Public Accounts CommitteeWritten evidence from the Foundation Trust Network


1. The Foundation Trust Network (FTN) is the trade association and collective voice for NHS foundation trusts and those working to achieve foundation trust status. We have 215 member organisations providing care across the acute, mental health, ambulance and community services. The FTN welcomes the opportunity to contribute to the inquiry being conducted by the Public Accounts Committee following the National Audit Office report.

2. At the time of writing, of course, we have not had sight of the NAO report’s findings. However, given the well rehearsed financial challenge and recent events reported in the media around organisational sustainability in South London, we offer our view of the issues and what we consider is needed in the system to ensure that NHS providers are able to meet the needs of patients and the public into the future.

Executive Summary

3. The headline issues can be summarised as follows:

All providers face unprecedented financial challenges for at least the next decade. There is a need for system-wide approaches to many of the issues facing providers, especially those in difficulty.

Business case-based solutions are necessary to address the historic problems of legacy debt and PFI burden that support greater transparency in the use of NHS resources. There is need for transparency too around the extent of commissioner investment in care out of hospital settings and service re-design—we are concerned that what money there is in the system isn’t reaching the front line.

A mature commissioning environment which works in partnership with providers is required, with the ability to contract for services for longer term periods to support the costs of investing in service change and provide certainty around planning. This is a big ask given the stage of development of clinical commissioning groups.

An enabling proportionate regulatory regime which doesn’t get in the way of providers’ ability to respond dynamically to changing circumstances is critical. In the design of the regulatory framework over the next six months the DH must look hard at whether the proposals will deliver a truly liberated NHS where providers can build value and offer more for less.

Completing the well-established policy of an all-FT public provider sector is important as the means of giving all the providers that successfully achieve FT status the tools and accountabilities they need to become excellent providers of care for their communities, in the context of the new health industry.

4. We elaborate on these points in the following sections.

Financial Challenge

5. There is increasing public awareness of the £20 billion “Nicholson Challenge”, although the DH observed earlier this year that the challenge could rise to £50 billion by 2019–20. Providers are grappling with cost improvement plans averaging 5.7%, according to our member surveys. These unprecedented efficiency requirements are taking place against a background of significant system instability which has made the necessary local conversations around long term efficiency and service provision extremely difficult, even for those considered robust and high-performing.

System-wide Approaches Needed

6. The current reorganisation in the commissioning parts of the NHS has led to existing relationships being broken down and in some areas delays in tackling the key problems, as many of the issues facing providers now require a system-wide approach. Issues like integration, innovative service re-design, and improved patient outcomes (including how patients experience the entire health and social care system) are beyond the direct control of individual organisations.

7. The system immaturity (a consequence of the new Health and Social Care Act architecture) together with the prevailing financial position, puts providers in a position of high risk, as the agencies they need to relate to are not yet formed, or are not yet running at the levels of competence or capability envisaged by the “end design” of the reforms. Many of the incentives and levers planned to provide safeguards around the sustainability of services have not yet been finalised. There is an observed and anticipated danger of both commissioners and regulators being too risk-averse to support longer term systemic health and a vibrant provider sector.

Working together on Business case-based Solutions

8. To avoid failure, NHS organisations need to work together on solutions around what is necessary and possible for health provision in their communities—importantly including mental health as well as physical health. This dialogue includes identifying solutions to legacy debt and how to finance PFI deals. Of note, one of our members has worked with their local authority to buyout their PFI and pay a more affordable rate, with potential benefits for the whole community.

9. Sometimes though, failure will come into play. This is part of the system architecture under the Health and Social Care Act, where essential services rather than organisations are protected. In this respect, the experience of South London NHS Trust in the last couple of weeks is instructive and an important test of political appetite. As this is first use of the administration regime it must be made to work or the whole reform approach will be undermined.

10. Where organisations are in this position and the wider service needs them to continue, they should be supported with a business case-based solution that is transparent and open to scrutiny. Where alternative services are available, appropriate and desired, then the failure regime must be allowed to run its course, as the government’s provider policy prescribes.

11. Therefore what happens next in south London will be viewed with keen interest by all those in the NHS as it will signal government confidence in its own reforms. In particular it will demonstrate:

(a)appetite for the scale of reconfiguration that is necessary in the system;

(b)support for the government’s provider policy, predicated on a regulated but dynamic market where organisations are allowed to fail; and

(c)an end to opaque bailouts that divert finite resources towards failing organisations at the expense of the good.

Transparencies of Investment in Service Re-design

12. Many of the immediate financial concerns of our members arise from the tough financial environment in general but this is compounded by certain punitive tariff arrangements which make NHS providers responsible for addressing wider NHS shortcomings and impact on their sustainability. These include the observed failure of primary care and commissioners to manage demand and invest in community-based care, the consequences of which mean providers are seeing increasing numbers of emergency admissions reimbursed at 30% of tariff.

13. We also hear of examples of providers making savings so that the resource can support an enhanced community care service, but instead the money is retained by the PCT. Over the last two years we have been asking in respect of efficiency savings “where has the money gone?” as we are not seeing it invested in re-designed patient-facing services. Consequently all the push is to get patients out of hospital into community care through a series of ever more stringent penalties, with little pull from accessible alternative services in the community to change the pattern of demand. In these circumstances acute providers are put at significant financial risk and are unable to take out sufficient cost overhead in a sustainable way.

Commissioning Environment

14. What can commissioners do to ensure that their local services and key provider organisations are sustainable (as while the new NHS is committed to protecting services rather than organisations, in the transition these are likely to be corresponding or inter-related)? We consider that providers need a balanced relationship with commissioners and commissioning which:

Understands the provider landscape in their area.

Quickly understands the co-dependencies of services so that seemingly insignificant changes in commissioning do not compromise provider ability to deliver the full range of care expected.

Is comfortable with innovation and risk, but recognises that this will require investment over and above “business as usual” models.

Issues contracts for the longer term (five to ten years rather than one or two) so that providers are encouraged to invest in new models of care.

Focuses on commissioning for outcomes rather than episodes.

Regulatory Environment

15. The regulatory framework has a role to play in supporting the financial sustainability of NHS organisations and for NHS foundation trusts Monitor undertakes this role by issuing financial risk ratings (FRR). This has worked well, though it is worth noting that post-Act, NHS foundation trusts will need to develop their own assurance in conjunction with their governors and members so that Monitor can fulfil properly its role as a sector regulator and not have a special interest in the success of one particular section of the market.

16. The licence which Monitor is expected to apply to providers as sector regulator is about to be consulted upon, but early engagement has taken place. Our view on the proposals as presented earlier in the year is that there is a risk of an over-burdensome approach which inhibits the very behaviours that the legislation was intended to promote—such as partnerships supporting integrated care. Indeed, unless the proposals change radically they.

July 2012

Prepared 31st October 2012