Patients and health services to suffer unless government introduces hospital failure regime

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The widespread financial problems facing the NHS will worsen over the next few years and patient services will suffer unless the government introduces a more effective regime to deal with hospital failure.

That is the view of a King's Fund report, How should we deal with hospital failure? Facing the challenges of the new NHS market, published today, which says the health service urgently needs mechanisms not only to deal with hospital failure but also to head it off before it happens. More than a quarter of NHS Trusts in England incurred deficits in 2004/5 despite record levels of funding. But the report warns the government's new health reforms will magnify already large financial imbalances at a significant number of NHS Trusts with a real risk that many of them will fail.

The report argues that the NHS is currently ill-placed to prevent hospital failure from happening and to deal with it when it does. It proposes:

  • A more flexible financial regime to allow NHS Trusts to adapt to emerging financial imbalances without risking harm to the quality of patient care.
  • a financial distress regime (a package of rescue measures) to apply to NHS Trusts with large and persistent financial deficits before they fail. Trusts would be required to implement a restructuring plan that would restore medium-term financial balance while also improving patient care.
  • a failure regime to apply to NHS trusts if and when they do fail. Failure by an NHS Trust or Foundation Trust to achieve agreed patient care and financial performance targets would trigger the NHS failure regime. Once an NHS trust enters the failure regime it would lose control over its destiny - a sanction necessary to ensure every effort is made to avert failure. An independent NHS Administrator would be appointed to intervene in the failing Trust. Its remit would be to restore financial viability while also protecting the quality of patient care in the local area served by the hospital.


Report author Dr Keith Palmer said:

'Parts of the NHS are already experiencing large deficits despite unprecedented increases in funding - and we expect that deficits will increase at some NHS Trusts when the reforms begin to bite in earnest. We urgently need a financial distress regime to address the causes of deficits and reduce the likelihood of failure occurring and a more effective failure regime not only to restore medium-term financial balance but also make sure that it is not the patients of failing trusts that pay the price of failure.'

How should we deal with hospital failure? Facing the challenges of the new NHS market is one of two papers published today by The King's Fund as part of its programme of work examining the new NHS Market. The other paper, Regulating health care: The way forward, says a separate independent economic regulator for health will be needed to oversee the financial instability that the NHS will continue to face over the next few years.

The report, by The King's Fund Director of Policy Dr Jennifer Dixon, says the Department of Health is likely to have an extensive and legitimate role in economic regulation to reduce the risks of avoidable financial failure in NHS bodies through a better management regime for dealing with financial distress. The report comes ahead of the Department of Health's wide-ranging review of the regulatory framework for the health and social care sector, expected later this month, and urges the Department to assess the costs and potential impact of the total regulatory burden that it imposes on state-run institutions. It calls for better monitoring to ensure that NHS healthcare providers are able to compete successfully with non-NHS bodies in the new market.

The King's Fund chief executive Niall Dickson said:

'The current changes have the potential to improve patient care, but there’s a real danger that the reform agenda will fail if they are not implemented with proper safeguards. The government has yet to work out how we deal with hospitals that fail in the new arrangements. The trouble is that market incentives will inevitably create further instability as a by-product of trying to stimulate improved efficiency and responsiveness. It’s important that there is both effective economic regulation of the market and systems to anticipate failure to guard against this.'

Dr Keith Palmer and Dr Jennifer Dixon will be speaking today at the final breakfast debate of The King's Fund's NHS Market Futures series.

Read the report: How should we deal with hospital failure? Facing the challenges of the new NHS market

Read the report: Regulating health care: The way forward

Notes to editors

1. For further information, interviews or a media copy of either report, please contact the King's Fund media and public relations office on 020 7307 2585, 020 7307 2632 or 020 7307 2581. For out-of-hours enquiries, please contact 07774 218439 or 07831 554927. An ISDN line is available for interviews on 020 7637 0185.

2. How should we deal with hospital failure? Facing the challenges of the new NHS market, by Dr Keith Palmer, and Regulating Health Care: The way forward, by Dr Jennifer Dixon, are both free to download from Wednesday, 7 December on the publications section of the King's Fund website.

3. These are the latest reports in the King's Fund's programme of work examining the new NHS Market - NHS Market Futures. Other papers in the series address critical issues such as the future of primary care and commissioning. The series will make an important contribution to the debate about the direction in which the NHS is now moving. For further information, please visit our NHS Market Futures work programme page.

4. Breakfast debate - Incentivising reform in the NHS – does it all add up? Wednesday, 7 December 2005

The government's reforms are set to introduce new and potentially powerful incentives to the NHS. Many of these incentives, if left unchecked, risk inflating demand for NHS care. For example, under payment by results, providers of NHS care have a clear incentive to maximise activity and income. However, incentives for providers to avoid hospitalisation, an appropriate aim for emergency care and for services for people with long-term conditions, are weaker. We will be considering how best to design appropriate incentives for different parts of the health care system and ensure that perverse impacts are anticipated and minimised. Speakers will be:

  • Dr Michael Walsh, Chief Executive of South East London Strategic Health Authority
  • Dr Keith Palmer, Senior Associate, King’s Fund, and Non-Executive Director of Guy’s and St Thomas’ NHS Foundation Trust
  • Rebecca Rosen, Fellow in Health Policy, King’s Fund.
  • Dr Jennifer Dixon, King’s Fund Director of Policy, will chair the debate.

Media are cordially invited to attend the debate: 8.15am to 10am, Wednesday, 7 December 2005 at the King's Fund, 11-13 Cavendish Square, London, W1G 0AN. If you would like to attend, please contact Michael Moruzzi in the media and public relations office on 020 7307 2585 or email

5. The King's Fund is an independent charitable foundation working for better health, especially in London. We carry out research, policy analysis and development activities, working on our own, in partnerships, and through funding. We are a major resource to people working in health and social care, offering leadership development programmes; seminars and workshops; publications; information and library services; and conference and meeting facilities.