Many NHS hospital trusts need to tackle a range of financial, quality and governance issues if they are to meet the standards required of them to become self-governing foundation trusts by 2014, and the Department of Health and the NHS will now have to decide how they will deal with those facing the most severe problems, says the National Audit Office (NAO).

The processes put in place by the Department to help them achieve foundation status have brought matters to a head by highlighting the challenges which many face in proving their long-term viability, it says.

For some trusts, the pathway will be relatively straightforward, but at least 20 face such substantial problems that they have recognised they are not financially or clinically viable in their current form, says the Office.

For some, size and location can cause problems, including a mismatch between hospital capacity and local demand for services from commissioners - in some cases, the Department will need to be involved in decisions about and support for reconfigurations of local hospital services.

Other trusts have less severe problems but will still have to improve their financial - and, in some cases, clinical - performance if they are to be sustainable in the long term and become foundation trusts. A number of these will need additional support from the Department, such as helping them to strengthen their management and governance arrangements, it adds.

The most common challenges being faced are financial. In July this year, the Department's assessment was that 48 out of the 113 candidate trusts were unlikely to meet the regulator Monitor's tests of financial viability. An initial review of 22 trusts with major private finance initiative (PFI) schemes has identified up to six for which the scale of debt repayments, together with other financial problems, means they are not currently viable.

The difficulty of achieving foundation trust status is magnified by the challenge faced by trusts in making year-on-year cost savings of at least 4%, and many will have to achieve even greater savings that this to show that they are financially viable, it adds. 

"The Department of Health has made a concerted effort to identify the challenges faced by the 113 NHS trusts seeking foundation status," said NAO head Amyas Morse. "Many of their problems stem from longstanding issues around financial viability, underlying performance and clinical quality. The Department will have to tackle these issues head-on if high-quality and affordable health services are to be available to all," he added.

- Meantime, the latest quarterly monitoring report on NHS performance produced by health policy think tank The King's Fund finds continuing concern about whether ambitious productivity targets can be met.

Most of the 23 NHS finance directors surveyed by the Fund said they were "uncertain or concerned" about whether their trust will meet its target, but only one expected their trust to be in deficit at the end of the financial year, with 15 expecting to end it in surplus and seven forecasting to break even.

"As with our last survey, the findings suggest that NHS providers are facing higher productivity targets than commissioners. This highlights the pressure on the hospital sector in particular to meet the 'Nicholson challenge' to find £20 billion in productivity improvements by 2015," says the Fund.