The foundation trust regulator Monitor has issued revised financial guidance to providers warning they may need to cut more costs than previously expected.

In a letter to foundation trust applicants last week, Monitor chief operating officer Stephen Hay set out revised financial assumptions which the regulator will use when assessing their ability to stay afloat.

This represents a new risk on acute providers relating to demand management

The regulator now believes instead of planning for efficiency savings equivalent to 4 per cent of their annual income, foundation trusts should plan for a “downside scenario” of savings of 4.5 per cent in 2010-11, rising to 5.1 per cent in 2011-12.

The revised “efficiency assumption” will be used to assess applicants from May. Applicants will need to prove they could sustain surpluses even if their income fell so much as to require efficiencies of that order.

The move follows the 2010 Budget and the Department of Health’s operating framework for 2010-11. The framework includes a “marginal” or “two part” tariff for unplanned hospital admissions designed to cap hospital earnings on patient volumes over their 2008-09 levels at just 30 per cent of tariff.

In his letter Mr Hay says: “This represents a new risk on acute providers relating to demand management.”

Although the two part tariff is likely to apply to all acute hospitals, some of its impact will be offset by hospitals replacing unplanned admissions with planned admissions, which are not subject to the penalty.

The letter says: “We expect providers and commissioners to work together to ensure demand can be managed to affordable levels through for example minimising avoidable emergency non-elective admissions.”

Although the revised efficiency assumption only applies to the downside scenario, a spokesman for Monitor said it was on the basis of their ability to survive a downside scenario that applicants would be granted foundation status.

Monitor’s tougher efficiency assumptions

 2010-112011-122012-132013-14
Old (May 2009 to May 2010) %4.04.54.54.5
New (May 2010 onwards) %4.55.14.84.6