The Royal National Hospital for Rheumatic Diseases foundation trust has decided it may need to merge with another organisation to be financially stable.

Monitor today announced it had installed a new director and appointed a new chair at the specialist foundation trust.

In June, the trust had to restate its accounts for 2006-07 to record an increase in losses from£40,000 to£650,000. It recorded a loss in 2007-08 of£429,000.

In August, Monitor ordered a review of the trust's finances by PricewaterhouseCoopers and told it to "resolve" the position of its chief executive. Nicola Carmichael left the role and joined NHS South West.

Today the regulator intervened again, requiring the trust to appoint non-executive director Kirsty Matthews as interim chair and Stephen Cole, a former partner at KPMG, as corporate strategy director.

Merge

The trust has developed a recovery plan and decided it will need to merge or form other partnership arrangements with another organisation.

A statement from Monitor said Mr Cole would "work with the trust board and Monitor towards the delivery of the board's preferred strategy of a merger, designed to secure future stability for the delivery of high quality healthcare services".

There were no concerns about the quality of care, it said.

The statement said: "The challenges RNHRD face are, in part, a reflection of its size and the mix of the services it provides. We are confident that these issues are specific to RNHRD and are not reflective of other NHS foundation trusts."

Monitor board minutes from the trust's authorisation, in March 2005, state: "The trust's small scale meant that some of the more informal financial reporting procedures needed improvement.

"In addition, there was a lack of financial awareness and experience in the existing non-executive element of the trust's board… a letter should be sent to the trust highlighting Monitor's concerns in these areas."

Chair

Brian Joakim, who became chair of the trust last December, resigned earlier this month.

A trust statement said: "Since his arrival in 2007, Brian has worked hard to improve the long-term sustainability and financial well-being of the trust, and has championed the clinical excellence and high quality patient care provided by its staff.

"His enthusiasm and determination to get the job done were just a few of the many qualities that Brian brought to the organisation."