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The regulator Monitor is urging NHS foundation trusts to start delivering hospital cost savings earlier in the year in order to reduce their exposure to financial risk.

The advice comes in the latest quarterly report on the health of the foundation trust sector, which now comprises two-thirds of all NHS secondary care providers running about 1,000 hospitals.

Regular returns to Monitor from 144 foundation trusts in England indicate that 25% were in deficit for the first three months of the financial year 2012-13, compared with only one in ten in the last quarter of the previous year, 2011-12.

Unlike NHS trusts, which are expected to break even every year, foundation trusts have more freedom to run their own affairs. As the independent regulator of the sector, we assess the financial health of FTs on their performance in the medium term and do not require them to break even each year. They are therefore allowed to run a short term deficit, and from a business perspective this can be an acceptable method of managing their finances.

However, the report suggests that the current aggregate deficit in the first three months of 2012-13 -- £62m, which is £10 million more than during the same period last year -- reflects poor financial planning by some foundation trusts. If trusts do not plan early enough they run up an early deficit, only to clear it later in the year when savings plans begin to bite. Monitor is urging trust boards to take a closer look at the issue and make sure cost savings are delivered earlier in the year.

The report reaffirms Monitor's forecast in its latest annual review of trusts' plans. It stated an increasing number of foundation trusts are likely to be placed in significant breach of their terms of authorisation for financial reasons over the next few years.

It also highlights a number of small trusts with relatively large deficits. It indicates those at the greatest financial risk are among those based on the traditional district general hospital model; having to adapt to changing local health economy pressures; and struggling with unaffordable PFIs.

Stephen Hay, Monitor's chief operating officer, said: "The sector as a whole continues to demonstrate considerable resilience, but we cannot expect foundation trusts to be immune from the financial pressures facing all NHS organisations. Small acute trusts are particularly vulnerable as they are less able to adapt to the current economic situation, and will have to work out how to deliver challenges such as reconfiguration if they are to continue to deliver services efficiently and effectively.

"Planned cost savings will remove one fifth of the sector’s cost base by 2015, so it is likely that there will need to be a fundamental change in the way services are organised for patients to continue to access the quality care they need. Decreasing margins driven by the current economic climate and a focus on cost saving and efficiency now should give trusts the impetus to explore and drive new ways for reconfiguring services to continue to deliver high quality healthcare in future."

Notes to editor

1. For media enquiries contact Emma Shepherd on 020 7340 2438
2. This first quarterly report for 2012/13 summarises the key trends drawn from individual reports of the 144 trusts authorised for foundation trust status up to 30 June 2012
3. Monitor was established in January 2004. It is independent of government and accountable to parliament
4. Under the Health and Social Care Act 2012 Monitor’s main duty will be to protect and promote the interests of people who use health care services by promoting the provision of services which is economic, efficient and effective and maintains or improves the quality of services. More information on Monitor's new role can be found here
5. Follow Monitor on Twitter @MonitorUpdate