Urgent action must be taken by regulators, ministers and local managers if Peterborough and Stamford Hospitals Foundation Trust is to avoid going bust, according to the National Audit Office (NAO).

The trust has racked up budget of deficits totalling nearly £100m over the last two years and in 2011-12 it boasted a deficit-to-turnover ratio worse than South London Healthcare Trust, which became the first trust to go into administration this year.  

The NAO report laid bare the series of mistakes and poor decisions taken by the trust’s board, including the signing of a disastrous private finance initiative (PFI) contract for a new hospital, and the lack of an appropriately robust response by regulators and the Department for Health.

The watchdog has made four high-level recommended changes to existing protocol to ensure similar mistakes are avoided in the future.   

NAO head Amyas Morse said: “The trust board’s poor financial management and procurement of an unaffordable PFI scheme have left the Trust in a critical financial position.

“The board developed and enthusiastically supported an unrealistic business case built on over-optimistic financial projections. The regulatory and approval processes did not work in this case and did not ensure affordability.

“Irrespective of how far the PFI scheme contributed to the current deficit, the latter is now too great for the trust to balance its finances by managing its own resources.

“The trust, the department, commissioners and Monitor need to work together and take urgent action to help the Trust get back on its feet.”

Peterborough by numbers

  • £411m the estimated total liability of the PFI scheme (build cost and finance costs) to the Trust when the hospital was completed
  • £45.8m the trust’s deficit in 2011-12
  • £41.6m the cost of the PFI scheme to the trust in 2011-12, including adjustments
  • £64m the Trust’s current target for cumulative efficiency savings by 2016‑17
    Five the number of chief executives at the trust since identification of the preferred bidder for the PFI scheme.  

A NAO statement added: “Monitor raised well-founded concerns about the scheme’s affordability with the trust board and the Department before the business case was approved. However, neither the trust board nor the Department addressed these concerns fully before approval of the business case.

“Monitor considered that its statutory powers to intervene to stop the Trust proceeding with the scheme were limited and their use would have been inappropriate.”

“Monitor had a number of opportunities to intervene before finally placing the trust in breach of its terms In October 2011 but concluded that an intervention would not necessarily improve or change the outcome positively.”

The report was also critical of the benchmarks used by the department to sign off the scheme.

It said: “One key test the department used to approve the trust’s scheme, and from which the trust board took assurance that it was affordable, was that the annual payments did not exceed 15 per cent of the Trust’s annual turnover.

“Not only was the basis for choosing this threshold unclear, but it was a potentially misleading figure in that the Trust’s financial projections showed that it would not achieve this until well into the life of the scheme.”

In 2011-12, the trust’s first full year of occupancy of its new hospital coincided with a collapse in its finances leading to a deficit of around £46m – 22 per cent of trust turnover.

The next worst proportion of deficit to turnover in the NHS is South London which has a 15 per cent ratio and was forced to call in Trust Special Administrator under the Department of Health’s unsustainable provider regime.

Read HSJ’s briefing on the trust’s fianancial woes.

Recommendations

  • Where an oversight body has raised concerns about a business case, the Department should not give approval until they have been addressed
  • When assessing the affordability of major capital projects, the Department and trust boards should place less reliance on benchmarks and test more rigorously the realism of projected cash flows
  • Monitor should strengthen its oversight of the foundation trust sector. Monitor raised concerns about the affordability of the scheme at an early stage, and began raising concerns again in 2010, but this did not impact on events.
  • The department and local commissioning bodies should work together with the trust to address the trust’s serious financial difficulties and return the trust to financial stability without undermining patient care.