Irwin Brown's Briefing on The South London Hospitals' Crisis

South London
The original copy of this article appeared on  

According to the Public Accounts Committee there are over 70 NHS Trusts which had deficits last year and at least 11 existing Foundation Trusts (once the elite) that are not viable.  Top of the list of debtors, although not by much, is South London Healthcare Trust (SLHT). 


SLHT came into existence on 1 April 2009, the product of a merger of three hospital Trusts – Queen Mary's Sidcup NHS Trust, Queen Elizabeth Hospital NHS Trust and Bromley Hospitals NHS Trust. It operates largely out of three main sites: Princess Royal University Hospital in Farnborough near Orpington; Queen Elizabeth Hospital in Woolwich; and Queen Mary’s Hospital in Sidcup.


Proposals to make services sustainable in South East London have been published by the Trust Special Administrator who drew on advice costing over £2m from the usual suspects. 

Over recent years, in many of the 70 challenged trusts and others, there have been proposals drawn up by similar expert advisors; proposals then signed off by experts in the strategic health authorities or even the DH.  South London has had two previous attempts in recent years calling in turnaround experts but the proposals made were not implemented, maybe they were not implementable. 

A feature of all this work to “turnaround” challenged acute trusts is how wrong the expert’s assumptions turn out to be.  Predicting with any confidence the future level of an acute trust’s income even for the next two or three years within the current system is virtually impossible; nobody three years ago would have planned based on the fragmentation and instability of the current multi-£bn NHS reorganisation.  So planning is based on guesswork. 

This is also most of the PFI problem; where expensive new hospitals were to be paid for out of an income stream driven by rising demand and payment by results tariffs going up.  Reasonable, if optimist assumptions at the time, turn out to be disastrously wrong as policy shifts to tariff deflation and demand management - made worse by “expert” advice over transferring risk through the contracts turning out to be wrong.

A rational analysis of the general problems faced by many trusts in a similar position was set out by Mike Farrar of the NHS Confederation.  The root causes are systemic and simplistically blaming poor management or PFI costs is unhelpful.  Major service reconfiguration is required although it will be opposed and how the “experts” communicate the case for change has to be dramatically improved as so far the performance has been lamentable.

We now have the Draft Report from the Trust Special Administrator and that sets out that SLHT has serious financial difficulties – and has had for years.  It has seen income falling but staff costs have not fallen as fast.  Some staff cuts have simply led to major increases in agency costs which are running 4 times budget. It has failed to achieve the financial benefits of the merger which brought it into being in 2009.  It has only managed to deliver about 2/3rds of its cost improvement plans; although this year it could make 100%.

SLHT operates over 3 main hospital sites – one of which, Queen Mary’s, has already been downgraded and was (is) to become a health campus.  The other two sites Princess Royal University Hospital in Farnborough and Queen Elizabeth Hospital in Woolwich both have PFI buildings.  These PFIs are included in the list the DH proposes (subject to certain conditions) to subsidise to the extent of some £20m pa – to allow for the costs over and above those which would have been expected from a public sector solution.  (Highly ironic as these PFIs were signed off at the highest level based on a case that said using PFI was better value than a public sector comparator.)

Using similar trusts as a benchmark the various categories of expenditure have been analysed and used to demonstrate that “efficiency” is well below that which others have been able to achieve.  In theory the same outputs could be achieved with up to 12% less cost.  Such blunt comparisons may indicate areas of expenditure to examine but often there are contextual explanations for at least some of the variations – this has not been explored.  Unfortunately within these calculations there is evidence of considerable double counting – savings could be made by reducing the number of clinicians but also by reducing the average LoS – but probably mostly the same savings.  Savings on non clinical costs are mostly through “outsourcing”.

Despite this financial instability the general clinical performance is good with below average mortality rates and performance against access targets which were poor have been improving.  There is no clinical case for drastic intervention. 

The experts have projected that based on all the information collected, including the intentions of the commissioners, the trust in its current form will be running a deficit of almost £80m in 2015/16 even if it delivers on an extensive cost reduction programme.  In its current form it will rack up deficits totalling well over £200m.  The experts claim the three main root causes of the problem are estate costs (including PFI), poor operational efficiency and “leadership”.  They say that the trust must be broken up to find the solution. 

For reasons which are far from clear the scope has been widened to include matters which have little or no bearing on the financial sustainability of SLHT.

There is to be a Community Based Care Strategy which will cost £68m and has many laudable aims.  The A&E department at Lewisham is to be downgraded, justified on the grounds of improving clinical outcomes by concentration of acute services in fewer sites. Finally there is to be a £78m investment in creating an Elective Centre (for simple operations only) at Lewisham.  There is no impact assessment of any of this on other trusts.

The recommendations include that historic debts of over £200m are all written off. The PFI costs are to be subsidised centrally for the rest of the contract term (over £20m pa); and bits of the estate are closed down and sold off.  None of which requires the break up of SLHT.

The more significant benefits come from “efficiencies” and mostly from job losses – perhaps between 500 and 750 jobs, though the report does not go into this in detail. The estimates for what efficiency gains are possible comes from a well know argument used many times before.  It says if you have good management then they can bring costs down to the level the best trusts already achieve – it’s the everyone must be above average argument.  So if SLHT is broken up and each bit came under good managers then they could reduce costs – the analysis suggests by about £80m (although there is some double counting).  It is not clear why this could not be achieved by bringing in a good management team, thus keeping the economies of scale which originally justified the creation of SLHT but have not been realised. 

Benefits realisation is left to management in other trusts who will take over bits of SLHT.  Of course that implies these rescuing bodies are themselves sustainable – and we know in one case this is questionable (Lewisham is way short of the bar to become a Foundation Trust). Others are already FTs and so must be stable and able to secure the benefits  – except the FT landscape is now littered with organisations that were once hailed as exemplars and are now in serious trouble. 

The others involved are King’s College FT and Guys & St. Thomas FT which are assumed to absorb the additional A&E impatient demand as Lewisham reduces and which will take over Princess Royal University Hospital.  King’s could also take over Princess Royal University Hospital (or it could be privatised).  And Oxleas FT which will take over the St. Marys site and make it into a health campus.  Presumable somewhere are business cases showing this will be viable and value for money from their standpoint.

Superficially University of Lewisham stands to gain a great deal even though it will not be one of the four sites with an A&E.  In fact the A&E is already contributing little to the trust and many more serious cases already go elsewhere.  It gains Queen Elizabeth Hospital (which runs at an estimated £20m pa deficit!), possibly along with its PFI subsidy. It gains a £78m elective centre for non-complex inpatient procedures taking on a huge volume of simple surgical work from across South London (subject to patient choice and commissioning intentions).  This dramatically changes the nature of the trust and makes it far more likely it can achieve foundation status.  The terms on which the various gains are made are not set out anywhere so there might be a catch!


This is an interesting set of suggestions most of which have merit but there is little to justify the dramatic step of breaking up the trust and little to give confidence this set of solutions will be any easier to implement and any more sustainable than the status quo – cross fingers and hope.

There are however almost as many questions as there were before the report was produced.

·       This requires a huge and complex transition programme.  Who manages it and how is it funded?

·       Why break up SLHT - why not replace the management?  Why introduce much greater complexity and risk?

·       What is the lost opportunity cost of the break up when savings could be made otherwise through economies of scale and standardisation?

·       Who is accountable for benefits realisation?  Some £80m of benefits are claimed – how will delivery of this be monitored?  What if it isn’t?

·       If only 4 A&E sites remain in there enough capacity?

·       Can the soon to be merging King’s and Guys FTs absorb another dimension of significant change?

·       Why is A&E at Lewisham included in considerations? 

·       Why are paediatric inpatient services at Lewisham apparently included?  Why change?

·       How is an elective care centre at Lewisham to be funded?

o   Will PDC funding for any elective care centre be available if Lewisham becomes a FT? 

o   Is the proposal subject to normal business case and procurement processes?

·       If Lewisham doubles in size and radically changes its form will it be fit for purpose as a FT?  Could it be another merger that fails?

·       Will the PFI subsidies continue when hospitals are transferred to other bodies?

·       How many job losses are implied and will the downsizing be managed across the sector to minimise redundancy costs?

·       How will staff be TUPE’d to alternative organisations?  What happens to back office staff? 

·       What prevents Oxleas from using site for other purposes once they control it?

·       How is the process for possible disposal of Princess Royal to be determined?  By who?

·       Will any of the changes (such as the monopolistic elective care centre) be deemed as anti-competitive?  Who authorises any asset transfers?

·       Do the governing bodies and the boards of the FTs concerned agree to take on the extra risks involved in delivering savings on a scale not achieved previously?  Will there be any incentives or subsidies?

Irwin Brown, Socialist Health Association

November 2012