News / FTs face toughest year despite income growth

Foundation trusts are showing clear signs of increased financial pressure, according to Monitor’s analysis of foundations’ annual plans for 2011/12.

Though a difficult year was to be expected given the tough financial climate, the regulator said FTs had identified their most challenging cost improvement plans to date – planning to achieve a 4.4% reduction in operating costs over this year and similar levels over the next two financial years.

‘The challenge of reducing costs must be met, but it is essential that good patient care is at the heart of this,’ said Monitor chair David Bennett. ‘The evidence we have seen in foundation trusts’ plans suggests they are not planning to make savings by treating fewer patients or reducing the level of care for patients.

Instead they plan to make them through more efficient working on the frontline and by reducing administrative or clerical costs. We are very clear with foundation trusts that savings cannot be made by compromising on quality.’

The annual plans review found more foundations forecasting the lowest financial risk ratings (FRR), with 11 forecasting an FRR of 1 or 2 at the year end (1 is highest risk and 5 lowest risk). This compares with four in the 2010/11 annual plans.

While income is forecast to grow by 7.5% in 2011/12 – as a result of the integration of former primary care trust provider arms under the Transforming community services (TCS) initiative – they predict income will decline in 2012/13 and 2013/14 by around 1% per year. While TCS transactions are forecast to deliver an income boost this year, Monitor warned that foundations integrating community services in 2011/12 could face increased financial and governance risk as services are integrated.

The EBITDA (earnings before interest, tax, depreciation and amortisation) margin is set to fall by 0.5% to 6.1%, mainly because foundations have taken over low-margin contracts to provide community services and because operating expenses are rising faster than income.

Mr Bennett said foundation leaders anticipate more radical service design will be needed, within foundation trusts and across health economies.

‘Where this is evidence-based and clinically appropriate, it can be an important way of delivering better quality patient care, for example, by moving services to newer facilities, and also achieving the objective of improving efficiency in the NHS,’ he added.