Review of NHS foundation trusts' annual plans 2009-10

Foundation trusts are required each year to submit their three-year plans to Monitor. Our relationship managers review the plans in detail, in particular to consider with their portfolio of trusts the expected challenges, potential investment opportunities and service development over the next three years.

Each foundation trust is assigned governance, financial and mandatory services risk ratings, based on the self-certifications and returns in their plan.

Below is a summary of the key findings from this year's review process, for the 115 NHS foundation trusts authorised at 31 March 2009. More detailed findings from the review can be found in the sections below.
 

 

  • Highlights

    The 115 foundation trusts included in the Annual Risk Assessment (ARA) are forecasting a combined income of £26.2 billion in 2009-10, representing growth of 4.2% on incomes in 2008-09. Their combined plans deliver a net surplus (pre-impairments) of £353 million (1.3% of income).

    Foundation trusts are forecasting continued growth in revenues after 2009-10 (2.1% in 2010-11 and 1.6% in 2011-12), with similar growth in costs (1.6% and 1.1%). This planned growth in income is a continuation of historic trends, but may not adequately reflect the potential for lower future NHS funding. Monitor is concerned that these forecasts may appear overly optimistic, particularly in 2011-12.

    Cash balances are forecast to decline from £2.8 billion at 31 March 2009, to £2.2 billion at 31 March 2010. This in the main reflects a significant increase in forecast capital expenditure of £1.9 billion compared to £1.3 billion in 2008-09. This in part reflects an acceleration in capital plans in the earlier years of the forecasts.

    We expect to see merger, acquisition and investment activity increase over the period of these plans due to a number of factors including:

    – PCTs tendering services currently provided by their commissioning arms;
    – Foundation trusts taking over underperforming NHS trusts, including those trusts which are not placed to become NHS foundation trusts within the foreseeable future;
    – Private/public partnerships undertaking franchising of provider operations; and
    – Foundation trusts using cash reserves and borrowing capacity to undertake significant investment projects. 

    104 foundation trusts (90%) are declaring a green governance risk rating for 2009-10, ten have declared a rating of amber and just one trust has declared a rating of red.

    Total membership of foundation trusts grew 11% to 1.5 million at 31 March 2009. Foundation trusts held 353 elections during 2008-09 with 283 of these with more than one candidate. 


  • Summary of income and expenditure plans

    The table below includes the financial plans for the 115 NHS foundation trusts authorised as at 31 March 2009. This includes an overview of plans for 2009-10 and 2010-11.

    The 115 foundation trusts are forecasting a combined income of £26.2 billion in 2009-10, representing growth of 4.2% on 2008-09. This is driven by growth in clinical activity at 5.2%, offset by a planned reduction in non-clinical income of 2.2%. EBITDA % (being earnings before interest tax and depreciation divided by operating income) is forecast to increase from 7.6% to 8.5% over the period of the plan.  Aggregate plans deliver a net surplus of £353 million (1.3% of income). Total impairments are forecast to be £75 million resulting in a net surplus of £277 million or 1.1% of income. 112 foundation trusts are planning to generate a net surplus (pre-impairments). 


  • Three year financial forecast

    Foundation trusts’ plans may prove to be optimistic in years two and three of the planning cycle, given the potential funding challenges. In undertaking their planning, boards will need to understand and meet the challenges of improving clinical quality and governance, against a background of the potential for significant financial challenges. These are likely to include more effective demand management by commissioners, continued growth in costs, commissioners under funding pressure, the use of caps and collars in contracts for certain types of activity, potential non-payment of activity above contract, all against the background of significantly reduced funding growth.

    2009-10 is likely to start to show up areas of planning and operational weakness in some trusts as funding begins to be tightened. It will be important for foundation trust boards to address these situations early and effectively, so they are placed to meet the greater challenges from 2011.

    During 2009-10 Monitor will continue to focus on ensuring foundation trusts are engaged in planning effectively for these future challenges, ensuring foundation trusts take appropriate action where current planning processes are weak or appropriate skills and resources may not be in place.

    Despite uncertainty over future funding levels, NHS foundation trusts are still planning for income growth year-on-year over the three years of the plan, as follows:

      – 2009-10: 4.2%;
      – 2010-11: 2.1%; and
      – 2011-12: 1.6%

    Foundation trusts are planning to grow EBITDA margins in 2010-11 and 2011-12 to 8.1% and 8.5% respectively, mainly as a result of income growth offset by lower pay cost growth.

    Planned Cost Improvement Programmes (CIPs) are 3.3% of costs in 2009-10 rising to 3.5% of costs in both 2010-11 and 2011-12.


  • Cash flow and funding

    Closing cash is forecast to be £2.2 billion by the end of 2009-10, down from £2.8 billion at 31 March 2009; 77% of foundation trusts are forecasting a net cash outflow in the year.

    Looking forward, cash balances are then forecast to remain stable at £2.1 billion and £2.2 billion in 2010-11 and 2011-12 respectively.

    Strong cash balances, and the revised liquidity metrics in 2009-10, are leading to foundation trusts deciding to reduce committed working capital facilities by 50% in 2009-10, with eight foundation trusts not planning to renew their facilities.

    Foundation trusts are forecasting an increase in interest bearing loans (excluding PFI) to £572 million in 2009-10 up from £296 million, as at 31 March 2009. Loans are forecast to further grow to £901 million and £1,264 million in 2010-11 and 2011-12 respectively.

    Following the adoption of IFRS from 1 April 2009, £2.9 billion of PFI funding has been brought on to foundation trusts’ balance sheets.

    Capital expenditure is forecast at circa £1.9 billion – a 46% increase on the £1.3 billion in 2008-09. Capital expenditure is then forecast to decline by 8% and 11% year-on-year in 2010-11 and 2011-12 respectively.

    In part, this increased capital expenditure forecast reflects reduced PFI funding (with smaller but significant projects being funded from retained reserves) and accelerated expenditure, reflecting the potential for reduced investment opportunities in later years. 


  • Financial risk ratings

    Each foundation trust is assigned a financial risk rating (FRR) of ‘1’ (highest risk) to ‘5’ (lowest risk), based on Monitor’s assessment of its annual plan.

    The 115 foundation trusts are planning an average FRR of 3.5 for 2009-10, down from 4.0 at for 2008-09:

    – 6 foundation trusts are planning an FRR of 5 (24 at quarter 4 2008-09);
    – 60 foundation trusts are planning an FRR of 4 (68 at quarter 4 2008-09);
    – 47 foundation trusts are planning an FRR of 3 (21 at quarter 4 2008-09);
    – Royal National Hospital for Rheumatic Diseases is planning an FRR of 2; and
    – Heatherwood & Wexham Park Hospitals is planning an FRR of 1. 

    The main driver in the reduction of the FRR from 2008-09 is the liquidity ratio:

    – average liquidity days are forecast to fall to 33 days from 51 in 2008-09;
    – total cash is forecast to fall to £2.1 billion from £2.8 billion in 2008-09; and
    – we have changed the way we weight and score liquidity, as defined in the 2009/10 Compliance Framework. As a result, eight foundation trusts are forecasting a liquidity metric of 5 – this figure would have been 38 under the previous metrics used in 2008-09.

    The average FRR is planned to remain stable in 2010-11 and 2011-12 at 3.6 in each year. The FRRs for each of the 115 NHS foundation trusts can be found here.


  • Quality accounts

    The 2009-10 ARA is the first to include plans for quality accounts. Foundation trusts were required to identify their priorities for improvement and what indicators they would be using to measure their performance. The metrics identified were a broad mix of hard measures, patient feedback and progress against implementing standards, policies and tools. Overall more than 200 unique measures  were identified, with Healthcare Acquired Infections (HCAI) and Hospital Standardised Mortality Ratios (HSMR) the most common. On average foundation trusts identified five different metrics on which they would focus. 


  • Governance

    The risk ratings we have assigned are based on self-certification from foundation trusts as submitted and few have identified target related governance concerns.

    Of the 115 foundation trusts, 104 (90%) are declaring a green risk rating for 2009-10, ten (9%) a rating of amber and one trust a red rating.Of the six trusts rated red for governance risk at quarter 4 2008-09 for governance failures reflecting Healthcare Acquired Infections (HCAI) performance:

    – County Durham and Darlington NHS Foundation Trust has declared a risk of breach of both the MRSA and C. difficile targets;
    – University Hospital of South Manchester NHS Foundation Trust has declared a risk of breach of the MRSA target; and
    – Aintree University Hospitals NHS Foundation Trust; Gloucestershire Hospitals NHS Foundation Trust; North Lincolnshire and Goole Hospitals NHS Foundation Trust; and South Tees Hospital NHS Foundation Trust have declared no risk of breach of the HCAI targets.

    Other trusts that were in significant breach at 31 March 2009 have also self-certified an improvement in their governance risk rating:

    – Mid Staffordshire NHS Foundation Trust has declared a risk of breach of three core standards resulting in an amber rating; and
    – Royal National Hospital for Rheumatic Diseases NHS Foundation Trust has declared no risk of breach.

    Heatherwood and Wexham Park Hospitals NHS Foundation Trust is the only foundation trust to have declared a red risk rating. The trust is not placed to certify ongoing compliance with its authorisation as action plans are still in development to address financial and non-financial issues. 

    The governance risk ratings for the 115 NHS foundation trusts can be found here.


  • Membership and election turn-out

    Total foundation trust membership grew 11% from 1.3 million at April 2008 to 1.5 million at March 2009. Note - April 2008 figure is on a like-for-like basis and includes opening membership of foundation trusts authorised during 2008-09.

    Public membership grew by 14% whilst staff membership grew by 9% reflecting in part the public constituency recruitment focus of the foundation trusts. However, patient membership fell in the year as a number of foundation trusts consolidated their public and patient constituencies.

    Annual plans show a forecast growth of 12% during 2009-10 with an expected membership of 1.64 million by the end of March 2010. The plans focus on growing membership and ensuring representation of key groups, in particular reflecting younger people and an ethnic mix.

    Election turnout data was collected for the first time during the 2009-10 ARA, and relates to elections held between 1 April 2008 and 31 March 2009:

    – Foundation trusts held 353 elections during 2008-09 with 283 of these a competition between more than one candidate; and
    – More than 125,000 members voted in these 283 elections with an average constituency turnout of 26%.

    However, as in prior years, staff engagement is the biggest challenge for foundation trusts due possibly to the large number of bodies already in place within the organisations to represent staff views.