Mergers, special administration and franchising have so far been unconvincing when it comes to turning around failing trusts. It’s time for a broader, more sophisticated approach

What happens when an organisation overspends? Prior to the Health and Social Care Act 2012, some suspected that strategic health authorities managed away deficits by providing hidden bailouts. How common these were is not easy to tell (the National Audit Office did look and the picture was rather more complicated). But many shared the view that the lack of a clear and transparent regime for managing financial failure blunted incentives to improve and allowed fundamentally unsustainable organisations to stagger on.

‘Many organisations have been tipped into deficit by an exceptionally hostile environment of low NHS funding growth and rising demand’

In the reformed NHS, a clearer framework was introduced whereby organisations in difficulty got a chance to return to financial good health but if not, administrators would be brought in to take over the organisation with a tight timetable for producing a plan. This is the trust special administration regime as enacted first at South London Healthcare Trust and then at Mid Staffordshire Foundation Trust.

It is now is a very different world from 2012. In particular, deficits are fast spreading across the NHS to the extent that in some areas they are in danger of becoming the norm: Monitor’s report on the first quarter of the current financial year revealed that most acute foundation trusts overspent and that the sector as a whole ran a deficit.

The net NHS trust deficit was even larger. The Department of Health has had to step in with large scale financial support.

The hard line is unhelpful

Have these overspending organisations all “failed”? Only if we take a hard line and insist that any organisation that can’t pay its bills has failed (a hard line the private sector would understand). But this is not a helpful definition for the NHS.

‘Removing the management is another option, but one that if used too often is more likely to embed failure’

Instead we need to recognise that many organisations have been tipped into deficit by an exceptionally hostile environment of low NHS funding growth, rising demand for services and a laudable attempt to maintain quality of care. For many, their current difficulties reflect the wider funding challenge facing the NHS.

But do we have an answer for those that, even when – or if – better times return will still struggle? The health service has tried a range of tools including mergers, franchising and the trust special administration regime. However, despite the everlasting enthusiasm for mergers, the evidence is at best patchy that they deliver and whatever the eventual outcome for Hinchingbrooke, it is a lone example and franchising has not proved a popular model.

The special administration regime is still new but its use has already proved controversial. Much effort now goes into preventing failure, whether through the rating systems applied by Monitor and the NHS Trust Development Authority with their escalating menu of interventions, or recent attempts by those bodies with NHS England to find a way to establish whole health economy solutions. In these pre-failure stages, removing the management is another option, but one that if used too often is more likely to embed failure.

Redesigning failure

Why is this so hard? Widespread financial distress and, perhaps, the proximity to a general election complicate matters. But beyond that, a number of important issues stand out when designing a better approach to financial failure:

A whole health economy perspective and strategic oversight

In the private sector, companies that cannot pay their way close down. But in the NHS this is no help as patients still need to be treated. Only if alternative providers can deliver quality care at lower cost would such a step help and in the capacity constrained NHS, such alternatives are hard to find.

Equally, the solution to an acute provider’s financial difficulties may lie in primary or community services. Whether a whole health economy approach can be easily established without an SHA like organisation to provide strategic oversight seems unlikely.

A more sophisticated approach to finance

The NHS needs to develop an approach to finance that separates “emergency” finance from investment to bring about transformation. There is a danger that emergency support can become an alternative to change, and equally that areas cannot access funds for transformation until they are in a financial crisis.

A realistic timetable for recovery

Turning round a financially failing organisation is not easy. Changing negative cultures or planning and delivering major service change takes time. Setting unrealistic expectations about how quickly a turnaround can be achieved may preclude the genuine long term solution as too slow.

Engage the public and politicians

The public cares deeply about the NHS and politicians cannot ignore this strength of feeling even if they want to. Where difficult change is required it is essential to design an approach that explicitly and flexibly responds to the deep public and political concern that will inevitably arise.

All this does not make handling failure speedy or straightforward, but it is better to acknowledge the genuine complexity and depth of feeling than attempt a quick fix that only unravels over time.

Richard Murray is director of policy at the King’s Fund