The document discusses the requirements and ongoing compliance for NHS trusts to become and remain Foundation Trusts in England. [1] Foundation Trusts have more autonomy over finances and operations compared to NHS trusts, allowing them to borrow funds, retain surpluses, and make their own strategic decisions. [2] To be authorized, trusts must demonstrate strong governance, financial viability, and community representation. [3] Once authorized, trusts face ongoing monitoring of finances, performance, and compliance to maintain their status.

1. Why does being a Foundation Trust matter?
1 December 2011

2. 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
Source: Monitor Compliance Framework
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3. What are Foundation Trusts & what can they do?
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
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
Source: Monitor Compliance Framework
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4. 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
Source: Monitor Compliance Framework
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5. The requirements to being authorised as a Foundation Trust
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?
Source: Monitor Compliance Framework
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6. 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
Source: Monitor Compliance Framework
6

7. The requirements to being authorised as a Foundation Trust
Overview of the NHS Foundation Trust application process
SHA assurance process
Secretary of State
SHA-Trust Development Phase Monitor Phase
Support Phase
SHA works with trusts to develop robust and credible NHS foundation  When SHA is satisfied that trust is  Department of Health advises
trust applications. ready, trust formally applies to Monitor of supported applicants.
Activities include: Secretary of State, with SHA full  Trusts formally apply to Monitor.
1) Pre-consultation: support.  Monitor will carry out its full
 Trust review  Applications Committee considers assessment process.
 Board review applications and provides advice to
 Draft business plan and financial model Secretary of State which trusts be
 Bespoke support supported to proceed to Monitor for
SHA decides that the applicant is now ready to proceed to: assessment and, if successful,
2) Public consultation – minimum 12 weeks authorisation.
3) Post consultation:  Final decision by Secretary of State.
 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: Timescale: Timescale:
To be determined between SHA and trust, based on trust distance from Minimum 3-4 weeks from trust Batching process on application.
NHS foundation trust ‘readiness’ and the level of development application to Secretary of State Three month assessment process..
required. support.
To enable applicants to undertake minimum 12 week public
consultation and three week historical due diligence.
Source: Monitor Compliance Framework
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8. The ongoing compliance requirements to remaining a Foundation Trust – monitoring & risk
assessment
Monitoring Risk assessment
 Margin Finance
Financial:
 Delivery of plan  FRR 1 (high)
 Quarterly submission
 Return on assets  FRR 2
 Annual plan
 Return on income  FRR 3
 Exception reports
 Liquidity  FRR 4
 FRR 5 (low)
Governance
Service performance  Red (high)
 Amber-red
 Amber-green
Third party reports  Green (low)
Governance:
 Quarterly submission Third party concerns
 Annual plan Certification failures
 Exception reports
Triggered governance reviews:
 Quality of plan;
 Certification; and
Annual Plan  Quality governance
Source: Monitor Compliance Framework
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9. The Annual plan
Element Description
 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
Strategic Commentary  Commentary on measures to assess and address risks to quality
(Appendix C1)  Commentary on identification, analysis and mitigation of significant risks to mandatory services
overview  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
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
Board statements standards and with all known targets in [2011-12]
Governance (Appendix C3)  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
Membership report  Membership data including present and projected membership by constituency, election turnout rates and stratified
comparisons with eligible groups
(Appendix C2)
 Commentary on membership strategy
Financial projections  Projections for next three years (income and expenditure; balance sheet; cash flow)
Finance (Appendix C5)  Actual results against plan for past year with commentary explaining variances
Source: Monitor Compliance Framework
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10. Financial risk rating
Description and overrides Financial monitoring Regulatory activity
Rating 5 Weighted average of 5 across financial criteria  Quarterly/six-monthly monitoring1  None
Weighted average of 4 across financial criteria  Quarterly monitoring  None
Rating 4 Override
Maximum FRR of 4 if authorised within previous 12
months
Weighted average of 3 across financial criteria  Quarterly monitoring, however monthly  If underperforming significantly from plan
Overrides monitoring in case of deteriorating trend (FRR fall of at least 2), request analysis to
FRR = 3 if: or recovering from a 2 rating understand
Rating 3 
 One financial criterion scored at ‘2’ Supplementary information if required
 Plan submitted either incomplete, with errors or  If liquidity <15 days Monitor may require
not on time forward liquidity analysis
 Plan deficit2 forecast in years 2 or 3
Weighted average of 2 across financial criteria Monthly monitoring  Potential for escalation and consideration
Overrides The following may be required: for significant breach
Rating 2  FRR = 2 if:  Supplementary financial information  Potential for intervention under section 52
 Plan deficit forecast in years 2 and 3  Service-line information (previous & of the Act
 PDC3 dividend not paid in full current year)
 Unplanned breach of PBC  Remedial plan and updates
 Two financial criteria scored at ‘2’  Liquidity recovery plan
 One financial criterion scored at ‘1’
 Weighted average of 1 across financial criteria Monthly monitoring  Potential for escalation and consideration
Rating 1  Override The following may be required: for significant breach
 FRR = 1 if two financial criteria scored at ‘1’  Supplementary financial information  Potential for intervention under section 52
 Service-line information (previous & of the Act
current year)
 Remedial plan and updates
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
Source: Monitor Compliance Framework
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11. Deriving the financial risk rating
Weight Rating categories
Financial criteria Metric to be scored
(%) 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
20  Return on Capital Employed** (%) 6 5 3 -2 <-2
Financial efficiency 40
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
Source: Monitor Compliance Framework
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12. Governance risk rating
Description Monitoring Regulatory activity
No material concerns:  Quarterly/6 monthly submissions  N/A
Green  Governance score less than 1.0  Exception reporting
 Certifications complete and satisfactory
Limited concerns surrounding Authorisation Depending on nature of risk, some Next steps depend on progress of this work and
Examples include: additional work/ supplementary governance implications identified:
 Moderate CQC concerns information may be required to scope the  If no material concerns, or if concerns
 Other third party concerns with potential issue in question, e.g.: addressed → back to Green
Amber-green governance implications  Quality governance review  If trust continues to fail – e.g. breaching the
 Certification concerns  CQC input same 1.0-weighted indicator, Monitor may
Governance score ≥1.0, <2.0, i.e. limited service Once scoped, approach to address the issue decide to publicise the issue
performance concerns of concern to be agreed with trust, with
specific reporting on progress in resolving
issue
Material concerns surrounding Authorisation
Examples include:
Where trusts have met escalation criteria  Where trusts have met escalation criteria
but are not found in significant breach, but are not found in significant breach,
 Multiple service performance concerns
Amber-red  Failure to maintain CNST level of 1.0 trusts may be required to set out a plan to continuing breaches of the Authorisation
return to compliance may lead to further escalation
 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
Either : Foundation trust may be required to:  If found to be in significant breach, Monitor
 Potentially in significant breach, including:  Submit information Board will consider use of statutory
– Significant governance issues emerging  Initiate third party review intervention powers under section 52 of the
Red from CQC review, e.g. enforcement  Attend a formal regulatory meeting to Act, including for example :
actions determine whether breach is  Changes to board
– Governance score ≥4.0 significant  Require adherence to action plan
– 3rd successive quarter failure against a Subsequent requirements to depend on  Require use of external advisors (financial,
1.0 weighted governance indicator (see outcome of any meeting and other governance, clinical)
Diagram 12) evidence, e.g.: Monitor will publicise any intervention at the
or  Detailed action plan time it occurs.
– Trust in significant breach of  Delivery updates If not found in significant breach → deescalate
Authorisation to Amber-red until situation addressed
Source: Monitor Compliance Framework
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13. Deriving the governance risk rating
Monitoring Service performance score Governance risk rating
1.Performance  National indicators set out in Appendix B
against national  Applicable to all foundation trusts providing services Service performance
Governance Risk Rating
measures  Declared risk of, or actual, failure to meet any indicator= +0.5-1.0 score of…
 Three successive quarters’ failure of a 1.0-weighted measure (see
Diagram 12): red rating and potential escalation for significant breach < 1.0 Green
≥ 1.0
2.Third parties Care Quality Commission Amber-green
Responsive review < 2.0
 Discretionary rating based on nature of triggers ≥ 2.0
Prior to, or in the absence of, any formal CQC regulatory action Amber-red
 Moderate concerns = +1.0 < 4.0
 Major concerns = +2.0
≥ 4.0 Red
Following formal CQC regulatory action
 Compliance action = +2.0
 Enforcement action = +4.0
NHS Litigation Authority Risk ratings applied quarterly and updated in
 Failure to maintain, or certify, a minimum published CNST level of 1.0 or have in real time
place appropriate alternative arrangements: +2.0
3. Mandatory  Declared risk of, or actual, failure to deliver mandatory services: +4.0 Override applied to risk rating
services  Nature and duration of override at Monitor’s
discretion
4. Other certification  If not covered above, failure to either (i) provide or (ii) subsequently comply
failures with annual or quarterly board statements (see Appendices C and D)
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
Source: Monitor Compliance Framework
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14. The ongoing compliance requirements to remaining a Foundation Trust – Escalation,
significant breach and intervention
Escalation triggers Significant breach and intervention
Monitor will find a trust in significant breach where:
Monitor will consider escalation where:
Criteria for significant breach:
 FRR <3  Time critical need for intervention
 Degree the breach is within trust’s control
 Red-rated for governance  Ability of trust to address independently
 There are relevant third party concerns  Financial stability of trust
 Risk to mandatory service(s); and
OR  Effectiveness of trust’s approach to breach to date
 Other major breaches of the Authorisation;
indicate the trust is potentially in significant breach of
its Authorisation Monitor will intervene where:
Escalation is not automatic: Monitor may consider:
 The trust is in significant breach
 No appropriate third party actions are available; and
 Information from the trust or third parties; and/or  Monitor’s Board deems intervention necessary to return the trust to
compliance at earliest possible opportunity
 Meetings with board or management
in assessing whether the trust is likely to be in
significant breach of its Authorisation 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
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Source: Monitor Compliance Framework

15. 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
Source: Monitor Compliance Framework
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16. Monitor Compliance Framework details – (click to link with www)
Source: Monitor Compliance Framework
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