As the original deadline passes, 80-odd trusts are lagging in the race to achieve foundation status. Sally Gainsbury ponders the fate of those that fail to hit the mark

Alan Milburn’s original 2008 deadline for all trusts to become foundations is fast expiring. By the end of the year, some 80-odd acute trusts will still not have reached the elevated status.

Over the last few months strategic health authorities, at the behest of NHS chief executive David Nicholson, have been analysing which of the remaining trusts they expect will reach the new “final-final” deadline for foundation status of December 2010 - and what their intentions are for those that will not. For some SHAs, the implications are so controversial they refuse to talk about their plans.

“There will be huge ramifications for London. Not everyone will meet the 2010 deadline for foundation status,” is all a spokesperson for NHS London will say. NHS South West declined to comment.

Others, such as NHS East of England, are prepared to be more candid. This SHA has set its own cut-off point of next December for applications to be with the Department of Health - the last approval hoop before they reach foundation trust regulator Monitor.

“If they don’t hit that deadline, we will look at a range of options, including management franchises, mergers and acquisitions. We will not tolerate slippage on this,” says director of strategy Stephen Dunn.

“If trusts are not on track over any point next year, we may intervene before December. If they cannot become foundations, we will take action.”

Acute sector pain

That approach applies to acute and mental health trusts alike but, as primary care trusts strive to shift more care into the community and regional centres of excellence suck complicated procedures away from general hospitals, the pain can be felt most in the acute sector.

So far, East of England predicts only one of its acute trusts will miss the deadline, but six or seven months’ slippage could make that four.

SHA work on the foundation pipeline followed the September publication of the DH’s infamous “impact assessment” of its proposed insolvency-style regime for failed trusts. That predicted 2.1 per cent of trusts would be dissolved a year - the equivalent of five or six in the first years and 92 over 20 years.

While the DH tried to distance itself from those figures, arguing they were for modelling purposes only, privately many in the NHS think they are much closer to reality than the mere seven financially challenged trusts the DH has all but defined as failed and unsustainable.

Slow starters

Earlier this year, as part of its annual business plan, Monitor forecast that by April 2010 some 47 acute and mental health trusts still would not have been through its assessment process, let alone passed it.

At the end of last month 88 acute trusts had not made it to foundation trust status. Of these, just 18 were waiting to complete Monitor’s approval process, with another two awaiting DH permission to apply to Monitor. That leaves another 68 yet to make it off the starting blocks.

Those 68 include 42 which scored as poorly or even worse than the DH’s seven “financially challenged trusts” over the last two years of Healthcare Commission and Audit Commission assessments (see table below).

A third of the 42 have a recent history of serious financial strife and all but three of the 17 trusts defined as “financially challenged” in 2006-07 are among them.

Poor management

But Audit Commission head of health Andy McKeon says persistent poor scores do not necessarily mean a trust is clinically or financially unsustainable. “The problem might be managerial; the trust might still be able to work properly with stronger management,” he says.

Healthcare Commission chief executive Anna Walker agrees: “The consistent thread is poor leadership and poor management.”

So what is the alternative? The threat of takeover - by a private sector management company or by the monopolising tentacles of a local foundation trust - has always loomed in the background for some, particularly small district general hospitals.

But the chief executive of one foundation trust says: “Up to now, we’ve been hesitant to make any moves ourselves because that would be seen as predatory. It’s for the SHA to set out what they want to happen to these trusts.”

Results of local analyses are expected to be published in the new year. Alongside that, Monitor and the DH have compiled a hefty NHS transactions manual, set to state the process health service organisations should go through when undertaking a merger or acquisition.

Reconfiguration options

“[The SHAs] may well conclude in some cases that some trusts are never going to be capable in their present form of becoming foundation trusts. They have then got to take a decision as to whether they reconfigure the trust so it does become financially viable, or they decide to offer it as an acquisition to existing foundations,” says Monitor executive chair Bill Moyes.

“[The new transactions manual] means people are now clear about process. If ministers say ‘right, we’re not going to close these hospitals, we would like someone to take them over and sort them out’, then we have a clear process for engineering that. We haven’t had that so far, so this ought to speed that up.”

Scarborough and North East Yorkshire Healthcare trust is the poorest performer on our list (see table below). The trust says it faces particular challenges because it is relatively small - it expects an income of around£108m this financial year - but is unable to discuss its options for the future as, perhaps indicative of its dire problems, at the time of writing it has no permanent chief executive, finance director, operations director or medical director.

Second on the list is Maidstone and Tunbridge Wells trust, but chief executive Glenn Douglas discounts the prospect of takeover: “[The trust] is making strong progress and we fully expect to achieve foundation status in 2010,” he says. “Other trusts have turned it around and we’re well on the way with our journey.”

But takeover is the likely option for Hinchingbrooke Health Care trust in Huntingdon, Cambridgeshire, in the East of England patch. The small district general hospital has improved its quality of services score over the last two years to a “good”, but overspends of almost 20 per cent of annual income have rendered it “poor” on use of resources, as assessed by the Audit Commission and Healthcare Commission.

Mr Dunn says NHS East of England is now actively looking to foundation trusts or private sector operators to run Hinchingbrooke through a franchise lease. Other options, including a sale to the private sector, were considered, but it is believed a takeover by franchise would avoid the trust and its staff getting embroiled in “ideological accusations of privatisation”.

Under contract

A franchise would also allow the SHA to establish contractual controls and requirements over the services it wishes to see at Hinchingbrooke; the authority is keen to ensure all its hospitals retain accident and emergency and maternity units, for example.

The trust already works closely with neighbouring foundation giant Cambridge University Hospitals, which is inevitably mentioned in connection with any contractual takeover of the smaller trust. But so too are the foundation trusts Norfolk and Norwich University Hospital, Heart of England and University College London Hospitals.

No formal bid process has been opened yet, so talk of likely contenders remains speculative. The SHA is also keeping the business case for any franchise close to its chest as it is likely any operator will want to be paid a subsidy over the standard hospital tariff price to take on Hinchingbrooke.

Mr McKeon says the prospect of a subsidy raises questions as to the value of a merger or acquisition. “If you are prepared to subsidise it, why merge, especially if you think competition is a good idea?”

Subsidy policy

Mr Dunn says it is only through the competitive tendering process to appoint a franchisee that the SHA can establish whether and what level of subsidy would be appropriate and fair. But he adds: “There might not be a subsidy. [The franchise] might pay us to take it on, because there are opportunities at Hinchingbrooke.”

Monitor’s Bill Moyes agrees that any subsidy must be clearly set out. “It’s a bit like rural transport,” he says.

“If you have services the state decides must be provided and yet the economics just don’t work, then you have to invent a subsidy policy.

“It would be to everyone’s benefit to say ‘here is the cost of running this organisation, here is what it generates under the tariff and here is the gap which is going to be subsidised in the following way and for the following reasons’. Then the subsidy won’t be camouflaged.”

Mutual benefits?

NHS Confederation policy director Nigel Edwards says it is almost inevitable any foundation taking over a struggling or outright failed trust will “want a bung” in return.

“It is a risk. These trusts have failed for years, so it’s not immediately obvious that taking them over will save a great deal. Only the back office and board costs can be saved through a merger.”

He adds: “Some of these places have a pretty poor culture and that could infect your own organisation, so there could be hidden costs too.”

One man who perhaps knows the most about those hidden costs is Mark Goldman, chief executive of Heart of England foundation trust, which took over neighbouring Good Hope Hospital trust in 2007.

He lists performance based contracts with penalties, the post-Darzi performance regime, an expected squeeze on NHS finances, an imminent general election and a possible change of leadership at Monitor when Mr Moyes’ contract expires in 2010 as even more reasons to be cautious about acquiring a struggling trust. As an alternative to explicit takeovers or mergers, Dr Goldman suggests “buddy” relationships between successful foundations and struggling trusts. The mentoring foundation would support a struggling trust in improving performance and developing a viable business model - for a fee.

Although the risks associated with the failing trust would remain with that trust and its SHA, Dr Goldman adds: “It would be a brave foundation to take it on and the contract to do so would have to be generous, as would the package to write off debt and fund the turnaround and legacy of failure.”

Double weak

In the absence of a stampede of foundations willing to either take over or help run struggling trusts, a number on the list of poor performers are pursuing mergers between themselves in explicit attempts to strengthen their chances of becoming foundations.

Worthing and Southlands Hospitals trust chief executive Stephen Cass says his trust’s proposal to merge with Royal West Sussex trust is likely to be the first such transaction under the auspices of the DH’s transaction manual.

The proposal follows local outrage at primary care trust reconfiguration plans that threatened to rationalise services between the two sites and close down some accident and emergency and maternity provision. The plans are on hold pending a decision this month. If it goes ahead the merger will result in the need for just one board and one back office. The savings from slashing one board alone are£500,000 a year.

But a£500,000 saving will not solve the trusts’ problems and service reconfiguration will still be needed. Mr Cass says the prospect of a single trust has given managers and clinicians the space to get beyond the scenario of “two organisations pitting it out against each other” and to develop a plan “with more input from the clinicians”.

Merger for survival

In South East London, Bromley Hospitals, Queen Mary’s Sidcup and Queen Elizabeth Hospital trusts are also working towards a merger. Queen Mary’s chief executive Kate Grimes says it is clear each of the trusts is too small to survive on its own.

As well as leaking outpatients to GP practices and patients requiring specialist treatments into central London trusts, the trusts have found it increasingly difficult to staff their wards round the clock with adequately experienced doctors. But local opposition to reconfiguration has resulted in a seemingly endless cycle of challenges and formal referrals to the secretary of state from local councillors.

The merger will help the trusts combine their clinical teams and provide more sustainable units. Services will treat a large and diverse enough population - from 300,000 to a million - to be able to afford to specialise.

“We are not saying a merger will solve all the financial problems. It’s a starting point,” says Ms Grimes. Service reconfiguration will still be needed, but will theoretically be easier, as the hospitals will not be competing against each other.

The move from three boards to one will save£2.5m. As they have already merged many back office functions, opportunities for further administrative cuts will be minimised and Ms Grimes says the only staff under threat of losing their jobs at present are the executive teams. “Half our team are acting or interim and it is the same at Bromley,” she says. Is such a set-up a distraction? She answers: “The team is just pleased to have a proposal to improve care. We have had uncertainty for two years now. But we have been the best in London on 18 weeks. To me, that’s just the job.”

Struggling

But the Healthcare Commission chief executive Anna Walker warns not all organisations will find it easy. “It is interesting that in roughly half the investigations we have carried out, the fact they have been part of recent mergers has been relevant,” she says.

She adds that it is striking how many of the poorest performers in the commission’s latest health check were ambulance trusts, themselves subject to recent restructuring.

“Some have now started to do well, but there is no doubt that some are struggling [with] getting a uniformly good service over a large area. That shows it takes time for the dividends of a merger to dig in. Mergers have a place, a real place, but you’ve got to think carefully about it.”