STRUCTURE: Monitor’s response to financial problems at a struggling foundation trust has offered the first example of the watchdog’s new readiness to push for reconfiguration of services.

The regulator last week announced it had placed the Royal National Hospital for Rheumatic Diseases Foundation Trust in “significant breach” of its terms of authorisation.

It said in a statement the trust’s problems were primarily “due to its small size and the limited number of specialist services it provides”. The trust, known locally in Bath as “the Min”, is the smallest of all foundations.

The trust had “taken steps to reduce its costs and improve efficiency but is facing significant structural challenges, resulting in financial problems, many of which are beyond its immediate control”, the regulator said. “Monitor does not believe that actions taken by the trust alone can address the financial problems, therefore a long term strategy is required.”

The Min had a turnover of just £20m and was forecasting a deficit of £1.6m for 2012-13. Its small size left it with “significant financial exposure” to fluctuations in demand or changes to NHS tariff prices, Monitor’s decision letter to the trust said.

The letter went on to say that the Min’s preferred solution was to merge with Royal United Hospitals Bath Trust once the nearby trust had gained foundation status.

But the regulator warned there was an “inherent lack of certainty” about when it would be able to authorise Royal United Hospitals Bath, and its “continued focus” on this strategy may have hindered the Min’s “timely exploration of suitable alternative options”.

Monitor’s letter said the specialist trust had “considered a number of service reconfiguration options” to offset its deficit but had “concluded that service reconfiguration without an external partner is insufficient” to balance its books. It directed the Min to choose an option and produce an “achievable plan”, supported by its commissioners, for delivering it, by 30 June.

Earlier this year HSJ reported that the regulator believed it might for the first time have to deal with FTs that were not viable as standalone organisations. Monitor said that in such cases it would need to “ensure the foundation trust develops an appropriate plan and delivers it”.

Monitor’s action last week also substantiated its recent warning that FTs would not be able to mask underlying financial weakness with bailouts. The regulator’s decision letter said the Min was forecasting a deficit of just £120,000 for 2011-12. But it concluded the trust’s underlying deficit was £1.2m, after disregarding £900,000 of “non-recurrent support”.