News / FTs offer downbeat forecast as financial position tightens

By Seamus Ward

An increasing number of foundation trusts will face financial difficulties by the end of the current financial year, foundation trust regulator Monitor said after reviewing the trusts’ plans for 2012/13.

It said the gloomy picture portrayed by many foundations demonstrated the scale of the challenge they face in delivering significant savings each year while meeting greater demand and improving or maintaining quality. Small and medium-size district general hospitals, FTs with significant private finance initiatives and those in challenged local health economies faced the greatest financial risk.

Trusts are forecasting a more difficult 2012/13, with the aggregate financial risk rating (FRR) declining from 3.4 to 3.2. Review of NHS foundation trusts’ annual plans (2012/13) said 43 trusts (30% of the sector) are forecasting a lower FRR in 2012/13 than they achieved in 2011/12. Only 10 trusts forecast a higher FRR in 2012/13 than they achieved in 2011/12.

Income is forecast to increase by only 1% in 2012/13 and then decline by 1% per year thereafter. Meanwhile, cost improvement programmes (CIPs) have been forecast to remain higher than 4.1% of operating costs each year from 2012/13 and to peak at 4.3% in 2013/14.

Monitor chief operating officer Stephen Hay said foundations’ overall financial position was in good shape in the short term. Earlier, the regulator reported foundations had delivered an operating surplus of £2.2bn in 2011/12. In its year-end report on foundation performance, it said the surplus was £77m above plan.

While at 6.1% EBITDA (earnings before interest, tax, depreciation and amortisation) was in line with plan, it was lower than last year’s 6.6%. Cost improvement plans were 5.7% below plan (an improvement on 7% below plan in 2010/11). ?

Mr Hay said trusts had planned sufficient cost savings in the current financial year. But he added: ‘Monitor’s review suggests that an increasing number of individual trusts will face financial difficulties by the end of this period, with different issues affecting different trusts.

‘Our experience of reviewing these plans tells us there are indications that the sector’s finances will be weaker by the end of 2015. We expect an increasing number of trusts could be placed in significant breach for financial reasons.’

He added that without change, questions could be raised about the sustainability of the district general hospital model. Foundations were generally looking to improve quality and make significant savings without reducing the number of patients treated, but to achieve this they had to look at making significant changes in the way services are delivered, including system reconfiguration.

The past three years had seen greater savings delivered through CIPs, but they remained below Monitor’s assessor case efficiency requirements (4.5% in 2012/13 and 5% in 2013/14 and 2014/15).

The shortfall could be made up by using contingencies or through other initiatives, such as additional revenue – planned additional income accounts for 14% of total CIP plans in 2012/13.

Monitor used its formal powers of intervention at Bolton NHS Foundation Trust in August after the trust’s finances deteriorated. The regulator had found the trust to be in significant breach of its terms of authorisation in April and was asked to commission an external review of governance and to rectify performance on healthcare standards and targets.

Subsequently, the trust's financial position weakened significantly and Monitor asked the trust to commission a review of its financial position and financial governance and reporting. The trust delivered a deficit of £1.9m in 2011/12 – it had planned a £1.6m surplus – and an FRR of 2.

Monitor has appointed an interim chair to the trust. It also requires the trust to appoint external advisers to assist in the development of a robust financial recovery plan and appoint a turnaround director.