News / Monitor adjusts metrics as finances tighten

Monitor has revised some of the financial assumptions used in the assessment of foundation trust applications.?It also said it plans to identify financial problems in existing foundations earlier than in the past.

In a sign that the regulator is gearing up to address the squeeze on NHS finances as the national deficit is repaid, Monitor chief operating officer Stephen Hay wrote to applicant trusts in April. In his letter, he announced changes to the downside assumptions used when assessing bids for foundation status. He said the new figures would ‘reflect a realistic view of the risks in the system’.

The changes apply to both acute and mental health applicants and came into effect from 1 May.

Previously, Monitor’s downside case for acute and mental health providers implied efficiency requirements of 4% in 2010/11 and 4.5% in each of the three years between 2011/12 and 2013/14.

For acutes, these have now been uprated to 4.5% in 2010/11, 5.1% in 2011/12, 4.8% in 2012/13, 4.6% in 2013/14 and 4.5% in 2014/15.

Mr Hay explained that the additional 0.5% in 2010/11 was the result of the new marginal non-elective tariff, which represented a new risk in relation to demand management. The risk would diminish over time as providers and commissioners work together to manage demand to more affordable levels.

Mental health trusts faced different risks. Historically, in periods of financial pressure spending has fallen. To reflect this, mental health applicants will be assessed against two downside cases of 4.5% and 5% efficiency requirements each year.

Mr Hay said: ‘We recognise the scale of the productivity challenge that these efficiency requirements imply. However, it is important

that the financial assumptions reflect the economic outlook and the current policy framework.’

In its revised compliance framework for foundations and business plan for 2010/11, the regulator said it had refined its assessment of potential financial weakness. This would identify problems at an earlier stage.

The business plan said the slowdown in funding growth over the next few years would put pressure on trusts’ financial viability. Monitor would respond with a new annual planning process that would include stronger predictive capability to identify and head off challenges to a trust’s financial viability.