Healthcare regulator rejects calls for different risk ratings for NHS trusts with large PFI debts

In a document (27-page / 861 KB PDF) published alongside its new Risk Assessment Framework, Monitor said that some of these trusts had been "concerned about the impact of the new approach on their risk ratings". However, Monitor said that using a single 'continuity of service' risk rating for all trusts, regardless of their financial commitments, was the most consistent method of measuring a trust's viability.

"Monitor is required to assess the absolute level of financial risk at a provider of key services, whether that risk arises from poor performance, a weak local health economy or a provider's capital structure," it said. "To do this, we will use a single risk rating ... taking a proportionate, reasonable approach to the risk it calculates."

"The rating itself does not reflect a licence breach, nor is it a performance management tool 'requiring' providers to meet certain criteria. Where trusts' finances present a structural risk but there is no immediate threat to the continuity of key services for structural risk but there is no immediate threat to the continuity of key services for patients, we need assurance that their boards are managing that risk. Where we have such assurance, our regulatory approach will reflect this," it said.

The Health and Social Care Act requires individuals and institutions that provide an NHS health care service in England to hold a licence from Monitor in order to do so. This requirement has applied to autonomous NHS Foundation Trusts since April 2013, and will be extended to cover all other providers from April 2014.

The new Risk Assessment Framework sets out the approach Monitor will use to oversee foundation trusts' compliance with the financial sustainability and governance requirements of the licence. It will apply to all foundation trusts from 1 October. Monitor will use the framework to generate two ratings for each trust: one based on its ability to provide a continuous service and one based on the way that it is managed.

According to the framework, the continuity of service rating will be based on the same two metrics in every case. These are its 'liquidity', or days of operating costs the trust could cover with its available cash or cash equivalents; and its 'capital servicing capacity', or the number of times the trust's income covers its costs. Most trusts will be given a rating of 1 to 4 under the new approach, with 4 meaning "no evident concerns" and 1 meaning "significant risk".

Because PFI trusts generally have larger capital service payments than trusts funded through public dividend capital, their capital service capacity ratio is likely to be lower than that of an equivalent publicly-funded trust.

Monitor said that if a trust with considerable PFI debt appeared 'high risk' under the new framework but did not "represent a cause for financial concern" in the regulator's view, it would "revise" the published rating to reflect this while continuing to monitor the trust on a quarterly basis, it said. For example, a trust that was given a rating of 2 under the new framework would be rated as 2* in these circumstances, it said.

Under the framework, if a trust's ratings are a cause for concern, Monitor will consider whether to request additional information or launch a formal investigation, either of which could lead to regulatory action. It will decide when to intervene on behalf of patients in a "proportionate and transparent way, based on available and relevant evidence", it said.

"A trust that is well run and financially secure can provide the good quality services that patients expect," said Adrian Masters, Monitor's Managing Director of Sector Development. "We've designed this new regulatory system to provide us with early warnings about where we need to take action to safeguard vital services on behalf of patients."