Why caution on hospital failure still has its price

The longest standing question in the nine years of foundation trust history is: what happens in the event of failure?

The government has turned from its original intention of “designating” essential services and leaving the rest to the mercy of the market. Instead, it has decided to effectively shift the problem to commissioners, by allowing increased tariffs for struggling services, and retained the ability to provide public dividend capital to distressed organisations.

Over-ambitious foundation trusts can have their ability to borrow restricted by Monitor, while the vagueness of the insolvency proposals will do very little to encourage private lending. And, just in case, the health secretary has retained significant rights to veto any post-failure plans.

In some ways this is a pragmatic recognition that the time is not right – politically or financially – within the NHS to grant full freedoms. However, the price that will have to be paid is that strong organisations will still effectively subsidise poorer performers as “risk pools” emerge across the country to manage the danger of provider failure. Combine that with the likelihood of similar arrangements needed to balance the risk of commissioner failure and a bewildering interconnected financial web emerges.

That complexity will breed what it always does in the health service: unintended consequence, a reluctance to change – in part to avoid those unforeseen implications and a perceived need for centralised control, in part to avoid blame.

Failure will be managed, which is a good thing in the health service. But failure will also effectively be permitted or denied for reasons not all of which will be linked to enhancing service quality.