MORECAMBE Bay Hospitals NHS Trust is grappling with a double financial headache.

At the end of last year, it was £1.5 million in the red and, although that was not a huge problem for an organisation with a turnover of £180 million, it had to be repaid.

Then, in addition, the trust had to ensure it did not overspend by the same amount this year.

However, the organisation has continued to overspend against its budget, creating a deficit after five months of £2.9 million.

Chief executive Ian Cumming said last week that if no action is taken, the trust could expect to end the year between £6 and £8 million in the red.

Although there has been significant investment in the NHS, there have been plenty of things for which the hospitals trust has had to find more cash - things like implementing the European Working Time Directive, which has been made all the more expensive by the need to recruit doctors to provide cover at hospital sites in Lancaster, Kendal and Barrow.

New drugs have also proved costly and there has been a high level of use of locums and agency staff.

Part of the trust's problem has always been the geography of Morecambe Bay - meaning that it has to provide healthcare to a population of 350,000 people spread over 1,000 square miles from three hospitals at a cost of some £10 million more a year than similar organisations.

The trust is also trying to ensure it will be ready for big changes in the NHS next April, when a new system called 'payment by results' will be introduced and every NHS organisation will be paid a fixed sum for each procedure it carries out. This will differ from the previous arrangement, when trusts were given a block amount of money.

Although this will mean that the trust will be properly recompensed for the work it carries out, it will lose out if its services are more expensive.

In addition, the NHS is increasingly being opened up to competition through 'patient choice', which allows patients to be able to choose where to have their treatment from among four providers. Private contractors are expected to be an increasingly significant player.

To help it tackle this changing face of the NHS, and its financial problems, the trust board has agreed to measures which include closing up to 130 hospital beds; reducing management costs by £500,000 over the next 12 months; and bringing in tight financial controls including reducing reliance on bank and agency staff.

However, these alone will not produce sufficient financial savings. The board is to review certain services further.