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.”

As the slicing and dicing of Foundation Trusts and their services intensifies, Maxine Vaccine takes a look at the commercial future of the NHS brand.

This week, the NHS news has been dominated by the struggles of NHS trusts to achieve Foundation Trust status.

Firstly, the shutdowns. South London Healthcare NHS Trust went into administration after running up deficits of more than £150m. Mid Yorkshire Hospitals NHS Trust said it was considering service closure options after seeing its deficit soar from £19.2m to £44.2m in a year. NHS North of England declared it would delete inpatient surgery and A&E services from Trafford General Hospital, the ‘birthplace of the NHS’.

Secondly, the bailouts. Andrew Lansley told Parliament that the £19m owed by NHS North Yorkshire and York would be written off to enable the new CCGs to commence doing business without legacy debts. A National Audit Office report revealed that NHS trusts have received bailouts totalling more than £1bn over the past six years. In 2010–11, the DH paid out £76m to help ailing trusts manage their deficits. In 2011–2, the figure rose to £253m. The NAO predicts that next year it will reach half a billion.

On the one hand, the Government is willing to shut down services in order to ensure that hospitals behave more like businesses. On the other hand, it’s willing to prop them up with public money if that helps them to creep through the Foundation Trust gates. The priority is neither saving money nor maintaining services: the priority is making sure that NHS Trusts disappear from the landscape.

Another clue to what is taking place can be found in the recent statement by Health Education England that it will allow commissioners to create flexible workforces that meet their own local needs. This followed an earlier statement that it would put healthcare employers “in the driving seat” to create a “demand-led workforce”. Don’t be misled by the word ‘flexible’. Of course clinicians need to be flexible – that’s not the issue. What HEE is promising is that terms and conditions, job definitions and professional grades will be flexible depending on the local employer. In other words, the NHS will no longer have a national employment framework.

What these changes are all about is grooming the NHS for private sector takeovers at a local level – the kind illustrated by this week’s announcement that Virgin Care will be running children’s health and social care in Devon for the next three years. Branson’s company declared its one-year experience of working with charity Kids’ Company means it is fully equipped to provide core NHS services to the young.

National agreements, like legacy debts, would be off-putting to potential franchisers. What they want is lucrative services, straightforward tenders, no headaches. That’s exactly what the Government is making sure they find when they come to the NHS. But what will drive the takeovers? As the Devon contract illustrates, it’s not that NHS providers cannot offer the same services. It’s the power of healthcare corporations like Virgin Care, Circle and Serco to achieve economies of scale and to drive down costs by imposing the terms and conditions of private sector employment.

And no, Andrew Lansley wasn’t lying when he said the Government wasn’t planning to sell the NHS. At the local level, the level of CCGs and Foundation Trusts, the NHS is selling itself. All the Government did was slice it up, wrap it in plastic and put it on the shelf. If companies then come along and buy it, that’s purely a local decision.

Key account managers in the pharma industry need to find out everything about the private health providers who are bidding for segments of the NHS brand. The future of UK healthcare belongs to them.

Maxine’s views are not necessarily those of Pharmaceutical Field.

Hospital trusts in London and Yorkshire have reached the point of no return, without hope of reaching Foundation Trust status in their current form.

South London Healthcare NHS Trust has gone into administration after running up deficits of more than £150m.

Mid Yorkshire Hospitals NHS Trust has seen its deficit increase in a year from £19.2m to £44.2m, and is considering options for service closure.

Over 20 hospital trusts are struggling to meet Foundation Trust criteria by the 2014 deadline and find a place in the new provider landscape.

The first NHS trust to go into administration, South London Healthcare was formed in 2009 from the merger of three NHS hospitals with a joint deficit of £21m.

The trust serves more than a million people in the capital. Despite saving £41m in 2010–11, it ended the year with a £41m deficit which has since escalated.

Mid Yorkshire Hospitals Trust, which also comprises three hospitals, is considering two options to halve its current £44.m deficit by April 2013.

The trust said it would “not be in a position to progress to Foundation Trust status in the foreseeable future”.

Stephen Eames, the trust’s Interim Chief Executive, said: “The challenges faced by the trust have been a matter of public concern for many years.”

Two options were on the table, he said, both with the aim of immediately reducing the deficit: “The first looks at doing what we must do to make services clinically safe and sustainable, whilst the second goes further, radically reorganising services across our hospital sites to make the best use of resources.”

The first option would include consolidating children’s and maternity services in Wakefield, while the second would bring all emergency and complex services into the Pinderfields hospital.

Central control of NHS finances needs to be tighter than before during the transition to the new system, according to Sir David Nicholson.

Addressing the Local Government Association, the NHS Chief Executive argued that the “turbulence” of rapid change combined with austerity measures made temporary centralisation of funding essential.

The current financial crisis of the South London Healthcare trust showed the importance of ensuring that all hospitals meet Foundation Trust criteria, he said.

The NHS reforms imposed by New Labour in 2004 had “lost control of the money”, Nicholson claimed, and that could not be allowed to happen this time.

The two economic priorities were that every hospital should be financially sustainable and every CCG should be free of legacy debts, he said, adding: “While much of the talk is about localism, in practice I have more national control over the money in the NHS than we have ever had.”

Nicholson also said the current NHS reforms would “shift the centre of gravity” towards local government, driving the integration of health and social care – and to assist that, the NHS was “committed to transferring resources to social care”.

The NHS was currently in discussion with the LGA to agree on a strategy for effective collaboration, he revealed.

A host of NHS trusts received bailouts totalling more than £1 billion in the last six years, a report from the National Audit Office (NAO) has shown.

The Department of Health was forced to issue four struggling foundation trusts and 17 other trusts the money between 2006 and 2012 to pay creditors and staff.

Amyas Morse, Head of the NAO, said that it was clear “parts of the service are under strain.”

Research found that South London Healthcare NHS Trust – which recently became the first to go into administration – needed a total of £356 from the DH to break even over the last six years. It is yet to pay back the money.

Barking, Havering and Redbridge University Hospitals NHS Trust also required £195 by the DH to cover its debts.

Last year, trusts needed £253m from the DH, the report found – a huge increase from the £76m requested between 2010 and 2011.

The NAO now estimates that NHS trusts and foundation trusts will need approximately £300m more in bailouts next year to cover ailing finances – despite a surplus of £2.1bn across the NHS.

Meanwhile, official figures from the Department of Health showed ten NHS hospital trust recorded deficits last year.

Mid Yorkshire Hospitals was £19m in the red, Surrey and Sussex Healthcare ended with a £6m deficit, Mid Essex Hospital Services Trust ended up with £2m debts and Newham University Trust recorded losses of £200,000.

Hospital trusts in the capital struggled to control finances more than any other part of the country with the region finishing £96m in the red overall.

Sir David Nicholson, NHS Chief Executive, said the “demands of an ageing population and increased costs owing to developments in drugs and advancing medical technologies present challenging financial conditions in a constrained economic environment.”

He added that “all parts of the NHS” will need to take “bold, long-term measures” to meet financial challenges.

A host of NHS trusts received bailouts totalling more than £1 billion in the last six years, a report from the National Audit Office (NAO) has shown.

The Department of Health was forced to issue four struggling foundation trusts and 17 other trusts the money between 2006 and 2012 to pay creditors and staff.

Amyas Morse, Head of the NAO, said that it was clear “parts of the service are under strain.”

Research found that South London Healthcare NHS Trust – which recently became the first to go into administration – needed a total of £356 from the DH to break even over the last six years. It is yet to pay back the money.

Barking, Havering and Redbridge University Hospitals NHS Trust also required £195 by the DH to cover its debts.

Last year, trusts needed £253m from the DH, the report found – a huge increase from the £76m requested between 2010 and 2011.

The NAO now estimates that NHS trusts and foundation trusts will need approximately £300m more in bailouts next year to cover ailing finances – despite a surplus of £2.1bn across the NHS.

Meanwhile, official figures from the Department of Health showed ten NHS hospital trust recorded deficits last year.

Mid Yorkshire Hospitals was £19m in the red, Surrey and Sussex Healthcare ended with a £6m deficit, Mid Essex Hospital Services Trust ended up with £2m debts and Newham University Trust recorded losses of £200,000.

Hospital trusts in the capital struggled to control finances more than any other part of the country with the region finishing £96m in the red overall.

Sir David Nicholson, NHS Chief Executive, said the “demands of an ageing population and increased costs owing to developments in drugs and advancing medical technologies present challenging financial conditions in a constrained economic environment.”

He added that “all parts of the NHS” will need to take “bold, long-term measures” to meet financial challenges.

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.