The NHS failure regime: what have we learnt so far?

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The use of the ‘failure regime’ to deal with financially unsustainable providers in England is reminiscent of the old adage about buses – you wait ages for one and then several come at once.

Back in 2006, legislation was passed giving the Secretary of State power to appoint a trust special administrator to take over the day-to-day running of any NHS trust that was deemed to be failing financially. Remarkably, it took six years before the regime was first applied. In July 2012, South London Healthcare NHS Trust was put into administration. Not long after, in October 2012, Monitor took the initial steps towards enacting its own failure regime for the first time, by applying the ‘distress’ regime to Mid Staffordshire Foundation NHS Trust, before putting the Trust into administration on 16 April 2013.

So what can we learn from early experiments in using a failure regime in the NHS?

First, if we thought the failure regime would bring a rapid resolution to problems then we should think again. The administration process itself is indeed rapid – certainly compared to a traditional attempt to reconfigure NHS services. For NHS trusts the process must take no more than 120 working days; for foundation trusts 150 working days. However, the application of the regime in South London is potentially the subject of two judicial reviews. Three months after the Secretary of State announced his decision there is no clear way forward. With thousands protesting only last week to save Mid Staffordshire Hospital, one might expect similar attempts to challenge any recommendations made by the trust special administrator there.

Second, there is a disappointing lack of forensic diagnosis of the causes of financial failure. In a paper for The King’s Fund, Keith Palmer suggested that there are at least four distinct underlying causes of NHS and foundation trust deficits, including inefficiency and poor management, high legacy costs, inappropriate design of Payment by Results tariffs and stranded capacity costs which arise when utilisation of existing capacity is lower than planned because of unanticipated shifts in demand and income across trusts.

In the case of South London, the trust special administrator put the blame squarely on inefficiency and poor management and high legacy costs from PFI with little exploration of other potential causes of financial failure. The initial assessment of financial sustainability by the contingency planning team for Mid Staffordshire NHS Trust did little other than to observe that the trust had relatively high unit costs, and a high percentage of costs devoted to managing its estate. The thrust of its analysis was to focus on forward income and expenditure projections to see whether the trust could balance its books. This seems a missed opportunity to help the NHS understand why some trusts get into trouble and others don’t.

Third, the regime focuses on developing recommendations but does little to support their implementation, or safeguard for risks that occur in the transition period. For example, it is unclear what legal powers the Secretary of State and Monitor have to direct clinical commissioning groups to implement their recommendations. What if the due diligence, undertaken by the trust special administrator’s proposed merger partners, concludes that the merger is not prudent? What if the Office of Fair Trading and Monitor disagree with the recommendations of a trust special administrator?

The point of a good failure regime is to avoid failure, and protect the continuity of high-quality services for the local population. Early signs are that too much attention is being focused on the formal process and not enough on why we got here in the first place, and what happens when the administrator has packed its bags and gone home.


Mark Easton

Comment date
16 May 2013
Why do organisations get into financial trouble?

This is the best analysis we have got, from 2006:

It probably still holds true as a set of general principles.

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