News / News analysis: Shared responsibility

Foundation trust regulator Monitor has called on FTs to recognise their role in improving demand management. But at the same time it has said that payment by results rules must be obeyed, with providers paid tariff rates for activity undertaken.

Monitor chief operating officer Stephen Hay addressed last month’s FT Finance directors’ forum and afterwards spoke to Healthcare Finance. He said financial performance in the foundation trust sector was good, with only one or two exceptions. In 2008/09 FTs had collectively delivered a surplus of £522m and an EBITDA (earnings before interest taxation depreciation and amortisation) of 7.1%.

This good performance had continued into the current year. Quarter two figures show foundation trusts ahead of plan on income (although this is offset by increased costs) with an EBITDA margin of 7.5%, slightly shy of the planned 7.7%. And risk ratings also reflect well on the sector (see chart).

Mr Hay said this sound performance came on the back of steady improvement since FTs were set up. ‘I have seen considerable improvement in the quality of forecasting and planning compared with what I saw when I joined Monitor in 2004,’ he said.

Yet it seems this better planning was not reflected in last year’s downside planning exercise. Outgoing Monitor chairman Bill Moyes, who left the regulator in January, told the HFMA’s conference in December that FTs’ view of the economic context was different to his own. He told the conference that ‘most hospitals came back with very marginal reductions in income and higher growth in activity than they had been planning in [the previous] May.’

It was reported in a later interview that, of 120-odd plans, only 15% had given serious thought to the future and reconsidered their trust’s income and costs.

Mr Hay underlined this concern. ‘I’m worried that they are not really taking sufficiently seriously the economic outlook over the next two to three years,’ he said. ‘Too many of the trusts haven’t really absorbed the scale of the economic challenges that the public sector and health sector are going to face.’

Foundation trusts may argue that primary care trusts simply haven’t delivered on demand management and that activity continues to grow rather than reduce. But Mr Hay believes the days of leaving demand management to commissioners are over. FTs have to be fully involved in the redesign of patient pathways, helping to find the most appropriate setting for treating patients and potentially reducing their own acute capacity.

‘It is the role of providers to work with their commissioners to achieve appropriate demand management,’ he told Healthcare Finance. Mr Hay talks of  the need for a ‘constructive and mature relationship’ in deciding where demand is best serviced and agreeing appropriate patient flows. He says there are already health economies in the country where this mutually beneficial relationship is blossoming, but admits there are still adversarial relationships that are ‘not particularly conducive to the good management of the health economy’. 

But while demand management must be a joint responsibility, Mr Hay is clear that the rules governing the system must also be adhered to. ‘It is equally important that the rules of payment by results are respected and where the hospital genuinely does the activity, it gets paid for it. We have a set of rules in payment by results and the operating framework and foundation trusts have legally binding contracts with their commissioners. We expect both parties to operate within the framework laid down.’

Are the risks being fairly shared between providers and commissioners currently? To some, the 0% tariff uplift and the 30% marginal rate for additional emergency admissions above plan load the pressure onto the provider side.

Mr Hay offered no assessment on the current balance of risk but said getting the right balance was essential if the system were to work. ‘It is important there is a proper sharing of risk between commissioners and providers,’ he said. ‘It’s inappropriate for risk to be all placed on one party or another.’

The Q2 figures suggested FTs’ increased income above plan was exactly matched by increased operating costs. Some providers report they have had to pay higher costs to cover this ‘above plan’ activity – effectively making a marginal loss.

But Mr Hay believes well run organisations ‘should have controls in place so they do not put themselves in a position where they are doing additional activity at a loss in that way’.  How this will play out in an environment where trusts only receive 30% of tariff for additional emergency activity is not clear.

Whatever the challenges, Mr Hay is convinced foundation trusts are best placed to meet them and sees getting to an all-FT economy as a priority. He welcomes the Department of Health’s seeming renewed focus on the FT pipeline – with all trusts now expected to firm up their FT trajectory by the end of March.

However, he admits he is disappointed with progress. ‘The criteria we have on the authorisation side are well known and we haven’t really changed them over the last five years,’ he said. ‘So we are disappointed that there are still over 100 hospitals that can’t meet those criteria. We remain of the view that the speed is too slow and we would like to see greater emphasis on getting the remaining hospitals through the pipeline and into FT status.’

He acknowledges that this depends on two things: the flow of applications and the first-time pass rate. On the basis that Monitor could assess 50 trusts a year and assuming a 62% pass rate (30 new FTs a year), there could be an all-FT economy by the middle of 2013 (see chart). However, this looks extremely ambitious.

In the 2009/10 year to date only six applicants have been referred by the secretary of state, there have been only 10 authorisations and the pass rate has fallen to 50%. Add in the fact that the economic climate is likely to make the financial criteria harder to meet and the uphill challenge starts to look vertical.

Mr Hay says it is difficult to judge how much longer it will take. ‘All I can say is that it has taken too long so far – we’d like to see greater pace in getting to an all-FT economy. If we get high-quality preparation and a good flow of applicants, this sort of profile is deliverable but it will require a better flow of applications than we’ve had in the past 12 months.’