Financial arrangements: England and Wales

Clauses 7, 8 and 9: funding of Strategic Health Authorities, Health Authorities, Primary Care Trusts and Local Health Boards

54.     The statutory provision dealing with the public funding of Health Authorities is section 97 of the National Health Service Act 1977 (the 1977 Act). Health Authorities are paid money in each year by the Secretary of State under sections 97(1) and (3). Section 97(1) concerns the remuneration of persons providing services under Part II of the 1977 Act (for example, General Medical Practitioners). Unless such remuneration is excepted from section 97(1), it is not cash limited. The Secretary of State is under a duty to pay each Health Authority the cost of such remuneration, and cannot impose a ceiling on such expenditure (defined as "general Part II expenditure" in paragraph 1 of Schedule 12A to the 1977 Act.) Section 97(3) provides that the Secretary of State must pay to each Health Authority money not exceeding the amount allotted to it by the Secretary of State. This amount is allotted towards meeting an Authority's "main expenditure" (defined in paragraph 2 of Schedule 12A to the 1977 Act). In the case of a Health Authority this includes all expenditure attributable to the performance of their functions in relation to the provision of hospital-based and community health services, all their administrative costs, the costs of drugs attributed to them by the Secretary of State and certain other expenditure. The amount allotted constitutes a limit on the cash which may be spent by the Authority.

55.     The Health Act 1999 inserts new provisions into the 1977 Act which provide for the establishment and operation of Primary Care Trusts. Each Primary Care Trust is established for an area contained within the area of a Health Authority. Under section 97C, each year the Health Authority must pay each of its Primary Care Trusts (a) the cost of general Part II expenditure incurred by the trust (defined in paragraph 4 of Schedule 12A to the 1977 Act) and (b) money not exceeding the amount allotted by the Authority for that year towards meeting the trust's main expenditure (defined in paragraph 5 of Schedule 12A to the 1977 Act). Provisions associated with Primary Care Trusts have not been commenced in Wales.

56.     The Government Resources and Accounts Act 2000 inserted two new sections into the 1977 Act (sections 97AA and 97E). These new sections provide for the setting of resource limits for every Health Authority and Primary Care Trust in addition to cash limits. Section 97AA concerns resource limits for Health Authorities; Section 97E concerns resource limits for Primary Care Trusts. Section 97AA(2) provides for general Part II expenditure to be excluded from the resource limit.

57.     The Health and Social Care Act 2001 inserts four new subsections into the 1977 Act (sections 97(3AA), 97AA(2A), 97C(1A) and 97E(2A)). These subsections provide that in determining amounts to be allotted towards main expenditure, the Secretary of State may take into account the level of a Health Authority's general Part II expenditure; and Health Authorities may take into account the level of their Primary Care Trusts' general Part II expenditure.

58.     An element of performance funding was introduced by the Health Act 1999. Subsections (3C) to (3F) of section 97 of the 1977 Act, inserted by section 8 of the Health Act and amended by section 2 of the Health and Social Care Act, provide for the Secretary of State to increase the allotments made to a Health Authority if they have, over a period notified to the Health Authority, satisfied objectives notified as objectives to be met by the Health Authority, or performed well against criteria notified to them as criteria relevant to their satisfactory performance of functions. The additional sums may be subject to conditions. If those conditions are not met the Secretary of State may reduce the Health Authority's allotment, in the current year or following years - in effect he can recover the additional sums paid, wholly or in part.

Clause 7: Funding of Strategic Health Authorities and Health Authorities

59.     Clause 7(2) inserts a new subsection into section 97 of the NHS Act 1977 to provide for the funding of Strategic Health Authorities. It mirrors the existing provision for the funding of Special Health Authorities.

60.     Clauses 7(3), 7(4) and 7(5) relate to performance payments and add Strategic Health Authorities to the existing provisions of section 97.

61.     Clauses 7(6), 7(7)(a) and 7(9) add Strategic Health Authorities to the existing provisions of section 97 for the funding of Health Authorities. They cover respectively: the variation of allotments in the course of a year; the earmarking of allotments for a particular purpose, and the payment of capital charges; and the keeping of records. Clause 7(7)(c) omits the existing provision concerning sums paid by Primary Care Trusts to Health Authorities in respect of capital charges. The revised section 97C(8)(b) inserted by clause 8 provides for Primary Care Trusts to pay these sums direct to the Secretary of State.

Clause 8: Funding of Primary Care Trusts

62.     Clause 8 provides for Primary Care Trusts to be funded direct by the Secretary of State. It replaces the existing section 97C under which Primary Care Trusts are funded by Health Authorities. The provisions in the new section 97C (1), (2), (7), (8) and (9) mirror the existing provisions in section 97 for the funding of Health Authorities by the Secretary of State. They cover respectively: the funding of Primary Care Trusts; taking account of general Part II expenditure in determining amounts to be allotted towards main expenditure; the variation of allotments in the course of a year; the earmarking of allotments for a particular purpose, and the payment of capital charges; and the keeping of records.

63.     Section 97C (3) - (6) is a new provision to allow performance payments direct to Primary Care Trusts. The provision allows the Secretary of State to increase the allotments made to a Primary Care Trust if they have, over a period notified to the Primary Care Trust, satisfied objectives notified as objectives to be met, or performed well against criteria notified to them as criteria relevant to their satisfactory performance of functions. The additional sums may be subject to conditions. If those conditions are not met the Secretary of State may reduce the Primary Care Trust's allotment, in the current year or following years - in effect he can recover the additional sums paid, wholly or in part.

Clause 9: Funding of Local Health Boards

64.     Clause 9(1) provides for Local Health Boards to be funded directly by the National Assembly for Wales. The provisions in the new section 97F (1), (2), (7), (8) and (9) mirror the existing provisions in section 97 for the funding of Health Authorities. They cover respectively: the funding of Local Health Boards; taking account of general Part II expenditure in determining amounts to be allotted towards main expenditure; the variation of allotments in the course of a year; the earmarking of allotments for a particular purpose, and the payment of capital charges; and the keeping of records.

65.      Section 97F (3) - (6) is a new provision to allow performance payments direct to Local Health Boards. The provision allows the Assembly to increase the allotments made to a Local Health Board if they have, over a period notified to the Local Health Board, satisfied objectives notified as objectives to be met, or performed well against criteria notified to them as criteria relevant to their satisfactory performance of functions. The additional sums may be subject to conditions. If those conditions are not met the Assembly may reduce the Local Health Board's allotment, in the current year or following years - in effect the Assembly can recover the additional sums paid, wholly or in part.

66.     Section 97G is a new provision which specifies the financial duties of Local Health Boards. It places a duty on Local Health Boards not to spend more than the sum of the amount allotted to them by the National Assembly for Wales (the cash limit) and any other receipts. It enables the National Assembly to give directions to Local Health Boards to ensure they comply with their financial duty. These provisions mirror those in respect of Health Authorities in section 97A of the 1977 Act.

67.     The Government Resources and Accounts Act 2000 (as amended by the Health and Social Care Act 2001) inserts two new sections into the 1977 Act: sections 97AA and 97E). These sections provide for the setting of resource limits for every Health Authority and Primary Care Trust in addition to cash limits. Section 97H extends the setting of resource limits to Local Health Boards.

Clause 10: Expenditure of NHS bodies

68.     Currently Health Authority expenditure distinguishes between "main expenditure" which is subject to resource and cash limits, and Part II (Family Health Services) expenditure which is not. Part II services include pharmaceutical services. However certain elements of pharmaceutical services, including the cost of drugs dispensed, form part of a Health Authority's main expenditure. The cost initially falls on the Health Authorities where the drugs are dispensed. For the purpose of Health Authority resource and cash limits it is then apportioned between the Health Authorities where it was prescribed (by GPs or others). Schedule 12A to the NHS Act 1977 gives effect to this process. It is intended that in future the expenditure of PCTs be treated in the same way as Health Authority expenditure is currently.

69.     Clauses 10(3) to 10(10) amend Schedule 12A to the 1977 Act (expenditure of Health Authorities and Primary Care Trusts). Clause 10(5) amends the definition of Primary Care Trust general part II expenditure, so that it mirrors the definition of Health Authorities' general part II expenditure within Schedule 12A. Clauses 10(6) and 10(7) redefine the main expenditure of Primary Care Trusts, so that the definition matches that of Health Authority main expenditure within Schedule 12A. Clause 10(8) enables the Secretary of State to apportion remuneration referable to the cost of drugs between Primary Care Trusts. This replaces the existing arrangement, which gave Health Authorities the Authority to apportion the cost of drugs between Primary Care Trusts.

70.     Clause 10(4) relates to paragraph 3 of Schedule 12A. It is a technicality that substitutes the National Assembly for Wales for the Secretary of State, and allows Wales to preserve its existing position until Health Authorities are abolished.

71.     Clause 10(9) defines Part I and Part II expenditure (Part I services expenditure being cash-limited and Part II services expenditure not being cash limited)and replicates for Local Health Boards the existing position as currently applies to Health Authorities in Wales.

Quality

Clause 11: Duty of Quality

72.     Clause 11 amends section 18 of the Health Act 1999 to clarify that the duty of NHS bodies as referred to in that section to put and keep in place arrangements for the purpose of monitoring and improving the quality of health care which it provides, include arrangements relating to the environment in which health care services are provided.

Clause 12: Further functions of the Commission for Health Improvement

73.     Clause 12 makes changes to the CHI's functions as set out in section 20 of the Health Act 1999.

74.     Subsections (2) and (3) extend CHI's functions to allow for its review activity to extend to any aspect of health care and in particular to the collection and analysis of data and performance assessment of the NHS.

75.     Subsections (3) and (4) provide that CHI must publish at least a summary of each report it makes in the exercise of its functions.

76.     Subsection (5) provides that the Audit Commission must consult the Commission for Health Improvement on its programme of Value for Money studies in relation to the National Health Service as part of better co-ordination of regulation of the NHS.

Clause 13: Commission for Health Improvement: inspections and investigations

77.     Subsection (1) amends Section 20 of the Health Act 1999 to allow CHI to carry out inspections and investigations of NHS services. CHI currently reviews arrangements for clinical governance in NHS organisations and carries out investigations into the health care provided by such organisations and reviews of particular types of health care provided by the NHS.

78.     The subsection also amends section 20 to provide that if, after carrying out an inspection or investigation, the Commission is of the view that the health care for which the NHS body or service provider has responsibility is of unacceptably poor quality or there are significant failings in the way the body or service provider is being run, the Commission must make a report of its view to the Secretary of State. As a result of the devolution arrangements set out in the Government of Wales Act 1998 and the National Assembly for Wales (Transfer of Functions) Order 1999 (SI 1999/672), if the body or service provider operates in Wales the Commission must make a report of its view to the National Assembly for Wales rather than the Secretary of State. The report may recommend that the Secretary of State or the Assembly (in case of bodies or service providers operating in Wales) takes special measures in relation to the body or service provider in question with a view to improving the health care for which it is responsible, or the way the body or service provider is being run. Such measures could include the use by the Secretary of State of his powers of intervention under sections 84A and 84B of the NHS Act 1977 as inserted by section 13 of the Health and Social Care Act 2001.

79.     Subsection (2) amends Section 23 of the Health Act 1999. Section 23 of the Act makes provision for the Secretary of State to make regulations setting out the Commission's powers to obtain entry to NHS premises and to access information and documents. Certain providers of services to NHS patients do not work from premises owned or controlled by the NHS. This amendment will enable the regulations made by the Secretary of State under section 23 also to cover entry to any premises owned or controlled by a service provider or to other premises which are used for any purpose connected with the provision of NHS services. Such premises include those owned or controlled by NHS service providers such as general practitioners, pharmacists, dentists, optometrists, and by independent and voluntary sector providers who provide services to NHS patients under arrangements with NHS bodies.

Clause 14: Commission for Health Improvement: constitution

80.     This clause removes the requirement that the Secretary of State, after consultation with the National Assembly for Wales, consents to the appointment of the Commission's Chief Executive; removes the Secretary of State's direction-making powers in respect of the terms under which the Commission employs people (subsection (2)); and provides for the Commission to produce an annual report about the quality of NHS services (in addition to the annual report on its own work) (subsection (4)). The Commission is required to make this report to the National Assembly for Wales and the Secretary of State.

81.     Subsection (3) provides The Bill provides that certain of CHI's functions in relation to the collection and analysis of data and performance assessment may be carried out by what will be known as the Office for Information on Health Care Performance.

82.     Currently, the Commission may arrange for any of its functions to be discharged by any committee, sub-committee, member or employee of the Commission. Subsection (3) also provides that the Commission may arrange for the discharge of any of its functions by any other person.

Patient and public involvement

Clause 15: Establishment of Patients' Forums

83.     The NHS Plan set out the new arrangements for involving patients and the public in the way the NHS is run. Central to this are Patients' Forums. They will be independent bodies established for each Primary Care Trust and NHS trust in England, with members drawn from voluntary sector organisations representing patients and/ or carers and from individual patients. Their main role will be to provide direct input from patients to NHS trusts and Primary Care Trusts into how local NHS services are run

84.     Clause 15 requires the Secretary of State to establish a Patients' Forum for each Primary Care Trust and NHS trust in England and sets out their functions. These include monitoring and reviewing the services for which the trust is responsible, obtaining and reporting the views of patients and their carers to their trust, and making available to patients advice and information about those services provided or arranged by the trust.

85.     Subsection (2)(e) provides that in circumstances set out in regulations, the Forum can take on responsibility for arranging or providing services to assist patients. This could include Patient Advocacy and Liaison Services (PALS) where the trust PALs was proved not to be performing satisfactorily. Finally, the Secretary of State may by regulations confer additional functions on Forums.

86.     Subsection (5)(e) provides that, in the case of a trust exercising Local Authority functions under arrangements with a Local Authority pursuant to section 31 of the Health Act 1999 (eg. social care services), the Forum will monitor the services provided in the exercise of those functions.

Clause 16: Entry and inspection of premises

87.     Clause 16 gives the Secretary of State power to make regulations requiring Strategic Health Authorities, Primary Care Trusts, NHS trusts or providers of family health services (eg. GPs, pharmacists, dentists and opticians) to allow authorised members of Patients' Forums to inspect premises owned or controlled by them. The requirement to allow access will be limited to the cases and circumstances set out in Regulations and subject to any limitations or conditions specified in those Regulations.

Clause 17: Annual reports

88.     Clause 17 requires Patients' Forums to produce annual reports of their activities after the end of the financial year, to be submitted to the Forum's trust, the Secretary of State, the Commission for Patient and Public Involvement in Health and the relevant Overview and Scrutiny Committee and Strategic Health Authority. The Forum must include a section that shows how it obtained the views of patients and carers during the year.

Clause 18: Supplementary

89.     Clause 18 enables the Secretary of State to make further provision in regulations for Forums, concerning in particular funding, accounts, membership and appointments arrangements, committees and proceedings, payments for members, premises and staff, reports and the provision of information to or by Forums.

90.     The regulations must provide for members of the Forum to include representatives of local patient and carer voluntary sector groups, and current and past patients of the trust.

91.     Subsection (4) provides that the regulations may include similar requirements about public access to meetings and information of Patients' Forums as now apply to Community Health Councils and overview and scrutiny committees (with appropriate modifications to account for the different role and constitution).

92.     Subsection (5): correspondence from Patients' Forums is to be added to the list of bodies exempt from subsections (1) and (2) of section 134 of the Mental Health Act 1983, which provide for the withholding of postal packets to and from persons held under the Mental Health Act 1983.

Clause 19: The Commission for Patient and Public Involvement in Health

93.     Clause 19, subsection (1) establishes an independent body corporate, to be known as the Commission for Patient and Public Involvement in Health ("the Commission"). The Commission has both national and community focused functions, which are described in subsections (2), (3) and (4).

94.     Subsections (2) (a) and (2) (b) provide for it to advise the Secretary of State and such other bodies as the Secretary of State may prescribe in regulations, about the arrangements that are in place across England, for the involvement and consultation of patients and the public in matters relating to the NHS; and on arrangements for independent advocacy services (to be provided under section 19A of the NHS Act 1977).

95.     Subsection 2(c) provides for the Commission to report to the Secretary of State, and other such bodies as the Secretary of State may prescribe in regulations, information and views of locally based patient and public involvement bodies, including Patients' Forums, on such arrangements (for example, how effectively they are operating).

96.     Subsection (2)(d) provides for the Commission to be able to facilitate the co-ordination of Patients' Forums. It also enables it to provide assistance to Patients' Forums - it is intended that the Commission's local arrangements will provide the administrative support to Patients' Forums.

97.     Subsection (2)(e) provides for the Commission to give advice and assistance to providers of independent advocacy services. This could be, for example, in the form of guidance or training.

98.     Subsection (2) (f) specifies that the Commission will set quality standards for (i) the activities of Patients' Forums and (ii) the provision of independent advocacy services. It will also monitor how effectively these standards are met.

99.     Subsection (2)(g) provides for the Commission to make reports on the public's views of matters affecting their health to any local body which has an influence over the health of the public; in particular, Local Authority Overview and Scrutiny Committees with responsibilities for health scrutiny.

100.     Subsection (2)(h) enables other functions for the Commission to be prescribed. For example regulations may be made that enable the Commission to perform a banking service for organisations set up to provide and arrange services that are intended to improve the health and well-being of the local community, and which are not structured in a way that they can manage their own funding arrangements . An example of this might be to hold a bank account for an unincorporated local 'Sure Start' programme.

101.     Subsection (3) specifies the Commission's function to promote public involvement in decisions and consultations on matters affecting the health of the population. It will be able to do this at both a local and national level. The bodies making decisions and carrying out consultations that subsection (3) relates are described in subsection (4), namely health service bodies but also other public bodies and others providing services to the public.

102.     Subsection (5) says that the Commission should so far as is practicable, operate its functions locally, specifically activity should be based at a PCT level. For example it is intended that the Commission should put in place local arrangements to facilitate the co-ordination of the functions of Patients' Forums (see subsection (2)(d)). Similarly it is intended that the Commission will make arrangements for the provision of independent complaints advocacy locally. An example of its national activity will be the setting and monitoring of standards for the provision of independent complaints advocacy, ensuring consistent provision across the country.

103.     Subsections (6) and (7) place a duty on the Commission to report to bodies it considers appropriate matters of concern about patient safety and welfare, where these are not being dealt with satisfactorily. An example might be if it were made aware, as a result of the monitoring of a trust by a Patients' Forum, of a unit within a trust with a particularly high mortality rate, it might then report its concerns to, for example, a body such as the Commission for Health Improvement, the National Patients Safety Agency, the National Care Standards Commission or the police.

104.     Subsection (8) allows the Commission to make charges as it sees fit for the provision of its advice or other services. It is envisaged that in practice the Commission will want to use this power to recover costs incurred in providing its services, but there may also be opportunities for the Commission to generate income in this way, for example by charging for advice provided to private hospitals. It is not intended that the Commission would charge for the advice it provides to the Secretary of State or indeed for the routine guidance and training materials it provides to Patients' Forums and providers of independent advocacy.

105.     Subsection (9) allows for regulations about the Commission to be made.

106.     Subsection (10) enables regulations to be made about the information that should be made available to the Commission by Strategic Health Authorities, Special Health Authorities, NHS trusts, Primary Care Trusts, Patients' Forums or providers of independent complaints advocacy.

107.     Subsection (11) gives effect to Schedule 6. This includes details about constitution, membership, the payment of allowances, appointment of staff, the delegation of functions, arrangements for assistance with functions, payments and loans, accounting and auditing arrangements, reporting and the miscellaneous amendments needed in relation to other legislation.

108.     Subsection (12) enables the Secretary of State to direct the Commission to perform his duty to make arrangements for independent advocacy for people wishing to complain against the NHS.

109.     Subsection (13) sets out the definitions of words or phrases used in the clause.

Clause 20: Abolition of Community Health Councils in England

110.     Subsections (1) and (2) provide for the abolition of Community Health Councils in England.

111.     Paragraph 5 of Schedule 7 to the 1977 Act provides that the Secretary of State may by regulations provide for the establishment of a body to advise and assist Community Health Councils. The National Health Service (Association of Community Health Councils) Regulations (S.I.1977/874), made under that paragraph, established the Association of Community Health Councils for England and Wales. Subsection (3) provides for the abolition of that body, but Subsection (4) ensures that the National Assembly for Wales may continue to exercise the power in paragraph 5 and establish a new body to advise and assist CHCs in Wales.

112.     Subsection (5) provides for the transfer of rights and liabilities of Community Health Councils and of ACHCEW. Any such transfer must be to a person listed in subsection (6). In the case of the Association a transfer may also be made to the National Assembly for Wales. Under subsection (7), transfers from ACHCEW require consultation with the Assembly.

Clause 21: Joint working with the prison service

113.     This clause make provision for the NHS and the prison service to work together to fulfil their functions more effectively. It will enable regulations to be made to enable them to pool their resources and to delegate functions and resources from one party to another. It also introduces an explicit duty of co-operation between the NHS and the prison service to secure and maintain the health of prisoners. Responsibility for the health of prisoners is shared between the prison service and the NHS. The Government has already established a formal partnership between the prison service and the NHS to improve and modernise health services for prisoners in England and Wales, following publication in 1999 of the report The Future Organisation of Prison Health Care. The overall aim of this partnership is to ensure that prisoners have access to health services which area as far as possible equivalent to those available to the general population from the NHS.

114.     Clause 21 removes existing legal barriers to joint working between the NHS and the prison service. The measures set out in this section are intended to allow NHS bodies and the prison service to agree jointly who is best placed to carry out certain of their functions, and to agree how resources might be used in joint working arrangements. They parallel the provisions that exist to allow closer working between the NHS and local authorities under Section 31 of the Health Act 1999. This clause removes some of these barriers by allowing NHS bodies and the prison service to:

- pool resources, which will mean that the agreed resources contributed to the pool can be used on any of the functions agreed by the partner agencies when the pool is established - the use of the money becomes more flexible. This is intended to allow staff from either agency to develop packages of care suited to the needs of prisoners irrespective of whether health or prison service money is used; and

- delegate functions to one another. This will allow, for example, one of the partner bodies to commission or provide all mental health services for a group of prisoners. It is expected that this will improve the integration of the services commissioned or provided.

115.     These joint working arrangements need to be able respond to local needs and will not necessarily be appropriate in all areas, or for all prisoners. The powers are therefore discretionary, not mandatory.

116.     Subsection (1) introduces an explicit duty of co-operation between the NHS and the prison service to secure and maintain the health of prisoners, making clear the intention that NHS bodies and the prison service are expected to work together.

117.     Subsection (2) provides for the Secretary of State in relation to England and the National Assembly for Wales in relation to Wales to make regulations setting out the details of the joint working arrangements. These arrangements can only be used if doing so leads to an improvement in the way in which the bodies' functions are exercised, which might, for example, include better outcomes for service users.

118.     Subsection (3) sets out examples of the new operational working arrangements.

119.     Subsection (3)(a) enables the creation of pooled budgets made up of contributions from the NHS and the prison service. The resources contributed by each body will lose their identity as health or prison service money, and will be used to carry out the functions agreed by the partner agencies when the pool is established. The pool will be able to fund both health and prison service activity as set out in regulations.

120.     Subsections (3)(b) and (3)(c) allow both NHS bodies and the prison service to delegate some of their functions to the other partner. These functions will be prescribed in regulations. In relation to health services for prisoners, the effect of these subsections will be to allow in particular:

- the prison service to delegate specified commissioning functions to NHS commissioning bodies, and vice versa; and

- the prison service to delegate specified provider functions to NHS bodies and vice versa.

121.     Subsections (3)(c) to (3)(f) provide for practical arrangements to support the exercise of these provisions for budget pooling and delegation.

122.     Subsection (4) makes it clear that, where an NHS body or the prison service delegates its functions under the arrangements in this section, that body will remain liable for the exercise of those functions.

123.     Subsection (5) defines various terms, in particular "the prison service".