Capital investment: bright future for Leeds

27 January 2020 Seamus Ward

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LeedsWhen your chief executive calls on a Saturday afternoon, it’s rarely good news. So, when Simon Worthington picked up a call from his chief executive Julian Hartley on a September Saturday last year, he feared the worst. But the chief exec was overjoyed – he had just been told that the trust would be awarded public funding for its planned £600m hospital development. Mr Worthington was, of course, delighted, but his thoughts soon turned to making sure the scheme is a success.

The scheme is one of the first six projects to come forward under the government’s Health Infrastructure Plan (HIP) – a five-year rolling capital investment programme that has funding totalling £2.7bn over the first five years. The £1.3bn-turnover Leeds trust has a number of sites, including two major hospitals – Leeds General Infirmary (LGI) and St James University Hospital. Most of the development under the HIP funding will take place at the former site – delivering new adult and children’s hospitals – though the project also includes a new pathology unit on the St James’ site.

The LGI redevelopment, known as Hospitals of the future, has become essential because of a number of issues, including under-utilisation at the city centre site. As with many NHS hospitals, the estate has grown as new buildings have been added, piecemeal, over the years. The listed Victorian buildings that formed the original LGI – designed by Sir George Gilbert Scott (who also designed the St Pancras station and hotel) – are no longer suitable for healthcare delivery. The art deco-inspired Brotherton Wing from the 1940s is also no longer fit for purpose. Both will be retained, but repurposed as accommodation for the new Leeds innovation district (see box overleaf).

Mr Worthington says a lot of the estate is not being fully used and when low utilisation rates are coupled with backlog maintenance, the annual cost is high – running to millions of pounds. One of the wings at the LGI sits partly on a bridge over the city’s inner ring road, and within 20 years the concrete will no longer be able to support the NHS building – the opportunity must be taken to move the accommodation away from the bridge and increase utilisation.

Leeds new atrium The new hospitals will also facilitate the consolidation of maternity and neonatal services on a single site at the LGI, although this is subject to a public consultation, currently under way. These services will be housed in the new purpose-built children’s hospital.

The current split of maternity and neonatal services between the LGI and St James’ Hospital increases the pressure for workforce and prevents the trust from meeting its priority (and that of its commissioner) – to provide a bigger midwife-led maternity unit and ensure closer alignment with children’s services.

Mr Worthington believes the creation of the new children’s hospital is an important step for the trust – not just for the potential to improve the quality of care or reduce waste, but also to enhance its reputation.

‘Of course, we already have a children’s hospital, but it is spread across the site,’ he says. ‘It’s at least as big as some of the more famous children’s hospitals across the country. The clinicians want this, and the community want it too.’

Leeds new pathology labThe LGI redevelopment has been long planned. ‘Since he arrived here about six years’ ago, Julian Hartley had been developing the Leeds Way,’ Mr Worthington says. ‘The new hospitals are a big thing for us and an essential part of the Leeds Way – the development programme is called Building the Leeds Way. All our financial strategy is built around achieving the outcome of getting the new hospitals.’

Financing options

When he became the trust’s finance director in 2017, planning work was already under way, but the big question was financing it. Though there was a brief flurry of activity in the early 2010s around using the PF2 model of private finance to build other hospitals, this funding mechanism has since moved off the table. For a while, there was no obvious source of funds for big capital schemes.

Yet trusts still put forward their capital plans – most recently through the sustainability and transformation partnership prioritisation process.

Last April, the trust published an outline business case (OBC) and strategic outline case (SOC), which assumed that funding would be found through a private finance scheme. Both the OBC and SOC are now being rewritten to reflect funding via the HIP.

In the original documents, the trust assumed it would take another four or five years to get through the approval and funding processes before builders broke ground. ‘At the time, capital was so constrained and the approvals process difficult and lengthy,’ Mr Worthington says.

But the HIP has changed this for the Leeds trust. And, with the emphasis now on getting the hospitals built quickly – but with robust governance – Leeds plans to open the new hospitals in five years. Under the previous proposals, building work would have begun in 2024/25.

The HIP has injected new impetus into the LGI development, but another key feature is public funding and the raising of the Department of Health and Social Care’s capital spending envelope. Overall, the trust’s five-year plan proposes capital spending of just under £1bn, including the HIP developments. The trust will receive the HIP funding as public dividend capital (PDC), on which a dividend – currently 3.5% – will be paid each year. Mr Worthington says the revenue costs of PDC are due earlier than the unitary charge potentially due under a private finance initiative (PFI). When this is taken into account, the revenue cost of the publicly funded HIP scheme is around £25m a year – but this is still £20m a year less than under PFI.

Mr Worthington says: ‘In our finance and sustainability plan we have said we want to deliver a sustainable surplus by becoming the most efficient teaching hospital in England. Our financial strategy is geared to achieving a surplus to pay for the revenue consequences of Building the Leeds Way. A lot of banks were prepared to lend us the money, so the issue was not about access to finance; the issue was about controls on capital spending.’

The arrival of the HIP means the trust will have access to public finance within the government’s capital spending limits.

This does not mean the drive to maintain its financial performance will recede. ‘Our financial plan was that, over five years, we would generate sufficient surpluses to pay for the revenue consequences of Building the Leeds Way before the new developments open. That’s still our plan. There’s wiggle room now, because the scale of the surpluses we need is less. But our objective is still to overachieve on our trajectory.’

He adds: ‘A £30m surplus is needed – around 0.5% or £6m a year over five years. We are making progress on that.’

The trust made a surplus of £18.9m in 2017/18, followed by £53m in 2018/19, through overachieving on its control totals and with the benefit of provider sustainability fund (PSF) support.

‘This year we are aiming for a surplus of £16m because of the changes to the PSF, but our underlying financial position is better than it was last year. Our plan is to have a £1.5m surplus next year – our underlying position will again be better, but we won’t have PSF.

‘We are looking at our approach to depreciation, which will lead to a significant increase. This will mean our future surpluses aren’t as large as we had previously targeted but the “buying power” in terms of capital spend remains the same. This is partly in response to the issues there were about spending retained surpluses when the NHS was looking at capital spending controls earlier in the year.’

Hitting the £30m efficiencies needed means the trust must refocus on waste reduction – Leeds has rejected the notion of cost improvement in favour of waste reduction – targeting 2.7% a year. Mr Worthington says this will move the trust’s reference costs from 103 to 94. ‘There’s a lot of good work going into making sure that happens,’ he says.

Project risks

There are risks related to large, public sector schemes. These can include financial difficulties in a private sector partner, seen recently in the NHS and other parts of the public sector with the collapse of Carillion, and in Scotland building defects in hospitals and schools. Mr Worthington, the project’s senior responsible officer, says new procurement arrangements must be developed as it’s a few years since such a large publicly funded scheme was tendered in the English NHS. There is also the risk that expertise – ranging from project advisers to builders – could be in short supply with so many schemes coming forward at the same time.

With the trust having so many sites, the HIP development will not address all of the capital needs at Leeds. As mentioned earlier, the HIP funding will support part of an estates strategy totalling around £940m over five years, including plans to relocate the ophthalmology unit.

‘We are looking for cost improvement or waste reduction in the context of the Leeds Improvement Method and we are making clear to people that if we achieve all that we are planning to achieve, we will be able to sort out our capital issues,’ Mr  Worthington says. ‘People will be significantly motivated. We are already doing this – we’ve said if we can achieve our financial plan, we will invest back £7m a year in medical equipment. We have done this. Putting in a clear level of investment is important, and you get better results if you engage with clinicians. Improvement is at the core of what we are.’

Mr Worthington’s mention of the Leeds Improvement Method (LIM) – the trust’s approach to continuous improvement – is timely, as it will play a central role in much of the next phase of development as the trust finalises plans for the new hospitals. Based on learning from the Virginia Mason Institute in Seattle, the LIM seeks to promote greater efficiency and improve patient experience and outcomes by harnessing the ideas and enthusiasm of its staff.

Mr Worthington says the overall plan is for no significant increase in bed numbers in the new hospitals, though there will be a little more capacity in critical care. However, the LIM will support changes to bring services together, so patients do not have to move around the hospital to receive care. Outpatients will be redesigned, bearing in mind the NHS long-term plan ambition of reducing follow-up appointments by a third. Fewer waiting areas will be required in outpatients, but there will be a greater need for video calling and other digital technologies.

A small Kaizen promotion office (KPO) is supporting work to ensure the new hospitals’ workspaces suit clinician and patient needs. The emphasis will be on engaging staff to develop and make the changes themselves, according to Rachel Bickerdike, KPO specialist. One method used is a rapid process improvement workshop, where, over the course of a week, around seven or eight staff work with the KPO to make their services better, more effective and with enhanced patient experience.

Staff engagement through the workshops has already proved effective, according to Natasha Bissett, KPO facilitator. They have increased capacity in cardiac care and ensured ophthalmic outpatient clinics start on time, for example, with little to no extra cost. The continuous improvement philosophy of Kaizen will ensure the new hospitals have a strong, patient-centred culture that focuses on efficiency.

‘It makes for a more engaging place to work,’ says Ms Bickerdike. ‘People want to be there and feel they have control over their workplace and their ideas are valued.’

Mr Worthington adds: ‘It builds confidence in our staff to meet the change challenge we face to make the new hospitals work.’

The building of two major hospitals in Leeds is a major undertaking for the trust and – in the wider context of the HIP as a whole – the NHS.

Not only must the developments meet the needs of local people, but they must be delivered at pace. While PDC funding means the complexities of private finance are not in play, there are other pressures, including the need to generate year-on-year surpluses. But the Leeds trust is hoping its thorough approach, including early and ongoing staff engagement, will help it achieve its plans and deliver modern and efficient facilities geared to patients’ needs.

Innovation hub

The new hospitals at the Leeds General Infirmary will leave the trust with buildings and land – over 5 hectares – that are surplus to requirements. To realise the potential of this site, the trust is working with two of the city’s universities and the local council on a scheme that could boost the city’s economy by more than £1.5bn.

‘We have some fantastic heritage assets for the city, but they are no longer fit for purpose in terms of modern healthcare delivery. We want to regenerate these great buildings and secure their future in the city,’ says James Goodyear, director of strategy.

Leeds Gilbert ScottThe trust plans that the iconic Gilbert Scott (pictured) and Brotherton buildings, together with the old medical school and Clarendon Wing, will become part of a health innovation hub where universities, the NHS and industry collaborate to solve healthcare challenges. The aim is to support innovation, improve health outcomes and lower cost, and contribute to the city economy.

‘We are at the start of the journey, but our initial economic analysis suggests that we could see economic benefits in the region of £1.6bn,’ says Mr Goodyear. ‘It sits well with the Northern Powerhouse agenda. The government has been supportive, and we’ve had significant interest from the business community and our staff.’

The trust is a key national player in NHS hospital-based research and the Leeds city region is already a thriving centre for health technology companies. ‘There are about 400 companies in the city region – from large firms such as Johnson & Johnson to medium and small companies,’ Mr Goodyear says. ‘Also, 22% of digital health jobs in the UK are in Leeds, including at NHS Digital, EMIS and TPP.’

Working in partnership with the universities and the city council is key to the success of the scheme. ‘Each of us brings something different to the partncapital roundtable ership – be it academic strength, the ability to translate ideas into clinical practice or planning expertise. That partnership is fundamental to what we’re trying to achieve.’

Capital roundtable

A recent HFMA roundtable discussed the capital challenges faced by the NHS as it seeks to implement the NHS long-term plan. The roundtable discussion – supported by health and care property development company Prime – is detailed in a Healthcare Finance supplement. The topics explored include developing system plans to meet the requirements of the strategy, and the health infrastructure plan.