Paying a higher tariff rate to trusts with larger capital costs could reduce the need for hospital reconfigurations, a report from the King’s Fund has claimed.

The paper said trusts with large legacy debts were at a disadvantage because of underfunding of fixed capital charges under the tariff.

Increasing the tariff for trusts with higher than average capital costs and reducing it for those with lower than average costs “would reduce deficits in the former and surpluses in the latter - at no net cost to the NHS”, it said.

The report added: “Financial imbalances across hospital trusts would be reduced and therefore the pressure for reconfiguration across hospital sites would reduce.”

There would also be less financial “leakage” from the NHS, it argued, because part of the surplus kept by foundation trusts came from “overfunding of capital charges, not efficiency gains”.

The Reconfiguring Hospital Services report was written by former Barts and the London Trust chair Keith Palmer. It draws on lessons learned from the reconfiguration that saw the creation of South London Healthcare Trust.

A main failing identified in the report was the fact that primary care trusts were “unwilling or unable to intervene to tackle the challenges facing acute hospitals”.

It said: “The transfer of commissioning responsibility to even smaller GP consortia will further weaken commissioning levers to bring about service improvement across trust boundaries in major network services.”

Where trusts were unsustainable, the report said the best way to transform patient pathways was to help foundation trusts acquire financially challenged hospitals. Foundations were often best placed to accelerate best practice in struggling organisations.

But the report warned that acquisitions of financially challenged trusts would remain a “purely theoretical option” unless the Department of Health provided transitional funding for large, one-off restructuring costs and agreed to refinance legacy debt.

It said: “The net cost of doing so is likely to be much less than the cost of continuing to fund the deficits of financially challenged trusts so they continue to provide sub-standard care until they fail, and then picking up the pieces.”

The report’s conclusion also said that although mergers between similar sized district general hospitals can bring quality and finance improvements, they cannot provide the same scale and speed of improvement as networked services between district generals and specialist and tertiary providers.

The NHS Commissioning Board was also in a strong position “to effect desirable changes locally”, it said.

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