'Risk pool' offers £50m foundation safety net

The government is to protect first-wave foundation trusts from potential financial meltdown by setting up a£50m rescue fund, HSJ has been told.

The move follows concern last November among teaching and specialist trusts that foundation status could result in the loss of millions of pounds in revenue if they become early implementers of the payment-by-results system (see box, overleaf). Concern is concentrated on payment for complex work which forms a significant part of caseload of large teaching and specialist trusts.

In November, at least six of the biggest hospitals in the country privately discussed walking out on the government's flagship policy.

But following prolonged negotiations over Christmas and the new year, Department of Health finance director Richard Douglas has offered to set up the so-called 'risk pool'.

Initially it will run for 12 months and has been broadly welcomed by many of the 25 trusts expected to apply for foundation status. HSJ understands the rough£50m figure falls short of the£60m-£100m some teaching trust chief executives originally demanded. The final figure set for the fund will depend on the number of trusts that opt to become early implementers of the payment-by-results system.

Full details on how it will operate have yet to be fleshed out - particularly how the 'compensation' payments will be distributed to trusts facing losses.

University College London Hospitals trust chief executive Robert Naylor said the vast majority of trusts were satisfied with the DoH's solution. But he added: 'We have stressed to Richard Douglas that any uplift system that is introduced has to be simple and effective. We have arrangements with over 200 primary care trusts across the country.

'There cannot be a system where we are in detailed negotiations with each one about their arrangements to ensure the tariff they pay is adequate to the type of work we carry out. We would incur enormous expense.'

There is a second fear that, despite the best efforts of the DoH, necessary refinement of the tariffs for specialist services may take more than a year. This suggests the riskpool arrangement would have to be extended beyond 2004-05, when a greater proportion of non-foundation trusts' activity comes under the payment-by-results system.

Another foundation trust candidate chief executive told HSJ: 'It is clear that some of the problems with the healthcare resource groups are deeply ingrained, and in order for this to work [the DoH] will have to put together another version [of the HRGs] for us to use. Many of us believe the 12 months may not be sufficient.'

Mr Naylor said: 'There are some trusts who say it may have to be longer than that because the HRGs will take time to develop [to capture the costs of specialist services].

And he said he believed the DoH saw the first foundations trusts going for tariff as 'pilots' - 'a chance to test payment by results' before it was fully rolled out.

The DoH said: 'We are still in discussion with trusts so It is a bit too early to give any detail about how much' the fund would amount to.

Payment by results Before a tariff price can be set up for a specif ic procedure, each element is broken down into its individual elements and costed.

These are called healthcare resource groups.

For simple cases, it should be relatively easy to set a price.But the costs of complicated cases vary widely.The NHS Confederation says the HRG costs of a bone marrow transplant can vary from£13,000 to£83,000.

Trusts fear it will take some time before the HRG system is sensitive enough to reflect accurately the actual work HRGs attempt to represent, in complex areas. If they are not, even efficient trusts could end up spending huge amounts of money delivering care for which they do not receive adequate payment under the tariff price - resulting in serious shortfalls in revenue.

First-wave foundation trusts face two options in their first year: they can become accelerated implementers of the paymentby-results system this year or they can delay, with the Department of Health offering them a minimum income guarantee for the work they carry out.

The latter option protects foundation trusts from the financial consequences of underdeveloped HRGs, but will not produce the sort of cash windfall they believe their efficiencies would allow them to generate under the financial flows system.