Based on these reports, we assign each foundation trust with financial and governance risk ratings. These risk ratings are designed to indicate the risk of a failure by a foundation trust to comply with its terms of authorisation.
This is the final quarterly report for 2010/11 and covers the 136 foundation trusts authorised up to 31 March 2011.
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The majority of foundation trusts have continued to be rated green for governance. All of the red rated foundation trusts are acute trusts, representing 13% of the acute foundation trust sector. The foundation trust sector delivered a net surplus broadly in line with its financial plan for the year 2010/11 with average financial risk ratings at 3.5, in comparison to a planned figure of 3.4.
*earnings before interest, tax, depreciation and amortisation
When Monitor reviewed NHS foundation trusts’ annual plans in August 2010, we identified some areas of potential risk for the year ahead. Throughout the year we have provided updates on these risks in each of our quarterly reports.
Delivery of cost improvement plans
Cost improvement plans (CIPs) delivered at quarter four represented 3.9% of operating costs; this is marginally behind the planned 4.4%. This shows a significant improvement from quarter four 2009/10 when CIPs represented 3.0% of operating costs.
The delivery of cost improvement plans has historically been a challenge for foundation trusts, as it has been for all trusts, and was identified as a risk throughout 2010/11. However, achievement against plan has improved through the year. At quarter four CIPs were 7% behind plan (an improvement from 9% at quarter three and 11% at quarter two). In total 66 foundation trusts were behind plan at quarter four, down from 73 at quarter three. This compares to 89 foundation trusts at quarter four 2009/10, which suggests improved CIPs planning and delivery across the sector in 2010/11. However, there is still more to do to achieve planned levels of CIPs going forward.
Contracts unsigned or in dispute
In each quarterly report in 2010/11, we highlighted that a number of NHS foundation trusts were experiencing ongoing contract issues with their commissioners. With contract disputes generally emerging at year-end we anticipated this could become a significant risk at quarter four.
At quarter three we reported there were 20 foundation trusts identifying actual or likely disputes for 2010/11 contracts. However, only eight foundation trusts are reporting potential year-end contract disputes, suggesting that the risk has not been realised to the extent expected. Of these, the majority are not considered likely to impact on financial risk ratings as provisions are being made where appropriate.
However, there are 20 foundation trusts which have indentified issues still to be resolved with their commissioners in relation to their 2011/12 contracts. The issues include opening thresholds for non-payment of re-admissions and opening activity/demand management plans in QIPP.
Transforming Community Services transactions
The Government’s Transforming Community Services (TCS) initiative required all primary care trusts to dispose of their provider functions. With many NHS foundation trusts taking on these functions, we are expecting approximately 30 NHS foundation trusts to undertake significant transactions requiring risk ratings. As a result Monitor almost doubled its assessment capacity on a temporary basis in anticipation of this volume of transactions requiring risk assessment.
Monitor completed 13 risk ratings of significant transactions during quarter four, with the majority of the remainder on course to be completed in quarter one 2011/12.
At quarter two we reported that the TCS transactions could impact on foundation trusts’ financial risk ratings for 2011/12 due to the low margins of community services. At quarter four we still believe that they will have significant impact in 2011/12 financial performance for some foundation trusts, particularly where the community services represent a very significant part of the overall trust. In addition, foundation trusts will face a significant challenge to integrate the community services with their existing activities.
As forecast in their annual plans, the most significant service performance challenge for foundation trusts in 2010-11 continued to be the achievement of cancer waiting time targets. Overall performance in quarter four shows a slight decline, with 28 foundation trusts breaching cancer targets (previously 25 at quarter three and 28 at quarter two). Several foundation trusts could be considered at risk of breaching their terms of authorisation for governance reasons if they continue to breach cancer targets in quarter one 2011/12. This may lead to regulatory action from Monitor.
All foundation trusts are expected to meet their service performance targets but, if they do not, we want to know why and what action is being taken to improve their performance.
At quarter four we considered four foundation trusts for escalation due to their failure to meet cancer targets. The decision was made not to take further action as the failures did not indicate serious governance failings, but we continue to monitor performance and these trusts will be re-assessed at quarter one 2011/12.
Emergency activity above plan
Under the terms of the tariff for emergency activity in 2010/11, trusts will only receive 30% of the price for activity above their planned level. As reported at quarters two and three, the marginal tariff for emergency activity does not appear to have depressed the overall margins or financial risk ratings of foundation trusts at quarter four.
We do not track emergency activity or income as it is defined in the tariff. However, non-elective income, which is tracked, is a useful indicator of potential risk. At quarter four, aggregate non-elective income, including A&E revenue, is £87 million (1.5%) above plan.
Since the publication of the previous quarterly report, Medway NHS Foundation Trust was found to be in significant breach of its terms of authorisation in April 2011.
This decision was based on concerns about the trust’s general governance. This relates to concerns about board level scrutiny and assurances concerning financial planning and performance.
Having considered all the available evidence, Monitor’s Board decided not to use its formal powers of intervention at this stage. However, the trust’s performance will continue to be reviewed regularly against specific milestones and actions with the trust’s board. Any indication of failure to demonstrate timely and sustainable progress towards full compliance with its terms of authorisation will result in Monitor re-considering formal intervention.
As mentioned in the last quarterly review, Tameside NHS Foundation Trust was found to be in significant breach during quarter four. For more information about this and all other regulatory actions that took place in previous quarters click here.
The sector continues to perform well with the majority of trusts, 83 (61%), operating with a green rating for governance risk (75 at quarter three). The breakdown of governance risk ratings at quarter four is:
All of the red-rated foundation trusts are acute trusts, representing 13% of the acute foundation trust sector. Ten of these trusts are in significant breach of the terms of their authorisation – please see here for further details.
Click here to view all NHS foundation trusts with an improvement or a decline in their governance risk ratings at quarter four.
Meeting healthcare targets continues to be a challenge for the sector, as it is for trusts throughout the NHS. However quarter four saw a significant improvement with 70 foundation trusts (51%) declaring no target breaches (compared to 44% at quarter three).
C.difficile target breaches have seen a marginal improvement; eight foundation trusts reported a breach at quarter four compared to nine at quarter three.
The final quarter of 2010/11 saw a reduction from seven to four foundation trusts declaring a risk of breaching their MRSA target.
One mental health foundation trust breached the enhanced care programme approach (CPA) target, a reduction from four at quarter three, seven at quarter two and 11 at quarter one.
As highlighted in our update on current issues and challenges, cancer targets continue to be the most significant service performance issue driving governance risk. At quarter four, 28 trusts were found to be in breach of cancer targets (25 at quarter three). The targets causing the most concern are the:
Our escalation process is designed to ensure that there is a clear evidence base for any decision we make as to the significance of a breach, and the need for any subsequent regulatory action. During the escalation process we assess the causes, scale and scope of the breach to determine the next steps we may take.
At quarter four, 11 trusts met the criteria for consideration of escalation due to continued target breaches (a decrease from 19 at quarter three), although none of these trusts were escalated. We will be keeping these trusts very closely under review throughout quarter one. We continue to review target breaches rigorously and, where these indicate serious failings in governance at a trust, appropriate action will be taken.
Our close working relationship with the Care Quality Commission (CQC) continues to enable us to gain a better understanding of any clinical performance issues arising in foundation trusts, which we use, along with other information, to form judgments on their quality governance.
From April 2010 all health and adult social care providers were required to be registered with the CQC. For some providers registration was conditional on further action being taken to address concerns about the safety and quality of care. The CQC registered 12 foundation trusts with conditions. Of these, only one (Mid Staffordshire) still has conditions in place (a reduction from two at quarter three and six at quarter two). This trust remains in significant breach of its terms of authorisation.
The number of foundation trusts subject to CQC concerns has increased from 13 at quarter three to 25 at quarter four (18 with moderate concerns, seven with major concerns). Of these, ten are mental health trusts. This increase has been driven by the detailed reviews (including site inspections) that the CQC is now undertaking following their completion of the registration process and oversight of resulting conditions.
In 2010/11 the CQC conducted reviews at 27 of the 136 foundation trusts and is intending to conduct reviews of all providers within two years of registration. Where such a review identifies concerns the trust is required to develop and implement an action plan to address them. Whilst the CQC concerns remain in place, Monitor’s governance risk ratings for those trusts will reflect them.
Financial performance in the final quarter of 2010/11 saw little overall change. The distribution of ratings has narrowed slightly since quarter three, with an average financial risk rating (FRR) of 3.5 (where 5 represents the lowest risk and 1 represents the highest risk). This is a decrease from quarter three (3.6) but is a slight improvement on the forecast figure from foundation trusts’ annual plans (3.4).
The majority (86%) of trusts now have an FRR of 3 or 4, an increase from 79% at quarter three. Significantly, there has been no change from quarter three on the number of trusts rated 1 or 2. There has however been a decrease to 10% in the number of trusts rated 5 (13% at quarter three).
The latest financial risk ratings for all foundation trusts can be viewed here.
Operating income of £30.7 billion is £588 million (2.0%) above plan, primarily driven by greater than planned non-elective revenue (£87 million), outpatient revenue (£83 million), other NHS revenue (£194 million) and other operating income (£209 million).
|Income and expenditure
all figures in £m
Q4 YTD Actual
Q4 YTD Plan
|Total operating income||30,655||30,067||588|
|Employee benefits expense||(19,293)||(19,097)||(196)|
|PFI operating expenses||(311)||(309)||(3)|
|Other operating costs||(6,883)||(6,605)||(278)|
|Other non-operating costs||(43)||(36)||(6)|
|Net surplus before impairments and tax||406||349||57|
|Impairments and restructuring costs||(786)||(453)||(333)|
|Net surplus/(deficit) after tax||(380)||(103)||(276)|
*EBITDA = earnings before interest, tax, depreciation and amortisation
**Results are shown on a pro rata basis for those NHS foundation trusts authorised during the period
Total operating costs of £28.6 billion are £608 million (2.2%) above plan. This overspend is mainly in the acute sector (£589 million) but is also apparent in the mental health sector (£19 million).
Staff costs of £19 billion are 1.0% above plan. This is largely due to the costs of delivering increased emergency activity during the winter months and a shortfall in planned CIPs relating to pay costs.
Drug costs are 6.6% above plan due to increased activity levels.
Other operating costs are 4.2% above plan, with the costs of clinical supplies being the most significant contributor, which broadly aligns with the increased activity levels.
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)
Aggregate EBITDA of £2.05 billion is £20 million behind plan, with a margin of 6.7% compared with the 6.9% planned (and below the 7.0% in Q4 2009/10). This is primarily due to costs being above plan and CIP underperformance in the acute sector.
Foundation trusts delivered a net surplus (pre-exceptionals) of £406 million at quarter four, which is £57 million ahead of plan. This is largely due to lower than planned depreciation and PDC dividend compensating for the shortfall in EBITDA.
The aggregate cash balance of 136 foundation trusts at quarter four is £3.3 billion, £923 million above plan, compared to £518 million above plan at quarter four 2009/10. This is mainly due to favourable working capital movements (£592 million) and capital expenditure underspend being on plan (£403 million). The significant, unplanned improvement in the cash position between quarter three and four is driven by a small number of trusts 20 in total have driven 67% of the variance, 16 of which are acute.
The 20% underspend against planned capital expenditure is greater than that at quarters one (12%), two (14%) and three (19%) but remains marginally under the historical annual underspend of 20-25%. Capital expenditure remains above depreciation levels and 2009/10 spend, suggesting that the underspend vs plan does not reflect an underspend on maintenance.
Long-term borrowing at £5.1 billion represents 57% of the Total Long Term Borrowing Limit (£8.8 billion). Of this, £4.4 billion relates to private finance initiative (PFI) finance leases and £0.7 billion to loans.