Birmingham's Good Hope Hospital trust might at last put its troubles behind it if its acquisition by a neighbouring foundation trust goes ahead. Helen Mooney chronicles the hurdles that have stood in the way and asks if the move is likely to be replicated

To many local people, Birmingham's Good Hope Hospital trust is known by a rather less optimistic sobriquet. 'No Hope' is the nickname for a hospital that has long been marked by failure.

Tracing the history of the trust reveals repeated cycles of financial problems, changes in management and a high-profile failure to franchise out the running of a trust to a private company.

The organisation has grappled with the heavy burden of historic debt for the last six years. Until recently, the local health economy could not even agree how far into the red the trust had gone. Estimates went as far as to suggest a£60m deficit and none of the trust's numerous management teams has so far managed to address the problem.

Now the trust is about to find out whether a radical experiment can cure its ills. Last month, health secretary Patricia Hewitt gave the green light to a public consultation on proposals for Heart of England foundation trust - Good Hope's neighbouring hospital trust - to acquire Good Hope. If the deal goes ahead it will be the first time that a foundation trust has taken over an existing NHS trust wholesale. Needless to say, everyone is awaiting the outcome and asking whether such a takeover can succeed.

An air of relief is emanating from NHS West Midlands - it hopes it has finally solved the Good Hope conundrum.

Everyone hopes the acquisition will succeed, that the hospital's services can be saved and that the future will be less bleak for acute services on its Sutton Coldfield site.

Rewind to August 2003 and the story looks somewhat different. Good Hope became the first and only hospital in the country to be franchised out to a private company. Following an investigation into waiting-list mismanagement in December 2002 it was unceremoniously stripped of its three-star rating by the Commission for Health Improvement.

Its then chief executive Geoff Chandra resigned and the Department of Health brought in private healthcare company Secta (now an arm of the Tribal Group) to run it. Secta was awarded a three-year contract and charged with returning the trust to three stars and achieving financial balance, something it failed to do.

In the summer of 2005, Birmingham and the Black Country SHA - now part of NHS West Midlands - ran the foundation trust diagnostic across its patch to assess what kind of work needed to be done to get all its acute trusts to foundation trust status by the government's aspirational 2008 deadline.

SHA chief executive Cynthia Bower is frank about the outcome. 'It became clear from the diagnostic to the trust board and to us at the SHA that the hospital was not going to become a foundation trust in the timescale set by the health secretary.

'It was clear that it was not going to make it and in addition it had a lengthy history of financial problems and an Audit Commission public interest report,' she says.

It was at this point that the boards of both Good Hope and the SHA decided that the trust must seek help. Assistance came in the form of a 'strategic alliance' with its neighbouring hospital - the successful Heart of England foundation trust, winner of Acute Organisation of the Year in last year's HSJ Awards.

The now joint chief executive of Heart of England foundation trust and Good Hope trust Dr Mark Goldman is keen that the foundation trust is not portrayed as the knight in shining armour riding in to rescue the failing trust.

'Strategically we have always had a good fit with Good Hope and when it became obvious the trust's private sector arrangement was not working in mid-2005 we saw it as the perfect moment to try to do something with the trust.'

Dr Goldman does, however, admit that there is a 'degree of self-interest' for the foundation trust in acquiring Good Hope. 'As a foundation trust it is in our interest to stop additional cash going [from the primary care trusts] to support Good Hope when it could be coming to us for the work we are doing,' he says.

Heart of England - which achieved foundation trust status in June 2005 - is not jumping into the acquisition with its eyes closed. There has been over 18 months of preparation to reach a stage where the deal is now ready for an open public consultation.

The alliance meant that Dr Goldman and a handpicked management team from the foundation trust were drafted in to Good Hope in November 2005 to assess how the trust might reach foundation trust status. By February 2006 their commissioned report concluded there was no way the trust would be able to do so in its current form.

'Once it was decided that Good Hope was not capable of achieving foundation trust status as a standalone organisation we began further discussions with the SHA and trust board as to whether the trust should look to merge or be acquired by a foundation trust,' says Mr Goldman.

A question of debt

The existing joint management team contract between the trust and the foundation trust was renewed and a new team brought in to broker a buy-out deal. Both Dr Goldman and chair of the foundation trust regulator Monitor Bill Moyes are keen to stress that the deal is not a merger. It is an important distinction as a merger would require dissolution of both trusts and the de-authorisation of Heart of England as a foundation trust.

Nevertheless, the proposed acquisition has not been without its problems. One of the biggest hurdles was agreeing the amount of historic debt that Good Hope was carrying. A final figure of£18m was finally agreed on by the trust, the foundation trust, the SHA, and the Department of Health. And this debt is effectively now written off under Treasury rules.

As Dr Goldman admits, the acquisition has been 'financially technically difficult' and the deal is yet to be signed off. The local health economy still needs to seek buy-in from its population through the current public consultation. Perhaps more importantly the Heart of England trust board has yet to receive a proposed post-acquisition risk rating from Monitor.

Heart of England has an overall financial risk rating of five, which means it has the lowest risk of financial failure. However, if it acquires Good Hope the trust expects this to be pushed down to a rating of three or four.

'It will be tight on which rating we get,' admits Dr Goldman and he warns that if the trust is given a new risk rating of three by the regulator there will be 'a lot of debate' at board level as to whether to go ahead with the acquisition. Despite these issues, Alpesh Patel, head of healthcare at Ernst and Young, says the deal is 'undoubtedly a pathfinder'. Brought in by the SHA to advise on the acquisition, he says that Ernst and Young 'took a very hard line and looked at the best way to do the deal to get the best value and protect the health economy'.

Ernst and Young mergers and acquisitions director Boota Kular agrees. He adds that when the consultants came into the deal there was an obvious skills gap between foundation trust management and advisers and the SHA and Good Hope board. 'There was a big gap between the foundation trust's commercial rigour and the side we were representing,' Mr Kular says. 'The foundation trust had a slick commercial group of people with slick advisers,' he adds.

And SHA chief executive Ms Bower says that ultimately the SHA had to ask what was in the best interests of the population and of the hospital. 'It is not like we are going to be providing one big monopolistic hospital in the area, there is a lot of choice for patients in this environment,' she says.

'Yes, it's exciting and innovative,' she adds, but she is keen to stress that the SHA would not have done the deal at any price.

Money, however, has been a big driver in the Good Hope acquisition. The trust's£18m historic debt had been well publicised and the chance to get rid of this burden was something the SHA could not ignore. Yet it is not Heart of England foundation trust that has taken on the debt.

The shape of things to come?

The acquisition heralds a landmark in the government's new line on historic debt and could signal the way forward for other trusts facing the same plight as Good Hope.

The Department of Health agreed to convert the trust's debt into equity under the Treasury's public dividend capital rule. Essentially, although the SHA will still be held responsible for paying interest on the debt, such an agreement means that Heart of England and Good Hope will become a trust without historic debts and which balances in-year.

Ms Bower is adamant that it is not, however, an easy solution for anyone involved. 'This is about the two trusts and their populations, it is not just a solution for any problem and there is nothing easy about it. Heart of England takes the risk in terms of future income and there is an absolute bottom line it has to maintain in its existing commitments to retain a raft of service - it has been a tough year for everybody,' she admits.

So is this type of deal likely to be replicated across the country? Ms Bower thinks not. 'We are not peddling this solution for the NHS's financial problems, it is a local solution from our point of view and we are certainly not looking at it for other places across our patch, this is a particular set of circumstances,' she says.

Dr Goldman sees it differently: 'It is becoming clear that not every NHS trust is being managed to the same standard as every other NHS trust and if the management of a trust can be improved to the extent that has happened here it is clearly worth looking at,' he says.

'Given the difficulties in raising the numbers of high-calibre management teams needed to run NHS organisations there is something to be said for getting one strong management team to run several organisations,' he adds.