After working within the industry and the NHS for the last two decades, John Fletcher uses his inside experience to explain how the shift to Foundation Trusts will affect hospitals, how completion may change the NHS, and the opportunities for the pharma.

Despite recent ‘backtracking’ by the Government, the 2010 White Paper on Health and the subsequent Health & Social Care Bill will bring both challenges and opportunities for NHS hospitals.

Clearly, financial constraints will cause the biggest problems in terms of care delivery, both for existing services and for newer ventures; however, acute trusts may also benefit if they can change and develop their services in such a way as to satisfy local needs better than their competition – be that private providers, neighbouring acute trusts or community providers.

Trusts need to develop pathways that are efficient, yet profitable, in conjunction with their commissioners. They must minimise their unprofitable emergency work, and maximise their income through the more profitable work, elective care.

Foundation Trust status

The Government has stated its desire to see all acute trusts become Foundation Trusts (FT) by 2013. In essence, a Foundation Trust has more freedom to adapt its services according to local needs, and is free from the control of SHAs. FTs are also able to re-invest their surpluses in local developments, and indeed borrow from commercial banks to support their plans, should they wish to do so.

The fate of trusts that fail to reach this FT status is at present unclear, but it is likely that they will be either subsumed by neighbouring, successful FTs, or, as in the case of Hinchingbrooke in Cambridgeshire, franchised out to a private provider.

The Trust I recently left achieved FT status, having been authorised by the regulator Monitor on 1 February. Given the problems associated with Mid Staffordshire Hospital FT, Monitor is ever more rigorous in its approval process, and it is by no means assured that all trusts will make the grade.

As a result, it can be expected that many trusts will fail in their aspirations, and the approvals process will be slow, given that many Trusts have not had their plans signed off by the DH, and Monitor will be snowed under with requests.

However, the drive towards a complete conversion to FTs will mean that every trust in the country will be its own discrete business, accountable to its local GPs and patients, overseen by a board of governors, and regulated by Monitor on its finances, and the CQC on its clinical quality. Each is also subject to ‘free market’ conditions, and can therefore ‘fail’.

Challenges for trusts

1. Competition: recent years have seen the number of competitor organisations to acute trusts rise considerably, and this is set to continue, although the Government has recently discouraged the undercutting of National Tariffs on the grounds that it may erode quality.

This keeps trusts in a stronger position as they can preserve their income, and there is less temptation for commissioners to seek alternative, cheaper suppliers of healthcare. Nonetheless, competition comes from a number of sources:

• Neighbouring acute trusts
• Private hospitals/organisations bidding for NHS work
• Community providers
• GP organisations (providing, for example, cataracts or endoscopy)

In order to stimulate further competition, there are an increasing number of tenders appearing from PCTs for ‘Any Willing Providers’ to provide various services. This work is only offered at reduced tariffs compared to acute providers, often in the region of 75%. Furthermore, such work may only be delivered in a community setting.

Despite Government moves to allay fears about private competition, the likely result of this will be many more players entering the market, particularly for services that have a relative lack of complexity, with either low lengths of stay required in hospital, or ease of delivery in community/day-case settings.

The loss of work and/or the lower tariffs may cause severe income loss for some trust departments – ophthalmology and endoscopy have already been mentioned, but there is scope in many other specialties, either medical or surgical.

2. Efficiency requirements: although the NHS has been given a further year to deliver its £20 billion efficiency savings, all NHS bodies are working towards efficiency savings of 3.5% this financial year, and 4% thereafter.

Put simply, this means doing the same level of work for less, or doing 3.5-4% more work with the same resource. Given the levels of competition, gaining activity growth on profitable services – usually elective care – is going to be much tougher, and indeed trusts will be subject to various demand management schemes instigated by commissioners.

Reductions in national tariffs this year of 1.5% will reduce income further, and given inflationary cost pressure of at least 2%, it is not difficult to see the challenges ahead in order to achieve the required efficiency, or essentially become insolvent.

To make the challenge even harder, emergency admissions over and above 2008-09 levels now only attract 30% of the full tariff, and such admissions show no sign of declining – my own trust is 4% higher than last year, and considerably above the 2008-09 levels.

A recent report from Monitor, their Annual Plan Review 2011-12, showed that the number of trusts having high risk scores for their finances moved from four in 2010-11 to eleven. In other words, trusts themselves are forecasting tougher times.

Trusts will need to adopt strategies that enable them to either grow their way through the challenge, or cut unprofitable services, or reduce wards/staff numbers. Some trusts have indeed already started trimming their staff numbers. There may be cases for mergers, bringing some economies of scale.

3. Targets: despite much rhetoric around moving to more outcome-based targets, trusts will still face daunting goals in terms of A&E where 95% will have to be seen in four hours; two week wait for cancer patients; 18 week referral to treatment, plus MRSA & C.Difficile infection rates, to name but a few.

There is one new target which could also present a challenge for trusts, and that is re-admissions within 30 days. On the surface, the target may seem reasonable, but the reasons for readmission are often more to do with the lack of community care, rather than poor hospital treatment.

Many targets will be included in contractual negotiations, or appear as ‘CQUINs’.

There is not enough space within this article to go through every target, but suffice to say that the target culture remains, and there are penalties associated with failure, both financial and regulatory.

Opportunities for trusts

Thus far, it would appear that the poor old NHS hospital is well and truly under the cosh. Whilst there are clearly major hurdles to overcome, there are also tremendous opportunities to exploit. Trusts have many inherent strengths, and not all shared by their competition – they have significant estates, they have significant diagnostic capabilities, and they have significant expertise.

In some cases, they may have developed good relationships with their commissioners and GPs, and many have strong reputations in their communities. Successful acute trusts will take advantage of these strengths.

1. Community provision: whilst it is true that across all areas there are Community Units covering services such as district nursing, health visitors, and running community hospitals with step-up and step down beds for those patients not requiring acute care, the advent of competition will enable any provider to bid to provide these services. Some may not be attractive to trusts, but some may be of great benefit.

Given the pressure to keep emergency admissions down, and to ensure readmissions are minimised, a trust taking control of some elements of community provision may help to achieve this – for example, running community hospitals, or providing Chronic Disease Management teams to help prevent acute exacerbations.

2. GP commissioning: whilst the Health & Social Care Bill is yet to be approved by the House of Lords, it seems likely that PCTs will be abolished by 2013, and commissioning will pass to Clinical Commissioning Groups. Indeed, a timetable for the handing over of powers to commissioning groups has been issued from the DH in August.

There will be a far greater emphasis on local care through these groups, and trusts that build up strong working relationships with their GPs will be in a much stronger position to defend their markets. Some services may well be decommissioned, particularly if GPs feel they can provide them cheaper, but trusts would still be able to keep their core services profitable.

3. Private income: the Health Bill also brings a possible opportunity for trusts to engage in more private work. Some time back, levels of private work were capped as a percentage of income; this cap is to be removed, opening up the private market fully.

Whilst such work cannot interfere with a trust’s ability to see its NHS patients according to the relevant targets, there are means of gaining such work, either as a separate ward in the trust, or in partnership with another private provider.

Private work in a recession may not sound like a big market – which explains why private hospitals ‘mop up’ their spare capacity with NHS work, but recessions come and go, and private work will increase.

4. QIPP: the QIPP agenda is essentially a mechanism for increasing efficiency, and decreasing cost, whilst maintaining the highest quality of care. Those trusts with the greatest ability to innovate safely will be better placed to weather the storm.

5. Section 52: some FTs may fall foul of this clause within the National Health Service Act, 2006. In essence, it gives Monitor the power to formally intervene in the running of the trust, including sacking the board, if it deems that there has been significant breaches in the trust’s terms of authorisation.

These terms include both governance – as in the case of Mid Staffs – and finance. Whether a hospital would be declared bankrupt is open to debate, but Monitor does have the power to force through whatever solution they feel appropriate. Cost pressures will undoubtedly raise the spectre of this event in the minds of many trust CEOs.

Opportunities for pharma

Given the landscape that trusts operate in, there are several opportunities for pharmaceutical companies to help:

• Development of drugs/formulations and treatments that decrease length of stay in trusts – this will help increase bed-utilisation, or indeed cut the number of beds required resulting in big savings.
• Development of drugs/formulations that enable more efficient treatment in the community, particularly for conditions that regularly translate into emergency admissions – this will reduce a trust’s exposure to lower emergency tariffs, and save the community money.
• Development of tools that enable commissioners and trusts to understand the impact of any intervention on the patient pathway, particularly cost, but also other quality parameters. These tools have to show VALUE – evidence is the key, and must be robust enough to persuade the stakeholders to amend the current pathway.
• Bringing GPs and hospitals together in a single forum to assess the primary and secondary care pathways as one, rather than two separate entities. Undoubtedly, there can be an adversarial feel to trust-commissioner relationships – bringing single solutions to joint problems is the only real way to maintain and improve patient care with no additional resource. Pharma could facilitate this in various disease areas.
• Share expertise – most staff within the NHS, including management, have never worked in the ‘cut and thrust’ of the commercial world. Expertise from any part of a pharmaceutical company may help the NHS innovate, and it will certainly build greater rapport for a more fertile commercial relationship.

John Fletcher now works for Pathway Communications, developing patient pathway simulation models and enabling pharmaceutical companies to assess the value of their treatments.