Foundation trusts may have to make significant increases in efficiency savings if a “worst case” scenario predicted by the regulator hits the sector.

The document from Monitor chief operating officer Stephen Hay, sent to foundation trusts last Wednesday, said the “downside case” would require “implied in-year efficiency requirement[s]” of 6.5 per cent in 2011-12.

The predictions for the four subsequent years range between 6 and 7.1 per cent.

The more optimistic “assessor case” scenario sees efficiency savings of 4.6 or 4.7 per cent for each of the next five years.

This is still higher than the combined inflation and tariff reduction figure of 4 per cent set out by the Department of Health in the operating framework.

The revised efficiency assumptions will be used to assess applicants from May. Monitor said it would give applicants that had already submitted bids extra time to gather any necessary additional evidence.

The assumptions will also be used for risk rating certain investments and transactions by existing foundation trusts.

One foundation trust chief executive told HSJ: “It may be mathematically accurate, but to suggest that FTs need to submit to Monitor financial plans predicated on a downside scenario that requires a [total] 33 per cent efficiency requirement over the next five years is beyond all common sense.”

An HSJ analysis last month of the acute sector’s efficiency saving plans for 2011-12 found trusts aiming for an average of 6 per cent, requiring at least £2.4bn to be saved.

In the letter, Mr Hay said: “We recognise the scale of the productivity challenge that the revised financial assumptions imply; however it is important that the assumptions reflect the economic outlook and current policy framework”.

The regulator listed three specific factors applying to the acute sector which it now thinks will be worse than predicted: 30-day readmissions, the 30 per cent marginal tariff and the new local “tariff flexibility”.

The “downside assumptions” anticipate providers and commissioners failing to reduce the growth in emergency readmissions and these growing by 4 per cent a year while non-elective admissions grow by 2 per cent a year.

Foundation Trust Network director Sue Slipman told HSJ the savings would be “extremely difficult to achieve”.

The FTN will continue to “press the case with ministers” for adjustments to the non payment for readmissions policy and the non elective cap, she said.

A Monitor spokeswoman said: “It’s a more challenging environment than in previous years, but we are clear that by changing our assumptions Monitor is not raising the bar - we are maintaining the standards of financial viability required to achieve foundation trust status.

“If Monitor had not made these adjustments, we would effectively have been lowering the bar and increasing the risk of failure among newly authorised foundation trusts.

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