News / Foundations could be heading for perfect storm, FTN warns

The Foundation Trust Network (FTN) has warned that foundations could find themselves in ‘perfect storm conditions’ after Monitor revealed early signs  that an increasing number of foundation trusts are facing financial risk.

In its survey of foundation trusts’ financial position at the end of the first quarter of 2011/12, Monitor said the sector was performing slightly ahead of plan. However, an increasing number faced financial risk and Monitor scrutiny. And, because of their complexity, some of the issues could take some time to resolve.

At the end of quarter one, foundation trusts had an average financial risk rating (FRR) of 3.3 – where 1 is the highest risk and 5 is lowest – slightly ahead of plan (3.2). However, this had decreased from quarter four (3.5) in 2010/11.

In addition, 16 foundation trusts had an FRR of 1 or 2 – the point at which the regulator may step in – an increase from 10 trusts at quarter four 2010/11.

While aggregate EBITDA (earnings before interest, tax, depreciation and amortisation) margin was ahead of plan at 5.7% (5.5% planned), it was significantly down from 2010/11, when trusts recorded an EBITDA margin of 6.7%. Foundation trusts delivered £254m in cost improvement plans – 11% behind plan compared with slippage of 17% in the first quarter of 2010/11.

Monitor chief operating officer Stephen Hay said: ‘It’s encouraging that the sector is in overall surplus and ahead of plan for the first quarter – although surpluses are lower than last year due to the economic environment.

‘But there are a number of foundation trusts that are beginning to struggle and we are looking closely at these and taking regulatory action in several cases to make sure the issues are addressed.’

The FTN’s chief executive, Sue Slipman, commented that despite nearing target efficiency savings, foundation trusts faced a tough environment.

‘FTs now have to deal with further blows to their financial sustainability. The impact of penalties on patients readmitted within 30 days of discharge is likely to amount to about £470m in England,’ she said.

 ‘There are also deep concerns that if, on top of the current factors creating financial challenge, high winter demand creates additional pressures far above the current demand levels – and these remain subject to marginal cost reimbursement of 30% – we could end up in perfect storm conditions,’ added Ms Slipman.

FTN research had found that trusts stand to lose £470m a year following the implementation of the readmissions policy, although some areas have deviated from official guidelines to agree local mechanisms to share risk.

The use of flexibilities was confirmed by a recent HFMA survey (see Healthcare Finance September 2011, page 3).

The FTN said audits had shown that about half of readmissions were clinically unconnected to the condition that caused the initial admission, while 20% to 30% were unavoidable as they were part of an established clinical pathway or represented best practice.

A similar amount could have been avoided with appropriate capacity in the community, while 5% were due to errors by acute trusts.

Mike Farrar, chief executive of the NHS Confederation, said Monitor’s Q1 figures provided further evidence that pressures were mounting across the NHS at a time when the health service was attempting to find £20bn in efficiency savings by 2015.

 ‘We are coping with a flat budget while demand for services is increasing at above the rate of inflation due to an ageing population and increasing technology costs,’ he said.

 NHS chief executives and chairs have warned that quality of care could suffer and waiting lists could lengthen as a result of financial pressures, he added.

Pharma round table

NHS finance directors and chief executives from pharmaceutical companies came together in September to discuss the potential benefits of establishing a more direct relationship between the NHS finance community and drug manufacturers.

The round table – organised by the HFMA and the Association of the British Pharmaceutical Industry – identified the need for better understanding of each other’s business and respective financial frameworks.

A number of opportunities were identified to improve engagement, including training and highlighting good practice in improving patient access to new treatments, while meeting cost improvement targets across whole health economies. Further joint work is planned.