As the independent regulator of NHS foundation trusts, Monitor requires each NHS foundation trust (FT) board to submit a quarterly report.
Based on the reports, we assign each FT with financial and governance risk ratings. These ratings are designed to indicate the risk of failure by a FT to comply with its terms of authorisation.
This is the final report for 2011/12 and covers the 143 FTs authorised up to 31 March 2012.
To view each section of the report use the drop-down arrow next to the section heading. To print the report, the relevant section(s) must be open to view; alternatively, you can download a PDF version of this report.
The majority of FTs continued to be rated green for governance. At Q4, 29% of FTs were red or amber-red, compared with 27% at Q4 last year. The proportion decreased from 42% at Q3, when 20 (14%) FTs were amber-red as a result of Care Quality Commission moderate concerns, which were not scored under Monitor’s revised Compliance Framework in Q4.
Overall governance risk ratings (GRR) were marginally worse than at Q4 last year. There was improved performance against some targets (Clostridium difficile (C. difficile) and cancer), but deterioration in others (18 weeks Referral to Treatment (RTT) and A&E).
The financial performance of the FT sector at Q4 was fairly robust overall. Income; earnings before interest, tax, depreciation and amortisation (EBITDA); surplus; and cash were all ahead of plan. Improved delivery of cost improvement plans (CIPs) compared to previous years contributed to overall financial performance being slightly better then planned.
Overall EBITDA margin at 6.1% was in line with plan (6.1%), but below last year (6.7%). This reduction partly reflects the addition of lower-margin community services and partly reflects a decline in actual performance. The decline in financial performance continues the pattern exhibited over the last few years. Margins in some parts of the Sector (e.g. small acute FTs) are at levels (5%) which might cause concern as to financial sustainability.
The Q4 average financial risk rating (FRR) of 3.4 was above plan (3.2), but below last year (3.5). This is consistent with the trend over recent years. The mental health sector average FRR of 3.5 deteriorated slightly from Q3 (3.7) but continued to outperform the acute sector, whose average FRR was 3.3, representing an improvement from Q3 (3.2).
The number of FTs in significant breach of their terms of authorisation at the end of Q4 increased to 17 compared with 10 at Q4 last year, with 11 of the 17 having financial issues as one of the primary concerns. This is consistent with the downward trend in FRR and this year’s challenging health settlement.
Delivery of cost improvement plans (CIPs)
Delivery of CIPs has historically been a challenge for FTs as it has for all NHS trusts. However the full year CIP delivery (£1.40 billion; representing 4.3% of operating costs) continued an upward trend over the last three years. CIP delivery for the full year was 5.7% below plan, which was an improvement on 7% below plan at Q4 2010/11. The principal cause of slippage was pay CIPs, with the most notable under-delivery in the acute sector. Anecdotal evidence suggests that demand for acute services has not dropped in line with commissioners’ intentions, potentially constraining trusts ability to implement staff reduction plans.
In total, 75 FTs (52%) were below plan on CIP delivery at Q4, compared with 80 FTs (57%) at Q3.
FTs will find it easier to cope with financial pressures if they take a rigorous approach to cost savings. Failure to deliver appropriate levels of cost savings now is likely to mean more pressure to deliver savings over the next few years. This will become increasingly difficult to achieve. Monitor requires FTs to plan effectively to minimise risks to service delivery. Boards need comprehensive, long-term plans to deliver savings. CIP delivery is more likely to be achieved if FTs work with local stakeholders, especially commissioners, to identify and deliver CIPs. It will become more difficult for trusts to deliver efficiency savings on their own.
We expect the CIP challenge for FTs to be greater in future years. FTs will have to work hard to deliver CIPs while maintaining and improving the quality of services.
Trust size and EBITDA %
The profitability of Acute Trusts varies by size of Trust, with larger Trusts having higher margins than smaller Trusts. The size of Mental Health Trusts does not appear, however, to have a material effect on their profitability.
|Aggregate||Large (> £400m)||Medium (£201m - £400m)||Small (< £200m)|
|EBITDA % (by income size)||100%||37% of acute||47% of acute||16% of acute|
|Acute (excluding specialist and ambulance)||6.0||6.8||5.9||5.0|
The EBITDA margin of small Acute Trusts at Q4 is notably low (5.0%). This level of profitability represents a break-point in Monitor’s financial risk rating framework, below which higher financial risk is indicated. EBITDA margins of 5% or below might indicate a problem with Trusts’ sustainability in the longer term.
Larger acute FTs generate higher margin, we believe through a variety of factors including; having a higher proportion of non-tariff services that tends to generate higher margins and having greater bargaining powers with commissioners. We believe that medium sized mental health FTs generate marginally less margin than smaller mental health trusts because of the dilutive impact of taking on lower margin community services in 2011/12.
Performance against waiting time targets for cancer presented the most significant service challenge for FTs in 2010/2011. In September 2011, Monitor considered the issues affecting the performance of FTs in the Greater Manchester and Cheshire Cancer Network when one FT, The Christie NHS Foundation Trust, persistently failed the 62-day cancer waiting time target. One of the main difficulties in achieving this target related to delays in the referral process from a number of the eleven other trusts, eight of which are FTs, in the Greater Manchester and Cheshire Cancer Network.
A review, led by Professor Sir Mike Richards (National Clinical Director for Cancer and End of Life Care), suggested that all providers involved in the network had a role to play in making the system work, as well as the commissioners.
Monitor wrote to all the FTs in the network explaining that the situation was unacceptable and asking them to work together to improve waiting times for patients. Monitor set a six-month time period for them to achieve this and stated that, if performance did not improve, it would be considered a collective failure and that all the FTs' GRRs would be downgraded accordingly. Cancer performance in Manchester has since improved and at Q4 2011/12, all FTs in the network except one (Stockport NHS Foundation Trust) are now meeting the target.
Patient and staff surveys
Monitor has reviewed the performance of FTs in the patient and staff surveys published by the Care Quality Commission (CQC) and the National NHS Staff Survey Co-ordination Centre, which cover FTs and non-FTs.
Overall, many FTs performed well on outpatient satisfaction, with FTs comprising 82% of the top 20%, scoring well on patient respect, dignity and privacy1. For the 11 FTs making up a third of the bottom 20%, three were in significant breach during the year. Patients reported poor communication, for example around effects of medicine and waiting time upon arrival, as a key driver of low satisfaction with outpatient treatment.
FTs also broadly performed well on the inpatient survey, which incorporated patients' views of A&E, waiting lists, care and treatment, operations and procedures, and their overall experience2. FTs comprised 91% of the top 20% of trusts and a third of the bottom 20%. Issues raised at poorly performing FTs concerned a lack of canvassing of patients' views, poor choice of admission dates, lack of transparency on complaints procedures and information on side-effects. Five of the 11 FTs in the bottom 20% were in significant breach, mainly as a result of finance issues.
In the staff survey, FTs performed well on meeting the four key pledges on staff roles, personal development, support to maintain wellbeing and empowerment3. On average, FTs comprised 83% of the top scoring 20% of trusts against the pledges. FT staff felt their role made a difference to patients and were satisfied with the quality of patient care delivered. Many FTs' staff also reported good appraisal practices. However, FTs (largely ambulance service FTs) also made up 38% of the bottom 20% on average, of which one was in significant breach in 2011/12. Key issues cited include inflexible working conditions, work-related stress and poor management communication.
1National NHS patient survey programme outpatient department survey 2011, CQC 2012. Analysis is based on the fully completed surveys of 158 trusts of which 93 are FTs.
2National NHS patient survey programme Survey of adult inpatients 2011, CQC 2012. Analysis is based on the fully completed surveys of 160 trusts of which 89 are FTs.
3The NHS Staff Survey 2011, National NHS Staff Survey Co-ordination Centre 2012. Analysis is based on the fully completed surveys of 234 trusts of which 144 are FTs.
Since the publication of the Q3 report, two FTs have been found in significant breach of their terms of authorisation. Both of these, Wirral University Teaching Hospital NHS Foundation Trust and Cambridgeshire and Peterborough NHS Foundation Trust, related to governance concerns.
All of these FTs are subject to enhanced monitoring and are required to report to Monitor on a regular basis against the delivery of key milestones.
At Q4 2011/12 17 FTs were in significant breach, compared with 15 at Q3 and 10 at Q4 2010/11. Therefore 12% of the NHS FT sector was in significant breach at Q4. As financial pressures increase during 2012/13, this number is likely to rise. The majority of the FTs in significant breach are in the acute sector.
You can read more detail about the issues facing FTs in significant breach here.
Governance risk ratings
At the end of Q4, 29% of trusts were red or amber-red, which compares with 27% in Q4 2010/11. Even though the proportion has decreased from Q3 (42%), the numbers still remain high.
The number of mental health FTs with an amber-red risk rating at Q4 decreased significantly from Q3 (down from 17 to two). At Q4 Monitor’s scoring of CQC moderate concerns and outstanding compliance actions was removed following the publication of the 2012/13 Compliance Framework that reflected changes made to the CQC’s judgement and enforcement framework4. If this had been applied in Q3, only five mental health FTs would have amber-red ratings. This suggests that the improvement in ratings for the mental health sector largely relates to Monitor’s removal of the scoring for CQC moderate concerns.
The breakdown of GRRs at Q4 is:
Please see here to view all NHS FTs with an improvement or decline in their GRRs at Q4.
Acute site level analysis
We have assessed the performance of the acute sector by separately considering single and multi-site organisations. As expected, single site acute FTs had a higher EBITDA margin (6.3%) than those with multiple sites (6.1%) and they had a marginally more favourable FRR distribution.
|Single site||Multiple sites|
As with financial risk, we have considered the relative performance of single and multi-site acute FTs.
The distribution of GRRs across single site and multi-site FTs was:
|Single site||Multiple sites|
Seventeen of the twenty red-rated trusts are in the acute sector. Of these seventeen trusts, twelve are multi-site acute hospitals. This suggests that it is a greater challenge for multi-site acute hospitals to remain well governed.
4 CQC actions are applied to Monitor's GRRs in real time.
There was improved performance against some targets, despite the increased challenge of reducing costs:
C. difficile: The absolute number of cases reduced by 25% compared with Q4 2010/11. However, some trusts struggled to achieve the more challenging target in 2011/12.
Cancer: There were significantly fewer FTs breaching one or more cancer targets at Q4 this year (15) compared with Q4 2010/11 (27). This might have been influenced by the positive effect of the recent Greater Manchester cancer network initiative.
However, A&E target performance was worse than Q4 2010/11 (18 FTs in 2011/12 failed the target compared with 10 in the previous year).
RTT admitted waiting time target performance was worse in Q4 than Q3, with a number of FTs breaching the admitted target to clear waiting time backlogs. The same was true for RTT non-admitted performance.
Financial performance in the final quarter of 2011/12 saw little overall change. The distribution of ratings was the same as Q3, with an average FRR of 3.4 (where five represents the lowest risk and one represents the highest risk). The mental health sector average FRR of 3.5 deteriorated slightly from Q3 (3.7). It continues to outperform the acute sector, where the average FRR is 3.3.
The latest FRRs for all foundation trusts can be viewed here.
Operating income of £35.8 billion was £1.4 billion (4.1%) above plan, primarily driven by: increased community block contract income (£123 million, 5.0%); higher than planned non-elective acute revenue (£197 million, 3.3%); higher than planned acute outpatient revenue (£162 million, 4.2%); other clinical revenue (£428 million, 7.0%); and other miscellaneous operating income (£274 million, 13.5%).
FT plans were reduced from the previous year to reflect commissioners’ intentions to reduce acute activity. Anecdotal evidence suggests that these demand management schemes have not been entirely effective, leading to activity above plan.
|Income and expenditure
all figures in (£m)
|Q4 2011/12 Pro Rata Actual
||Q4 2011/12 Pro Rata
Pro Rata Actual
Pro Rata Plan
|Total operating income||9,694||8,840||854||35,828||34,416||1,411|
|Employee benefits expenses||(5,942)||(5,591)||(352)||(22,565)||(21,993)||(573)|
|PFI operating expenses||(85)||(86)||1||(341)||(340)||(1)|
|Other operating costs||(2,407)||(2,013)||(394)||(8,256)||(7,714)||(541)|
|Total interest expense||(87)||(79)||(8)||(317)||(310)||(6)|
|Other non-operating costs||(16)||(15)||(1)||(55)||(58)||4|
|Impairments and restructuring costs||(267)||(69)||(198)||(438)||(187)||(251)|
|Surplus/(deficit) after tax||(84)
*EBITDA = earnings before interest, tax, depreciation and amortisation
Total operating costs of £33.6 billion were £1.3 billion (3.9%) above plan, with overspends mainly in the acute sector (£977 million).
Staff costs of £22.6 billion were £573 million (2.6%) above plan. Agency staff costs were £427 million higher than predicted. Permanent staff costs were £149 million higher than planned, reversing the trend of underspends against plan in previous quarters. On an aggregate level, the overspend in permanent staff costs was consistent with under-delivery of pay CIPs of £136 million against plan.
Drug costs were £141 million (6.2%) above plan, due to increased activity and high cost drugs which are not included in plans as they are fully funded by commissioners.
Other operating costs were £541 million (7.0%) above plan compared with 2.5% above plan in Q3. Part of this increase was due to increased Q4 activity levels leading to clinical supplies and non-clinical supplies costs being 7.3% (£205 million) and 7.1% (£99 million) above plan respectively.
EBITDA of £2.2 billion was £77 million ahead of plan, primarily due to cost reductions delivered by mental health FTs. Acute sector EBITDA was marginally below plan, suggesting that additional activity has not delivered additional margin.
Trusts in surplus or deficit
At Q4 there were 15 FTs (10%) with a full year deficit (pre-exceptional items) of £105 million in aggregate (Peterborough & Stamford £43.5 million; other acute £54.2 million; mental health £7.3 million). This represents an improvement on Q3, when 18 FTs were in deficit (aggregate year-to-date £98 million). The majority of the increase in aggregate deficit from the previous year (full year aggregate £39 million; 10 FTs) is represented by Peterborough.
The full year aggregate surplus of FTs in surplus was £614 million at Q4 compared with £445 million in the previous year. The average surplus per FT was £4.8 million, (acute: £4.6 million; mental health £5.1 million) compared with £3.5 million last year.
Cash and cash equivalents of £4.0 billion (2010/11: £3.3 billion) were £1.2 billion ahead of plan, mainly due to favourable working capital movements (£662 million) and capital expenditure slippage (£669 million), partly offset by adverse variance from financing activities (£105 million).
Capital expenditure (capex) of £1.4 billion was £669 million (32%) below plan (Q3, 30%). This represents an increased shortfall compared with previous years: 2010/11 (20%); 2009/10 (25%). This is above the historical average underspend of 23%. At an aggregate level there is no reduction in the fixed asset base, with year-to-date capex (£1.43 billion) exceeding year-to-date depreciation (£1.0 billion). FTs are 21% behind planned maintenance capex, which compares with the 20% adverse variance last year.
Total borrowings as defined in the Prudential Borrowing Code were £5.5 billion at Q4 (Private Finance Initiative lease liabilities £4.4 billion, other loans and leases £1.1 billion). This was £619 million behind plan and represented 47% of the sector’s Prudential Borrowing Limit (£11.6 billion).