Confusion reigns over the state of England’s hospitals today, following the news that the Government is to take the unprecedented step of placing one NHS hospital trust into administration.
South London Healthcare could become the first NHS Trust in the country whose finances are placed under the control of a special administrator.
And there are rumblings that other Trusts whose accounts are in a mess could follow suit.
Various reports have suggested that six, 20 or 21 other hospital trusts are also about to be placed in the “unsustainable providers regime”.
But the media can’t agree which trusts are in trouble. In fact, if you believed every news report you read today, you would think that more than 40 NHS trusts were on the verge of financial collapse – a bit of a worry if, like FactCheck, you live in one of the areas covered.
Has South London Healthcare “gone bust”?
Despite the widespread use of words like “insolvency” and “bankruptcy” in reports today, an NHS trust isn’t a business and can’t be placed in receivership.
A special administrator doesn’t even assume overall control from the trust’s board. But he or she does take hold of the purse strings, and is tasked with putting the organisation on a viable economic footing.
A radical reorganisation is certainly on the cards for South London – which runs Queen Mary’s in Sidcup, the Queen Elizabeth in Woolwich and the Princess Royal University Hospital in Bromley.
That’s because the trust racked up a deficit of £69m last year on a turnover of £424m.
But there’s no question of the hospitals being shut down and all the staff laid off. It’s far more likely that another NHS organisation or a private company will take over the running of various services.
None of this has actually happened yet. All Mr Lansley has done is signal in a letter that he is considering using his powers to appoint a special administrator. It’s not a done deal yet, although the letter is the first step in the legal process that needs to be completed, suggesting the minister is serious.
How many hospitals are on the brink of “financial collapse”?
Rival news reports have mentioned dozens of different trusts, but the Department of Health have given us what they say is the definitive list of 21 trusts “which are clinically and financially unsustainable”.
Six of them are London hospital trusts: South London; Newham; Barking, Havering and Redbridge; Whipps Cross; Ealing and North West London.
There are 11 other hospital trusts on the list: North Cumbria; Surrey and Sussex; Epsom and St Helier; Trafford; Scarborough and North East Yorkshire; Winchester and Eastleigh; George Eliot Hospital NHS Trust; North Middlesex; Hinchingbrooke; Weston Area and Dartford and Gravesham.
And four non-hospital organistions are included: Nuffield Orthopaedic Centre; Oxford Learning Disability; Great Western Ambulance Service and Suffolk Mental Health Partnership.
These trusts were identified as having serious financial shortcomings as long ago as October last year. Nothing new has happened today, other than a warning from Mr Lansley that he will put them into administration if they don’t deliver on financial targets.
How likely is that?
Of those 21 trusts, 17 already have mergers in progress, which are supposed to avoid duplicating services and improve efficiency. For example, in London, Mr Lansley has already signed off the merger of Barts, Newham and Whipps Cross to form a new super-trust.
This pooling of resources may or may not work, but the language from the government today sounded positive, a spokesman saying: “Many of the difficulties facing the others are being resolved through mergers.”
Hinchingbrooke Hospital in Cambridgeshire is unique in that it’s being run by private healthcare company Circle, who are expected to absorb the hospital’s £40m debts in exchange for a share of profits.
Four of the trusts, including South London, are among seven across the country who will get access to a £1.5bn bailout pot because they are repaying particularly large debts incurred under the controversial Private Financial Initiative (PFI). But they have to convince the government they are meeting performance targets to get the cash.
Is PFI to blame?
PFI schemes, where trusts borrowed money from the private sector for big infrastructural projects rather than relying on the Treasury, were first launched by John Major’s Conservatives in 1992.
Labour attacked PFI while opposition but signed off 103 deals in the NHS alone. That led to the biggest wave of hospital building since the 1960s.
But last year the Treasury Select Committee concluded that the schemes often provide poor value for the taxpayer, with private loans typically paid back at double the interest rate of public borrowing.
The burden of paying off PFI debts is certainly hurting some trusts, with South London shelling out 14 per cent of its income, or £61 million, a year to service its contracts. Figures from other trusts suggest 10 to 20 per cent of turnover is not unusual.
Those kind of figures led Mr Lansley to make dire warnings in September last year about 22 trusts “on the brink of financial collapse” due to their exposure to PFI debt.
But his department isn’t dwelling on that list today, which suggests he may have been exaggerating somewhat then.
A number of those 22 trusts the Health Secretary mentioned professed to be baffled by his words at the time, pointing out that the government’s own performance statistics had given their finances the all-clear.
Of those 22, only six are included on the “clinically and financially unsustainable” list being circulated today. (Confusingly, many news sites have resurrected the list of 22, and suggested that the seven trusts eligible for that £1.5bn are next in line for the South London treatment. But that’s not what the government has told us.)
In fact, not all of those 22 trusts lumbered with big PFI commitments are considered “clinically and financially unsustainable” – and not all the failing trusts have problems with PFI.
That suggests Mr Lansley has backtracked from the “PFI spells doom” line he was peddling last year, and it casts some doubt on the position that PFI commitments are really the biggest millstone for struggling trusts.
Clearly, as the King’s Fund think-tank has consistently said, PFI is only part of the problem. It was one of four big financial drags on trusts mentioned by the National Audit Office and was only said to be a problem for “a small number of trusts”.
The other problems were historic debt, mismatch of capacity and demand and an imbalance between primary and secondary care. That last one is likely to be a big problem for South London, which will have far more accident and emergency cases than say, a rural hospital trust, and acute cases cost more money.
So PFI is certainly a factor but Mr Lansley may be singling it out for political reasons. And of course the current government’s decision to limit spending rises to just above inflation is contributing to the overall pressure on trusts.
As Professor Malcolm Prowle, director of the Health and Social Care Finance Research Unit (HSCFRU) at Nottingham Business School, told us: “We’ve known about all this for a while. We are having this debate today because the health service is facing the biggest financial challenge in its history.”
By Patrick Worrall
