Foundation trusts applications: shape up or ship out

The painful birth of the Health and Social Care Act 2003 ushered in a new vision for the provision of health services.

With the creation of foundation trusts came an ideal that local acute hospitals, followed swiftly by mental health trusts, ambulance trusts and possibly the provider arms of primary care trusts, would become autonomous, local organisations, able to set their own future without interference from the centre.

Early on, someone at the Department of Health thought it would be a good idea to limit the time it would take for all trusts to become foundation trusts. Former director general of provider development Andrew Cash, on secondment as chief executive of Sheffield Teaching Hospitals foundation trust, was that someone.

The target he set was that all trusts should be ready to apply for foundation trust status by December 2008; now just 14 months away. The target was set amid concern that unless a critical mass of foundation trusts was built up - or as Mr Cash referred to it a 'tipping point' - the foundation policy and subsequently payment by results, on which the policy was partially built, would fail.

Four years on, 77 acute and mental health organisations have won the right to call themselves foundation trusts. This leaves 111 acute, 27 mental health and 11 ambulance trusts to climb on board.

In creating foundations the government had several key aims. It envisaged greater freedoms and flexibilities than NHS trusts in managing their affairs.

These included freedom from Whitehall control and performance-management by strategic health authorities; freedom to access capital on the basis of affordability instead of the system of centrally controlled allocations which NHS trusts have to rely on, and freedom to invest surpluses in developing new services for local people. They would also be given the local flexibility to tailor new governance arrangements to their communities.

A recent Healthcare Commission report found foundation trusts are showing good progress in innovating approaches to better-quality healthcare.

Accountability to their local populations has improved, partly through having members drawn from patients, staff and the public and being governed by a board comprising people elected from and by the membership base.

A Foundation Trust Network report in July also found foundations were 'demonstrating their potential for innovation'. Foundation Trusts: the story so far, found the organisations were using their financial freedoms and governance arrangements to their advantage.

According to the report, 52 per cent of chairs and chief executives said governors were central to making sure trust boards were accountable to patients, stakeholders and the local community and almost a quarter said that their new freedoms had enabled them to implement projects 'previously beyond their reach'.

Eroded autonomy

However, the report concluded that there was still a long way to go before the policy reached its full potential. The network called for more government support and commitment to foundations, so far lacking from health secretary Alan Johnson.

But what will happen to those that do not and may never make the grade?

It is uncertain whether all the remaining 140-odd trusts (not including ambulance trusts) will reach the goal of applying to foundation trust regulator Monitor by the end of 2008.

In July, Monitor chair Bill Moyes fired a warning shot at the new government, telling ministers not to 'pull back' from healthcare reform in a bid to once again control the system from the centre.

Mr Moyes says his comments reflected his concern about policy direction for foundation trusts.

'We could see the work of [junior health minister] Lord Darzi opening up commissioning so it focuses on need, evidence, what a cost-effective care pathway is and what would be a sensible pattern of services to meet need that providers would respond to.

'Or it could go back to a system in which everything is managed centrally and the autonomy of foundation trusts is gradually eroded,' he says.

Mr Moyes is candid about whether all trusts can or should become foundation trusts. 'If we say that some trusts will never become foundation trusts on their own it means we are saying that they can never be financially viable.'

He is equally frank about next year's target, saying it was unrealistic from the start. He adds that there are a number of trusts for which foundation trust status in their present form is not an option.

'There are some trusts which in their current form are inefficient, have too many specialties with too few patients. If there is to be some rationalising in the system, as suggested by Lord Darzi, these trusts will have to consider other options.'

He suggests that a number of trusts and their corresponding SHAs are looking at their future and examining the possibility of mergers, acquisitions and rationalisation. To date there have only been two such deals.

Earlier this year, Good Hope Hospital trust in the West Midlands was taken over by Heart of England foundation trust and in June South Staffordshire Healthcare foundation trust acquired the mental health provider services arm of the neighbouring Shropshire County PCT.

Another such move is on the cards, as Surrey's Frimley Park Hospital foundation trust discusses a merger with neighbouring trust Ashford and St Peter's.

It is likely that this trend will continue. Trusts that are not considered by either their SHA or Monitor to be financially viable or a going concern will have to change.

Questions are being asked about the future of some district general hospitals, which as standalone organisations do not add up under the payment by results tariff.

If these organisations cannot generate enough income they cannot survive in the new quasi-commercial environment which requires foundation trust status.

Rationalisation may sound daunting but for some it is the only way forward. Trusts will need to financially examine every service they provide and ask whether they can make enough money to continue to operate these if they are making a loss.

This can mean an array of options. The most extreme, for those that will not hit the foundation trust mark, is complete closure, but given the public outcry and political harm this has the potential to create that is unlikely to happen often, if ever.

More attractive options include partial mergers, acquisitions and the closure of specific services. Other possibilities involve the creation of specialist centres where trusts could choose to only provide a small number of expert services rather than trying to provide a range of general loss-making unviable services. Such centres could follow international models, for example providing ambulatory or cancer care.

This may not prove the best way forward for all. Trusts feel the government needs to work hard on ironing out tariff anomalies for specialist trusts before such work can become viable.

One trust which could be the next to get the takeover treatment is specialist Oxford-based Nuffield Orthopaedic Centre trust, rejected for foundation status in 2004 because of a projected£5m deficit in its 2009 baseline.

As a specialist trust it is in a predicament. Its future debt problems now total£2m, once it has received an extra£1m as a result of changes to the payment by results tariff and completed plans to save£3.5m this year and£1.5m the next.

But concerns remain about government plans to withdraw transitional relief funding given to specialist trusts to redress funding imbalances in payment by results.

Specialist trusts are lobbying hard for the government to come up with a formula in the tariff that will adequately reflect the far more expensive specialist work that such organisations do. The government has made no movement on this and given no reassurances that it will do so.

And there lies the problem. Monitor, the regulator, although sympathetic to the trust's plight, has one job - to ensure that foundation trusts are financially viable when they apply and for at least the next five years.

As it stands, the Nuffield Orthopaedic Centre does not enjoy such a position. It concedes that if the situation does not change, a merger may be its only viable option. Its obvious merger partner is the successful neighbouring Royal Berkshire foundation trust.

'At the close of the 2006-07 financial year, we reported a£1.9m surplus,' says a Nuffield Centre spokeswoman. 'However, the organisation currently receives around£8m from the DoH in transitional support.'

She concedes that the trust is working closely with NHS South Central and its main commissioner, Oxfordshire PCT, to 'consider the option of working more closely with partner organisations'.

London's Whittington Hospital trust chair Narendra Makanji is candid about the choices trusts may have to make. His organisation is hoping to achieve foundation status next April as part of the wave-seven group.

'It is likely that trusts that cannot achieve foundation status on their own will be rescued by neighbouring organisations,' he says.

'There are trusts in this category where part of their function is no longer required and you cannot keep running something that is an antique.'

Anne Gibbs, director of development and marketing at aspiring foundation trust Birmingham Women's Healthcare trust, says that although gaining foundation trust status does not give the same rubber stamp of perfection that it did for first-wave foundation trusts, it will boost confidence of its staff and public. Her organisation is currently going through the arduous Monitor assessment process and she is confident that the trust will be authorised by 1 November as part of the wave-four group.

She acknowledges that the process can make trusts reconsider their future.

'Every trust in the country is somewhere on their journey towards becoming a foundation trust now and some won't make it. For some trusts the assessment and fit for purpose process has been helpful in that they have had to look at whether they are viable in the future; for some the answer will be no and they will have to consider a merger.'

Ms Gibbs' comment about perfection is telling. Becoming a foundation trust has lost some of the gloss it once had. This may simply be because there are now more foundation trusts and as more organisations reach that point the rest think it may not be as difficult as it appeared in the early stages.

Vociferous supporters

Monitor's Mr Moyes admits some trusts that have been authorised for foundation status are not necessarily using its full potential.

'Some trusts are merely balancing the books at the moment; they are not generating profits and they are not innovating yet,' he says.

Many advocates of the foundation trust policy still insist the status is something all trusts should aspire to.

University College London Hospitals foundation trust chief executive Robert Naylor is one of the policy's more vociferous supporters.

He says there is mounting evidence of foundations delivering what they were set up to do and that the foundation trust drive should be kept at full throttle.

'Foundation trusts are improving clinical services and getting closer to the population they serve,' says Mr Naylor. 'The financial results of foundation trusts are significantly better than our NHS colleagues and we are delivering considerable results. Some foundation trusts are three years old, some are just three weeks - it is a developing programme which will be incremental over time.'

In last week's annual health check all 19 of the organisations that achieved 'double excellent' ratings for services and financial performance were foundation trusts.

But there is still a long way to go. Mr Moyes says that the regulator can authorise approximately 50 trusts per year, but that if the government made extra resources available this number would rise.

He estimates that at the current rate it will take the regulator five years to authorise all the trusts that can feasibly make it on their own in their present form.

But he is frustrated at the situation, especially with some SHAs, which are charged with preparing trusts to apply for foundation status. Mr Moyes says that some are pushing trusts through to reach the 2008 deadline without adequately preparing them for the rigorous selection process.

He adds that the low quality of some of the bids is creating hold-ups in the regulator's assessment process and that a 'steady flow of high-quality applicants' is required for the regulator to make best use of its capacity.

The regulator does send trusts back to the drawing board, for example, deferring the authorisation of Royal Liverpool Children's trust and rejecting the bid from St Helens and Knowsley Hospitals trust.

'To date, the historic success rate of applicants at first attempt is just 65 per cent and this is because some trusts are not fully prepared for assessment when they reach Monitor, which wastes the assessment capacity and leads to delays for future applicants,' he says.

No future

Mr Moyes is hoping to crack down on below-standard applications. Currently trusts that have been deferred have up to a year to improve their business case to achieve authorisation. From next year Monitor will restrict this to three months from a trust's first deferral to 'deter overly ambitious applicants', as Mr Moyes puts it.

Foundation Trust Network director Sue Slipman agrees some trusts are being pushed forward by their SHA and the DoH before they are ready.

'Trusts need to be brought through when they have the best chance of authorisation; our experience is that some SHAs are not handling the process well and that it is not their biggest priority,' she says.

Mr Moyes holds up NHS London's provider agency as a model which he says some SHAs could learn from. The agency was set up as an arm's-length body in June to performance-manage London's 33 trusts and move them towards foundation trust status.

As part of the process the agency has introduced a performance management framework consistent with Monitor's, to ensure that trusts are properly and rigorously prepared before they apply.

The Monitor chair says that although he does not advocate the same model for use across the country, he suggests two or three SHAs could come together to develop the same kind of robust system London has established.

All trusts must aspire to achieve foundation status and those that do not, will not, or cannot do so appear to have no real future.