Foundation hospital is rebuked for £4m deficit

One of England's first foundation hospitals was publicly rebuked for running up a £4m deficit yesterday amid signs of growing financial strain on the NHS. Monitor, the independent regulator of foundation trusts, has ordered financial advisers to go into Bradford Teaching Hospitals to agree an action plan to eliminate the overspend. It is the first time the regulator has used its powers in this way.

William Moyes, the chairman of Monitor, said the problems at Bradford did not affect the quality of care for patients but it was "important that there is a robust plan in place to improve the Trust's financial position". Yesterday the trust publicly welcomed the "assistance and advice" of Monitor, but in a letter to the governors last week marked Private and Confidential, it expressed "disappointment" at the intervention.

In a speech at the trust's annual general meeting on 22 September, the chief executive, David Jackson, rounded on the Government for making a "seriously inadequate" allowance for inflation, and claimed the cost of implementing the new consultant contract had been "grossly underfunded".

Mr Jackson also said the trust had been struggling to cope with a surge in emergency cases, 2,173 above the planned level, which had led to a cut in routine work, 988 cases below the planned level. He warned this could lead to a further cut in income.

Just six months ago, the first wave of foundation hospitals, the flagships of the NHS, was launched. Bradford Teaching Hospitals was among 10 NHS trusts granted foundation status after the Government fought a bruising battle with its own backbenchers to get the legislation through.

The MPs who opposed the move said the new trusts, which have extra freedom to borrow against their assets and to keep any surplus, would face unprecedented financial risks and introduce a two-tier market in health care. Bradford NHS trust turned in a £4.4m surplus last year after hitting nine key targets including "strong financial management" and the Audit Commission rated it among the best performing trusts in Britain.

But in the first quarter of this year, a predicted surplus turned into a £4m-plus deficit on the Trust's £180m annual budget. A spokesman for Monitor said it was the "significant variation from where they planned to be", rather than the deficit itself which triggered its intervention.

Foundation trusts cannot call on their strategic health authority to help them balance their books, unlike ordinary NHS trusts, he said. "As a foundation trust, there is a need for greater financial rigour. We have moved rapidly to ensure this issue is properly managed."

Frank Dobson, a former Labour health secretary and persistent critic of foundation hospitals, said the episode demonstrated serious flaws in the strategy. "Only six months ago, the independent regulator said Bradford was financially sound because the trust would not have gained foundation status otherwise. It may be right to send external management consultants in to Bradford but we need to get them to look at the regulator, too. There is an element of physician heal thyself here."

All trusts must be given a three-star rating by the Healthcare Commission before they can qualify for foundation status but in July, four of the first 20 dropped a star. Mr Dobson added: "It shows they aren't working properly."