A report into how a foundation trust came to be burdened with a large private finance initiative agreement has found Monitor was unable to prevent the deal – but said it could have spotted its slide into deficit earlier.
A KPMG investigation into the private finance deal at Peterborough and Stamford Hospitals Foundation Trust found the regulator had “very limited powers to prevent the Peterborough board from committing to an unaffordable PFI in 2007”.
In January that year Monitor sent a letter to the trust’s board, copying in the Department of Health and Treasury. It warned that: “The long-term affordability of the proposal [is] in significant doubt.
“We believe that your board should consider again the proposal prior to taking a final decision to enter into a legally binding commitment.”
But the trust went ahead with the deal, after it was signed off by the Department of Health and the Treasury.
The trust’s then chair Clive Morton had written back to the foundation trust regulator saying: “The board examined all the options and concluded that the current capital regime contains no facility for the replacement of the three hospitals sites in the city with a single new hospital other than PFI.”
The acute trust finished 2011-12 with a forecast deficit of £46m.
Neither the then-health secretary Andy Burnham or the Treasury made any comment when approached by HSJ.
KPMG did find fault with Monitor for not engaging “more actively” with the trust in the three years following the signing of the deal in 2007.
The regulator only became aware of the problems at the trust in the last quarter of 2010-11, when it was bailed out with £10m.
The report said the regulator “could have ensured the original business case was updated each year. This should have highlighted the emerging position at least a year, and possibly two, before the PFI went live” in 2010.
It added: “It was not until June 2011 that it became clear that the underlying annual deficit for Peterborough in the new hospital was in excess of £40m per annum on revenues of £200m.”
In its 10-page response to the report, Monitor said the delay in it becoming aware of the problem would not have made a substantial difference to the trust’s 2011-12 deficit.
The response document said: “One of the main causes of the delay in realising the extent of the challenge was caused by the trust not updating the business case for the new hospital, which was based on unrealistic estimates.
“If realistic projections had been available, action could have been taken one to two years earlier to deliver some additional cost improvement plans. However, this would not have prevented the £32m of forecast deficit for 2011/12 attributed to the structural costs of the PFI and commissioning decisions.”
The regulator said it was making changes to its annual plan review process for 2012-13, including requiring trusts making significant long-term investments to update the financial assumptions in the business case yearly and then assessing it against the overall financial viability of the trust.