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NHS Improvement issues new transaction guidance

28 November 2017

NHS Improvement (NHSI) has issued new transaction guidance for NHS trusts and foundation trusts (Trusts). The document, issued on 23 November 2017, provides guidance on mergers, acquisitions and non-organisational transactions such as significant capital investments, joint ventures and PFI transactions. It consolidates and replaces previous transaction guidance issued by Monitor and the TDA. The emphasis is on early engagement with NHSI and identification of key concerns at an earlier stage in any transaction.

The key changes are:

  1. NHSI has updated the risk factors it will consider when determining the depth of regulatory assurance the transaction requires. For example, on a merger, the risk factors will include the size and Single Oversight Framework (SOF) segment of the parties, the financial position of both Trusts and funding requirements, leverage expected in the enlarged organisation, existing level of financial and quality risk in both parties, degree of experience of the other party’s services and any other risk factors identified at strategic case review stage (such as poor options appraisal, lack of strategic rationale or lack of management capacity)

  2. In relation to mergers and acquisitions, the transaction review process has been streamlined to require greater early engagement with NHSI and to ensure potential issues are identified at an earlier stage. It now comprises three stages:
    • Stage 1 – Strategic Case Stage – Trust(s) evaluate the strategic options to proceed which generates a preferred option. There is a strong focus on this stage, which combines the previous ‘Strategic Options Case’ (SOC) and ‘Outline Business Case’ (OBC) stages. Stage 1 will require more detailed information earlier in the transaction, with the aim of identifying potential areas of concern earlier in the process and allowing more time for such issues to be mitigated prior to proceeding to the business case stage.
    • Stage 2 – Business Case Stage – Trust(s), having identified their preferred option, develop a full business case and plans for successful delivery. This stage replaces the former Full Business Case or FBC stage.
    • Stage 3 – Approvals Stage – includes all of the necessary regulatory and legal steps in completing the transaction (previously referred to as the Agreement and Completion stage).
  3. NHSI has listed what it considers to be ‘red flag’ issues. If a red flag is identified at the Strategic Case Stage, further work on a transaction will be required to mitigate the identified risks together with further engagement with NHSI. Identified red flags include a lack of evidence to support the proposed option, lack of evidence of system alignment, concerns about quality, a substantial likelihood of reducing competition with patient benefits being unclear, concerns over finances and a lack of ability to execute the transaction successfully.

  4. NHSI has included in the guidance an overview of the support available for Trusts considering a transaction and a list of key learning points identified from previous transactions.

  5. NHSI has updated its guidance on the funding of transactions. This makes it clear that NHSI does not hold any funds centrally to support transactions, which should be developed on the basis that any required funds are provided through a combination of Trust funds, and local and national transformation funds held by commissioners. Any transactions requiring capital investment by the Department of Health will be subject to a separate business case and the separate approvals procedure for capital investments.

Transitional arrangements are provided for, so if your organisation has already started a transaction process under the previous guidance and is already at OBC stage, NHSI will continue to work with you according to the previous transaction process.

We have significant expertise in assisting NHS trusts and foundation trusts through a wide range of transactions, including mergers, acquisitions and joint ventures. If you would like to talk to us about the revised guidance or about how we could help you with your proposed transaction, please do get in touch.

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