Tackling financial failure: how will the proposed legislation work out in practice?

Two large mergers have recently been given the go-ahead by the Co-operation and Competition Panel. The takeover of Scarborough by York Teaching Hospital NHS Foundation Trust and Trafford by Central Manchester University Hospitals NHS Foundation Trust are the latest in a series of mergers that have been precipitated by the financial pressures facing the sector and the push to get all trusts to foundation status by the end of 2014.

Further mergers are likely to follow. Every trust has had to sign a tripartite agreement with the Department of Health and their respective strategic health authority setting out what actions each would take to make foundation trust status achievable. Twenty self-declared that they won’t make it in their present form – many of these are in London. The reasons include high levels of debt, misalignment of capacity and demand, imbalance between primary and secondary care or severe private finance initiative (PFI) problems.

Despite a poor record of delivering savings and some evidence they result in a drop in performance, mergers remain the preferred solution for hospitals that cannot operate on a clinically and financially sustainable basis on their own. Mergers are seen as one of the only options currently because of the legal and regulatory framework. Although the Labour government established a failure regime for trusts in the Health Act 2009 it has never been used.

Under plans set out in the Health and Social Care Bill, hospitals that get into financial trouble may be subject to more direct intervention that could more rapidly lead to major restructuring of organisations and services.

The new provisions in the Health and Social Care Bill give Monitor powers to intervene during what is called a period of 'distress'. Options are likely to include putting in a turn-around management team, but for many trusts financial difficulties do not stem from poor management but wider problems within the local health economy. If a trust cannot be turned around and is declared to be unsustainable it will be put into administration, with protection given to services the commission and Monitor agree are essential.

While opposition to the Bill has got louder, there has been relatively little debate about these new powers for Monitor and what they will mean in practice. At their core is the belief that market forces – resulting from the choices of patients and commissioners – can reshape services. However experience in South East London and elsewhere suggests that market forces alone will not drive reconfigurations of services that benefit patients. We have argued that a planned approach to service change led by commissioners is needed if we are to protect the quality of services, maintain staff morale, and ensure value for money.

Monitor will be focused on dealing with the immediate crisis in the failing organisation. It will not necessarily have a view to the long term needs across a local health economy, though a provider’s problems can rarely be dealt with in isolation. These points have been made by the former health minister Lord Warner and others during the debates in the House of Lords. Ministers have responded by arguing that service change should be locally-led. We agree that clinicians and local communities must be fully engaged in the process of service change but we don’t think that precludes the need for strategic leadership. There is a risk that clinical commissioning groups are too small and ill equipped to tackle some of the large-scale changes that are needed and that the current processes for consultation are too slow.

There are increasing signs that more providers are in poor financial health. Mergers are often seen as the solution, but a merger may only delay and sometimes distract from the service changes that are really needed. The new arrangements may enable a more rapid response to problems but may not deliver better designed and delivered health services in the long term. Short term decisions made in crisis about the future of one organisation are unlikely to be in the best interests of patients and the taxpayer.

Read our Health and Social Care Bill briefing: Report stage House of Lords – service reconfiguration and the failure regime

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