Monitor has placed Mid Staffordshire Foundation Trust under administration, saying it cannot be sustained in its current form.

The combination of the trust’s current financial difficulties and the impact of the Francis report has proved impossible to surmount.

Monitor will appoint special administrators to run Mid Staffs and plan its reorganisation – with options including the dissolution of the trust.

Mid Staffs is the second Foundation Trust to be placed under administration this year: the first, South London, was judged to have failed financially but not clinically, with PFI debts being a major factor.

Mid Staffs is also facing financial problems, having been bailed out with £20m from the DH in 2012, and having to cut its costs by 7% this year. Its small size – only two acute hospitals – counts against it economically.

However, it is also under pressure not to let its clinical standards slip, following the Francis report into over 400 preventable deaths at Stafford Hospital from 2004 to 2008.

The growing panic in the trust was exposed when a Stafford Hospital paramedic abused health campaigner Julie Bailey on Twitter, saying that he hoped she became seriously ill and found the nearest hospital shut down.

Julie Bailey’s ‘Cure the NHS’ campaign is credited with having led to the Mid Staffs enquiry. Her mother was among the people who died due to serious medical neglect at Stafford Hospital.

Monitor sent a ‘contingency planning team’ into Mid Staffs five months ago. Its report into “sustainable options for alternative clinical models in the area” will shortly be published, the regulator said.

The special administrators will have 150 days to develop a plan for service reconfiguration, working with local commissioners.

Professor John Caldwell, Chairman of Mid Staffordshire FT, said: “We have accepted for some time that MSFT working alone cannot produce a long lasting solution to the issues we face to ensure financial and clinical sustainability.”

Given that the financial constraints of FT status previously led the trust to experience a disastrous breakdown of care, finding a solution there is a key challenge for the NHS reform programme.

Monitor has found Sherwood Forest Hospitals Foundation Trust in Nottinghamshire to be in significant breach of its terms of authorisation, due to mounting PFI debts.

The economic regulator said the trust had “failed to deliver recurrent savings of £10m in the last financial year and made a £5.9m loss in quarter one this year”.

Sherwood Forest Hospitals currently spends 17% of its income on PFI costs, which are escalating at £1.5m per year.

Monitor Chief Executive David Bennett said Sherwood Forest is one of two foundation trusts whose “underlying” financial problems are due to PFI contracts.

The trust spent £42.5m on PFI costs last year.

Monitor commented: “The trust’s PFI unitary charge is rising annually as a percentage of income, and when combined with falling revenue this threatens the long-term financial sustainability of the trust.”

The trust plans £14m saving for 2012–13, but this will be “challenging” given that last year it saved £9.8m less than it had planned, Monitor said.

According to the regulator, Sherwood Forest has breached Condition 2 (the general duty to exercise its functions effectively, efficiently and economically) and Condition 5 (the governance duty) of its authorisation terms.

Monitor’s Board has not yet decided what action to take.

The financial problems faced by NHS foundation trusts (FTs) will become worse over the next few years, according to Monitor.

The economic regulator’s review of FTs’ annual plans states that far from being a legacy of their NHS trust past, the financial malaise of FTs is set to intensify as their cost-cutting measures reduce their income.

Without positive service redesign, Monitor says, the 20% spending cuts planned by FTs over the next five years will not improve their financial health.

It notes that the financial gap between more and less successful FTs is widening, with the latter including many based at district hospitals, carrying PFI debts or in deprived areas.

“We expect an increasing number of trusts could be placed in significant breach for financial reasons,” said Stephen Hay, Monitor’s Chief Operating Officer.

According to the regulator, FTs “need to be making significant changes in the way services are delivered, including further service reconfiguration and consolidation of suppliers”.

The financial plans of FTs forecast a 1% decline in income overall in the next three years, with no increase in acute care activity (compared with an average annual growth of 4.5% in recent years).

The review predicts that at least 17 FTs will receive a red rating (indicating a serious risk of breaching their authorisation terms) in 2012–13. “We expect there will be more,” it warns.

According to David Stout, Deputy Chief Executive of the NHS Confederation, Monitor’s report shows an urgent need for service redesign towards more integrated and community-based care.

Seven NHS trusts on the brink of bankruptcy will be visited by Government ‘hit squads’ in an attempt to reverse ailing finances.

Government lawyers and auditors are to be sent to trusts hindered by private finance initiative (PFI) contracts in an attempt to save up to £1.5 billion.

Health Minister Simon Burns (pictured) said the deals were “absolutely disgraceful” and the contracts show a “cavalier disregard” for taxpayers’ money.

The seven trusts set to be visited by the ‘hit squads’ are: Barking, Havering and Redbridge; Dartford and Gravesham; Maidstone and Tunbridge Wells; North Cumbria; Peterborough and Stamford Hospitals; and St Helens and Knowsley NHS Trust.

It’s also believed that the ‘hit squad’ will also visit South London Healthcare Trust – the first NHS trust to be placed into administration – as part of the cost saving measures.

Mr Burns said that officials had analysed various PFI contracts and identified billions of pounds’ worth of savings.

It’s believed that throughout the NHS there are PFI deals worth more than £79bn. While the Government says it will not walk away from these contracts and leave the NHS with years of legal disputes, it is now focusing on means of reducing repayments.

“Seven hospitals got it horribly wrong,” Mr Burns said. “It is an absolute disgrace.

“The problem is some of these contracts are 2,000 pages long and realistically I suspect very few people have looked through them and been able to identify all the implications and potentials to make sure they are getting a good deal.”

The recently declared bankruptcy of South London Healthcare NHS Trust has been linked to Barclays Bank’s manipulation of the interbank lending rate (Libor).

Health finance experts have called for a public investigation into the impact of the Libor fraud on hospital PFI debts.

Writing in the British Medical Journal, Allyson M. Pollock and David Price said the conflict between the trust’s falling income and its escalating PFI debts was partly due to the dependence of PFI repayment rates on financial derivatives.

Barclays Capital has been convicted of fraudulently inflating the value of derivatives in order to distort the cost of bank borrowing.

Derivatives play a key role in PFI projects: investment banks such as Barclays Capital use them to secure loans against a hospital’s future revenues.

The PFI scheme for the Princess Royal University Hospital PFI in Bromley, a major factor in the South London Healthcare NHS Trust debt, relied on interest rate ‘swaps’ that created an artificially high interest rate for the deal.

Profits from derivatives are tied to Libor, and so manipulating Libor enabled Barclays Capital to defraud the trust by indirect means, the authors claim.

They argue that “a major public inquiry” is needed “to determine the full extent to which the high interest rates, swap mechanisms and swap margins fuelling the latest round of hospital and service closures are products of Libor manipulation and fraud.”

Government criticism of Private Finance Initiative (PFI) schemes has highlighted concerns about the economic burden faced by hospital trusts.

The financial crisis faced by the South London Healthcare trust has led Health Secretary Andrew Lansley to condemn PFI as a New Labour mistake.

A total of 21 health trusts have declared themselves financially unsustainable, and the Government is looking to review the terms of PFI contracts.

PFI schemes to fund hospital construction were devised by John Major’s government, but realised by a New Labour administration keen to build hospitals without exceeding health budgets.

They represent a form of borrowing from the private sector at high interest rates, harming the long-term financial health of hospital trusts.

South London Healthcare is now spending 14% of its income on PFI repayments, having been formed by the amalgamation of three hospitals of which two had been built through PFI schemes.

A review of PFI schemes by a Treasury select committee in 2011 declared its supposed advantages to the taxpayer to be “illusory”, and concluded that the DH had become “addicted” to it as a practice.

Shadow Chancellor Ed Balls defended the schemes: “Up till 1997 we had no new hospitals being built at all, and in constituencies across the country people were crying out for decent healthcare.”

South London Healthcare may become the first NHS hospital trust to be declared bankrupt after accumulating debts of £69m.

Health Secretary Andrew Lansley has warned the trust that an administrator may be brought in to sort out its finances. The trust could also be dissolved and certain services closed as a result.

Mr Lansley said in a letter that he realises not all of the debts are the trust’s fault. However, he added that problems must be “tackled” and that “we are almost at this point”.

The trust merged three London hospitals in 2009: Princess Royal University Hospital in Orpington, Queen Mary’s Hospital in Sidcup, and the Queen Elizabeth Hospital in Woolwich.

When the three joined to form one organisation, the trust inherited a large debt through a private finance initiative (PFI) that had been used for the buildings at Orpington and Woolwich.

If the Health Secretary decides to disband the trust, it would not necessarily mean that all services would close as another NHS organisation or a private provider could take over responsibilities.

Government ministers are thought to be considering a deal which would see taxpayers taking over responsibility for the £2.5bn PFI contract.

But the option of emergency funding to reduce the deficit is not being considered in a move which ministers believe would allow other trusts to assume similar bailouts.

Mike Farrar, Chief Executive at the NHS Confederation, welcomed the move by the Health Secretary. “The NHS can’t go on with short-term fixes to financial problems,” he said. “That might mean some tough decisions, but hopefully will deliver financial sustainability in the long term.”

Chris Streather, Chief Executive of South London Healthcare, said talks were now ongoing with the Department of Health and NHS London to decide the “best future” for the trust.

“The most important thing is that the health needs of the local population are sorted out,” he said. “Over the last three and a half years since we have merged we have made an enormous amount of progress on quality of care.

“There is a huge gap in our financial plan in order for us to become viable in the long term and this intervention if it solves that problem which it is designed to do is absolutely welcome and will be helpful.”

A decision is expected on the future of South London Healthcare in the middle of July.