News / HFMA 2011: CIPs focus for Monitor

Expecting more trusts to show signs of financial difficulty, Monitor will place a renewed emphasis on the delivery of cost improvement programmes (CIPs), the regulator’s chief operating officer Stephen Hay told the HFMA annual conference in London.

He called on aspirant and existing foundation trusts to focus on delivering cost savings. While foundations were facing CIPs of between 4.5% and 6% or even 7%, they must also maintain the quality of their services when taking costs out.

Currently, 16 trusts are showing financial difficulty (a financial risk rating of 1 or 2) and 13 trusts are in breach. Monitor was beginning to see foundations with issues around working capital and liquidity. However, he insisted foundations were performing well overall and Monitor’s Q2 report, due out next week, would show good progress on the delivery of CIPs.

But he added: ‘We will be focusing on the robustness and deliverability of CIPs plans and governance arrangements to ensure plans are delivered in such a way that quality of services is improved. CIPs will continue to be a big deal going forward – they are not going to disappear. You have to think more strategically, not salami slice or look to lower the service provided. You have to redesign pathways to take costs out.’

The rise in need for regulatory action showed there were growing signs of financial distress. Seven months into the financial year five trusts had been judged to be in significant breach of their terms of authorisation – in 2010/11 the regulator put three trusts in breach over the full 12 months.

‘The number of trusts in breach is increasing and as we get to the end of the financial year we expect that number to increase further,’ he said.

In a wide-ranging speech looking forward to Monitor’s new role under the government’s planned reforms, he said a lot of work had to be done to move all 250 providers to foundation status.

Asked about commissioners who were encouraging providers not to apply the tariff to activity included in payment by results (PBR), Mr Hay responded it was not government policy to move away from PBR. ‘There is a tariff now and there will be one in the future. There is an expectation the commissioner will pay for activity legitimately done at the tariff,’ he said.

He was also asked whether Monitor would take account in its risk ratings of the fact that few assets were transferred to foundations under Transforming community services. He acknowledged there had been some reduction of margins but was confident this would be corrected over time. ‘It is absolutely right to say that in many cases integration has resulted in a dilution of earnings, but when you look at the projections of the combined organisations there are quite a lot of cost savings generated through the synergies that comes from these transactions

‘As management gets into this, they will make significant savings and the margins will come back in. There will be a new compliance framework for the new regulator, but I don’t think there will be significant changes to the way the FRR operates.’