News / New finance indicators will warn of underperformance

The Department of Health has announced finance indicators for acute and ambulance trusts as part of its new performance framework that are similar to the financial risk rating mechanism used by Monitor to assess foundation trusts.

But the performance framework is focused on ‘unacceptable levels of performance’ leaving other assessments such as the annual health check to highlight good performance.

The finance indicators, together with indicators from three further domains covering operational standards, quality, and safety and user experience, will underpin the new performance framework and the regime for unsustainable NHS providers. The latter, which is due to operate from 2010, will be triggered in cases of consistent underperformance or where a provider is found to be clinically or financially unsustainable.

Initially, the performance indicators, including the financial ones, will apply to acute and ambulance trusts from this financial year and the opening assessments will be published this month. The framework will apply to mental health trusts and primary care trust-provided services no later than autumn 2009, with specific indicators currently being developed. PCT commissioning arms will be assessed from April 2010. Foundation trusts will not be assessed under the framework.

HFMA chairman Bill Shields (pictured above) said: ‘It is important that the perfor-mance of organisations is assessed in the same objective way as Monitor uses for foundation trusts. Early warning of poor performance is something the whole service will find beneficial. Organisations that deliver on national targets and have sound financial positions have nothing to fear.’

There are five financial indicators, each containing a number of metrics, and trusts will be scored 1 to 3 (with 3 being the best outcome) on each metric.

The forecast outturn indicator has been given the greatest weight (40%), demonstrating the need for strong financial management and the Department’s desire for NHS bodies to be more accurate at predicting their financial position. This indicator includes metrics measuring forecast operating performance, forecast EBITDA (earnings before interest, tax, depreciation and amortisation) and the rate of change in forecast surplus or deficit.

Trusts’ year to date position – measured in terms of operating surplus, breakeven or deficit and EBITDA – is given the next biggest weighting (25%), while the other indicators focus on initial planning (5%), underlying financial position (10%) and finance processes and balance sheet efficiency (20%). The latter measures compliance with the better payment practice code, as well as the ratio of assets to liabilities and creditor/debtor days.

The overall score is the sum of the weighted indicator scores for each trust, but there are also a number of over-riding rules governing the final score a trust can achieve. Trusts forecasting a year-end operational deficit can score a maximum of 2. Those with an operational deficit that varies adversely from plan by more than 2% of full-year income or £5m, whichever is smaller, will also be limited to 2. Trusts unable to make loan repayments will score 1.

The department acknowledged there could be some initial data quality issues as some of the indicators may be new to providers but it was confident these would be rapidly resolved.

On the basis of their performance in finance, oper-ational standards and quality, trusts will be categorised as performing, performance under review or underperforming.