Failure regime looms as trust faces bankruptcy

25 June, 2012 | By Ben Clover

Health secretary Andrew Lansley has this evening begun the process of placing an NHS trust in administration for the first time, which would effectively declare it bankrupt.

He has begun the legal process of applying the failure regime to an NHS trust – the first time the power has been used.

This would see all board directors suspended and a “trust special administrator” sent in.

Once the administrator has made their report on South London Healthcare Trust, the health secretary can consult on dissolving the organisation and transferring staff to other bodies, or closing services.

The process could see a decision made and presented to Parliament in October.

The three-site acute trust recorded a £65m deficit in 2011-12 on a turnover of £438m, and HSJ has discovered the trust’s initial plan for 2012-13 was for a deficit at least as big again.

NHS London commissioned a “simulation” exercise into what could be done with the trust earlier this year.

Chris Streather, chief executive of the trust since it was formed from three separate organisations in 2009, announced his departure two weeks ago.

This is the first time a health secretary has begun the process of using the failure regime powers in the 2006 Health Act.

The letter to Dr Streather from Mr Lansley said he recognised that not all of the trust‘s problems were of its own making.

Mr Lansley added: “Nonetheless, there must be a point when these problems, however they have arisen, are tackled. I believe we are almost at this point.

“I have sought to provide NHS organisations with the help and support they need to provide high-quality, sustainable services to their patients, which South London Healthcare Trust stands to benefit from.

“However, even after this support has been provided, your organisation still expects to be in need of significant financial resources from other parts of the NHS and I cannot permit this to continue. That is why I am considering using these powers.

“I appreciate that any decision to use these powers will be unsettling for staff, but I want to stress that the powers are being considered now so that patients in south east London have hospital services that have a sustainable future.”

A DH source said the move would be a “difficult and controversial process”, but should signal to other trusts “that they cannot continue to provide poor services or rely on bailouts from other parts of the NHS”.

The news comes after NHS London chief executive last week revealed to HSJ that she had wanted a more radical solution to the problems in south-east London when the trust was formed in 2009.

Dame Ruth Carnall said managers could be placed under “very, very intensive political pressure” around reconfigurations and in the creation of South London Healthcare Trust there had been a “compromise”.

She added that the result of a simulation exercise NHS London had run in March had shown that a south-east London-wide solution was needed to the trust’s problems.

A senior source in London told HSJ: “Planning blight over the separation of elective and non-elective services hasn’t been helpful over the last two years.”

Another told HSJ that the trust special administrator regime could allow managers to present more radical options than had previously been countenanced and the process would be more open.

The downgrading of one of the trust’s sites, Queen Mary’s Hospital, Sidcup, had seen an improvement in performance, they added, but this had not been enough to turn the trust around.

HSJ understands the Department of Health’s director of provider delivery Matthew Kershaw is among those being considered for the trust special administrator role if the failure regime is invoked.

The failure regime process

After consulting the trust, strategic health authority and commissioners - which Andrew Lansley has done tonight - he can make an order appointing the trust special administrator.

This has to be laid before Parliament before it breaks up for the summer. The administrator will take up their post within five days of the order.

Within 45 working days the administrator must produce and publish a report for the minister to lay before Parliament.

There is then a month-long consultation before the final report is presented to the minister and Parliament.

Within 20 days of that the minister must make a decision and publish it.

Readers' comments (51)

Patrick Newman | 25-Jun-2012 9:44 pm
The staff, patients (current and prospective) and the local communities need to have explained to them what this will mean in terms of jobs and available health services over the coming months. Why does the DoH have to go through this faux bankruptcy before any corrective action is taken. Is this a calculated drama to "encourage les autres"? Will this lead to a marauding pack of private interests circling the doomed body of this large trust?
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Anonymous | 26-Jun-2012 4:32 am
Replacing the whole board sounds really daft. You cannot keep taking 5% away every year and not expect services to suffer. This trust tried to preserve services and it cost, hence the deficit. PFI costs keep rising so thats where much of the money goes if you have one.
Just look around at the number of trusts in deficit and the number of CEO's that have left this last year. They aren't all bad , that's why they keep popping up at another broken trust later on. Our NHS today is unaffordable. The government need to grasp the nettle and decide what we can afford before we have a Greek type melt down. Alternatively Landsley could give South London HCT to Circle, whose investors keep pouring money in despite their losses.
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Anonymous | 26-Jun-2012 8:03 am
The Government should be ashamed - these failures are wanted, the current legislation was developed to create failure. Obviously the quickest way of reconfiguring services or more cynically, giving them over to Private Companies. How well will the private sector do without cash being pumped in or being bailed out! Not sure we will see
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Anonymous | 26-Jun-2012 8:05 am
I'm a CEO - 2 years in and very disallusioned. Only reason why i am still here is because i care passionately about the Trust i work in and want to see it survive this mayhem. Everything else around me make me want to jack it in.
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Anonymous | 26-Jun-2012 8:09 am
Is this what happens when we put clinicians in charge?
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Anonymous | 26-Jun-2012 8:24 am
This is another demonstration of the dismantling of our NHS by the Tories. We should not be surprised when you elect a Govt that does not believe in the maintenance of the public sector - the fact remains that we will be paying for our healthcare twice - once through our NI contributions and secondly to private providers or insurance companies.

Roll on 2015 when we can get rid of these incompetent fools.
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Anonymous | 26-Jun-2012 8:36 am
The people who created this unmanageable monster and signed the PFI should pay the price - not the existing Board.
No one in their right mind would want to take on Trusts in this parlace state. Which means the future management must pass onto private companies such as Circle - wonder how their shares are doing this morning? Bet a few Tory MPs are buying some.
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Anonymous | 26-Jun-2012 8:44 am
Comment from CEO above not now uncommon After decades in the NHS I find the morale of very senior executives the lowest I have known The top down approach is as bad as ever and confidence in politicalmasters has gone There have always been elements of both but it has never affected senior executives as much as now This latest development is either a shot across the bows as a "wake -up " call or in reality the first of many (my view ) There are several trusts with no real possibility of becominf FTs and surely these will also become subject to the unsustainable regime I wonder which politician will be the first to admit this govt has got its priories wrong and the NHS is not "safe in our hands "
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Anonymous | 26-Jun-2012 9:01 am
I am very disappointed in Chris Ham's analysis this morning - SEL provided quality services but was burdened by inherited debt. Why couldn't some of the £500 million surplus from last year, or the similar underspend from this year's Olympics be redirected into this? After all, it's the government that should have paid for these capital schemes in the first place.
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Anonymous | 26-Jun-2012 9:10 am
It's a media campaign to put the 'spin' on reducing public opposition to the eventual closure of one of the 3 hospitals (mos tlikely the one without a PFI scheme!). 45 days to prepare a report that is already known as this issue has been floating around London for the last 20+ years.
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Anonymous | 26-Jun-2012 9:16 am
I find it odd that these 3 London boroughs have a combined population of 769,000 and cannot support acute services of £500m. A quick look at other Outer London boroughs suggests that there is significantly less funding going to SE London? Also looks out of balance against a DGH like Ipswich which has an East Suffolk population of circa 260,000 and an acute turnover of £235m.
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Anonymous | 26-Jun-2012 9:22 am
Hang on everyone here, this is a trust that has failed to tackle one of its most fundamental duties, to balance the books.

A lesson I learned from a then seasoned District General Manager 30 years ago, still true today, is that if you're not in charge of the money, it's almost impossible to be in charge of anything else.

Now having been a CEO for 13 years, I am clear we have to bite the bullet on these issues, despite the craven and spineless politicians who don't want to be seen to back the necessary action to allow the NHS to sort itself out. I have the greatest sympathy for this Trust Board as they will not have been given the necessary support, but actually we have to do this. And this Trust won't be the first, there is one in my patch that I thought might take first place, but it will follow shortly...
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Anonymous | 26-Jun-2012 9:44 am
The job of a CEO is to manage & motivate his/her people, focus on the strategy & manage outcomes. If there is a clash in priorities go to their line manager to counsel. If your direct reports do not perform, either develop them or get rid. You need to be bold and decisive, ultimately patients benefit or suffer. The CEO commenting above in my opinion, exhibits poor communication, evident in only a few lines of text. The position is a political sandstorm, but that is why it is well rewarded!
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Anonymous | 26-Jun-2012 9:46 am
My comment refers only to the CEO commenting at 8:05!
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Anonymous | 26-Jun-2012 9:59 am
To all the CEOs posting and reading this, your direct reports know this and sympathise, and most of us are here doing nightmare jobs because of your leadership and support. We know you're held over a barrel and that's one of the many reasons none of us "aspire" to an executive position. Lower down the foodchain many of us continue to work because we want to help and make a difference. The herd of elephants in the room don't help.
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Anonymous | 26-Jun-2012 11:04 am
SLHT was created from three trusts that were all in trouble. Those problems were longstanding. They have resisted the best efforts of many mangt teams to sort out. It is therefore fair to conclude that they are strucural issues. Those same issues tend to bedevil all the outer ring trusts in London. NHSL looks after the 'big names'-pity that's not where the population of London largely lives! 'NHS London and the DOH has acted with its usual cynacism of ignoring those structural issues and tried to make out SLHT's problems are somehow basically down to its Chief Exec/Board. SLHT has undertaken the downgrading of QMS -which NHSL really wanted-and yet its finances remain as shot as ever. If I were a local resident within SLHT's natural catchment area I would be very worried what this means for local services because to balance the books is going to require a degree of radicalism (cuts) as yet unseen in the NHS. How all this can occur in a system that has just returned over a billion pounds to the Treasury is what people should be asking.
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Anonymous | 26-Jun-2012 11:14 am
Re: 26-Jun 8.24 AM - does this mean we will have the other lot of even more incompetent fools in 2015? Not that I wish to be political! So long as government ministers are involved in the micro management of the NHS we will continue to have issues like this making national headlines. There's only one solution and you don't need to look far to see how it works (Europe is a clue).
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Anonymous | 26-Jun-2012 11:14 am
Close the non PFI hospital completely. Keep the PFI ones and carry on paying the the excessive PFI costs - problem solved!!
The lesson for any executive: saddle your Trust with excessive private sector debt and no one will touch you, your neighbouring hospitals will end up paying for your profligacy. I predict a similar situation in East London where Newhan and Whipps will pay the price for the Royal London PFI. You read it here first.
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Anonymous | 26-Jun-2012 11:28 am
The merger of these financially-challenged organisations should never have happened. It was clear from the Due Diligence report prepared before the green light was given to the merger that the financial benefits would never be realised. However, with the right amount of spin and political will, even though computer said "No," the Gov't said "Yes" and put the pressure on for the merger to take place...at all costs.

The Administrator's report should not ven take 45 days to produce - they need only refer back to the Due Diligence report..all the signs were there..hidden deep within the detail (despite the rather lame attempt to paint a positive picture in the report's conclusion/recommendations).

As for the outgoing Trust Board, well, there is such a thing as Managing Upwards, but when your boss is the SHA an their boss is the DH (whose expectations of what is possible are oft not rooted in reality or common sense), it's no wonder the Trust is where it is today.

Nevertheless, just because an NHS Trust has never before gone into administration, doesn't mean that they shouldn't. The bottom line is that this is what happens when organisations are not financially viable. It's business.

My thoughts are with the Trust's staff first and foremost, especially those at the lower end of the pecking order, who have worked tirelessly to try and make the best of an impossible situation - and for their efforts all they get now is increased uncertainty about their jobs and sleepless nights about how they're going to put food on the table.

Whatever solution is chosen e.g. private-sector or otherwise, decisive action needs to be taken wisely and swiftly regarding next steps. Staff and patients and the local public need clarity. Msg to Lansley: Truly step up to the plate for a change and sort this mess out with at least a drop of compassion for all those involved.
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Anonymous | 26-Jun-2012 12:14 pm
Thank you anon 11.28, as one of the many staff working at SLHT. Most of this is completely over my head but working here just gets harder when we read headlines like this. Some people just want to keep their heads down and focus on their patients but we can't help worrying about our futures. I just hope whoever gets to sit in the big chair remembers that it's us looking after people, whatever the shape the books are in, we need answers that don't forget staff and patients. Isn't that what it's all supposed to be about?
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