Department of Health: The Franchising of Hinchingbrooke Health Care NHS Trust and Peterborough and Stamford Hospitals NHS Foundation Trust - Public Accounts Committee Contents

1  Strategic Management

1. In 2007 Peterborough and Stamford NHS Trust failed to recognise that a PFI scheme to build a new hospital, Peterborough City Hospital, would place considerable strain on its finances for years to come. The then board compounded the decision to proceed with the scheme, which it could not afford, with a failure to monitor other changes affecting its income and costs with the result that the Trust faced a very large, recurrent deficit once the new hospital opened in December 2010.[2]

1.  Hinchingbrooke Health Care NHS Trust is a small district general hospital in Cambridgeshire, some 24 miles from Peterborough. The Trust suffered financial difficulties and, between 2004-05 and 2007-08, developed a cumulative deficit of £39 million on an annual income of around £73 million. Between 2006 and 2008 the Department of Health (the Department) gave the Trust around £40 million in working capital to support its cash position while it attempted to return to in-year financial balance. However, the Trust's financial recovery attempts were unsuccessful and it required non-recurrent support from its main commissioner, NHS Cambridgeshire, and the NHS East of England Strategic Health Authority (the SHA) to prevent the deficit from increasing further.[3]

2.  In 2007 the Department gave the SHA approval to explore options to implement a new management structure at Hinchingbrooke, which was financially sustainable and enabled the trust to repay its cumulative deficit. In July 2009 the SHA obtained approval from the Department to seek a partner to run the Trust as an operating franchise. Following a competition, in November 2011, the SHA awarded a ten-year operating franchise to Circle, a private company.[4]

3.  We asked the SHA why, given the fragile state of both trusts' finances, they had allowed both projects to proceed. The SHA told us that its role in respect of the Peterborough PFI scheme was to attest whether the commissioners' activity forecasts looked reasonable and whether there was an argument for a new hospital in Peterborough because of the circumstances of the city and its needs. The SHA had felt that the activity forecasts "were reasonable" and it had been "persuaded and convinced that there was a necessity for a hospital in Peterborough."[5] The SHA also believed that there was a case, and continued to be a case, for "the continuation of a vibrant hospital in Huntingdon called Hinchingbrooke hospital" and that the two were "not inconsistent."[6] At the time of these decisions, the Primary Care Trusts (PCTs) in the area were in financial difficulty and there was an over-provision of acute district hospitals, but these factors appear to have been neglected in the decisions taken.[7]

4.  The Department informed us that its approval of the Hinchingbrooke franchise was based on the assumption that the projections for Peterborough and Stamford were accurate, and that the Hinchingbrooke franchise would lead to sustainable services at that site, for that population, on a financially viable basis.[8]

5.  The SHA told us that it had no statutory responsibility to review the business case for the Peterborough and Stamford PFI deal, but they did have to agree the PCTs plans for activity flows into Peterborough and Stamford Hospitals NHS Foundation Trust. They believed that, as Peterborough and Stamford was a foundation trust, this was where their responsibilities ended, even though they were tasked with the strategic management of health services within the East of England and obviously decisions made at one hospital impact on the local health economy as a whole.[9]

6.  The Chief Executive of Peterborough Hospital told us that the relationship between Peterborough and Stamford and their main commissioners had improved substantially and he was cautiously optimistic about the future. The Trust's income growth in the last five years has come from other commissioners, notably NHS Lincolnshire, demonstrating that the situation at Peterborough and Stamford needs to be looked at in the context of the whole catchment area of the Trust across the East of England and Midlands region, rather than just Peterborough.[10]

7.   The Government has clearly stated that it wants to reduce funding to acute hospitals and grow health services delivered in the community. In the future, responsibility for delivering this policy will fall to the Commissioning Board and local authorities. Successful change will require clinical leadership, particularly to convince patients and the public that this policy best serves their needs.[11]

8.  Monitor, the Foundation Trust regulator, expressed concerns at the time about the affordability of the Peterborough PFI deal but it did not follow these through. Monitor explained that its regulatory role had been 'light-touch', its powers to intervene had been limited to cases where failure was imminent and that was why it had had not been able to stop the decision to proceed with the PFI deal.[12] Its risk ratings of Trusts were based on current performance not future risks. Monitor admitted that there was a weakness in the current system, but new legislation would allow them to intervene on the basis of both present and future risks.[13]

9.  Peterborough and Stamford has spent a large amount of money on consultants in recent years, including nearly £9 million in the last two financial years. The trust told us that it had a deliberate policy over recent months to wind up all its consultancy contracts. The Department accepted that more needs to be done to share good practice and benchmarks to avoid the need for consultants to undertake this work.[14]

10.  At the same time Monitor told us that a Contingency Planning Team would undertake a review of Peterborough and Stamford Hospitals NHS Foundation Trust to: confirm the cost outlook in the Trust; review options to reduce the cost of the PFI; look at the outlook of the commissioners; look more widely beyond immediate commissioners; and work out the best way to fill the gap in funding. This review, to be undertaken by consultants, will cost around £2-3 million. Monitor admitted that there was some specific expertise that it did not possess and that it aimed to bring more of this work in-house to reduce expenditure on external consultants. Whatever the outcome of the review and future action, Monitor confirmed that there will be a continuing financial gap for this Trust and that there will be a continuing need for public subsidy to fill the gap. The NAO in its report said that the trust will require significant public support of up to £26 million a year for the next 30 years to balance its books.[15]

2   C&AG's Report, Peterborough and Stamford Hospitals NHS Foundation Trust, Session 2012-13, HC 658, paras 2,4,7,11-13, 15. Back

3   Q53, C&AG's Report, The franchising of Hinchingbrooke Health Care NHS Trust, Session 2012-13, HC 628, paras 1-2. Back

4   C&AG's Report, The franchising of Hinchingbrooke Health Care NHS Trust, Session 2012-13, HC 628, para 3. Back

5   Q239 Back

6   ibid Back

7   Qq 52, 124, 261; C&AG's Report, Peterborough and Stamford Hospitals NHS Foundation Trust, Session 2012-13, HC 658, paras 1.24, 2.4-2.5, Figure 5 Back

8   Q 98 Back

9   Qq 80-81, 85, 202, 244 Back

10   Q 221 Back

11   Qq 150, 152 Back

12   Q 176 Back

13   Qq 175-176 Back

14   Qq 225, 231-232; C&AG's Report, Peterborough and Stamford Hospitals NHS Foundation Trust, Session 2012-13, HC 658, Figure 15. Back

15   Qq 250- 256, 258-259; C&AG's Report, Peterborough and Stamford Hospitals NHS Foundation Trust, Session 2012-13, HC 658, paras 15,16, 2.22, 3.22, Figure 11. Back

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Prepared 7 February 2013