A recent visit to a district general hospital (DGH) over the Christmas period gave a perfect illustration of the scale of immediate challenge that many acute trusts face over the next few years; challenges that were raised by both Chris Ham and Dr John Oldham in their November 2013 BMJ analyses on money and reform respectively.

The trust is a typical small rural DGH Foundation Trust: its nearest neighbours are a 35 minute drive away in one direction and nearly an hour in the other. It provides the usual range of DGH services, is well run, has low risk according to the CQC Intelligent Monitoring survey (a Band 5 rating), and is a good example of the sector.

Two years ago, facing the problem of insufficient senior capacity to run both the trust’s day-to-day operations and develop a long term strategy, the trust leadership team decided to create a dedicated, skilled, strategy and development team. The ten year model they produced showed a significant demographic challenge similar to that faced by many DGHs. In a decade, their core catchment of patients will rise by 6% and they face a 33% increase in the over-75s: the group likely to be the biggest users of health and care services, to be admitted to hospital, and to have long stays. The work showed that even if this well performing trust carried on with their current model of provision, they will run out of bed capacity within three years. The exercise clearly showed that their present model of care cannot see them through the next five years, let alone the next decade.

So they have taken the decision to redesign their provision and move to an integrated model of care. They’ve built on their strong relationship with their CCG to create an impressive partnership that includes the local mental and community health provider, the local council, the local federation of GPs, and a range of local third sector organisations. The partners started by spending a considerable amount of time developing a truly aligned, shared vision of future care, based on fully integrated care pathways.

They then moved on to developing a rich and extensive data set which has brought together fully pseudonymised condition, cost, and activity data on their patient cohort from primary care, community hospitals, the mental health cluster, acute care, and social care. Supported by York University’s Centre for Health Economics, the data has gone through two iterations and is described by the York team as the richest data set they’ve seen combining health and social care. It shows familiar data trends. These include the fact that the annual cost per patient age group grows exponentially once you reach the 60-65 age group: from £739 per 55-59 year old patient to £4465 per patient aged 85 or over. The key driver of this extra cost is the presence of multiple co-morbidities. The 58,500 patients with no disease condition cost £311 per year, but the 500 or so patients with seven or more conditions cost £11,092 per year to treat. The data show that it costs the local health and social care economy more to treat the 2750 patients with five plus conditions (£19.6m) than it does to provide health and social care to the 58,500 with no disease condition (£18.1m).

The partnership has now moved on to develop an alliance commissioning model with improved outcomes at its centre and a financial pain/gain share arrangement based on a shared budget, both of which feel leading edge. The alliance contracting model involves a single shared contract and performance framework, with aligned objectives and shared risks. Success will be judged on the overall performance of all participants, who work with shared co-ordination, collective accountability, and a mutual expectation of trust. The contract describes patient outcomes and relationships across the system, expecting change and innovation in care delivery. The financial pain/gain share will mean that if the new system works, all participants will gain financially, but if some participants go back to old ways of non-collaborative working, they will feel an appropriate negative financial impact. The partnership has now identified 6,500 diabetes or dementia patients including those with both conditions, with whom they will pilot this new approach, starting in April 2014, deliberately choosing a bigger cohort to trial than originally planned.

All very impressive and exciting and just what local health and social care economies are rightly being encouraged to do. But here’s the rub. This hospital will be lucky to make a £500,000 surplus this year. Despite some heroic savings delivery over the past few years that will continue going forward, the trust is likely to fall into deficit next financial year because of the impact of the 2014-15 tariff settlement. The deficit will become even bigger the year after, in 2015-16 if the trajectory set out in the recently issued planning guidance comes to pass. The trust estimates that their reserves are just sufficient to cover these two years of deficit, should they be realised, but by 2016-17 they will be in an unsustainable structural deficit that they will be unable to cover.

They hope that, longer term, the integrated care model they are developing will be more efficient. But they know that whilst there is plenty of evidence showing that patient outcomes will be better, there is much less evidence that this new model of care will be cheaper. And even if a fully integrated model of care will deliver financial benefits, unproven at this point, these will simply not arrive quickly enough or in sufficient size to cover the projected deficit. The local health and social care economy will be further stretched by the fact that all types of provider—acute, mental health, community, and ambulance—are finding it increasingly difficult to deliver Cost Improvement Plans. The 6.6% and 5.5% savings challenges for 2015/16 and 2016/17 required in the planning guidance (see page 9, table 1), for example, look heroic in the extreme.

We talked about alternative strategic approaches. The team is clear that their move to the integrated models of care can’t go any faster, and that they are already taking some risk by creating such a large initial trial cohort. They were also clear that merger or reconfiguration was not a viable option. They are already sharing back-office services with their neighbour 35 minutes drive away (e.g. they are just about to appoint a joint HR director). But the distance, the travel times, and the quality of the transport links mean that large scale savings creating service rationalisation across the two trusts are impossible.

So their plea, as we finished the visit, was for the planning process that is now underway to provide a realistic and mature debate between themselves and the NHS system to agree a course of action which would enable them to continue their current strategy and cover an unsustainable financial deficit that, as a well run trust, is not of their own making. It’s a challenge which we all—providers and the NHS system leadership—need to meet.

Chris Hopson is chief executive of the Foundation Trust Network (FTN), the membership organisation and trade association for NHS acute, ambulance, community, and mental health providers, with over 90% of NHS Foundation Trusts and Trusts in membership.

Competing interests: Chris Hopson is the Chief Executive of the Foundation Trust Network (FTN).  The FTN is a membership organisation which is funded through subscriptions from its members which include, amongst others, the district general hospital mentioned in this article.