Barts & East London Healthcare – Merger OBC Executive summary

COMMERCIAL IN CONFIDENCE

Barts & East London Healthcare

Merger Outline Business Case

Capital Investment Committee – 4th August, 2011

DRAFT FOR DISCUSSION – CONFIDENTIAL


Barts & East London Healthcare – Merger OBCExecutive summary

• The proposal to merge Barts & the London, Newham University Hospital Trust and Whipp’s Cross University Hospital Trust to form Barts and East London Healthcare has made steady progress since NHS London approved for the organisations to develop an outline business case in late February, 2011. The merger would create the largest Trust in England, running from six hospital sites, with 2,000 beds, employing over 15,000 staff with a turnover in excess of £1 billion. The target date for merging is 1st April, 2012.

• Combining the organisation would put two Trusts, which are currently financially challenged and not able to make viable standalone Foundation Trust applications, in a better position to achieve authorisation as part of a larger entity. It would also provide the opportunity for significant rationalisation of corporate overheads, as well as streamlining of clinical support services. The opportunities of scale would provide clinical, operational and financial benefits to all three Trusts.

• The merger is, though, premised on significant upfront funding being made available. The OBC argues that there will be a need for a £93.5 cash injection and £22.5m recurrent PFI support. At the moment, the sources of this funding are not fully identified or confirmed.

• The outline business case, submitted and signed off by all three Trust board in June, satisfies, in the main, the requirements laid out by NHS London in its Approach to Transactions. There are a number of qualifications against a number of areas, however. In large measure these arise due to the very tight timescales for finalising the FBC and the target merger date of 1st April, 2012.

• The vision for the new entity is clear with aspirations well articulated. The strategic direction and objectives for BELH are also clear. Other requirements for the OBC have also been met, including the need for stakeholder engagement and communication plans. The transaction team, established to guide the merger process and prepare the business case, have also laid out the market context for the merger although further analysis is needed on determining the impact on other providers and competition, which will be required for the different CCP reviews. Proposals for BELH governance arrangements as these relate to corporate-level structures, as specified by NHS London, also appear coherent. The Organisational Development plan is sufficiently developed for this stage of the merger and succeeds in co-ordinating a number of changes identified as necessary for the new entity, including leadership development, training, as well as core transactional requirements such as HR processes and Board and Executive-level appointments. Proposals for future management of operational risk appear credible.

• Management of near-term risks up to the point of establishing the new entity, and as they relate to the merger process, appear controlled. There are a number of wider, longer-term risks, including on the integration challenge and external stakeholders that warrant attention.

• A number of other areas specified for the OBC by NHS London are sufficiently developed for this stage in the process but in view of very tight timescales need to be developed rapidly. The OBC sets out a number of enablers for the new organisation to realise the vision and strategy, and necessary if BELH is to bring about the improvements and benefits identified. These include putting in place new Clinical Service Groups. These groups represent a key restructuring objective for the new Trust, through which it will ensure clinical governance and deliver needed operational and performance changes, as well as better financial performance. In turn, in order for these Clinical Service Groups to function a number of major changes are needed, including, for example, implementation of a new Performance Management Framework, financial reporting arrangements and supporting ICT systems. The scale of these changes, the viability of delivering them against the merger timescales, associated costs and resource needed have yet fully to be determined.

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Barts & East London Healthcare – Merger OBCExecutive summary cont’d

• There are, therefore, a number of major conditions that need to be met for the merger, including delivery of organisational restructuring, upgrading enabling back-office systems and processes and identifying sources of funding for the financial gap identified in the OBC. Additional dependencies include establishment of an integrated view on Estates.

• In summary, based on assessments by NHS London’s M&A and Finance teams, which have considered the OBC and a variety of other supporting materials, including information relayed during regular discussions with the BELH Transaction Director and Finance Director, and members of the BELH transition team, as well as its advisors, the recommendation is that the Trusts be allowed to continue to develop the merger proposals further into a full business case to be submitted later this year. Continuing co-operation between the merger team and NHS London and timely responses to queries raised and information requested remains key.

• Finally, there remains a risk for NHS London on process. The OBC, in its current form, is agnostic on the question of the different solutions for the wider health economy in north east London. The starting point for the BELH proposal is the best interests of the three Trusts and the patients it currently serves. To date no full, independent options assessment has been undertaken by NHS London on the current three-way proposal against alternatives. There has also been no financially-based comparison of alternative proposals.

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Barts & East London Healthcare – Merger OBCStructure of CMG paper

Table of contents• This paper adopts the following structure.

– Section 1, ‘Introduction’, sets out the main developments around the BELH proposal since February and NHS London’s approval that the merger passes to OBC stage. It also confirms the requirements for the OBC.

– Section 2, ‘OBC Assessment’, contains NHS London’s Finance & M&A teams’ consideration of the OBC against these requirements.– Section 3 outlines the principal merger risks, dependencies and next steps to development of the full business case (FBC) subject to CMG/

CIC approval.• A summary is provided below.

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Section Pages

1 • Introduction • 7 to 8

2 • OBC assessment • 10 to 24

3 • Merger risks, dependencies and next steps • 26 to 28


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Barts & East London Healthcare – Merger OBCList of acronyms

• JSNCC – Joint Staff Negotiating and Consultative Committee• KPI – key performance indicator• LTFM – long term financial model• NUHT – Newham University Hospital Trust• OBC – outline business case• OD – organisational design• ONEL – outer north east London• PAS – patient administration systems• PFI – private finance initiative• SOC – strategic outline case• SRO senior responsible officer• T&Cs – terms and conditions• TFA – tri-partite formal agreement• PMIIP – post merger integration and implementation plan• WCUHT – Whipp’s Cross University Hospital Trust

• AfC – Agenda for Change• BLT – Barts and the London NHS Trust• CCP – Co-operation and Competition Panel• CCG – clinical commissioning group• CIP – cost improvement programme• CSGs – Clinical Service Groups• CTB – Challenge Trust Board• DoH – Department of Health• FBC – full business case• FT – Foundation Trust• HfNEL – Health for north east London• HMT – Her Majesty’s Treasury• HR – human resources• IBP – integrated business plan• INEL – inner north east London



Barts & East London Healthcare – Merger OBCBasis of preparation for CMG paper

• The OBC assessment is based on a review of the following document: BELH Outline Business Case, DRAFT version 5 dated 15th July, 2011. • Additional information has been requested and provided as part of regular discussion between NHS London Finance and M&A teams, the BELH

transaction team, the Transaction Director and Finance Director, as well as Ernst & Young, which is advising on the transaction. Documents include:– BELH Transition Supervisory Board papers, March, 2011– BELH Transition Supervisory Board papers, April, 2011– BELH Transition Supervisory Board papers, May, 2011– BELH Transition Supervisory Board papers, June, 2011– Merger internal programme organisation structure, 1st July to 30th September, 2011– Indicative outputs from the BELH FBC financial modelling, dated 28th June, 2011– BELH back-office savings, dated June, 2011– Estates & Facilities workstream plans DRAFT, dated 5th July, 2011– Informatics workstream plans DRAFT, dated 5th July, 2011– Organisational Development workstream plans DRAFT, dated 5th July, 2011

• Copies of the BELH OBC and all other materials and documentation are available to CIC members on request.

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Content

1. Introduction

2. OBC assessment

3. Risks, dependencies and next steps



OBC assessmentStatus of merger proposal

Background• The strategic outline case (SOC) for the three-way merger of Barts and the London NHS Trust (BLT), Newham University Hospital NHS Trust

(NUHT) and Whipp’s Cross University Hospital NHS Trust ( WCUHT) was finalised in January, 2011.• The SOC was then approved by BLT, NUHT and WCUHT Trust boards on the 26th, 20th and 14th January, 2011 respectively.• NHS London Capital Investment Committee (CIC) considered the SOC at its meeting of 22nd February, 2011 when it gave its approval to BLT, NUHT

and WCUHT to commence development of an outline business case (OBC) for the three-way merger of the Trusts.

Recent developments• Following approval of the SOC and agreement to proceed to OBC, a Supervisory Board was established to oversee creation of the business case

and the merger. David Palmer was appointed as Independent Chair of this Board. Lucy Moore was seconded from her position as Chief Executive of Whipp’s Cross to the role of Integration Programme Director. Peter Morris, Chief Executive of BLT is to take the role of lead Chief Executive during the transition. The Supervisory Board has held meetings on 23rd March, 19th April, 25th May, 22nd June and, most recently, on the 19th July.

• The BELH Transition Executive Board, in agreement with the three Trusts, has approved and passed the budget for the transaction to October, 2011.The cost of the transaction team, including advisors is approximately £4m to end of September. Funding is being provided by each of the three Trusts, proportionate to turnover, as well as from the ONEL and INEL clusters.

• A number of advisers have been retained to support the Supervisory Board and transition team, including Ernst & Young, which is supporting development of the business case and integration plans, as well as Frontier Economics, which is supporting on the Co-operation and Competition Panel (CCP) submission.

• Additionally, the first submission has been made to HM Treasury’s CCP on 8th April, 2011. CCP has since raised a number of questions for their Part 1 review, which began w/c 20th June. Final responses to these have been submitted week ending 22nd July. Additionally, the CCP has received a challenge to the merger proposal from City & Hackney East London Integrated Care, a consortium of GPs on 13th June. The basis of the challenge is over the clinical vision and impact on how services will be delivered locally and the extent to which wider impacts of the merger on the health economy have been considered.

• The merger is being planned using a programme management approach with three main phases: Preparation (running to March, 2012); Integration (running to April, 2013) and Transformation (running to April, 2014). The Preparation phase is concentrating on developing materials for the independent approvals process, including the OBC and CCP submissions and, then, post FBC, on effecting the changes and organisational restructuring needed for the merger.

• Further details on the key approval milestones are provided in Section 3 following.• NHS London’s Capital Management Group considered the OBC at its meeting on 19th July and agreed to recommend the merger proposal to CIC

for its consideration.

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OBC assessmentOutline Business Case requirements

Requirements for OBC• NHS London has developed the process for transactions covering community services and NHS Trusts during late 2009 and early 2010. Its

recommendations are set out in the following document: NHS London’s Approach to Transactions, dated 17th February, 2010. This document specifies expectations on participant Trusts at each phase for all transaction types, e.g., acquisition, merger, de-merger or divestment.

• The OBC is the document that combines materials generated as part of development of the merger proposal and planning for integration. It is also intended as a very early preparation for Trusts’ Foundation Trust application.

• Requirements for the OBC include:– An integrated business plan (IBP)

• The IBP should include a vision for the merged organisation, summary profile, market assessment, financial evaluation, stakeholder engagement, leadership and workforce and governance arrangements, and risk.

• Note that the requirement for the OBC is that it incorporates less detail than the IBP needed for the Foundation Trust assessment process.

– A draft Organisational Development Strategy– A Post Merger Integration Blueprint– Draft Heads of Terms– Scope of Due and Careful Enquiry

• The OBC should provide the basis for an independent Due and Careful Enquiry that will inform the full business case (FBC). This process would commence after OBC approval.

Status of the OBC• The OBC does not represent the point for approving the merger. It is intended as a review point in the merger process and development of plans to

enable scrutiny of and assurance on:

1. whether the fundamentals of the business case are viable;

2. whether the organisations have articulated the intent and outlined the direction for the new entity;

3. whether there is clarity on how the new entity will operate and be governed; and

4. whether integration planning is sufficiently developed to meet the projected merger timeline and subsequent assessments for the FBC.• The FBC represents the point of final sign off and approval by NHS London. At that point, the proposals is passed for Department of Health

Transaction Board approval.• The assessment of the OBC set out in this paper makes a number of specific recommendations for the FBC, as well as stipulates requirements for

the BELH transaction team in respect of information and assessments in advance of the FBC submission deadline.

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Content

1. Introduction

2. OBC assessment




OBC assessmentVision

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Summary of OBC details NHS L comment Summary Requirement for FBC

Vision• In developing the OBC, all three parties have collaborated on a vision for

the new entity.• The organisational intent is for ‘BELH to be a healthcare organisation that

offers a portfolio of acute, specialist and community services tailored to meet the needs of local communities. We also want BELH to be recognised locally, nationally and internationally for outstanding clinical services , research and education’.

• There is very strong involvement and leadership from clinicians at all three Trusts.

• Six enablers have been identified to realise the BELH vision.1. Standardise clinical practice across the three Trusts. Clinical delivery

varies significantly across the three organisations both in terms of operational and performance standards, as well as the associated cost base. Harmonising approaches is essential to deliver financial viability and if the improvements to clinical care are to be made. Changes to clinical practice will be made by putting in place a Performance Management Framework (PMF), establishing corporate targets and processes for continuous improvement. (See slide 15 for further information). Other areas will also need to change, e.g., clinical support services, and proposals for consolidation of certain areas such as pathology and imaging are in development.

2. Streamlining clinical pathways. The objective is to ensure that every patient, whichever borough they live in, is treated by the right person, in the right place at the right time. The BELH operating model will put in place Clinical Service Groups (CSGs) through which services will be delivered.

• The overall ambition and supporting aspirations for the new organisation are clearly articulated in the OBC.

• The level of clinical engagement in development of the vision and involvement in clinical planning activities will continue to be key to the success of the merger and realisation of required changes particularly in development of CSGs.

• As a priority, though, the BELH team will need to assess and determine exactly the restructuring needed to deliver against the vision, as well as transformation required to business processes and back-office systems such as financial and performance reporting and ICT.

• The final IBP and integration plan informing the FBC will need to set out in detail the basis of and rationales for the changes against each service area, and across the range of clinical activities undertaken by BELH, the resources required to deliver this, timings and projected release of benefits. (The clinical case for change will need to align and be made consistent with the financial case for the merger, including CIPs, productivity improvements etc.). The scope, viability and cost of back-office changes also needs to be detailed.

Key: OBC requirements metOBC requirements met with qualifications notedInsufficient detail provided in OBC



OBC assessmentVision cont’d

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Vision cont’d3. Effective clinical leadership. BELH will focus on clinical quality and

financial control. This is to be achieved via the CSGs where poor practice will be challenged and changed and service improvement becomes central to all activity.

4. Clinical improvement through research. BELH will look to extend current trials to all eligible patients across the combined sites. Additionally, the new entity will be better placed to attract more commercial and research council funding for future trials. As a combined entity the expectation is also that current academic links and partnership with various institutions across London can be strengthened.

5. Focus on learning and education. It is recognised that excellence in training and education improves patient experience and quality of care. The scale of BELH will provide opportunities to rotate staff, as well as make for a more attractive employer for students and post-graduate clinicians, as well as management trainees. All three Trusts currently face, albeit different, challenges with staff recruitment and retention, e.g., use of bank, agency and locums, and provision of out of hours cover. The new Trust will better be able to maintain and improve standards of practice, provide sustainable cover, comply with regulators’ training requirements and offer staff better career opportunities.

• See comments on previous slide. • See previous slide.




OBC assessmentOverview of BELH

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The new entity• As a combined Trust, BELH will have a total income of nearly £1.1 billion

for 2012/13.• Total beds will be just under 2,000 across six hospital sites with BLT

contribution 954, NUHT 341 and WCUHT 677).• The workforce will number nearly 15,000 with both acute and community

staff making the Trust one of the largest employers in that part of London.• At present the planning assumption underpinning the OBC is only to

make changes that don’t constitute major clinical reconfiguration and so without the need for full public consultation.

• Undertaking the changes to services without triggering major clinical service reconfiguration appears in the wider interests of the merger. However, it is worth noting that some form of reconfiguration and associated consultation may be likely after a successful FT submission and during the LTFM forecast period.

• As specified in NHS London’s Approach to Transactions.




OBC assessmentMarket assessment

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Market assessment• The new Trust will serve a population of approximately 1 million based on

registered patient numbers. Additionally, as a provider of tertiary services the Trust’s catchment will extend in to north east London (NEL). This almost doubles the size of the population served to 1.8 million.

• The overall population of NEL is forecast to grow by 15% with some borough populations in particular, e.g., Tower Hamlets anticipated to increase by up to 28% by 2021. The age profile of the area is also lower than elsewhere across London putting particular demands on certain services such as maternity and paediatrics. The community also has marked health issues with lower overall life expectancy, higher rates of childhood obesity, incidents of smoking and heart disease, diabetes and tuberculosis. The acuity of patients when presenting is higher than in other areas.

• The impact of these demographics and associated healthcare needs is that demand for services will continue to grow and that provision will need to change to meet these complex variables.

• To address this, BELH will maintain core services at each site, devolve delivery into the community, as well as maintain and concentrate specialist provision.

• The description in the OBC of the market context, including delineation of demographic drivers influencing the local health economy, is thorough. However, there is no sustained or detailed assessment of the impact of the merger on other providers, including competitor reaction.

• Additional assessment is needed on the role and potential impact of BELH in the local market and health economy. This is likely to be required as part of the Phase 2 submissions to CCP, in particular in respect of any impacts to levels of competitiveness.




OBC assessmentFinancial case for merger

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OBC financials• The OBC argues that although the merger will not guarantee a Trust

that will become an FT the merger process will significantly reduce the efficiencies required by the three organisations to achieve FT status and, therefore, in additional to the clinical and operational benefits, the financial pressures will be lessened (but not resolved). However to achieve this the OBC argues that there will need to be a £93.5m cash injection into the Trust and £22.5m recurrent PFI support.

• The reduction in efficiency requirement is summarised (next slide). • The OBC makes no attempt to identify sources of the cash injection.

It notes the cash is required to meet Monitor liquidity metrics but only models working capital facility in a downside scenario.

• The OBC highlights some other options but has been unable to perform a full financial options appraisal because of the Homerton withdrawing from the project.

• The activity assumptions in the model are taken fromthe Commissioner most recent four year commissioning intentions.

• The sources and methodology of developing savings are different to the NHSL ‘SaFE’ project. The SaFE project does identify different efficiencies albeit from different sources, and at different implementation rates based on a different (and more comprehensive) benchmarking pool.

• A fundamental assumption within the OBC is that there will not be significant shift in patient pathways or service delivery.

• The required savings are reduced but the savings plans are mainly indicative at OBC stage. Whilst the mathematics and a high level review make the savings seem reasonable the risk in delivery (at a time when Barts is moving into 2 new buildings) is not fully articulated or mitigated.

• The £22.5m PFI recurrent support has not been confirmed. If this is not received the additional CIP requirement is 2% in the period under review.

• No sources of funding for the cash injection have been confirmed and the model assumes payment in 2011-12. However NHSL has £27.5m of CTB available.

• Whilst the inability to compare the details of alternative options for merger, e.g., with the Homerton, is recognised, it is not know if the availability of a dowry would have encouraged the FT to remain at the table. Greater clarity about the availability of additional funding and the impact on the competition position is required before moving forward.

• The SaFE project demonstrates the potential for efficiencies to be made but the remaining CIP gap in the OBC (see over) and the restriction on not altering patient pathways significantly restrict the ability for some of these efficiencies to be generated.

• Greater granularity of the CIP plans is required for FBC. It is recommended that as for an FT assessment a detailed 24 month CIP plan is developed, including implementation plans for the major schemes.

• The full costs of transition should be identified and modelled

• The sources and timing of all additional funding will need to be confirmed.

• Commissioner and the SHA should satisfy themselves that VFM is being achieved for all cash support provided.




OBC assessmentFinancial case for merger cont’d

Summary shifts in savings requirements from merger• If these CIPs are achieved and the cash position is resolved

then the business case model indicates the merged organisation will be able to make a viable FT application.

• The merger savings come from a number of sources including back office (£7.1m, reduction 126 wte), consolidation of diagnostic services (£4.6m) surgical repatriation(£3.5m) and estates(£4m). Although it might be possible to achieve some of these without merger the argument is that it will be easier to deliver this under one management structure and the current systems would have done this if it were possible in current structures.

• High level documents have been reviewed but with the exception of the back office (where new structures have been identified and costed) the work so far has concentrated on identifying the opportunities.

• The position is similar in respect of productivity gains. The merger team reviewed the cost per HRG (based on reference costs) for each Trust and have calculated the saving if each Trust improved to the mean for the merged organisation. The productivity benchmarking pool is effectively “Barts Whipps and Newham”. The merger team have identified that the £39.1m can be delivered through improvements to length of stay (£5m), day case(£1m), DNA (£1.3m), cancellation rates (£6.6m) Diagnostic (£4.6m), surgical repatriation (£3.5m) and other (£17.1m). However implementation plans are not yet developed.

• The basis of the savings is reference cost information and inconsistencies in approach and cost allocations make this a theoretical approach to efficiency and will make it difficult to achieve 100% of savings identified.

• The PFI funding has not been confirmed. • The lack of detailed planning means there is a risk that CIPs

in 2011-12 (current plan £85m (7.5%)) will reduce the opportunities for savings in future years.

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OBC assessmentBELH structure & governance

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Board role• The merger is being developed on the basis of full integration of three

acute providers and one community services. As a result, it provides an opportunity to design a new structure.

• Draft proposals for the BELH structure are consistent with principles underpinning corporate governance of Foundation Trusts. The intent is to behave and manage the organisation as an FT from the outset. A summary is provided below.

• The rationales forthe structure is to support the Board in maintaining its assurance role over all aspects of governance, risk and ensuring internal control through the Audit Committee and Integrated Quality Assurance Committee. The Finance & Investment Committee will be established to provide independent assessment of financial and investment policy, as well as scrutinise performance issues. The Renumeration Committee will set policy and arrangements for BELH’s senior management.

• The structure could accommodate and integrate a Council of Governors as required by Monitor.

• Board membership will be settled for the FBC but it is currently envisaged to include five Executive Directors, a non-Executive Chair and five further non-Executive Directors.

• The outline remits of the Board, based on the high-level information provided, appear appropriate and are consistent with established practice within other FTs nationally.

• The structure also appears to allow for necessary incorporations of additional governance levels as an FT.

• The size of the Board is consistent with other large Trusts, including FTs nationally. The process for appointments remains to be determined and will require involvement from NHS London.

• Detailed information is required on BELH’s proposed committee structure, entity membership, ToR, for the same, reporting arrangements and frequency of meetings, including assessments of comparative independence and checks/ balances of each corporate governance entity.

Trust Board

Audit Committee

Integrated Quality/

Assurance Committee

Finance & Investment Committee

Renumeration Committee

Council of Governors

Membership Committee

BELH Board & Committee structure FT Board & Committee structure




OBC assessmentBELH structure & governance cont’d

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Management structure• The key management structure underpinning BELH are the CSGs of

which there are anticipated to be eleven. These are to vary in size. Indicative expenditure for the smallest, ‘Renal’ is just under £30m whereas the largest, ‘Surgery’ is over £135m.

• The final service-line allocation for each CSG has yet to be settled.• CSGs are planned to run as autonomous units, run by a CSG Manager,

Director and Clinical Lead reporting to the Executive. They are intended to enable decision making closer to the point at which care is delivered. Each will be given performance targets and is responsible for delivering against its clinical, financial and operational priorities. CSGs will draw on corporate functions, e.g., HR, Finance etc as required.

• In terms of governance, CSGs will collectively be managed by a Management Board. Membership of this Board will include Trust Executives and CSG Directors. Its constitution and remit are in development.

• Other governance fora have also been proposed, including Service Line and CSG management structures, including suggestions for attendees. A summary illustration is provided below.

• The full details of these are to be provided at FBC.

• High-level proposals for management of CSG structures appear streamlined and consistent. However, the detail of how varying services will be co-ordinated and managed needs development. Additionally, further assessment is needed on how the organisation will balance respective priorities of widely varying-sized CSGs with appropriate processes, sign off arrangements and delegated authorities established.

• The projected financial and operational performance of each CSG needs early identification, including an assessment of how any legacy challenges around comparatively poor performance will be addressed.

• Progress needs to be made against the detailed constitution of clinical governance groups, as well as a systematic assessment of and rationales provided for the interactions of each.

• Finally, the focus of proposals in respect of management structures don’t incorporate issues of quality performance, which are being developed separately.

• Further detail on BELH’s CSG structure needs to be provided as a priority, including budget breakdown down to service level, as well as headcount and wider cost base of each.

• Link between financial reporting procedures and quality management to be articulated.

2. Clinical Service Group

3. Service Lines

4. Service Delivery Point

Wider Executive Team + Clinical Service Group Leads

Tripartite Multi professionalDirectorate Leadership Team

Clinical Specialities

Ward / Primary care setting

1. Management Board




OBC assessmentBELH structure & governance cont’d

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Performance management• The merger is providing the opportunity to put in place a new system for

managing the organisation based on a robust and comprehensive performance management framework (PMF).

• A number of design principles are articulated in the OBC, including that the PMF aligns against the organisation’s long-term strategy; that there are clearly defined responsibilities and accountabilities set for delivery; that reporting is integrated across each of the three Trusts; and, finally, that performance data is accessible, as appropriate, across the different management levels.

• The PMF will form the basis for BELH’s governance arrangements with operational areas prioritised for inclusion where these are key to the merger.

• Standardised reporting templates are in development, which will be provided to monthly CSG performance reviews (with Executive Directors and the COO to attend).

• Development of proposals for the PMF are at a very early stage. The objectives appear critical for a successful merger. Getting the metrics and systems for monitoring in place for BELH before the merger is a key condition for success.

• The scale of the exercise to create BELH’s new PMF and timescales for development and implementation, types of benchmarks/ operating metrics to be used and their appropriateness, however, remain unclear.

• Additionally, the risks to current reporting arrangements and management of each of the Trusts’ individual performance in the run up to the merger and during any proposed changes need to be considered.

• Additional detail needs to be provided as a matter of urgency on progress of the PMF, including status of plans, timeframes for delivery, suitability assessments and implementation risks. The position on these issues needs to be provided to NHS L’s M&A team as these are finalised, and in advance of FBC drafts.




OBC assessmentCorporate risk management

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Risk management strategy• There is acknowledgement at the three Trust Boards that a robust

approach to risk management will be key to the success of the merger. Work has started on developing a strategy for risk management and related policies. A set of principles against which these will be developed has been agreed, including that risk management is to be embedded in annual planning; and that that risks will be systematically assessed within the right forum and managed by those able to affect required changes.

• The governance framework for management of risk is also outlined, including commitments that the Audit Committee, which will take a key role within BELH in handling risk, will undertake annual reviews of its ToRs and that they comply with NHS best practice, as well as Monitor requirements.

• In preparing for the merger, a Board Assurance Framework will be established to capture risks in achieving BELH’s corporate objectives. It is planned to appoint internal audit teams responsible for focusing on immediate merger risks, including in relation to BELH’s core financial systems, other back-office systems and operational reviews.

• An external auditor will also be appointed for the new entity following approval of the merger.

• The proposals for management of risk appear reasonable. There is, though, an insufficiently developed view on how risk will be managed at an operational level within the new organisation. This is dependent on the outcomes of work being undertaken on both CSGs and on the PMF.

• Interactions of the different corporate-level entities responsible for risk management, e.g., Audit Committee and Board also needs further consideration (see comments above, pages 17ff, on interactions of governance entities).

• Early development of a Board Assurance Framework is to be viewed positively though details have yet to be provided or assessed fully.

• Arrangements in respect of risk management of ‘as is’ operations during the integration, including mitigations need to be provided at the earliest opportunity.

• Clarification is needed on the extent to which risks to the merger are separated from operational/ performance risk and how these different risk categories are going to be managed.




OBC assessmentStakeholder management

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Communications and engagement• The BELH merger does not require formal public consultation as the

transaction is not being proposed on the basis of changes to services. Instead, a comprehensive programme of engagement is underway with internal and external stakeholders. Main groups to be targeted include: staff and their representatives; local and borough-level groups (including GPs, CCGs, MPs, LINks and patient bodies); and government and regulators; and the media.

• In recognition of the importance to the merger of these activities, a dedicated communications lead has been appointed. The communications lead is working closely with in-house teams, which retain control of marketing / dissemination channels in place currently. Additionally, communications around the merger are being co-ordinated with messaging around other major initiatives, e.g., community services integration and opening of the new Royal London Hospital.

• Objectives of the communications strategy include: to ensure GPs, local authorities and public representatives are informed about the programme, timescales and adopted process; to promote understanding of the benefits of the merger with interested groups; and to ensure that local stakeholders are involved in the process and can influence where appropriate. A supplementary strategy is being developed for wider media handling.

• The engagement strategy has been developed so it aligns and complies with the most recent guidance from the DoH. The long-term communications strategy for BELH will, in turn, be in place for Day 1 of the merger.

• There is recent institutional experience of communications around a transaction and lessons learned from transfer of community services to BLT appear to have been incorporated into planning, e.g., levels of staff engagement and feedback.

• Key groups have been identified with targeted messaging and communications approaches continuing to be developed against each.

• The Transition Supervisory Board receives routine updates on progress.

• Overall, the communications strategy appears developed for this stage of the merger. The associated workstream also appears adequately resourced.





OBC assessmentOrganisational development strategy

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Organisation development• An outline organisational development (OD) strategy has been set out in

recognition of this as a key success factor in the merger and subsequent integration. The principal channel by which this is to be realised is through the CSGs, which will drive identified changes with support from central OD/ HR specialists as necessary (see BELH structure and governance above).

• Six outcomes have been identified.1. One shared vision & values: priority has been given to establishing a

new, single culture and identity to support joint working and harmonisation of approaches to service delivery. Dedicated resources have been identified and are to be in place by July, 2011.

2. Clinical leadership and structures: from May, 2011 clinical leads for integration workstreams will be appointed, role descriptions and person specifications finalised with the expectation that all roles will be filled by July, 2011. Additionally, leadership development initiatives within the three Trusts will need to be harmonised

3. Workforce delivering against clinical, operational & financial targets: revisit role descriptions against a renewed skills and competencies framework. The latter will be aligned with metrics defined in the Performance Management Framework being developed for the new Trust.

4. Board leadership & viable for FT: intention to implement an externally-facilitated Board development programme, including for individual Executives and Non-Executives. Programme to be aligned explicitly against current guidance, including ‘The Healthy NHS Board’, as well as Monitor requirements.

• The high-level OD strategy appears to align with and support change requirements identified. The strategy also appears to have incorporated lessons learnt from other previous London Trust mergers and need to focus on issues of management, clinical and cultural integration and development in advance of the transaction. An awareness now of the requirements around the Monitor model of service line management and prospective Board-to-Board assessments should be viewed positively.

• All appointments to workstreams and CSGs appear to be in place at w/e 15th July.

• Confirmation of the detailed change and restructuring programme, delivery resource and funding requirement to deliver against the OD strategy has been requested but, at time of issue, information for all workstreams has not been provided.

• The status of the principal restructuring activities (e.g., as these relate to finance, ICT, Estates and performance) and activities against Day 1 objectives/ requirements needs to be confirmed as a priority.

• Full specification against each outcome, including confirmation of resources, timings, list of initiatives, status of these against plan and delivery risks to be provided during August, 2011.

• Confirmation of their status, any slippage against the plan and notification of any adverse reaction should be communicated to NHS London during the period up to submission of the FBC.




OBC assessmentOrganisational development strategy cont’d

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5. Integrated systems and processes: recognising the challenges arising from a multi-site Trust, a key dependency will be harmonising back-end systems, policies and processes. In respect of OD, initiatives have been launched to align approaches to talent management, succession planning, career development, induction and training (mandatory and bespoke).

6. Mechanisms for workforce engagement: engaging with local representative structures that currently follow a Staff Side model of recognised unions and set methods of staff engagement. An approach is being developed to continue active engagement through these channels, as well as begin to develop proposals for overhauling engagement approaches for the new entity.

• See comments on previous slide. • See previous slide.

HR• Proposals for a devolved business partner model for delivery against the

organisation’s HR requirements are underway. The business partner model will involve consolidating and centralising existing arrangements and provision.

• Additionally, consideration is being given to outsourcing certain transactional HR activities.

• The proposals for HR appear reasonable and aligned with other initiatives being considered for different back-office functions.

• Further detail is needed on the status of plans for HR, including outsourcing proposals and an assessment of the viability of restructuring the HR function in time for the merger. The benefits to be released from HR will need to align with the financial case underpinning the OBC and projected cost savings.





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Workforce• The approach to managing the workforce before and during the merger is

also in development. The proposal is to establish a Joint Staff Negotiating and Consultative Committee (JSNCC) before finalising the FBC. This will have authority to agree changes to policies and T&Cs. The intention is that Agenda for Change (AfC) applies except senior management and clinical staff. An audit will be conducted to ensure compliance against AfC policy. Similarly an audit will be undertaken to align senior-level pay. Role descriptions will be reviewed, aligned and adjusted as necessary, including rationalising titles. At completion, a review of the role structure will be undertaken. A process is also being developed whereby roles are allocated within the new structure. The JSNCC is reviewing policy, including in respect of pay protection, job evaluations and equality. The target is to complete this prior to merger.

• As indicated in outcome 5 above, a review is underway to determine change requirements to ensure alignment of workforce performance data enabling the organisation to report from day 1 against budgeted establishment, vacancy rates, churn, pay costs and sickness rates etc.

• Planning is also underway on staff consultation in accordance with TUPE legal obligations. The intention is to consult with staff for sixty days from November, 2011 to allow for comment on the merger proposals.

• A further period of consultation will be needed over potential changes to posts and redundancies. However, as the levels and areas of the three Trusts affected remains uncertain, it means that collective consultation can only commence at establishment of the new entity. A major impact of this is that appointments cannot be made to management tiers 2-4. Additional legal advice is being sought on this, which will affect planning around consultation and planning for putting in place the new organisation’s management structure. In the meantime, planning is underway to prepare for the collective consultation process, in order that this can be initiated as soon as possible to comply with employment law.

• The workforce changes needed for the merger are significant and plans for staff consultation appear to be in hand.

• The major HR dependency around employment law needs early resolution, both in terms of the knock on effect on 1) establishment of the new management structure; 2) the risks attendant on corporate and clinical reporting; and 3) impacts on releasing identified savings benefits. The constraints arising from the collective consultation do though appear to be understood with the transaction leadership team closely monitoring development of mitigation measures.

• Information on consultation arrangements, including legal opinion and the transaction team’s mitigation plans, to be provided to NHS L’s M&A team as these are finalised, and in advance of FBC drafts.





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Executive appointments• The process of consultation for Executive Directors varies from that

needed for other staff as there is no legal obligation to consult unless more than twenty directors are affected within a period of ninety days. Redundancy would only apply post merger.

• The process for new appointments to the BELH Board is as follows. The Chair and other Non-Executives would be appointed by the NHS Appointments Commission. The Chair would be the first appointment.

• Following appointment of the Chief Executive the order for filling other Executive Director roles would need to be agreed. The assumption is to fill the statutory roles first alongside the HR Director. It is proposed to appoint an external adviser to support on renumeration. The intention, at present, is to source Executive candidates internally. However, the planning assumption is that external candidates are likely to be sourced in view of the scale of the new entity and challenges over the next few years. Plans are underway as to how to ensure the best talent is attracted. The selection process is currently anticipated to start in late autumn following FBC approval. The Executive Board consultation paper confirming arrangements will be drafted to meet this timeline.

• The outline process and timeline for establishing new Executive and Board arrangements appear realistic. However, the potential financial liability arising from any redundancies needs to be estimated at the earliest opportunity.

• Additionally, NHS London will need early sight of detailed plans, once finalised, as well as input into the advisers to be used. Finally, arrangements for unsuccessful applicants within the current Executive team need to be agreed with NHS London.





OBC assessmentIntegration blueprint

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Status of planning• The post merger integration blueprint (PMIB) sets out the main planning

activities for the merger.• The integration is being planned using a programme management

approach with distinct workstreams driving planning and change activities supported by a programme office and a communications workstream. There are nine workstreams in place addressing corporate, functional and clinical changes needed against the following phases:- for day 1 (1st April, 2012);- for the first 100 days (to July, 2012); and- for the first and second years (April, 2013 and 2014 respectively).

• High-level objectives for day 1 have been developed for the OBC.Changes within corporate services• Corporate services covers business planning, governance,

communications and education and research. By April, 2012 a fully-developed vision, corporate objectives and corporate values will be in place, along with a new executive team with supporting policies and procedures for risk and operational management. The Trust will have a new Board and key sub-committees, including ToRs. BELH will also have registered with regulators. A major incident plan will be in place, including business processes for complaints, legal services and coroner inquest arrangements. At Day 1, a single communications team will be in place, including provision of electronic channels to enable a single intranet. Finally, a single education team and education strategy will be in place.

Functional changes• Functional areas cover HR, ICT, Finance, Procurement and Estates.

There will be centralised structures with single systems, business processes and policies. These corporate functions are planned to adopt a ‘business partner’ approach to the CSGs. Consideration is being given to outsourcing where possible. (See summary comments on p.23 above).

• The PMIB is provided only at a high level in the OBC covering the key dates and an outline integration proposal. Additional information, including plans of work for key corporate and functional workstreams, has been requested and provided against a number, but not all. Those appear, in the main, to be thorough and consistent.

• The programme office also appears structured appropriately.

• The changes across corporate, back-office and clinical areas targeted for day 1 appear coherent. Further detail will, however, be needed against each workstream for the FBC. There is some uncertainty over the dependencies of a number of Day 1 commitments, e.g., whether merging of financial systems will enable consolidated performance reporting; whether ICT platforms will be integrated to enable shared internal communications; and whether the HR process and consultation requirements will allow for a single communications team.

• The critical path for the restructuring needed to deliver commitments is required as a priority and before submission of the full post merger implementation and integration plan and FBC.

• The detail of proposals for CSGs, the PMF and enabling changes/ upgrades to infrastructure/ back-office systems needs to be made available as a priority.




OBC assessmentIntegration blueprint cont’d

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Functional changes cont’d• For Day 1, in terms of HR, all employees will be transferred in to the new

Trust via a single recruitment process. Employment and employee relations policies will be in place, including a review of AfC, banding and standardisation of T&Cs (see section above on Organisational Development Strategy for detail and comment). For Finance, the intent is to unify the three separate functions (up to tier 3), including a single management accounts and reporting structure. An Estates strategy will be completed and will include investment requirements and divestment plans. Merger of procurement functions will follow the same approach. In terms of ICT, the details of changes are still in development and are dependent on specification of CSG requirements. The aim, though, is to integrate the respective network architectures of the three Trusts, as well as each PAS. The ICT function will also be merged (up to Management tier 3).

Clinical changes• The change requirements for how clinical services are delivered are

currently in development as different groups assess how the CSGs will begin to work across the three Trusts (see section above on Organisational Development Strategy for detail and comment). The structure of the management team for each new CSG has been agreed with operating principles clearly established. There will be a single management team for each CSG with financial management and control capabilities aligned with the structure. Similarly, the new performance management framework will be established with clinical risks managed and controlled through a single, overarching governance framework. (see ‘BELH structure and governance’ section above, p.13ff). These clinical changes (and realisation of associated benefits) will be enabled by the restructuring to corporate and back-office functions and associated business processes and systems.

• A question remains on resourcing of the integration and balance between internal capacity and use of external support. This is an acknowledged risk (see p.26 ff) and proposals, including funding requirements to address these, are being developed for the next Transition Supervisory Board in August.

• In summary, a ‘whole-programme’ view of the restructuring and integration challenge is not yet fully developed.

• Detail is also needed on Day 1, 100-day and Year-1 objectives for each workstream, change requirements and supporting activities, and an assessment of delivery plans., including impacts of failure to deliver.

• Proposals for readiness tests against Day-1, 100-day and Year-1 objectives/ requirements should also be provided.

• An assessment is also needed on whether sufficient management capacity/ capability is in place as part of the PMIIP and mitigations in place.




Scope of due & careful enquiry• A pro forma scope of work is set out in NHS London’s Approach to

Transactions.• As part of a separate process for the Challenged Trust Board (CTB)

a process of due diligence and financial assessment is due to commence on WCUHT and NUHT. To avoid duplication and streamline the process, it’s been agreed to combine the due diligence activities. A supplier is being retained and a final scope of work that will meet the separate requirements of all parties is in the process of being finalised.

• It is anticipated that a final agreed scope of work will be in place by the end of July with work starting in early August.

HoTs• A draft of the HoTs is currently being prepared following discussions

between the transaction team and NHS London.• A number of provisions still need to be settled, in particular the status

of any funding available to the three Trusts from CTB and NHS Bank (in respect of PFI support). There is also an open question over whether the current funding estimates should be specified in the HoTs.

• Revised forms of the particular clauses are being finalised by NHS London’s legal advisors. The revised draft HoTs will then go to each of the three Trust boards for approval.

• It is anticipated that, subject to agreement over the outstanding provisions, the HoTs will be concluded by the first week of August.

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OBC assessmentScope of due & careful enquiry/ Heads of Terms



29

Content

1. Introduction

2. OBC assessment




Risks, dependencies and next stepsMerger risks

BELH risk management• Risks to delivery of the merger are being managed and routinely considered at the Transition Supervisory board, which has delegated authority to

take appropriate actions where necessary. Risks appear broadly well managed as part of the transaction programme.• Following is a summary the main risks associated with the merger over the next two quarters to FBC submission.

• As part of its approach to risk management, the BELH transaction team is also anticipating post-merger risks. Details of these and the underlying approach will require scrutiny at FBC stage and the assessment of the full post-merger integration and implementation plan (PMIIP).

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Summary of BELH merger risks

Risk description Rating BELH controls• CCP application being turned down and requiring a

major revision.High • Submit paper to the in queue for CCP applications, Apr 2011. Continue engaging

with DH/CCP/NHS London during Business Case preparation.

• Delay in approvals. High • Regular ongoing engagement with NHS London.

• Loss of stakeholder support – external and internal. High • Develop stakeholder & communications strategy. Clinical and functional boards to review and action stakeholder & communications strategy.

• Insufficient internal capacity (particularly leadership capacity) to deliver the integration and/or insufficient experience in preparation, transformation and integration.

High • Identify appropriate capacity/capability by end of May for transition in June• Review capacity/capability on an ongoing basis.



Risks, dependencies and next stepsMerger risks cont’d

NHS London view on risks• For NHS London there are a number of risks given the status of the merger proposals.

• Longer-term risks beyond the FBC stage later this calendar year are also registered as part of NHS London’s Provider Development monitoring of milestones as specified in Trusts’ tri-partite formal agreements (TFAs).

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Summary of NHS London BELH risks

Risk description Rating BELH and NHS London controls• Management capacity and capability to handle a

multiple, complex transaction, integration, as well as major Trust-specific developments, including launching of new hospital at BLT.

• Continuing performance challenges at two Trusts compounds this risk.

High • Appointment of BLT CEO as lead CEO for transaction.• Work with transition team to ensure gaps are identified. Continue to review

capacity/capability on an ongoing basis.• Work with transition team to ensure PMIIP covers merger/ transactional challenges,

as well as business-as-usual and other known major milestones.

• Insufficient time to make the changes to back-office systems to enable the new operating model to function at Day 1.

High • Sufficient deployment of resources; use of external support/ expertise; contingency planning at early stages.

• Challenge to the merger process (including absence of an independent options appraisal) from INEL/ ONEL CCG or the clusters; or from another provider in London.

High • Continuing engagement activity with key stakeholders in health economy, including with regulators and in Government/ DoH. Regular review of communications strategy.

• Co-ordination between transition team and NHS London.

• Failure to find funds for overall and constituent elements of financial gap identified in the OBC and risk of financial challenge in year 1 post merger. (Potential need to develop supplementary business cases for parts of the funding requirement, e.g., in respect of WCUHT estates upgrading and delays to these jeopardising the merger timetable).

High • Co-ordination between Transaction team and NHS London.• Efforts to confirm availability of funding/ co-ordination with funding sources, e.g.,

CTB/ HMT/ NHS Bank etc.



Risks, dependencies and next stepsMerger dependencies

PFI/ productivity• The DoH-sponsored review currently underway around the financial challenges arising from Trust PFIs is due to complete in September with early

results of the assessment out in late July. Very early conclusions suggest that there is likely to be a shortfall from the figure set out in the OBC to cover BLT’s PFI. This would have an impact on current targeted CIP levels at BLT.

• At the point where conclusions are settled and the likelihood and levels of any support for BLT confirmed amendments will need to be made to the LTFM for the FBC, including reconciliation of changes from the financial case underpinning the OBC.

• Additionally, the conclusions of NHS London’s SaFE project need to be reconciled with productivity assumptions in the BELH OBC, or variances agreed. This needs to happen as a priority and in advance of the FBC completing.

Estates• The OBC acknowledges the potential for efficiencies across the different Trust sites, as well as for estate configuration. The opportunities presented

by the merger for the BLT PFI are referenced. Additionally, the estates requirements at WCUHT are also noted, including the challenge of solving the significant maintenance backlog and continuing investment requirement, e.g., in Maternity.

• The FBC will require full details of BELH’s Estate strategy, including disclosure of planning and financial assumptions on each of the current Trust sites, as well as the consolidated portfolio.

• The Transaction team needs urgently to provide full details of the strategy, including identification of all site variables and dependencies, change requirements and associated costs, investment needed to deliver these, including an assessment of viability. Information should be provided before the target date for finalising the FBC.

ICT and information/ clinical systems• The OBC similarly acknowledges both the critical dependency of changes to ICT and related systems for the integration and operational success of

the new entity, as well as realisation of financial benefits identified. The aspiration for ICT are articulated clearly at a high level, including key objectives.

• The Transaction team needs urgently to provide full details of the ICT strategy, change requirement and associated cost, investment needed to deliver these, including an assessment of viability. Information should be provided before the target date for finalising the FBC.

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Risks, dependencies and next stepsNext steps

Developing the FBC• Subject to approval of the OBC and satisfactory resolution of any issues and questions arising from CIC consideration, the BELH transition team will

continue to develop the FBC.– Preparatory work on this has already commenced, in particular in relation to integration planning.

Approvals• There are a number of major sign offs and approval points by different stakeholders.

– Draft FBC completion – 19th August– Transition Supervisory Board – 21st September– BLT Board review of FBC – 28th September– WCUHT Board review of FBC – 30th September– NUHT Board sign off FBC – 2nd November, 2011 – NHS London CMG approval sought for FBC – 9th November– NHS London CIC approval sought for FBC – 17th November

• Sign off of the FBC at BLT and WCUHT Boards is targeted for late October. • CCP approval is to follow in late November/ early December and is subject to confirmation. Discussions with CCP are continuing. Subject to the

outcome of the CCP review it is possible that the FBC may need to be revised.• Finally, Secretary of State approval is set for March, 2011 at which point the three Trusts will be dissolved and BELH established. At the time of

writing, the target date for this remains 1st April, 2012.

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