Feature / A time to lead?

Foundation trusts are in rude health. Financial figures for 2008/09 show an aggregate surplus of £522m before exceptional items, EBITDA margin at 7.1% and a plan-busting £2.8bn cash balance. But with the economy in nosedive and the NHS facing a well-publicised end to the growth of the past decade, can FTs continue to thrive and even play a leading role in guiding the NHS out of recession?

They have prospered in a time of unprecedented growth and increasing capacity. This was a point made by NHS chief executive David Nicholson in his review of 2008/09, when he promised to review the ‘system reform levers’ currently in place.

Early FTs benefited from a fast-track introduction of the payment by results system, but all acute FTs have built their financial strength on a system that has paid them for increases in emergency admissions and for the elective activity needed to meet the 18-week target. That payment system could face changes.

With the overall growth for the NHS about to be turned off, there is a growing consensus that PBR needs to adapt. Mr Nicholson has talked of the need to ensure incentives are in the right place. And the NHS Confederation’s Dealing with the downturn briefing has called for tariff changes with capitation payments for long-term conditions, more normative tariffs and bundled payments for the whole pathway.

Sue Slipman, director of the NHS Confederation’s FT Network, believes the FT model has already shown itself to be the best at delivering efficiency and improvement. But she acknowledges that there is a need to start maximising efficiency across systems.

‘We are going through very tough times and no-one is under any illusion about that,’ she says. ‘We are probably looking at a gap of up to about £12bn, maybe more, from 2011 onwards. What will bankrupt commissioners is the level of demand that FTs are dealing with, particularly in the acute sector. I suspect the issue has come to where the balance lies between co-operation and competition.’

Chris Ham, professor of health policy and management at Birmingham University, also believes FTs have a major role to play in the difficult times ahead, although he says policy changes are needed to support this.

‘FTs have a real opportunity to be part of the solution,’ he says. ‘FTs have some of the most experienced, able leaders in the NHS and they have demonstrated a good record of achievement. In many parts of the country, if I were in David Nicholson’s shoes, I would be looking to the best of the FTs to take on a wider role in helping the rest of the NHS adjust to the much tighter financial circumstances.’

A paper written by Professor Ham and published in June by the Nuffield Trust – Health in a cold climate – suggests that integrated systems bringing together aspects of hospital, community and primary care have a potentially important role to play in future.

Professor Ham believes FTs could be the agents for achieving this move towards the Kaiser Permanente-type approach. ‘But we can only do that if we change the funding systems to support development in that direction,’ he says. ‘We can’t just rely on FTs in the current policy context. That needs to be reformed.’

Like the confederation, Professor Ham believes a payment system is needed that covers the whole care pathway, before and after hospital treatment – a system that would be built on PBR but ‘in many respects radically different’ – incentivising more joined up care.

Talk of integrated systems suggests potential for FTs to move into the areas of running GP or community services (see box right).

‘Vertical integration has to have a role,’ says Ms Slipman.  She suggests FTs are on the receiving end of an inexorable rise in demand. ‘Unless something diverts it elsewhere, the only thing an FT can do is sit there and take the business. If you want to have that demand catered for in a better way you have to incentivise the people to whom the demand comes to do something about it.’

She says institutional integration isn’t the only way to deliver this. ‘It can also work through partnership agreements,’ she says. ‘As long as you’ve got people working in the right direction and sharing the outcomes then you are beginning to integrate services.’

The Co-operation and Competition Panel is already examining two cases involving FTs looking to integrate with a primary care practice (Sunderland) and the transfer of community services (North East London), which it approved at the end of June.

Professor Ham believes changes are also needed to the regulatory regime. While acknowledging that Monitor’s oversight has brought benefits, he believes this encourages FTs to increase activity and income to meet risk rating ‘targets’.

FT directors in a small survey undertaken by Healthcare Finance were divided in their views about the surplus thresholds included within the risk rating mechanism. Some felt the surplus and EBITDA margins were incompatible with recession and needed to change to avoid excellent organisations being rated as only fair or good. Others took Monitor’s line and felt the standards should remain, but that FTs and Monitor needed to become comfortable with lower ratings.

If vertical integration is part of the future, then so is horizontal integration, according to Chris Calkin, a former FT finance director and now finance director at University Hospitals of North Staffordshire NHS Trust and media spokesman for the HFMA.

‘We are almost certainly going to see mergers in response to what’s coming,’ he says. He says the issue for trusts not yet foundation trusts is whether they can meet membership requirements. ‘The challenge in recession is: can anybody jump the bar in terms of demonstrating financial viability?’ he says.

The use of a 4% efficiency assumption for 2011/12 in assessing FT applications combined with a downside assumption of 4.5% is thought to have given some would-be FTs pause for thought. But he believes mergers could also be of the FT/FT variety as well as FT/trust.

George Alford, a senior consultant with consultancy Beachcroft, says the ambition to get everyone to FT status by a set date has been abandoned and authorisation slowed to a trickle. Some of this is because they can’t meet the required level, but for some it could be a choice. ‘Lots of trusts are beginning to work out that there are things they should do before the significant managerial commitment of

going through the authorisation process,’ says Mr Alford.

Are the benefits and flexibilities of FT status still attractive enough? One area where change is on the cards is the private patient cap. New health secretary Andy Burnham gave his early backing to a review of this limit on FTs’ private income. With the Lords also looking to allow greater freedom for FTs in special cases to get involved with private patient ventures, this change seems likely to happen.

The particular application of the cap to mental health FTs has helped highlight the cap’s limitations. Many mental health FTs have a zero cap. Yet they are also being encouraged to get involved with the wellbeing agenda – for instance, supporting back-to-work schemes.

Many of these schemes would involve joint ventures, yet are off limits to capped mental health FTs.

Most analysts suggest FTs have been a success to date and they enjoy a degree of political consensus. But it could be that the real test is about to start. Having led the way during times of plenty, the challenge now will be for FTs to do the same in times of lean.

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