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NHS Foundation Trust mergers

The Health and Social Care (Community Health and Standards) Act 2003 provides for the merger of NHS Foundation Trusts with other Foundation Trusts and NHS Trusts. Yasmin Dossabhoy reviews the process and some of the implications for lessors

With the Health Secretary having approved a consultation on plans to merge the Good Hope Hospital NHS Trust and the Heart of England NHS Foundation Trust, there has been some speculation about whether the future will see financially stronger Foundation Trusts (FT) “absorbing” weaker Trusts. However, part of the merger assessment process for FTs is that a detailed integration plan is submitted to Monitor, the independent regulator of FTs. Among a number of other requirements is that financial projections for the merged entity be submitted to Monitor for it to evaluate the financial viability of the new organisation. The approval process If a merger of an NHS FT with another FT or with an NHS Trust is approved, then the two Trusts will be dissolved and a new FT established.   An application may be made jointly by the two proposed merging entities to Monitor for authorisation for this to happen and for some or all of their property and liabilities to be transferred to the new FT. This application must specify the property and liabilities proposed to be transferred, describe the goods and services that the new Trust proposes to provide and give any other information that Monitor requires. If one of the parties is an NHS Trust, then the Secretary of State must support the application. This support is not required where both parties are FTs. “Monitor must be satisfied that the merged entity ‘will be financially viable, legally constituted and well governed’.”   Before the application is submitted to Monitor to review, though, a public consultation must take place (in accordance with regulations) seeking views from, for example, staff employed by the applicants and any patients’ forum. The Health and Social Care Act (the Act) does not expressly provide for creditors to be consulted as part of this.   Once Monitor has received a merger application, it will review whether the submissions are complete and form a preliminary view as to whether they appear to meet the relevant criteria for FT status. This includes Monitor being satisfied that the merged entity “will be financially viable, legally constituted and well governed”.   This preliminary assessment is followed by a detailed review of the application, after which		Monitor will accept, reject or defer the application.   If the merger application is approved, Monitor will issue a certificate incorporating the merged entity as a “public benefit corporation”. It will also authorise that corporation to become an NHS FT. The transfer of property and liabilities The Act requires that where this authorisation is given, Monitor specify the property and liabilities to be transferred to the new NHS FT. In these circumstances, the Secretary of State must make an order dissolving the “pre-merger” Trusts and transferring or providing for the transfer of the property and liabilities specified by Monitor. The order made by the Secretary of State may transfer or provide for the transfer of any remaining property or liabilities to another FT, to a Primary Care Trust, to an NHS Trust or to the Secretary of State.   Likely to be reassuring for lessors is that in its guide for merger applicants, Applying for a Merger involving an NHS Foundation Trust, Monitor has stated that it will ensure that the new FT is a party to all of the financial obligations held by both applicants and that external bodies, such as creditors, “should assume novation of debt obligations held by both merger parties” to the new entity. “Monitor will ensure that the new FT is a party to all financial obligations held by both applicants.” Termination of NHS lease Under the addendum to the PASA NHS conditions of contract for the lease of goods, provision is made for the lessor to terminate where the lessee is an FT that merges with another FT or NHS Trust and this might reasonably be expected to have a “material adverse impact”. For the most part, for these purposes, a material adverse impact relates to its financial viability. Although it is likely to be rare that a lessor would seek to terminate in reliance solely on this, it is worth bearing in mind that part of Monitor’s assessment will include it considering the financial viability of the merged entity. In practice, this right to terminate may prove difficult to rely upon. YASMIN DOSSABHOY PRINCIPAL AFL SOLICITORS YD@AFLSOLICITORS.CO.UK
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