Monitor has rejected claims from foundation trusts with large private finance initiative commitments that they should be treated differently than others under the regulator’s new system for measuring financial risk.
The healthcare sector regulator yesterday published its new “continuity of service” risk rating, which is intended to measure the risk that a provider of key NHS services will be unable to continue as a going concern.
The rating is based on just two metrics: liquidity, or the number of days’ operating costs the provider could cover with its available cash or cash equivalents; and capital servicing capacity, or the number of times the organisation’s income covers its financing costs.
A consultation response published alongside the new risk assessment framework reveals that a “number of trusts (predominantly those with large PFIs)” were concerned about Monitor’s new approach to measuring providers’ capacity to service their debts.
The document explains: “Trusts with large PFIs generally have substantially larger capital service payments than equivalent NHS foundation trusts funded through public dividend capital. As a result, their capital service capacity ratios are often lower, representing a potentially higher risk on this metric.”
Those worried about the new measure argued that “PFIs should be treated differently”, because the “proposed approach penalises NHS foundation trusts with large PFIs by making them appear risker”, it continues. Their rationale was that PFIs would have lower future capital investment requirements, because these costs were incorporated into their annual payments, and the risk rating thresholds should reflect this.
Trusts also suggested the metric would create perverse incentives, the document continues. This was because many trusts with large PFIs would need to double their surpluses, if they wanted to get the most favourable rating for debt servicing capacity, they argued. They suggested that this “would have implications for patient care”.
However, Monitor’s response to these criticisms states: “As the impact of the new risk ratings is consistent with our overall view of risk at NHS foundation trusts across the sector, and in certain circumstances trusts with large PFIs do exhibit greater financial risk, we will not adjust the capital service capacity thresholds or definitions.”
It adds that in cases where this leads to a trust being rated as “high risk”, but in Monitor’s view the trust’s finances are not cause for concern, the regulator will revise its published risk rating. This would mean Monitor changing the trust’s continuity of service risk rating from a 2 to a 2*.
Under the new approach, most FTs will be given a rating of 1 to 4: a continuity of services rating of 4 means Monitor has no evident concerns about the FT’s finances; a 3 means “emerging or minor concern potentially requiring scrutiny”; a 2 means there is “material risk”; and a 1 means there is “significant risk”. A 2* means the “level of risk is material but stable”.