Editor’s blog Monday 28 June 2010: Testing the foundations and the afterlife of targets

FT regulator Monitor looks set to become the NHS economic regulator envisaged in the Conservative pre-election health policy.

Its new chair Steve Bundred has been making significant noises about taking the assets of FTs off balance sheet – potentially, the single biggest step yet proposed towards the privatisation of the NHS.

Now Monitor has issued its FT performance review of the year.

The 129 FTs (as at 31 March 2010) made an EBITDA surplus of £365 million pre-impairment (7%). On governance risk, 80 FTs were green-rated; 28 amber and 21 red.

The financial risk ratings
6 FTs were Category 5 (the lowest risk rating); 75 FTs Category 4; 41 FTs Category 3; 5 FTs Category 2 and 2 FTs were Category 1.

In total, 31 FTs were in significant breach of their terms of authorisation at the year end.

The report attributes financial overshoots to unplanned additional activity from referrals and A&E attendance. It also states that “Impairment costs of £1.1 billion were significantly greater than planned”, and adds, “The implementation of International Financial Reporting Standards and the opening of a number of significant private finance initiatives led to the recognition of more assets. This, in conjunction with a change in asset valuation methodology, led to significant impairments of non-current assets. This resulted in an aggregate net deficit (after impairments) of £764 million against a planned surplus of £304 million”.

Problems ahoy
The report warns FTs very clearly of the risks to the changes to tariff payment for emergency activity over contracted levels, with the reduction to paying for just 30% of full tariff price.

It understatedly notes that this change ”is likely to impact adversely on the margins of acute NHS foundation trusts. In addition, financial pressures within the health system may result in difficulties in recovering income, for example from financially distressed commissioners”.

Cutting costs and trading out of trouble
The report is equally clear-eyed about the prospects for FTs  to trade their way out of trouble: ”A significant proportion (27%) of cost improvement programmes (CIPs) delivered this year were from income generation schemes; this type of CIP will be increasingly difficult to generate in the future given expected spending constraints, but the pressure to deliver significant CIPs will remain.

“Furthermore the impact of the quality agenda and reconfiguration of services are likely to make it more challenging to make cost efficiencies going forward”.

For all that reconfigurations are on hold until Andrew Lansley decides they are good reconfigurations, the report and the sector are correct to anticipate that they are not on hold forever.

Target practice
The section on targets raises a point I had overlooked. Health Secretary Andrew Lansley CBE MP is clearly determined that targets will no longer be centrally performance-managed. As we noted, this is not the same as their abolition.

Now a new possibility occurs: Monitor could require and compile information on FTs’ waiting times in A&E and 18-week RTT performance.

That would be the kind of thing an independent regulator could clearly do.

Whether it will do so depends on Mr Bundred. Who told HSJ that Monitor “can be independent without being either supine or confrontational - and that’s where I want to be.”

Monitor have been asked for a statement on their plans regarding targets, which will be added here on receipt.

UPDATE: Oh dear. In response to the specific request, “Health Secretary Andrew Lansley has announced that process targets such as 4-hour A&E and 18-week RTT will no longer be centrally performance-managed by the DH. Process targets have been a key Monitor metric of FT performance. Will Monitor continue to measure, compile and publish these performance indicators?”, a Monitor spokesperson replied,

“Monitor’s Board is considering the revised NHS Operating Framework and its impact on our Compliance Framework. We expect the outcome of their decision to be available shortly.”