Monitor has proposed to set a cap on the level of debt carried by any organisation providing essential healthcare services to the NHS.
The regulator has proposed a debt ceiling requiring providers to keep “loans and debt instruments below a certain percentage of total funding”.
Monitor made the pledge in a second wave of consultations outlining how it might operate if given the powers ascribed to it in the Health Bill.
It would also set further restrictions on lenders’ ability to take security over any assets used to provide essential services, and prevent providers from transferring assets to other companies in their corporate groups without prior approval.
Providers would be barred from distributing profits to shareholders, through dividend payments or share buybacks, unless their boards first certified that the distributions would not push their available resources below levels needed to provide essential services.
And they would have to provide an annual certificate to Monitor stating whether or not they expected to have sufficient resources to keep the services running for the coming 12 months.
“The requirement obliging licensees to inform us when their certificates become invalid is intended to give us early warning of any circumstances which might jeopardise future provision of those services to patients and would allow us to support commissioners to protect them,” the consultation paper states.
The requirement to certify that dividend payments would not push a company’s resources below the level needed to run essential services would “reinforce the link between patient services and the actions of management, owners and other stakeholders”, it adds.
Like the proposed restrictions on profit distribution, the debt cap would only apply to organisations providing services that their commissioners have earmarked for extra protection, known as commissioner requested services.
“By setting an upper limit on the amount of funding licensees can secure through loans and other types of debt, we would be reducing the risk of imprudent borrowing hampering licensees’ ability to provide essential patient services,” the regulator states.
It added that it would consult on where the debt ceiling should be set “at a later stage”.
The restrictions would be unlikely to have immediate impact on NHS foundation trusts, which are currently subject to “prudential borrowing limits”. However, they could have major implications for the private sector’s willingness to provide NHS services that might become commissioner requested.
According to healthcare market analysts Laing and Buisson, many of the largest private providers of acute healthcare are “carrying large net debt burdens, particularly those owned by private equity and highly geared”. Their 2011 Healthcare Market Review states: “Some of the highest debt burdens are between two and four times annual turnover, although significant proportions of internal debt make it difficult to accurately assess financial risk.”
But the impact of the proposals would depend upon which services commissioners single out for extra protection. The Monitor consultation states: “We expect that only a small number of independent sector providers will be delivering commissioner requested services.”
Foundation Trust Network director Sue Slipman said members feared public providers, responsible for delivering the bulk of commissioner requested services, would be disadvantaged when competing with private providers for NHS services.
“Inexperienced commissioners are likely [initially] to want all the services a foundation trust provides to be commissioner requested,” she told HSJ.
She added: “The last thing anyone wants to happen is that public providers start falling over because they’re so hampered by the new licence conditions and inexperienced commissioners’ approaches that they’re pushed into [financial] distress or failure.”
To avoid financial failure, foundation trusts would need to be able to “move quickly” to change services to meet the longer term needs of commissioners, she added. Borrowing restrictions could hamper their ability to invest in new services, and they would not be able to stop providing requested services that were making a loss.
NHS Partners Network director David Worskett, who represents private providers to the NHS, said it was “completely essential” that criteria be developed telling commissioners “what might sensibly be designated as a protected service”.
He claimed that if those criteria were too loose it “could well cause the system to seize up”.
But he acknowledged that commissioners would be answerable to the NHS Commissioning Board, not to Monitor, and private providers would want assurance about how the powers of Monitor and the board would intersect.
“I don’t know how that’s going to work,” he added, “but I don’t think assurance of good intentions will be remotely significant enough for something like this.”
The consultation, launched on 6 February, will run until 5 March.