Monitor and the Department of Health are working to devise a formula determining when troubled foundation trusts receive financial bailouts.

Monitor chief executive David Bennett told the Foundation Trust Network conference last week the bodies would collaborate on “a systemic approach to public dividend capital bailout - when loans are made, when they are not made”.

The work will look at how the DH’s use of public dividend capital fits in with the forthcoming special administration system for foundation trusts Monitor is developing and the risk pool that will pay for it.

HSJ understands the formula is intended to identify the point at which the DH and Monitor acknowledge an attempt at turnaround has not worked, and that further funding would be a bailout of a failing organisation.

A Monitor spokeswoman said: “This is so that we can have a clear picture for trusts in the system about when and where they can access finance.”

The project had “not yet been agreed with ministers or Monitor’s board”.

Last October, then health secretary Andrew Lansley promised to end “bungs and bailouts” to providers that had gone into deficit. He said: “No more back-room deals. We need to be honest about the problems and transparent about how we go about fixing them.”

Foundation trusts can currently access public dividend capital by applying to the foundation trust finance facility, an advisory committee sitting within the DH.

They can also borrow working capital from commercial banks to cover issues such as liquidity provided Monitor approves the application and it is within the trust’s prudential borrowing limit.

The foundation trust finance facility fund is intended to pay for capital projects.

However, in one case it approved a loan to Heatherwood and Wexham Park Hospitals Foundation Trust as a form of bailout. The loan, at the end of 2011, took the FT up to its £24.6m borrowing limit.