Clause 5: Primary Care Trusts: provision of services etc.

102. This inserts a new section 18A into the 1977 Act, which confers various powers on Primary Care Trusts.

103. Primary Care Trusts will be able to enter pilot scheme arrangements to provide personal medical services and personal dental services under the Primary Care Act (see paragraph 83 of Schedule 4 to the Bill). The new section 18A enables a Primary Care Trust also to provide personal medical services and personal dental services under sections 28C and 28D of the 1977 Act (see paragraphs 38 and 39 of the Background section of these notes for a brief explanation of these provisions and the Primary Care Act).

104. Section 18A also provides that a Primary Care Trust may arrange to provide any service, which it is able to provide to its own population, to other patients under an NHS contract (under section 4 of the 1990 Act). For example, if it is able to provide health visiting and district nursing to its population, and has the appropriate facilities and staff, it may provide those services to other patients under an NHS contract with a Health Authority or another Primary Care Trust.

105. Section 18A(3) provides a power to make premises available for GPs, general dental practitioners, pharmacists and ophthalmists. This power enables Primary Care Trusts to provide for the delivery of all these services from under the same roof.

106. The provisions in subsections (4) to (7) concern powers to recover from private patients the costs of accommodation and services, and to carry out other activities to raise additional income for the health service. The provisions are in line with similar NHS trust powers and are subject to the same restrictions. See the commentary on clause 12 below.

Clause 6: Primary Care Trusts: trust-funds and trustees

107. Clause 6 enables the Secretary of State to provide for the appointment of trustees for a Primary Care Trust to manage the trust funds held by the trust. Such trustees have a duty to ensure that the trust funds are used effectively and that the wishes of the benefactor are taken into account. The Bill provides that Primary Care Trusts will be able to hold and manage charitable property and other property held on trust, and to accept gifts of money and land on trust, for the purpose of the health service (see paragraph 12(2)(c) of the new Schedule 5A to the NHS Act 1977 as inserted by Schedule 1).

108. In addition to this clause, paragraphs 24 to 27 and 30(2)(b) of Schedule 4 to the Bill extend to Primary Care Trusts the existing provisions of the 1977 Act relating to private trusts for hospitals, the transfer of trust property, and the accounts of trustees.

109. The Bill provides that Primary Care Trusts are able to receive and administer the charitable donations. It is expected that this will concern mainly those Primary Care Trusts that provide as well as commission services, as these Trusts may inherit funds from NHS trusts.

Clause 7: Payments relating to past performance

110. The clause inserts three new subsections into section 97 of the NHS Act 1977, which is concerned with the funding of Health Authorities. The insertions enable the Secretary of State to increase the initial allocation he makes to a Health Authority where certain conditions are satisfied. The White Paper The new NHS signalled the intention to reward Health Authorities that perform well with modest extra non-recurrent funding.

111. The intention is to reward Health Authorities who demonstrate most progress in implementing their plan for improving health and health care, the Health Improvement Programme (see clause 25). Health Authority performance will be assessed against the achievement of targets and objectives set out in their Health Improvement Programmes. All Health Authorities - including those making good progress from a low baseline - will be eligible.

112. The new subsection (3D) enables the Secretary of State to attach conditions to the use of the additional funding. The intention is that these funds will be used to accelerate Health Improvement Programmes by bringing forward projects contained in the later years of these Programmes and to meet the targets associated with that action. The new subsection (3E) enables the Secretary of State to recover the additional funding, if a Health Authority does not meet the conditions attached to it.

Clause 8: Indemnity cover for Part II services

113. Clause 8 gives the Secretary of State new powers to make professional indemnity cover mandatory in the NHS. It enables the Secretary of State by regulation to require professional indemnity cover for all, or any, of the professions providing Part II services under the NHS Act 1977 (GPs, dentists, pharmacists and optometrists).

114. Neither doctors nor dentists are required to maintain professional indemnity cover. The NHS has made arrangements to indemnify those employed by them, but this does not cover practitioners providing Part II services, who are independent contractors.

115. New Section 43C enables the Secretary of State by regulation to require all, or any, of the practitioners providing Part II services, to have approved professional indemnity cover provided by an approved body.

116. The regulations may make different provisions for different categories of practitioner or classes of case. For some practitioners holding approved indemnity cover may be a condition of entry to and continued inclusion on the relevant Part II list. (Part II practitioners must be included on a Health Authority list if they are to provide NHS services in that Health Authority area.) For others it may be a terms of service requirement. This flexibility reflects the widely differing arrangements for the four professions.

117. Once a practitioner who is required to hold professional indemnity cover is included on a Health Authority's list, the Health Authority will need to review the indemnity cover held by that practitioner at regular intervals. Regulations under clause 8 may therefore require practitioners to provide the Health Authority with evidence that they hold approved cover when requested. The result of failure to comply would mean removal from the list. Where practitioners are required to provide evidence, the clause contemplates that there will be a period of grace to enable the practitioner to comply with the requirements, before the Health Authority removes him from its list.

118. In the case of dental and optical corporate bodies, the clinicians employed by these bodies must also be on the Health Authority list and are responsible for employed assistants within the company. Pharmaceutical companies providing community pharmacy, however, are themselves on the list of each Health Authority in whose area they provide those services. The provisions described above therefore apply equally to corporate bodies.

119. Subsection (3) provides that indemnity cover, which may be through membership of a defence society or a suitable insurance policy, is to be approved indemnity cover with an approved body. This enables the Secretary of State to ensure that the cover is adequate to meet the anticipated level of claims. It is intended that the regulations will ensure through the approval mechanism that cover is occurrence based: it will still meet claims that arise from events when the clinician was covered but only come to light later, even if this is after the period of cover has ceased.

120. The approved indemnity could also be required to cover other persons, such as employees, assistants or deputies of the practitioner. The intention is that the cover currently held by responsible practitioners should be quite adequate to meet any new requirements, and only those contractors who fall short of reasonable cover will find themselves affected.

121. Clause 8 does not alter the law of tort or contract and accordingly does not confer on any person a right to recover compensation in any case in which he has no such right at present. Its purpose is simply to ensure that where a person does have such a right he will actually be able to recover the compensation.

Clause 9: Remuneration for Part II services

122. Determinations of remuneration of family health services practitioners (GPs, dentists, pharmacists and optometrists) are provided for in sections 43A and 43B of the 1977 Act, which were inserted by section 7 of the Health and Social Security Act 1984. They provide for a regulatory structure for the making of determinations of professional remuneration. However, those sections have never been brought into force. Meanwhile, determinations of professional remuneration are validated by section 7(4) of the 1984 Act. The practice prior to 1984 was to make provision about remuneration through published statements (for example, the Statement of Fees and Allowances or "Red Book" for GPs) not contained in regulations. This practice has continued to the present day.

123. The continued reliance on section 7(4) of the 1984 Act as validating determinations is increasingly unsatisfactory. In particular, without sections 43A and 43B in force there is no power to make regulations under those sections and, thus, no explicit method of appointing a determining authority other than the Secretary of State.

124. The Government intends to give Primary Care Trusts the function of determining such GP remuneration as comes from cash-limited funds. It is intended that the Secretary of State will appoint Health Authorities as determining authorities in respect of such remuneration, and direct them to delegate this function to Primary Care Trusts through regulations made under section 17A of the 1977 Act (as substituted by clause 10 of the Bill).

125. Clause 9 substitutes a new version of sections 43A and 43B in the 1977 Act. The purpose of these revised sections is to make new provision about determinations of remuneration. The new sections rely less on regulations and more on free-standing propositions than the sections they replace and in particular:

• provide a new method of appointing Health Authorities as determining authorities which will, indirectly, enable Primary Care Trusts to determine remuneration in respect of certain payments to GPs; and

• provide a secure statutory basis for the operation of future determinations.

126. New sections 43A and 43B derive largely from the existing sections 43A and 43B. New section 43A provides for the Secretary of State to determine the remuneration (which includes payments of salary, fees, allowances or the reimbursement of expenses) of family health services practitioners or to appoint Health Authorities or other persons as determining authorities, subject to requirements contained in their instrument of appointment. It provides for regulations to make provision about determining remuneration (including consultation and publication requirements), and subsection (5) provides in particular for regulations to permit determinations to be made by reference to the remuneration of other persons, or scales, indices or other data. Subsection (6) provides that a determination may have retrospective effect provided that taken as a whole it is not detrimental to the persons to whom it relates.

127. New section 43B provides in subsection (1) for the Secretary of State to undertake consultation before making a national determination. The Secretary of State will therefore continue to consult the national representative bodies of each group before making changes to payments that potentially affect the whole of that group (these changes would be ones to the GPs' Statement of Fees and Allowances or equivalent for the other professions). Subsection (3) provides that determinations may be made in several stages, as is currently the case. For GPs, for example, the Secretary of State might make a first stage determination in respect of the profession as a whole and publish it in the Statement of Fees and Allowances, and subsequently Health Authorities might (within parameters set by the Secretary of State) make a second stage determination of claims for allowances or fees from smaller groups or individuals within that profession.

128. The changes to sections 43A and 43B are intended to reflect current practice.

129. It is intended that when exercising the delegated function of determining cash-limited payments Primary Care Trusts will be subject to any requirements (such as consultation requirements) that apply to the Health Authority.

130. Primary Care Trusts will not be appointed as determining authorities in relation to remuneration for dentists, pharmacists or optometrists. The Bill precludes them having any functions in respect of Part II services other than general medical services (see new section 17A(3)(d) of the 1977 Act, as inserted by clause 10 of the Bill).

Clause 10: Directions

131. This clause restates the direction-giving powers conferred on the Secretary of State by sections 13 and 17 of the NHS Act 1977, expands section 17 to cover NHS trusts, and provides for a scheme of delegation under which Primary Care Trusts have their functions conferred upon them.

132. The new sections 16C to 17B provide a flexible structure under which the Secretary of State may arrange for the exercise of functions by Health Authorities and Primary Care Trusts and determine the level to which functions are to be devolved while maintaining appropriate control over how those functions are to be exercised.

133. Section 16C restates section 13 of the 1977 Act. It enables the Secretary of State to delegate his functions in relation to the health service to Health Authorities. At present the Secretary of State delegates most of his functions to Health Authorities, and he will continue to do so. Schedule 1 to the National Health Service (Functions of Health Authorities and Administration Arrangements) Regulations 1996 (S.I. 1996/708) lists those functions which the Secretary of State has delegated to Health Authorities. For example, the Secretary of State currently delegates to Health Authorities the responsibility for securing the provision of hospital and community health services in their area (see section 3(1) of the 1977 Act).

134. In a similar way, the new section 17A enables Health Authorities to delegate their functions to Primary Care Trusts, subject to certain exceptions in subsection (3). Primarily, the functions exercised by a Primary Care Trust will consist of the commissioning, and in some cases the provision, of services under Part I of the 1977 Act for their local population. A Health Authority may delegate its Part I functions by directing Primary Care Trusts to exercise those functions. Such directions may encompass both functions delegated by the Secretary of State, and those conferred directly on Health Authorities by statute or by regulations. The Health Authority will be required to issue such directions where directed to do so by the Secretary of State. The Secretary of State will also be able to determine which functions may or may not be delegated to Primary Care Trusts (section 17A(4)), and the extent to which they may be delegated.

135. The practical effect of delegation under these provisions is that the function becomes the function of the Health Authority or Primary Care Trust to which it is delegated. Legal proceedings in relation to the exercise of the function will be brought by, or against, that body, rather than the person or body which made the delegation.

136. The Bill does not specify what services Primary Care Trusts will or will not commission. The intention is that responsibility for commissioning the majority of hospital and community health services will be delegated to Primary Care Trusts (with some exceptions, such as some specialised services, which will continue to be commissioned at or above Health Authority level). With respect to the provision of services, it is envisaged that, initially, Primary Care Trusts will be able to provide and manage only community health services (i.e. those services which the Secretary of State has a duty to provide under sections 3(1)(d) and (e), 5(1) and (1A) and Schedule 1 to the 1977 Act). The Bill does not restrict Primary Care Trusts to the provision of community health services, however. Any restrictions will be set out by the Secretary of State in directions or the order establishing a Primary Care Trust. This will provide the flexibility to change the functions of Primary Care Trusts where necessary.

137. Subsection (3) of the new section 17A prohibits the delegation of functions relating to high security psychiatric services, family health service functions under Part II of the 1977 Act other than general medical services functions and certain other specified functions. A limited range of general medical services functions will be delegated to Primary Care Trusts. The delegation of such functions will be set out in regulations and will not affect GPs' independent status.

138. The Government intends to require Health Authorities to delegate to Primary Care Trusts the function of determining such GP remuneration as is to come from cash-limited funds. It will also consider requiring the delegation of other GMS functions: for example, making arrangements for the temporary provision of services where a GP retires or is suspended.

139. Section 17 extends the current powers of direction under section 17 of the 1977 Act (which currently applies to Health Authorities and Special Health Authorities) to include Primary Care Trusts and NHS trusts. This allows the Secretary of State to give instructions to any of the bodies concerned about how they are to exercise their functions.

140. Section 17B provides that Health Authorities will also be able to direct Primary Care Trusts about the exercise of functions they have delegated to them. Any Secretary of State directions under section 17 will take precedence. It is not intended that Health Authorities should use their powers to seek to control the detailed day-to-day operation of Primary Care Trusts.

141. The current direction-giving powers in respect of NHS trusts are conferred by paragraph 6 of Schedule 2 to the 1990 Act and relate to a limited number of very specific matters. The new section 17 replaces these powers of direction with a general power, in line with that relating to Health Authorities and Primary Care Trusts, which enables directions to be given in relation to the full range of NHS trusts' functions. Particular examples of where the direction-giving power might be used initially include: ensuring that major investment decisions of NHS trusts are consistent with their strategy for improving local health and health care; requiring that laboratories in all NHS trusts report certain test results to strengthen communicable disease control; limiting the borrowing and investments of NHS trusts (see clause 15 and paragraph 79 of Schedule 4).

142. Subsection (3) of the new section 17 was inserted by the House of Lords against the wishes of the Government. It provides specifically that the power of direction should be so exercised as to enable patients to be referred to specialist centres for treatment.

143. The new sections 18(1) to (1B) specify how directions under the Act are to be given. Any directions given by regulations are subject to parliamentary scrutiny. The existing section 18 provides that regulations must be used to give directions delegating the Secretary of State's functions relating to special hospitals (see clause 37 for a further discussion of special hospitals) and any directions about the Secretary of State's functions regarding the establishment of Community Health Councils (section 20(1) and (2) of the 1977 Act). The new section 18(1A) also includes any directions specifying that Health Authorities may or may not delegate GMS functions to Primary Care Trusts.

Clause 11: Establishment orders

144. NHS trusts are currently established under section 5 of the 1990 Act. This states that the Secretary of State may by order establish NHS trusts,

• to assume responsibility...for the ownership and management of hospitals or other establishments or facilities which were previously managed or provided by Health Authorities (section 5(1)(a)); or

• to provide and manage hospitals or other establishments or facilities (section 5(1)(b)).

145. Sections 5(1)(a) and (b) therefore determine the functions that may be conferred on a trust. All NHS trusts were originally established under section 5(1)(a) of the 1990 Act, in recognition of the fact that they inherited property from Health Authorities or their predecessors on their establishment. Their establishment orders limited them to owning and managing property that had previously been managed by a Health Authority or its predecessors.

146. The section 5(1)(a) function has become increasingly out-dated, both in its reference to property previously managed by Health Authorities, and in its restriction of trusts to owning the property they manage. This is particularly true for trusts entering into Private Finance Initiative (PFI) contracts with private sector partners. These contracts typically involve the trust granting a long-lease on part of its property and receiving a sub-lease from the private sector partner or partners for the duration of the contract. The new public-private partnerships may also involve trusts acquiring brand new hospitals. Section 5(1)(a) does not allow a sufficiently wide power to be conferred to do either of these. It has therefore been necessary to amend individual NHS trusts' establishment orders where required, to give them powers under section 5(1)(b).

147. Subsection (1)(a) of clause 11 replaces the current sections 5(1)(a) and (b). It provides for the Secretary of State to establish NHS trusts to provide goods and services for the purposes of the health service. Subsection (1)(b), by replacing the current section 5(6), enables the Secretary of State to confer in a NHS trust's establishment order a duty to provide particular goods or services at or from particular hospitals, establishments or facilities. The function of providing such goods and services includes managing such hospitals, establishments or other facilities. This enables the Secretary of State to specify a particular type of service (such as ambulance services, for example) which the trust must provide and a particular site or associated sites from which those services must be provided.

148. There has been some doubt raised as to whether the functions that may be conferred under the old section 5(1)(a) encompass all property arrangements entered into by NHS trusts to date. There has also been some doubt raised as to whether the functions conferred under section 5(1)(a) allow trusts to acquire new hospitals or facilities not previously managed by a Health Authority. The parties concerned have entered into these arrangements in good faith, so the Government wishes to put their validity beyond doubt. Subsection (3)(b) ensures that existing establishment orders remain valid despite the amendment to section 5(1). Subsection (4) provides that NHS trusts are to be treated as never having been restricted to managing premises previously managed by Health Authorities or their predecessors. In addition subsection (5) allows for amendments to NHS trusts' establishment orders and elsewhere in legislation to be made with retrospective effect where necessary to give effect to the clause in practice.

Clause 12: Exercise of powers

149. This clause amends section 5(9) of the 1990 Act which places limits on NHS trusts' exercise of their charging and income generation powers conferred by paragraphs 14 and 15 of Schedule 2 to the 1990 Act. Section 5(9) currently provides that NHS trusts may only exercise these powers if they are satisfied that this will not to a significant extent interfere with their functions as set out in their establishment order or their obligations under NHS contacts.

150. Subsection (2) extends the current provision to ensure that the restriction it imposes on the exercise of income generation powers applies in respect of all NHS trust functions, not just those conferred on an NHS trust in its establishment order. The exercise of an NHS trust's income generation powers should not to a significant extent interfere with, for example, the trust's obligations under the duty of co-operation (clause 23). It also allows the Secretary of State to specify in directions circumstances in which NHS trusts will also require his consent to exercise their charging and income generation powers. Directions could, for example, specify an amount of income above which his consent is required.

Clauses 13 to 15: Changes to the NHS trust financial regime

151. These clauses, together with paragraph 79 of Schedule 4, effect changes to the NHS trust financial regime. The existing financial regime, as set out in the NHS and Community Care Act 1990, was introduced to support the purchaser/provider split. In the White Paper The new NHS, the Government signalled its intention to amend the existing regime.

152. The main changes made to the NHS trust financial regime in the Bill are:

• NHS trusts' originating capital debt will be comprised wholly of public dividend capital;

• additional borrowing by NHS trusts other than from the Secretary of State will be at his direction and subject to conditions he may determine, with the consent of the Treasury;

• investment of temporary surpluses by NHS trusts will be at the direction of Secretary of State.

153. Clauses 13 and 14 change the form in which the originating capital debt of NHS trusts is financed. Assets are transferred to the ownership of a trust by the Secretary of State. These assets are matched in value by a debt, which the trust then owes to the Exchequer (the Consolidated Fund). This is known as the trust's originating capital debt (OCD).

154. The originating capital debt is currently split into two. One part is made up of interest bearing debt (IBD). This type of debt is rather like a bank loan, with defined interest and repayment terms. It is repayable in equal instalments twice yearly in September and March over 25 years. The interest on the debt is based on that charged for an equivalent National Loans Fund loan at the date of establishment. Loan interest is charged on the diminishing balance. The other part of this debt is made up of public dividend capital (PDC). This is similar to share capital or equity, with the Government holding a share in the trust (normally 50%), on which the trust pays dividends to the Government.

155. In practice the total interest and dividend payments are adjusted so that the total return on capital must equal 6% of the trust's average net assets. (The 6% is determined by the Treasury and reflects the long-term cost of Government borrowing.) The Government therefore believes there is now no reason to have separate forms of financing. The Bill therefore replaces the current dual system with a simplified single form of financing for NHS trusts' originating capital debt.

156. The process of phasing out interest bearing debt has already begun for long term loans. Clause 14 provides for the replacement of the remaining originating capital debt IBD. It converts the interest bearing debt portion of existing trusts' originating capital debt to public dividend capital. Clause 13 provides for the originating capital debt of newly established NHS trusts to be issued wholly as public dividend capital. As a consequence of this it provides that OCD will now be known as originating capital.

157. Unlike interest bearing debt, public dividend capital currently has no repayment terms. To prevent NHS trusts building up cash reserves as a consequence of the removal of IBD, therefore, the Government intends to introduce procedures requiring trusts to make repayments of PDC rather than build up cash surpluses.

158. Clause 15 provides that additional borrowing by NHS trusts (over and above their originating capital) will be subject to Secretary of State direction, and amends the current provisions regarding the interest on loans by the Secretary of State.

159. NHS trusts have a duty to obtain value-for-money when they enter into borrowing arrangements. This will usually result in borrowing from the Secretary of State (in effect the Exchequer) since the interest rates on offer will reflect the Government's own credit rating. NHS trusts can borrow from the private sector, but any borrowing must not be secured borrowing and must offer better value-for-money than borrowing from the Secretary of State.

160. In future, it is intended that, in the main, NHS trust borrowing will be from the Secretary of State. There are certain limited circumstances when a trust needs the ability to borrow from sources other than Government. An example is where an NHS trust wishes to enter "step-in" contracts in Private Finance Initiative schemes. Typically these arrangements involve a contract for a loan between the private sector provider and a bank. The trust's "step-in" term allows it to take on the private sector provider's liabilities under the contract if, for defined reasons, the provider is no longer able to meet them. In such circumstances the trust would in effect be borrowing from the bank. The intention, therefore, is to restrict the ability of NHS trusts to borrow from the private sector rather than rule it out altogether. Clause 15 amends paragraph 1(1) of Schedule 3 to the 1990 Act to provide that the ability of NHS trusts to borrow is subject to the Secretary of State's power of direction.

161. Existing legislative provisions (paragraph 1 of Schedule 3 to the 1990 Act) allow the Secretary of State to provide interest bearing loans to trusts, with interest rates determined in accordance with the National Loans Fund. Clause 15 revises these provisions to allow the Secretary of State, with the consent of the Treasury, to decide the circumstances and terms and conditions of any loans given to help with temporary cash flow needs. The Secretary of State, with the consent of Treasury, will be able to decide the interest rate and any charges as appropriate, and will aim to ensure that they are compatible with the funding regime in the NHS and good treasury management.

162. Paragraphs 79(3) and (4) of Schedule 4 make provision regarding the ability of NHS trusts to invest money. Under paragraph 7 of Schedule 3 to the 1990 Act, NHS trusts are able to invest temporary cash surpluses in Government securities, or other approved public or private sector deposit facilities such as local authorities, nationalised industries, banks and building societies. There is a cost to the Exchequer, however, in allowing NHS trusts to hold large sums of money other than in Paymaster Accounts (where the Government acts as the bank): the sums paid to trusts by Health Authorities would have been borrowed by the Exchequer from the market. It is intended that in future, therefore, any surpluses will be invested in Paymaster Accounts, thereby allowing the Exchequer to take account of these balances in deciding the overall amounts which the Government needs to borrow from the market.

163. For practical reasons, however, NHS trusts will be permitted to hold limited surpluses with other institutions (e.g. their High Street bank), but these will be restricted to an upper limit, to be determined by the Secretary of State and the Treasury. This will enable NHS trusts to continue to use commercial bank accounts for their day to day transactions, and allow them some flexibility around the levels of cleared balances within which they are required to manage. This is in line with the procedures currently in place for Health Authorities.

164. Paragraph 79(3) of Schedule 4 therefore creates a new paragraph 7 in Schedule 3 to the 1990 Act. It allows NHS trusts to invest money in any investments specified in directions by the Secretary of State. Paragraph 79(4) provides that the maximum amount of these investments may also be set, with the consent of the Treasury. These changes will have the effect of reducing overall Exchequer borrowing costs. Furthermore, they should result in reduced administrative costs for trusts in planning and managing their investments, as where to invest and under what terms will be determined by the Secretary of State.