Hospital trust set up with debts of pounds 1.5m: Services and staff cut to bring finances into line as report reveals move to new management structure broke government rules on viability

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ONE OF Britain's largest NHS hospital trusts, the Wellhouse Trust, is struggling for survival after being set up in defiance of government guidelines on financial viability. It has been forced to make cuts in services that employees say have affected patient care.

The trust, covering two large district hospitals in north London, Barnet General and Edgware, serving Baroness Thatcher's former constituency, was launched on 1 April last year.

Almost immediately, its new management team discovered it had debts of pounds 1.5m, far higher than expected or allowed under NHS rules.

An unpublished report into the finances of the health authority that was responsible for the hospitals before they became a trust concludes that it was 'badly prepared to introduce the NHS reforms'. The report, by the management consultants Touche Ross, was commissioned by North-west Thames Regional Health Authority in July last year.

The authority has refused to release its full findings, but a draft copy of the report, obtained by BBC Television's Public Eye programme, says 'inaccurate budgetary reporting' resulted in an over-optimistic picture being painted of the trust's true financial position when it was launched. The report also criticises the lack of consistency applied to the accounts and the departure from guidance rules issued by the Department of Health.

After the trust's financial crisis came to light, Tony Orton, its chairman, threatened to resign.

The trust also discovered poor accounting by the health authority had led to a significant underpricing of the cost of its services in the new NHS market, leaving it facing potential losses of pounds 3.5m in its first year, again breaking NHS rules which say trusts should break even.

Bill Howes, Barnet Health Authority's former finance director, left when the trust's financial position was discovered but now works for the NHS Management Executive in Leeds. The Wellhouse was forced to make cuts in staff and services to try to bring its finances into line. Sally McLeod, a former business manager at the Wellhouse, says the cuts affected patient care.

'We had to cut corners in patient care that we were not happy to do and the nursing staff in particular were very unhappy and very concerned that they could not provide a standard of care which they would expect to,' she said.

The Wellhouse faces a further pounds 4.5m loss in income next year as four of its purchasers have announced plans to scale down or terminate contracts with the trust.

Professor Irvine Lapsley, a qualified accountant and academic with experience of health service finance, says that the trust would not be financially viable without the continued support of emergency funding from the North-west Thames Regional Health Authority.

To date, more than pounds 6m has been put into the Wellhouse to keep it afloat. 'It's not pulling in enough income, its costs are too high. There are issues here about whether this organisation was sufficiently robust to be a trust.'

Jim Corbett, the Wellhouse's commercial director, said that if the trust team had been aware of the true financial position at the time, it might have delayed its application by a year. 'It is quite wrong of people to suggest that our activities have been an unmitigated disaster. They haven't. We have got new treatments, lots of day surgery going on, we are constantly breaking new ground all the time and a lot of the promises we have made we have actually delivered. The one that we have not kept is to break even.'

'A Question of Trust', Public Eye, BBC 2, at 8pm tonight.

(Photograph omitted)