why does being a foundation trust matter? | brendan farmer

Why does being a Foundation Trust matter?

1 December 2011

Source: Monitor Compliance Framework

Agenda

What are Foundation Trusts & what can they do?

The requirements to being authorised as a Foundation Trust

The ongoing compliance requirements to remaining a Foundation Trust

Appendix: Monitor Compliance Framework details

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NHS foundation trusts are:

Public institutions

Are not subject to direction by the Secretary of State for Health

Are not subject to the performance management requirements of the Department of Health.

Set their own strategies and make their own decisions within the framework of contracts with their purchasers and other bodies’ legal and regulatory regimes.

Have an independent board of governors which appoints the chair and other non-executive directors, and which also approves the appointment of the chief executive.

Can borrow commercially, retain surpluses and invest to serve local needs

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NHS foundation trusts can:

Improve quality through innovation and adoption of better practices, bringing to England models of care that have worked in other countries;

Invest in new patient care facilities and enter into partnerships with commissioners1to improve the delivery of high quality care and develop long-term care facilities;

Set local pay agreements;

Form partnerships with the private sector and other hospitals, or specialise in selected services;

Subject to competition approval, acquire or merge with other service providers; and

Set local targets in consultation with their members or in contracts with commissioners


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In considering applications from NHS Trusts, Monitor look at three areas:

Is the Trust well governed with the leadership in place to drive future strategy and improve patient care?

Is the Trust financially viable with a sound business plan?

Is the Trust legally constituted, with a membership that is representative of its local community?


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Overview of the NHS Foundation Trust application process

SHA assurance process

SHA-Trust Development Phase Secretary of State

Support Phase Monitor Phase

SHA works with trusts to develop robust and credible NHS foundation trust applications. Activities include: 1) Pre-consultation:

Trust review Board review Draft business plan and financial model Bespoke support

SHA decides that the applicant is now ready to proceed to: 2) Public consultation – minimum 12 weeks 3) Post consultation:

Finalisation of consultation Final business plan and fi nancial model Historical due diligence sourced and actioned Board-to-board practice All actions from 1) above, delivered

4) SHA confirms the trust is ready to move into second phase.

Timescale: To be determined between SHA and trust, based on trust distance from NHS foundation trust ‘readiness’ and the level of development required. To enable applicants to undertake minimum 12 week public consultation and three week historical due diligence.

When SHA is satisfied that trust is ready, trust formally applies to Secretary of State, with SHA full support.

Applications Committee considers applications and provides advice to Secretary of State which trusts be supported to proceed to Monitor for assessment and, if successful, authorisation.

Final decision by Secretary of State.

Department of Health advises Monitor of supported applicants.

Trusts formally apply to Monitor. Monitor will carry out its full

assessment process.

Timescale: Minimum 3-4 weeks from trust application to Secretary of State support.

Timescale: Batching process on application. Three month assessment process..


The ongoing compliance requirements to remaining a Foundation Trust – monitoring & risk assessment

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Financial:

Quarterly submission

Annual plan

Exception reports

Governance:

Quarterly submission

Annual plan

Exception reports

Margin

Delivery of plan

Return on assets

Return on income

Liquidity

Service performance

Third party reports

Certification failures

Annual Plan

Monitoring

FRR 1 (high)

FRR 2

FRR 3

FRR 4

FRR 5 (low)

Red (high)

Amber-red

Amber-green

Green (low)

Triggered governance reviews:

Quality of plan;

Certification; and

Quality governance

Third party concerns

Risk assessment

Finance

Governance


The Annual plan

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Element Description

Strategic overview

Commentary (Appendix C1)

Three year outlook including vision, strategy, external factors and risks to delivery Commentary including key assumptions and downside risks Commentary on any investments that may affect the financial risk rating Commentary on measures to assess and address risks to quality Commentary on identification, analysis and mitigation of significant risks to mandatory services Annual update to schedules 2 and 3 of the Authorisation, and reference to mandatory services agreements listed therein Commentary on identification, analysis and mitigation of significant risks Review of major non-financial issues

Governance Board statements (Appendix C3)

Certification that:

All significant risks to the Authorisation have been identified

Effective risk and performance management processes are in place, and all issues raised by external assessments and audits have been addressed

The board is satisfied that plans in place are sufficient to ensure ongoing compliance with all existing targets and national core standards and with all known targets in [2011-12]

Processes and procedures are in place to ensure medical practitioners have met relevant registration and revalidation requirements

The board is satisfied that it has and will keep in place effective arrangements to monitor and Improve the quality of healthcare provided to its patients, having regard to Monitor’s Quality Governance Framework (Appendix H), serious incidents and complaints, and any other information

The board is satisfied that mandatory goods and services can be provided

The trust is registered with the Care Quality Commission and is likely to remain so

The board is satisfied with board roles, structures and organisational capacity

Finance

Membership report (Appendix C2)

Membership data including present and projected membership by constituency, election turnout rates and stratified comparisons with eligible groups

Commentary on membership strategy

Financial projections (Appendix C5)

Projections for next three years (income and expenditure; balance sheet; cash flow)

Actual results against plan for past year with commentary explaining variances


Financial risk rating

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1 At Monitor’s discretion, for trusts authorised for at least 2 years, and after four consecutive quarters rated 5 for finance risk and green for governance risk

2 Deficit: defined as an I&E deficit predicted in the annual plan, but after adding back any ‘one-off’ non-recurring revenue, costs or ‘investment adjustments’ 3 PDC (Public Dividend Capital), except in those cases where a foundation trust has provided Monitor with a statement from the Department of Health in which it states that it has (pre)agreed to a delay in payment until specific technical issues are resolved 4 PBC (Prudential Borrowing Code), except in those cases where the trust has approval from Monitor for an exemption to the PBC limit either on Authorisation, as part of the annual pl an submission, or as part of a specific separate request 5 Assessment of immediate financial risks and suggested mitigating actions

Description and overrides Financial monitoring Regulatory activity

Rating 5 Weighted average of 5 across financial criteria Quarterly/six-monthly monitoring1 None

Rating 4 Weighted average of 4 across financial criteria Override Maximum FRR of 4 if authorised within previous 12 months

Quarterly monitoring None

Rating 3

Weighted average of 3 across financial criteria Overrides FRR = 3 if: One financial criterion scored at ‘2’ Plan submitted either incomplete, with errors or

not on time Plan deficit2 forecast in years 2 or 3

Quarterly monitoring, however monthly monitoring in case of deteriorating trend or recovering from a 2 rating

Supplementary information if required If liquidity <15 days Monitor may require

forward liquidity analysis

If underperforming significantly from plan (FRR fall of at least 2), request analysis to understand

Rating 2

Weighted average of 2 across financial criteria Overrides FRR = 2 if: Plan deficit forecast in years 2 and 3 PDC3 dividend not paid in full Unplanned breach of PBC Two financial criteria scored at ‘2’

One financial criterion scored at ‘1’

Monthly monitoring

The following may be required: Supplementary financial information Service-line information (previous &

current year) Remedial plan and updates Liquidity recovery plan

Potential for escalation and consideration for significant breach

Potential for intervention under section 52 of the Act

Rating 1 Weighted average of 1 across financial criteria Override FRR = 1 if two financial criteria scored at ‘1’

Monthly monitoring

The following may be required: Supplementary financial information Service-line information (previous &

current year) Remedial plan and updates

Potential for escalation and consideration for significant breach

Potential for intervention under section 52 of the Act


Deriving the financial risk rating

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Financial criteria Weight

(%) Metric to be scored

Rating categories

5 4 3 2 1

Achievement of plan 10 EBITDA* achieved (% of plan) 100 85 70 50 <50

Underlying performance 25 EBITDA* margin (%) 11 9 5 1 <1

Financial efficiency 40

20 Return on Capital Employed** (%) 6 5 3 -2 <-2

20 I&E surplus margin net of dividend (%) 3 2 1 -2 <-2

Liquidity 25 Liquidity ratio*** (days) 60 25 15 10 <10

Financial risk rating is weighted average of financial criteria scores

* EBITDA: Earnings before interest, taxes, depreciation and amortisation. EBITDA (and other financial metrics) may be adjusted by Monitor for any ‘one-off’ non-recurring revenue, costs or ‘investment adjustments’ ** Defined as EBIT divided by (fixed assets plus current assets less current liabilities). Denominator includes PFI liabilities and finance leases *** The liquidity ratio is defined as cash plus trade debtors (including accrued income) minus (trade creditors plus other creditors plus accruals) plus unused committed working capital facility (up to a maximum of 30 days and excluding overdraft agreements) expressed as the number of days operating expenses (excluding depreciation) that could be covered


Governance risk rating

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Description Monitoring Regulatory activity

Green No material concerns: Governance score less than 1.0 Certifications complete and satisfactory

Quarterly/6 monthly submissions Exception reporting

N/A

Amber-green

Limited concerns surrounding Authorisation Examples include: Moderate CQC concerns Other third party concerns with potential

governance implications Certification concerns Governance score ≥1.0, <2.0, i.e. limited service performance concerns

Depending on nature of risk, some additional work/ supplementary information may be required to scope the issue in question, e.g.: Quality governance review CQC input

Once scoped, approach to address the issue of concern to be agreed with trust, with specific reporting on progress in resolving issue

Next steps depend on progress of this work and governance implications identified: If no material concerns, or if concerns

addressed → back to Green If trust continues to fail – e.g. breaching the

same 1.0-weighted indicator, Monitor may decide to publicise the issue

Amber-red

Material concerns surrounding Authorisation Examples include: Multiple service performance concerns Failure to maintain CNST level of 1.0 Major CQC concerns, or compliance actions Governance score ≥2.0, <4.0, i.e. multiple service performance breaches Trusts triggering escalation consideration but deemed not currently in significant breach

Where trusts have met escalation criteria but are not found in significant breach, trusts may be required to set out a plan to return to compliance

Where trusts have met escalation criteria but are not found in significant breach, continuing breaches of the Authorisation may lead to further escalation

Red

Either : Potentially in significant breach, including:

– Significant governance issues emerging from CQC review, e.g. enforcement actions

– Governance score ≥4.0 – 3rd successive quarter failure against a

1.0 weighted governance indicator (see Diagram 12)

or – Trust in significant breach of

Authorisation

Foundation trust may be required to: Submit information Initiate third party review Attend a formal regulatory meeting to

determine whether breach is significant

Subsequent requirements to depend on outcome of any meeting and other evidence, e.g.: Detailed action plan Delivery updates

If found to be in significant breach, Monitor Board will consider use of statutory intervention powers under section 52 of the Act, including for example :

Changes to board Require adherence to action plan Require use of external advisors (financial,

governance, clinical)

Monitor will publicise any intervention at the time it occurs.

If not found in significant breach → deescalate to Amber-red until situation addressed


1.Performance against national measures

National indicators set out in Appendix B Applicable to all foundation trusts providing services Declared risk of, or actual, failure to meet any indicator= +0.5-1.0 Three successive quarters’ failure of a 1.0-weighted measure (see Diagram 12): red rating and potential escalation for significant breach

5. Other factors Failure to comply with material obligations in areas not directly monitored by Monitor

Includes exception or third party reports Represents a material risk to compliance

4. Other certification failures

If not covered above, failure to either (i) provide or (ii) subsequently comply with annual or quarterly board statements (see Appendices C and D)

2.Third parties Care Quality Commission Responsive review Discretionary rating based on nature of triggers Prior to, or in the absence of, any formal CQC regulatory action Moderate concerns = +1.0 Major concerns = +2.0 Following formal CQC regulatory action Compliance action = +2.0 Enforcement action = +4.0

NHS Litigation Authority Failure to maintain, or certify, a minimum published CNST level of 1.0 or have in

place appropriate alternative arrangements: +2.0

3. Mandatory services

Declared risk of, or actual, failure to deliver mandatory services: +4.0

Risk ratings applied quarterly and updated in real time

Override applied to risk rating Nature and duration of override at Monitor’s

discretion

Deriving the governance risk rating

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Service performance score of…

Governance Risk Rating

< 1.0 Green

≥ 1.0 Amber-green

< 2.0

≥ 2.0 Amber-red

< 4.0

≥ 4.0 Red

Monitoring Service performance score Governance risk rating


The ongoing compliance requirements to remaining a Foundation Trust – Escalation, significant breach and intervention

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Monitor will consider escalation where:

FRR <3

Red-rated for governance

There are relevant third party concerns

OR

Other major breaches of the Authorisation;

indicate the trust is potentially in significant breach of its Authorisation

Escalation is not automatic: Monitor may consider:

Information from the trust or third parties; and/or

Meetings with board or management

in assessing whether the trust is likely to be in significant breach of its Authorisation

Criteria for significant breach: Time critical need for intervention Degree the breach is within trust’s control Ability of trust to address independently Financial stability of trust Risk to mandatory service(s); and Effectiveness of trust’s approach to breach to date

Monitor will intervene where: The trust is in significant breach No appropriate third party actions are available; and Monitor’s Board deems intervention necessary to return the trust to

compliance at earliest possible opportunity

Intervention may involve: Requiring trusts to do, or not do, specific actions in a specific period Removing board directors or governors; or Appointing interim directors or governors

Escalation triggers Significant breach and intervention Monitor will find a trust in significant breach where:


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Monitor Compliance Framework details – (click to link with www)

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http://www.monitor-nhsft.gov.uk/home/our-publications/browse-category/guidance-foundation-trusts/mandatory-guidance/compliance-frame-0

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