Analysis: How top trusts saved money by revaluing their estate

The revaluations assume that services could feasibly be reprovided on an alternative site with modern materials and construction methods.

This usually means the notional new estate would be based in a cheaper location and cover a smaller footprint.

This helps trusts by reducing their capital charges to the Department of Health and Social Care (trusts pay 3.5 per cent against the value of their estate), and also lowers their non-cash expenditure for “depreciation”. Both help boost trusts’ headline surplus or deficit position, but do not save money for the health service overall.

There has been a dramatic increase in “impairments” to land and property over the last two financial years, which is the accounting entry which includes the revaluations. Although other adjustments are included in these figures, the largest impairments identified by HSJ over the last two years were all related to these revaluations.

Largest impairments identified by HSJ

Organisation Name	Year impairment applied	Net impairments in year (£m)
Guy’s & St Thomas’ Hospital NHS Foundation Trust	2015-16	217
Central Manchester University Hospitals NHS Foundation Trust	2016-17	154
Chelsea and Westminster NHS Foundation Trust	2015-16	119
King’s College Hospital NHS Foundation Trust	2015-16	107
The Newcastle Upon Tyne Hospitals NHS Foundation Trust	2016-17	98
Oxford University Hospitals NHS Foundation Trust	2016-17	91
Barts Health NHS Trust	2015-16	86
University College London Hospitals NHS Foundation Trust	2015-16	73
Royal Free London NHS Foundation Trust	2015-16	72
Mersey Care NHS Foundation Trust	2016-17	65

The cash savings achieved by the trusts listed, in terms of their capital charges to the DHSC, are likely to range between £2m and £8m per year (with the larger impairments triggering greater savings). The trusts will also have boosted their position further through lower (non-cash) depreciation charges.

For some, such as Central Manchester and Mersey Care, the lower charges helped trigger additional incentive payments from the national “sustainability and transformation fund” in 2016-17.

Some of these trusts told HSJ their revaluation was based on a real strategy to replace and consolidate their buildings, but others said their revaluation was purely “theoretical”.

Although this is permitted, DHSC guidance emphasises that trusts should bear in mind “locational requirements” of providing a service when they identify an alternative site.

It states: “Where the practical requirements of healthcare delivery, for example, require that a hospital is located on the same geographical site it now occupies, the valuation must be based on that site and not an alternative.

“A valuation on an alternative site basis may however be appropriate where it is clear that the alternative would offer advantages in serving the target population.”

In its annual report, Barts Health Trust says its revaluation is theoretical and assumes all services at St Bartholomews Hospital in central London, which includes a minor injuries unit, could be consolidated in a multi-storey building at Whipps Cross Hospital in north east London.

Asked what advantages this would offer to the local population, the trust said it would mean “patients retain access to specialist services”. 

The annual report for Central Manchester University Hospitals FT (now Manchester University FT) suggests that its Oxford Road campus and Trafford General Hospital would be consolidated to a single, cheaper site under the revaluation. 

The trust did not respond when asked whether this was theoretical or represented future intentions. The hospitals are around seven miles apart, but the trust has publicly stressed its commitment to retaining services at Trafford, which has an urgent care centre and is known as the “birthplace of the NHS”.

The revaluation at University College London Hospitals FT appears to assume the theoretical consolidation of up to seven central London hospitals. 

Oxford University Hospitals FT has assumed its three closely located Oxford sites could be re-provided on a single site, but Horton General Hospital was excluded from this combined site “reflecting the need for a separate local hospital in Banbury”. It is around 25 miles from the others.

In its annual report, Newcastle upon Tyne Hospitals FT said its revaluation was based on its intention to provide services currently split between two sites onto one new privately financed hospital site. All its sites lie within the city. The trust did not respond to enquiries.

The Royal Free London FT said its revaluation represents the actual re-provision of Chase Farm Hospital on a smaller site (for which construction work is ongoing), along with some minor footprint assumptions on the existing Hampstead site.

Chelsea and Westminster FT said its revaluation did not assume consolidation of its hospitals, which are eight miles apart, but that both could be moved to cheaper locations within the same boroughs.

Sixty five trusts reported net impairments of more than £10m in 2016-17, compared to 33 in the year before NHS Improvement told trusts to undertake the revaluations.

The theoretical revaluations have also raised questions about trusts’ depreciation charges, which are an accounting mechanism that effectively help organisations generate cash surpluses to replace assets such as buildings and equipment when they expire.

If depreciation charges are pushed artificially low by unrealistic assumptions around the size and location of the estate, the concern is that trusts’ will not be able to generate sufficient cash to replace assets.

Sally Gainsbury, senior policy analyst at the Nuffield Trust, said: “There is no doubt these alternative site valuations are within the rules. The issue is rather that if there is an assumption that a provider’s depreciation payments provide an adequate source of funding for the future replacement of its current estate, that assumption could well be wrong if the payments are based on the value of an alternative site which may ultimately prove unviable.”

UCLH acknowledged this risk, but said it has a long term financial model to help ensure sustainability.

Barts said depreciation “isn’t intended to provide the full funds for replacing assets” and technological and healthcare innovation should be considered when making the revaluation assumptions.

Guy’s & St Thomas’ Hospital FT, King’s College Hospital FT and Mersey Care FT did not respond.