NHS Foundation Trusts

Risk Ratings

Monitor has a risk-based approach to regulating NHS Foundation Trusts. The assessment of risk for each NHS Foundation Trust signals the degree of concern with the issues identified and guides the intensity of in-year monitoring.

Each NHS Foundation Trust must submit an annual plan to Monitor. Then Monitor assesses the annual plan and assigns a risk rating in three areas:

• finance
• governance
• mandatory goods and services ("mandatory services")

Monitor assesses actual performance against the annual plan through in-year monitoring. If there is significant deviation from the annual plan during the year, Monitor may revise a trust's risk ratings and alter the in-year monitoring regime accordingly.

To view the risk ratings for all NHS Foundation Trusts, click here.

To view the risk ratings for an NHS Foundation Trust alongside other information about the organisation, such as contact details and Terms of Authorisation, look at the Public Register. Forward plans for each NHS Foundation Trust are also published on the Public Register.

An overview of how the risk ratings are assigned is provided below. More detailed information on risk ratings can be found in the Compliance Framework.

Finance risk rating

When assessing financial risk, Monitor will assign a risk rating using a system which looks at four criteria: achievement of plan; underlying performance; financial efficiency; and liquidity.

Achievement against each of these criteria is scored from 5 to 1 (5 indicates low risk, 1 indicates high risk). A weighted average of these scores is then used to determine the overall financial risk rating. A series of over-riding rules is also used to adjust the financial rating if required.

The risk rating is forward-looking and is intended to reflect the likelihood of a financial breach of the Terms of Authorisation in the first year of the plan. The diagram below outlines what the ratings of 5 to 1 indicate.

• Rating 5 - Lowest risk - no regulatory concerns
• Rating 4 - No regulatory concerns
• Rating 3 - Regulatory concerns in one or more components. Significant breach of Terms of Authorisation is unlikely
• Rating 2 - Risk of significant breach in Terms of Authorisation in the medium term, e.g. 9 to 18 months in the absence of remedial action
• Rating 1 - Highest risk - high probability of significant breach of Terms of Authorisation in the short-term, e.g. less than 9 months, unless remedial action is taken

Governance risk rating

Monitor considers seven elements when assessing the governance risk that an NHS foundation trust may face over the coming year:

• legality of constitution
• growing a representative membership
• appropriate board roles and structures
• service performance
• clinical quality
• other risk management processes
• co-operation with NHS bodies and local authorities

Governance risk is rated using a traffic-light system, where green indicates low risk and red indicates high risk.

Mandatory services risk rating

When assessing mandatory services risk, Monitor will look at two key elements:

• changes to mandatory services: this that will trigger a requirement for variation of the Terms of Authorisation.
• disposals of protected assets (or removal of protected status): this will trigger the asset protection process.

Mandatory services risk will also be rated using a traffic-light system, where green indicates low risk and red indicates high risk.

More detailed information on risk ratings can be found in the Compliance Framework.

The risk ratings that Monitor assigns to NHS Foundation Trusts differ from the annual health check ratings of the Healthcare Commission in three key respects:

• different scope: Monitor's risk ratings are designed to ensure that NHS Foundation Trusts do not significantly breach their Terms of the Authorisation. They are not a comment on the overall performance of NHS Foundation Trusts;
• forward-looking nature: the risk ratings focus on the future plans of NHS foundation trusts;
• limited target audience: the main audiences for Monitor's risk ratings are NHS Foundation Trust boards and senior staff, governors, members and primary care trusts. The ratings are designed for regulatory purposes and not for use by third parties, such as commercial lenders or contractors, who should undertake their own due diligence.