Payment by results, patient choice, the cost of private finance initiatives and the expanding role of the private sector - foundation trusts are not short of challenges.
And with the decline in traditional income sources, they will be looking to exercise new investment and borrowing powers, and find new income streams. For some, the flexing of entrepreneurial muscles will not sit easily sit with the primary function of providing high-quality healthcare.
Opportunities exist, for example, in terms of joint ventures with the private sector, exploitation of specialist or surplus resources or intellectual property, franchising services, setting up separate trading arms or acquiring new businesses. There are, of course, restrictions, most notably the private patient cap which some have been looking at ways of legitimately circumventing, but there are no easy solutions.
Subject to the prudential borrowing code, trusts can borrow from the foundation trust financing facility and the private sector. Some trusts are looking at this as an alternative to PFI, although the uncertainties created by payment by results will place even greater emphasis on being able to demonstrate fitness to borrow.
Risky business
For larger investments, foundation trusts will have to satisfy Monitor that they have carried out appropriate due diligence and risk assessment for investment decisions.
Clarity over the application of the insolvency regime via secondary legislation to foundation trusts should be helpful. After a very long wait, this is promised this year.
Monitor and the NHS chief executive have both indicated that weaker trusts - those struggling to make the 2008 deadline for being fit to apply for foundation status - will be absorbed by stronger foundation trusts through merger or acquisition.
However Monitor will not readily allow a foundation trust to merge with a failing trust unless it is satisfied that the merger would work. The key point of Monitor's guide for merger applicants is that such mergers require both applicant bodies to dissolve and their collective 'businesses' to transfer into a brand new foundation trust.
Something old, something new
The requirements in the guide are, if anything, more onerous than for the original foundation application. And the guide says the new board should be made up from both applicant boards, with some external appointments. This is hardly likely to be an attractive route for a strong foundation trust contemplating a takeover, and Monitor is not enthusiastic about it as a solution for failing trusts.
The alternative is acquisition. Monitor has made it clear that this should be treated in many respects like a stock market acquisition. The proposed acquisition of Good Hope Hospital trust by Heart of England foundation trust, currently out to public consultation, is likely to be a template for future transactions. The acquirers will have to satisfy Monitor that they have followed investment guidance. The emphasis is on managing risk and due diligence, and there is understandable sensitivity about handling debt.
For foundation trusts, finding and converting opportunities into additional sources of income will require careful risk management. And those who do not have this risk becoming takeover targets themselves.
Jeremy Roper is a Partner at Beachcroft LLP
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