NHS Trust Development Authority officials refused to pay the bulk of a claim for unanticipated costs made by a trust that fell into financial trouble after taking over a failing neighbour.
- NHS Trust Development Authority officials did not want to give King’s College Hospital more than £10m
- Trust submitted claims to cover costs of taking over Princess Royal totalling £46.5m
- Emails to Department of Health show TDA asked Deloitte to review the King’s claims but to stop at £10m
- Read the emails
Emails released under the Freedom of Information Act (attached, right) show senior figures at the TDA worked to give King’s College Hospital Foundation Trust in south London no more than the £10m indemnity payment it was contractually entitled to. This is despite acknowledging it had likely incurred significantly higher costs during the takeover.
The FT ran into financial problems following its acquisition of Princess Royal University Hospital, formerly part of South London Healthcare Trust, in October 2013.
A clause in the takeover contract said King’s could claim up to £10m to cover “liabilities, costs, expenses, damages and losses suffered by [King’s] in connection with the transferring services, assets of liabilities of [South London Healthcare] which [King’s] was unable to quantify due to inaccurate or incomplete due diligence before completion”.
In September 2014 King’s entered 27 claims to the TDA on this basis, totalling £46.5m.
But the emails show only the £10m was paid, and the TDA instructed its advisers not to assess the validity of claims above this threshold. This suggests King’s might have incurred unfunded costs of more than £35m as a result of liabilities it was unaware of when taking on the Pincess Royal.
The trust reported a deficit of £47m for 2014-15 and forecasts a £65m shortfall for 2015-16. Chief executive Tim Smart stepped down in April.
An email from TDA finance director Bob Alexander - currently interim chief executive - to DH group financial management director Andrew Baigent said: “They have a legitimate claim for the [maximum] £10m allowed in the transaction agreement. Frankly they’ve [probably] a case for more as their claim is higher but it’s capped at [£10m] and we haven’t gone looking.”
The correspondence includes an email on 19 December 2014 from the TDA’s then deputy director of finance Elizabeth O’Mahony, which said: “What the brief doesn’t say is that we asked Deloitte to review the claims but to stop at £10m and not give a view on the other claims.”
The rest of her email is redacted by the DH, which said releasing it would compromise a third party’s commercial interests.
The DH became involved because the TDA had asked it to cover some of the £10m.
Consultancy firm Deloitte reviewed six of the King’s claims for the TDA totalling £15.4m. These included historic back-pay for junior doctors at PRUH; higher than anticipated pathology costs; and “unplanned asset replacement required to meet health and safety standards” – and Deloitte had also acted as advisors on the original transaction agreement.
An email from an anonymised sender to Mr Baigent on the same day said: “Informally, TDA think that the total claim is well over the £10m at which we have capped the payment.”
Another email to Mr Baigent from a sender with redacted identity said: “TDA are keen not to open the door to further claims by paying out against specific claims, however they are confident that the full £10m ask is justified.”
A TDA spokesman said over the course of the transaction the amount of money made available to King’s had increased significantly.
He said: “King’s submitted a financial claim in 2014 and the TDA had a responsibility to ensure that the claims, up to the agreed limit of £10m, were legitimate. The TDA assessed some of the highest claims and were fully assured of the legitimacy of these up to the agreed £10m limit.
“It was clear from this work that there may have been further costs, above the enhanced envelope agreed by King’s, that the trust incurred as a result of the transaction. Therefore the TDA immediately initiated the process to release the £10m in line with the agreement signed by all parties.”
Acquisition deals often come with significant amounts of cash guaranteed from the DH.
HSJ research revealed in March that Frimley Park Hospital Foundation Trust will receive £328m to cover the costs and risk of taking over Heatherwood and Wexham Park Hospitals FT, which went through in October.
After this article went to press King’s provided a statement that said: “Prior to the acquisition, we undertook a process of due diligence which, whilst detailed, did not identify all of the issues and related costs we have since encountered. With hindsight, the information provided was not as exhaustive as we would have liked. Indeed, many issues subsequently identified could not have been known at that time.
“The TDA have recognised this and made payments up to the indemnity limit included in the transaction agreement. Amounts in excess of this limit will need to be addressed as part of the Trust’s wider recovery plan.”
Freedom of information requests and information provided to HSJ