Exclusive: FT to receive £328m as part of takeover of neighbour

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The Department of Health has agreed a package of support and capital payments totalling £327.7m with Frimley Park Hospital Foundation Trust as part of its takeover of another trust, HSJ can reveal.

The news comes as the newly merged organisation, Frimley Health FT, is forecasting a £22.9m deficit for 2014-15 - £17m worse than its planned end of year position.

The £277m-turnover Frimley Park acquired £253m-turnover Heatherwood and Wexham Park Hospitals FT in October.

Documents released to HSJ by the DH under the Freedom of Information Act have now revealed the full scale of the package agreed to support the merged organisation over the next four years.

Frimley Park is forecasting a deficit of £22.9m for 2014-15

The amount includes £127.2m of public dividend capital and £59m of loan funding to support rebuilding and refurbishment of parts of the Heatherwood site.

The application document said the money would counteract the “significant historical underinvestment in estates” that had followed Heatherwood’s unsuccessful attempts to stay out of deficit.

The merged trust also hopes to save £8m from sharing buildings while making £28m from selling land at Heatherwood Hospital.

The application also asked for £79.4m of income funding and £11.7m of public dividend capital to cover the deficits the merged organisation is expected to run until 2020-21. There will also be £12m in public dividend capital payments for “the working capital normalisation of HWP’s balance sheet”.

A further £24.8m was requested for “transaction indemnities”, with £13.9m to cover “transaction costs”.

The transaction costs comprise £7.6m for a project management office and turnaround team and £4m for “advisory costs and legal fees”, with a £2.3m contingency.

Like for like comparisons of transaction costs are difficult because of different definitions for them, but two recent takeovers show them increasing beyond the original estimates.

Monitor said earlier this month that it paid £19.5m for the special administration process that saw Mid Staffordshire Foundation Trust dissolved and its component hospitals merged with neighbouring trusts. The regulator had originally budgeted for transaction costs of £15.3m.

The DH and the NHS Trust Development Authority also invested more than £250m in the Staffordshire health economy to facilitate the dissolution and takeovers.

The trust special administrator appointed to South London Healthcare Trust in 2012, which invited bidders to take over each of its three main hospitals, estimated the central support needed would be £266m with £45m in transaction costs.

In September 2013 this was revised up to a requirement of £466m in central support and £71m in transaction costs.

Another foundation trust, King’s College Hospital in London, has experienced performance problems since it took over South London Healthcare Trust’s Princess Royal University Hospital in 2013. It is forecasting a deficit of £42.5m for 2014-15, has brought in a turnaround director and is being investigated by Monitor.

King’s has also asked for increased funding to cover the costs of improvements at the Princess hospital and recently received £10m through the TDA.

Monitor chief executive David Bennett last year cited King’s as an example of a successful trust that could struggle following a takeover.

Monitor’s application to the DH for the Frimley Park funding highlighted that Heatherwood and Wexham Park had been in special measures and given an “inadequate” rating by the Care Quality Commission. It said: “The underlying cause of the above issues is an inability to attract talented leadership, deep seated cultural issues and longstanding underinvestment in estates. This is exacerbated by a lack of public clarity over [the trust’s] future.”

It added that the takeover by Frimley Park was considered the only viable option for the trust after the option of a merger with Buckinghamshire Hospitals Trust was dismissed in 2012 because of the latter’s “fragile state”.

In relation to Frimley Health’s deficit forecast, trust chief executive Andrew Morris said in his report to the trust’s March board meeting that the “underlying” deficit at Heatherwood and Wexham Park was “much greater than anticipated” at around £20m, which was “beyond the original forecast range”.

He said: “While the investment adjustment covers most of this, plans will need to be urgently developed to bring income and expenditure into balance over the next four years.”

Mr Morris added that “synergy savings of £10m will contribute in closing the gap but further actions will be required”.