the Mid-Argyll PFI contract to highlight the main examples. • Inability to reduce small scale provision in remote communities; • Staffing and accommodation challenges to achieve reductions in agency staffing; and • Organisational change constraints which make it difficult to implement change where it has an impact on employees or communities. The main issues to be addressed in the planning and budgeting cycle for 2025/26 include: • Expected budget shortfall. • Increasing / continued high levels of demand. • Reducing or constrained workforce. • Appetite for service reduction. Transformation & Strategic Planning The Transformation Programme is in the process of being refreshed with a renewed focus on projects designed to align with addressing the challenges. These are likely to be a mix of short-term savings and longer term change programmes. Investment is required to make change happen, it is unlikely to be deliverable within existing resource. The use of reserves to support revenue spend is making it increasing difficult to commit to investment in transformation. There is a severe shortage of the capital resource required to enable digital transformation as one example. The HSCP will be renewing its Joint Strategic Plan during 2025. As highlighted in a recent Internal Audit report, it is important that the Strategic Plan aligns to the financial plan and medium term outlook for public funding as well as the demographic challenge and increasing health needs. Development of Savings Proposals The HSCP is continuing to work through the agreed process for the development of 2025/26 budget proposals. The scale of the challenge outlined above has been understood for some time and it was intended that the process would commence earlier than normal to allow for better Page 6
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5 3.4.2 3.4.3 consultation on proposals with communities, staff and the IJB. It is important that the savings programme is well understood and deliverable. Public Consultation A public consultation on the budget was conducted in February 2024 using an interactive tool. The outcome of this was reported to the IJB in March. Whilst there were some specific issues raised, the overall tone of the responses indicated disappointment at the need to make reductions. To the extent that savings are necessary, the consensus indicated they should be evenly spread across services. A desire for management costs to be reduced was communicated by the public. The HSCP is currently considering whether to re-run the exercise as there is both an opportunity cost and real cost of extending the license for the software. Staff Consultation Engagement has taken place with staff asked to make suggestions for savings opportunities. 18 members of staff took the time to respond, some of which overlapped and some respondents made multiple suggestions. Appendix 2 provides a listing of these. All are being considered by relevant service managers and leadership team. Many of these will contribute to the process of identifying savings proposals by individual services. It is of note that several members of staff indicated a frustration at the on-going cost of locum and agency staffing and suggestions that staff retention and development should be prioritised. 3.4.4 3.4.5 Service Planning Work is underway to develop savings options, the process is proving to be challenging as most of the plans being worked on have an impact on service delivery. Service management are also in the process of reviewing budgets and spend in detail to seek to identify ‘housekeeping’ savings which will contribute to the final savings programme. This process has been on-going for many years now, however, there are new opportunities as spend patterns, trends and managers change over time. These savings would not normally require stakeholder consultation but can make a valuable financial and cultural contribution. Examples include: • Public Health commissioning • Removal of vacant posts • Rationalisation of telecom lines • Increased charging for services • Restrict inflation / flat cash offer on contracts The more strategic priorities under consideration are summarised for each of the main services below. These provide an early indication of the types of changes that will suggested by management to deliver cost savings. Children’s & Families – Maternity Services Review A full review of maternity services is currently underway. It is intended that the process will pilot a model for reviewing all of the services that sit within Page 7
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6 3.4.6 Children, Families and Justice. The process includes staff engagement from the outset and will take into account: • Configuration of services within Argyll & Bute; • Demographics, birth rates and complexity of need; and • Best practice and national service developments. The scope of the directly delivered service budget under review is £2.7m with approximately an additional £3m included within the SLA with Greater Glasgow and Clyde for births which take place within their maternity units. The review is anticipated to complete in February 2025, organisational change processes will follow, if the review recommends changes to service provision. The outcome will be reported in detail through existing governance structures. Adult Services – Care @ Home Services The care at home service is currently undergoing change as the new contract is introduced in October 2024. Challenges include: • Continuing high demand and unmet need; • Increasing use of agency staff within social care over several years; • Lack of housing options for workers (Islands & Oban); and • Pressure to minimise hospital delays. The care at home service impacts on a wide range of other services such as those offered by community nurses, AHP teams and demand for residential care. The total budget sits at £20m. Specific consideration is being given to: • The linkages between telecare, mobile teams and the responder contract due for renewal in early 2025, it is likely that the scope and/or coverage of some of these arrangements will be curtailed to reduce overlaps and cost; • How the service can achieve a reduction in the use of agency staff and operate with sustainable staffing models; • Access and equity for Self-Directed Support payments; and • Reviewing of assessment thresholds and governance for care packages. Some allowance has been made in the cost pressures for the impact of demographic change. Longer-term planning for the financial and staffing implications of the increasing number of older adults is not adequately resolved nationally or locally. In order to reduce costs it will be necessary to change the way care needs are assessed and the level of care that can be provided within the available budget. A principled and values based approach is being taken which will seek to deliver on the priorities (as outlined in the strategic plan) in a fair, safe and equitable way. A strategic development process is underway in respect of HSCP operated care homes, this piece of work is complex and will take some time to Page 8
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7 3.4.7 3.4.8 3.4.9 complete, it is not expected that financial savings will be derived from this budget in 2025/26 other than through inflation increases on charges. Adult Services – Time to Care The Time to Care project is in its early stages and is externally facilitated by Meridian. It is being funded by NHS Highland and led by them across the NHS Highland area. It is intended to review how staff time is used within community teams with the objective of increasing the amount of time staff have available to spend with patients and clients. The process will also focus on the training and development of systems and people at team leader and management levels. Staff engagement and communications are an important part of the project. Initial review of the data and working patterns suggest significant gains in efficiency are available. From a financial perspective this does not necessarily mean it will be easy to realise savings. The main part of the project is scheduled to complete in November 2024 and it should then be possible to quantify the potential financial saving that can be attributed to the project. Organisational change processes are likely to be a barrier to delivering savings. The project could help to deliver some early savings on the use of agency staffing. Acute & Complex Care – Rural General Hospital A full review of the services offered within LIH is in its early stages. It is intended that the HSCP will work with NHS Highland to look for opportunities to better co-ordinate activity in Oban and Fort William in particular. It is anticipated that there may be some options to reduce duplication across the sites and create more joined up and sustainable staffing structures. There are some expensive out of hours arrangements in place and there appears to be excess theatre capacity and an approach to making better use of this would also be feature in this transformation work with potential for income generation or reduction in activity within SLA contracts. Service Transformation The Transformation Programme has been recently reviewed and the new structure in place around this piece of work is still under development. Important themes for strategic transformation in addition to the projects summarised above include: • Digital Transformation; • Care Homes and Housing; • Community Hospitals; • Strategic Workforce Development and Accommodation; • Review of Management Structures; and • Fleet Management. The Transformation programme overlaps with the main savings projects but it is recognised that the demographic, finance and staffing challenges are set continue for many years and longer term transformation is therefore Page 9
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8 3.5 needed in addition to shorter term savings projects. This work will also seek to look at areas where there have been long term challenges with recruitment and staffing. It is anticipated that there will be circumstances where the HSCP must consider if it can continue to provide the current range of services in all the locations that it does at present as on-going reliance on temporary staffing presents clinical risk as well as being costly. Next Steps The development of the budget is an on-going process and further work is required. This will include progressing the projects described above as well as seeking to identify other opportunities for savings through, for example vacancy and expenditure control processes being implemented at present: • Chief Officer approval of all locum and agency contracts and extensions; • Further scrutiny of vacant posts; • Changes to PECOS approval processes to stop unnecessary spend; • Tightening of care package approval processes; and • Review of grant and commissioning commitments and renewals. The process is challenging, particularly in the operational context facing the management team. On-going communication and consultation are critical as is engagement with partners as they will be required to provide support for the change required. In particular, support with the HR aspects of change is a potential gap within the management structure at present, it is important that this aligns with the strategic approach. It is accepted that some techniques that organisations normally apply to reducing costs are not available in the context of HSCPs as a result of policy commitments and/or partner approaches to HR management. Engagement with staff and the IJB and Finance and Policy Committee will continue throughout the process: September – December 2024 -Firm up savings plans and agree target savings -Develop engagement plans for staff and communities where appropriate November – December 2024 Review Scottish Government Draft Budget and planning assumptions to refine estimated budget gap January – February 2025 Conduct engagement and detailed planning in respect of proposals March 2025 Approval of Budget and savings by IJB 3.6 Medium Term Planning It is difficult to develop accurate longer term financial plans at present. The HSCP is reliant upon public funding and is also impacted by nationally negotiated pay settlements. The absence of medium-term Government planning documents and public pay policy make it very challenging to develop meaningful IJB level plans. However, the HSCP does continue to update its 3 Page 10
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9 4 4.1 5 5.1 year financial plan, which highlights estimated cost and demand pressures going forward. This provides an increasing budget gap on the assumption that only some inflationary elements will receive funding. A recent report published by Audit Scotland recommends that HSCP’s plan for future cost and demand pressure in a realistic way. The modelling is summarised below and will continue to be updated as improved planning assumptions become available. It is also intended that refresh of the Joint Strategic Plan will be better integrated with financial planning assumptions and this process will help model demand trends with more accuracy. NHS Social Care Total £m £m £m 2025/26 Estimated Gap / Savings Target 8.5 3.0 11.5 2026/27 Remove non-recurring funding 0.0 2.8 2.8 New Cost & Demand Pressures 5.0 3.6 8.6 Potential 26/27 Budget Gap 5.0 6.4 11.4 2027/28 New Cost & Demand Pressures / Gap 5.3 4.0 9.3 Cumulative Gap 2025/26 - 2027/28 18.8 13.4 32.2 The table indicates an increasing budget gap, it is not clear at present to what extent the HSCP will be required to deliver savings as some additional resource is likely to be allocated to offset elements of inflation and increasing service demand. It would be expected that the Scottish Government Spending Review, when published will provide further information. The establishment of the National Care Service is also expected to progress during this period, The NHS will need to address the funding implications of the demographic issue in social care as a priority. It is not expected that there will be an opportunity to access funding for major capital programmes during this period. The focus will be on addressing backlog maintenance and funding transformational projects where possible. RELEVANT DATA AND INDICATORS Information is derived from publicly available public planning documents, professional networks and financial systems of both partners. CONTRIBUTION TO STRATEGIC PRIORITIES The Integration Joint Board has a responsibility to balance its budget and ensure spend and investment is aligned to the Strategic Plan and the priorities therein. Page 11
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10 6 6.1 6.2 6.3 GOVERNANCE IMPLICATIONS Financial Impact – the budget gap is significant and plans to reduce spend are required if a balanced budget position is to be achieved. Staff Governance – None directly from this report but there is a strong link between HR management and delivering a balanced financial position. Clinical Governance – None directly, however if costs savings are required there will be implications for care provision. 7. 7.1 8. PROFESSIONAL ADVISORY The budget planning process for 2025/26 ensures that Professional Leads are fully engaged. EQUALITY AND DIVERSITY IMPLICATIONS 8.1 None directly from this report, service changes will require impact assessments to be completed. 9. 9.1 10. GENERAL DATA PROTECTION PRINCIPLES COMPLIANCE None. RISK ASSESSMENT 10.1 Financial sustainability is a Very High risk on the strategic risk register. Specific risks relating to this report include: • The HSCP is not able to identify savings opportunities to a great enough extent to enable it to propose a balanced budget. This could result in interventions from partners or Government. • The IJB may not support the proposals; • Some of the planning assumptions turn out to be optimistic; • Partners do not pass on funding as assumed or make available resources; and • The HSCP is not able to deliver the approved savings and operate on a financially sustainable basis in 2025/26 and beyond. This could have significance consequences for the IJB. The HSCP is not currently in a sustainable financial position as spend and service demand exceed available funding, this is included in the Strategic Risk Register. 11. PUBLIC AND USER INVOLVEMENT AND ENGAGEMENT 11.1 None directly from this report, engagement on activities relating to savings and transformation forms part of the project plans where appropriate. The HSCP is transparent in respect of its finances and this report is publicly available. Consideration is currently being given to whether to re-run the budget consultation exercise in late 2024. Page 12
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11 12. CONCLUSIONS 12.1 12.2 This report provides an indicative estimate of the scale of the HSCP budget gap and savings target for 2025/26. The budget gap for next year is estimated at £11.5m or just over 3% of spend. Work is on-going throughout the management team to develop savings proposals. This process has commenced earlier than in recent years due to the scale of the challenge. 13. DIRECTIONS Directions required to Council, NHS Board or both. Directions to: tick No Directions required √ Argyll & Bute Council NHS Highland Health Board Argyll & Bute Council and NHS Highland Health Board 14. PREVIOUS REVIEW OF THE REPORT Meeting Title of report Date Output (if relevant) SLT Budget Outlook 18/09/24 Amendments made APPENDICES: Appendix 1a & 1b – Cost & Demand Pressures Appendix 2 – Staff Consultation AUTHOR NAME: James Gow, Head of Finance EMAIL: james.gow@argyll-bute.gov.uk Page 13
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Appendix 1a - Social Care Cost and Demand Pressures Service Cost/Demand Pressure 2025- 26 £000 2026- 27 £000 2027- 28 £000 All Social Work Estimated Pay inflation reflecting a mid-range of 3%. Adjusted for the impact of the reduction in the employer's pension contribution rate changes. 1,049 2,301 3,590 All Social Work Estimated Pay increments 172 344 516 All Social Work Non-pay inflation, best and worst case based on unavoidable/inescapable inflation and worst case. 905 1,864 2,883 All Social Work Non-pay inflation impact of payroll inflation on NHS posts which are recharged to Social Work. 90 182 277 Adult Care Older People Demand Growth: due to demographic change, 3% growth in homecare and care home placements over 3 years. 400 800 1,200 Adult Care Younger Adults Demand Growth - Physical Disability. The mid-range reflects 2% growth. 59 119 180 Adult Care Mental Health Demand Growth - There has been a continuing increase in demand for residential placements and supported living for mental health services. The mid-range reflects 2% growth. 61 123 187 Children and Families Looked After Children Demand Growth - there is a continuing demand for placements of children who are cared for by the HSCP. The mid case reflects that additional demand in 24/25 be funded from existing resource with £250k per annum thereafter. 0 250 500 Children and Families Looked After Children Budget Adjustment - to reflect significant increase in demand for placements in external residential care facilities. 970 970 970 Adult Care Mental Health Budget Adjustment - The Mental Health Supported Living and Residential budgets are carrying a recurring unbudgeted commitment and increasing demand. Care. 115 230 345 All Social Work Allowance for unknown cost and demand pressures which could arise. 700 1,000 1,500 TOTAL UNFUNDED COST AND DEMAND PRESSURES 4,521 8,183 12,148 Mid Range Page 15
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Appendix 1b - NHS Cost and Demand Pressures Cost/Demand Pressure 2025- 26 £000 2026- 27 £000 2027- 28 £000 Pay increments 100 200 300 Inflation on Resource Transfer 289 583 883 Estates & Fleet cost increases 500 500 500 Prescribing - 8% per SG planning assumption 2,052 4,262 6,643 Estates - Mid Argyll PFI 175 360 554 Estates - energy & utilities 282 588 920 Staffing Act Implementation 300 300 300 Oncology medicines demand for new drugs 200 400 600 Depreciation & IFRS16 164 329 495 MS365 Licenses - contract increases 50 100 150 NSD Car-T Regional Centre 302 553 804 NSD topslice - additional services & current pressures 200 400 600 Misc / other cost pressures 80 167 253 Allowance for unknown cost and demand pressures 1,000 2,000 3,000 5,694 10,742 16,002 It is assumed that other NHS cost pressures, such as pay, will be fully funded Mid Range Page 16
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Appendix 2 - Summary of Staff Responses Savings Suggestions Allow staff to source locally where cheaper / better value and enable off-Pecos ordering Give staff a financial incentive for savings ideas Pay bank staff weekly to enable reduction in agency shifts Expand work of radiography staff to reduce external imaging costs Amalgamate 2 2c GP services in Kintyre Restructuring of Infection Prevention and Control - may be a saving Reduce printing and postage Stop prescriptions for drugs that are cheaper to buy from Chemist than NHS paying Walking aid returns system with cleaning & tracking across A&B Review work done by professional staff with a view to increasing admin support to free up time Introduce a walking aid return scheme Reduce out of area placements by creating more residential placements in area Improve ICT systems to reduce wasted Ɵme BeƩer manage staff absence to reduce agency cover costs Reduce patient travel by looking at service provision and better arrangements re cost of flights Heating system in Bute always on - reduce waste Centralise Pecos ordering rather than duplicate service in all localities remove smoking cessation services in community hospitals and provide a central service Haggle with Locum medical staff to reduce payments to them Other Feedback Received Desire for less surveys More visibility of senior managers Improve management and supervision processes to improve retention Past savings caused problems eg fabric of buildings More action on accommodation for staff Better induction for new starts Better use of hybrid / home working More teambuilding work Better working conditions - office space, personal drawers to help improve retention Address gaps in Children's services and improve integration with education services, improve pathways More service provision from community organisations Improve retention and development of staff Improve recruitment / links with FE/HE General management improvement ideas to improve succession planning, staff morale, retention Improve management / staff wellbeing to encourage retention Improve recruitment and retention to reduce send on locums look at savings and investment in a more strategic way Page 17
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