House of Commons - Explanatory Note
National Health Service Reform And Health Care Professions Bill - continued          House of Commons

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The 1990 Act

236.     It should be noted that the 1990 Act introduced a number of innovations in the systems described above. The system of GP fund-holding provided for by sections 14 to 17 was abolished by section 1 of the Health Act and is not described here.

NHS trusts

237.     Section 5 of the 1990 Act, and the immediately following provisions, provide for the setting up of bodies known as "NHS trusts". These are not HAs and are separate, independent bodies which were set up to assume responsibility for the ownership and management of hospitals or other establishments or facilities previously managed or provided by a HA (or, before 1 April 1996, its predecessor under the pre-1995 Act structure of the NHS), or to provide and man-age hospitals or other establishments or facilities which were not previously so man-aged or provided. Section 5(1), as amended by section 13 of the Health Act, now provides that trusts are established to provide goods and services for the purposes of the health service. A trust's functions are conferred by its establishment order made under section 5(1) and by Schedule 2 of the Act.

238.     Nearly all the hospitals in the country are now run by NHS trusts, although increasingly, smaller "community" hospitals are being run by PCTs. The essential difference between NHS trusts and the hospitals run directly by HAs is that the latter were funded by money paid to HAs for the pur-pose by the Secretary of State under (what is now) section 97(3) of the 1977 Act; generally speaking, NHS trusts do not have money paid to them direct by the Secretary of State, but instead must compete with each other for orders for their services placed by HAs (or more recently PCTs). HAs have thus been "purchasers" or "commissioners" of health care on behalf of the local population; while trusts are included among the "providers" of this health care. HAs may also choose to purchase health care from private sector institutions. In the period leading up to the creation of PCTs, HAs performed their commissioning functions through committees called Primary Care Groups. Today, most commissioning is carried out by PCTs (in England).

239.     This system resulted in the creation of what was known as the "internal market", whereby the whole of the operation (including trusts) is still the NHS, but for internal purposes the purchasers or commissioners were split from the providers. However, it should not be of any concern to the patient how the internal arrangements work: so far as the patient is concerned, the whole thing is still the NHS.

240.     The 1990 Act conferred on NHS trusts a substantial degree of autonomy. As well as not being funded centrally, the Secretary of State was able to give directions to NHS trusts only in relation to a limited range of subjects (paragraph 6 of Schedule 2). The Health Act restricted this freedom by extending to NHS trusts the Secretary of State's power of direction under section 17 of the 1977 Act (see section 12 of the Health Act).

241.     Paragraph 5A of Schedule 3 to the 1990 Act, as inserted by section 3 of the HSC Act, now provides that the Secretary of State may make supplementary payments direct to NHS trusts. Most NHS trust income, however, continues to consist of payments by HAs/PCTs for the provision of services.

NHS contracts

242.     The nature of the arrangements between HAs and trusts is not that of an ordinary contract enforceable at law. Instead, the 1990 Act provided for a system of "NHS contracts" (section 4), which were explicitly not contracts enforceable at law (section 4(3)), but which had attaching to them a special form of internal arbitration by the Secretary of State. The list of bodies between whom certain agreements take the form of NHS contracts rather than ordinary contracts is contained in section 4(2).

The Primary Care Act

243.     The Primary Care Act introduced a new method of delivery of family health services. Personal medical services ("PMS") and personal dental services ("PDS") may be provided under agreements known (in the initial stage at least) as "pilot schemes" (sections 1-3 of the Primary Care Act). These agreements are made between the HA and one or more of the persons or bodies listed in section 3(2). Before a pilot scheme may be made, the proposals for the scheme must be submitted to, and approved by, the Secretary of State (sections 4 and 5). The system of pilot schemes is intended ultimately to be replaced by a permanent regime, which is in substance the same as the pilot scheme regime but instead of being provided for in free standing provisions of the Primary Care Act is provided for by way of amendments to the 1977 Act: see sections 21 to 26 of the Primary Care Act.

244.     Although the provider of personal medical services may be an NHS trust or other qualifying body, the services themselves must be performed by a "suitably experienced" medical practitioner. Section 26 of the HSC Act (not yet in force) prospectively amends the Primary Care Act by inserting a new section 8ZA, that requires the Health Authority to keep a list of all the performers of PMS. It also provides for a services list of doctors to be kept under the permanent regime by inserting section 28DA into the 1977 Act.

245.     Pilot schemes allow PMS and PDS (essentially the same as GMS and GDS) to be under the Part I system. The provisions of the 1977 Act apply in relation to functions of the Secretary of State in relation to pilot schemes as if the functions were functions under Part I of the Act. NHS trusts may enter into a pilot scheme as a provider of PMS or PDS. The 1977 Act (and in particular section 17) has effect in relation to services under pilot schemes as if the services were provided as a result of delegation by the Secretary of State (by directions given under section 13 of that Act) of functions of his under Part I (section 9 of the Primary Care Act).

246.     These provisions allow PMS to be provided otherwise than through the rigid regulatory system of Part II of the 1977 Act. They allow HAs the power to determine locally the content of the service in their area or the practitioners with whom they choose to make the arrangements.

247.     The HA funds the services provided under a pilot scheme from its cash-limited allocation under section 97(3). This means that in effect the remuneration of practitioners providing PMS or PDS under the Primary Care Act is cash-limited, in contrast to the remuneration of Part II practitioners.

The Health Act

248.     Part I of the Health Act made further changes to both the Part I system and the Part II system.


249.     In England, PCTs are a new tier of administrative body below HAs, and have primarily been concerned with the Part I system, although they may exercise certain HA functions relating to GMS. PCTs are established by the Secretary of State by orders under section 16A of the 1977 Act (as inserted by section 2(1) of the Health Act), with a view to their carrying out the activities listed in paragraphs (a) to (c) of that section. Their functions are conferred, in the main, by directions given by HAs under section 17A of the 1977 Act, as inserted by section 12 of the Health Act. There is currently no power for Secretary of State to delegate his functions direct to PCTs although he can under S17A(4) direct HAs to so delegate their 'delegable' functions. Under section 18(3) the Secretary of State can make regulations precluding the 'delegator' exercising delegated functions. It is expected that all PCTs (i.e. covering all of England) will be established and operating by April 2002.

250.     Most HA functions are delegable to PCTs (s17A). S17A(3) sets out those 'excepted functions' which may not be delegated.

251.     In the exercise of the functions under Part I of the 1977 Act delegated to them by their HAs, PCTs have taken on the "commissioning" activities of the HAs. Unlike HAs, however, they also provide certain services (usually community health services rather than hospital services) in the exercise of those functions. A PCT is something of a "hybrid" between a HA and an NHS trust. The other significant feature of PCTs is that the regulations for the membership of PCTs made under paragraph 5 of Schedule 5A to the 1977 Act, as inserted by Schedule 1 to the Health Act, provide that a substantial number of PCT members and PCT committee members must be GPs, local nurses and other health care professionals providing or assisting the provision of services under the 1977 Act.

Part II services

252.     The Health Act provides new powers for the Secretary of State to require persons providing Part II services to have indemnity cover (section 9), a new structure for the remuneration of Part II practitioners (section 10, which has not yet been brought into force) and makes further provision for the disqualification of such practitioners by the NHS tribunal on the grounds of fraud (section 40, which again has not yet been brought into force and because of the intention in the HSC Act to abolish the Tribunal will never be, although fraud is one of the new grounds for Health Authorities to remove practitioners).


253.     Section 18 of the Health Act imposes a "duty of quality" on HAs, PCTs and NHS trusts. Sections 19 to 24 provide for the establishment and operation of a new independent statutory body known as the Commission for Health Improvement, which is responsible for monitoring the quality of care for which NHS bodies have responsibility. The Commission is able to conduct a variety of reviews and investigations: see section 20(1).

The HSC Act

254.     The HSC Act made further changes. The following paragraphs summarise those changes, although the relevant provisions may already have been referred to in the general description above of the NHS system.

Health service funding

255.     Sections 1 to 5 of the Act makes various changes to health service funding: the Secretary of State and HAs may take into account the level of general Part II expenditure (which is not cash-limited) when determining the cash limited allotments of HAs and PCTs; changes are made to the arrangements under which Secretary of State may make payments to HAs on the basis of their past performance; the Secretary of State is given the power to make supplementary payments direct to PCTs; and provision is made for the Secretary of State to form, or participate in the formation of, companies, either for the purpose of providing facilities or services to the NHS (section 4) or for the purposes of income generation (section 5). Section 3 (supplementary payments) and section 4 came into force on 1st August 2001.

Terms of employment of health service employees

256.     Section 6 of the HSC Act amends the 1977 and 1990 Acts so as to extend the Secretary of State's powers to direct as to the terms and conditions of staff of PCTs and NHS trusts. Section 6 came into force on 1st October 2001.

Part II services and PMS/PDS

257.     Sections 14 and 15 of the HSC Act provide for the abolition of the Medical Practices Committee and for HAs to determine GP vacancies. Section 16 provides for the abolition of the NHS tribunal; the Act provides that instead HAs will remove or suspend practitioners from Part II lists (section 25), subject to appeal to the Family Health Services Appeals Authority (FHSAA) (section 27). Sections 17 to 24 make provision in relation to Part II services, including provision for out of hours GP services, changes to the Part II list arrangements and for supplementary lists for persons assisting the provision of Part II services. Section 26 enables the Secretary of State to make regulations for HAs to hold lists of persons who may perform PMS/PDS. Many of these provisions are not free-standing but proceed by way of amending or inserting new sections in the 1977 Act. For example, section 25 inserts new sections 49F to 49R and section 27 inserts section 49S and Schedule 9A. None of these provisions are yet in force apart from section 27 as it relates to the constituting of the FHSAA and the making of rules or regulations in respect of it.

Pharmaceutical services

258.     Sections 28 to 41 of the Act provide for the provision of "local pharmaceutical services" under arrangements similar to those for PMS and PDS under the Primary Care Act 1997. Sections 42 to 44 makes a number of changes to the existing system for the provision of pharmaceutical services under Part II of the 1977 Act. None of these sections have yet been brought into force.

Care Trusts

259.     Section 45 provides for the Secretary of State to designate NHS trusts or PCTs as "Care Trusts" where those trusts exercise Local Authority functions under "partnership arrangements" under section 31 of the Health Act (see the following section). The designation does not affect the trust's powers and duties in relation to their NHS functions. Section 45 has not yet been brought into force.

The NHS and Local Authorities

260.     Local Authorities ("LAs") are responsible for the provision of what may be described as "social care", e.g. residential accommodation for the disabled or elderly. The enactments under which functions in this respect are conferred on LAs are set out in Schedule 1 to the Local Social Services Act 1970 (c.42) and other legislation. Section 21 and Schedule 8 of the 1977 Act make provision for the exercise of certain specified functions. LAs also exercise functions in respect of housing (e.g. the Housing Act 1985 (c.68)) and education (the Education Act 1996 (c.56)).

261.     Sections 22 and sections 26 to 28BB of the 1977 Act, as amended by sections 27, 29 and 30 of the Health Act, make provision for co-operation between the NHS and LAs. Section 22(1) of the 1977 Act, as substituted by section 27(2) of the Health Act, places a general duty on NHS bodies (on the one hand) and LAs (on the other) to co-operate in the exercise of their functions in order to secure and advance the health and welfare of the people of England and Wales. Sections 26 to 28 make provision for the supply of goods and services by the Secretary of State to local authorities and vice-versa. Section 28A of the 1977 Act, as amended by section 29 of the Health Act, makes provision for HAs in England to make payments towards expenditure by various LA bodies on community services, such as social services, housing and education for the disabled. Section 28B makes similar provision for Wales.

262.     The Health Act makes further provision for co-operation between the NHS and local authorities. Most importantly, section 31 makes provision for NHS bodies and LAs to enter arrangements under which an NHS body exercises LA functions or vice-versa. Provision is also made for arrangements to operate a "pooled fund" from which payments may be made towards expenditure on either NHS or LA functions. In addition to section 31, section 28 provides for HAs, with the assistance of PCTs, NHS trusts and LAs, to prepare plans setting out a strategy for improving both the health of the local population and the provision of health care to that population. Section 30 of the Health Act inserts a new section 28BB into the 1977 Act, which makes provision for LAs to make payments towards expenditure incurred by NHS bodies: this provision mirrors section 28A of the 1977 Act.

263.     The HSC makes further changes in relation to "partnership arrangements". Sections 45, 47 and 48 makes provision for NHS trusts and PCTs to be designated as "Care Trusts" where those trusts exercise Local Authority functions under arrangements under section 31 of the Health Act. Section 46 provides that the Secretary of State may, in certain circumstances, direct NHS bodies and local authorities to enter into such arrangements. Sections 46 to 48 came into force on 1st August 2001 but section 45 is not yet in force.


Involvement and representation of the public

264.     Section 20 of, and Schedule 7 to, the 1977 Act provide for Community Health Councils ("CHCs"). CHCs have the function of representing the interests in the health service of the public in its district. By virtue of regulations under paragraph 2 of Schedule 7, and the provisions of the 1977 and 1990 Acts relating to the establishment of PCTs and NHS trusts, CHCs must be consulted by the Secretary of State or HAs on various proposals relating to the health service in a CHC's district.

265.     The HSC Act made a number of additions to these arrangements. Sections 7 to 10 of the Act provide for the scrutiny of health service provision by Local Authority "Overview and Scrutiny Committees" established under the Local Government Act 2000 (c.22). Section 11 imposes a duty on NHS bodies to make arrangements with a view to securing that the public (or their representatives) are involved in and consulted on the planning of NHS services, proposals for changes in the way services are provided and decisions affecting the operation of those services. Section 12 inserts a new section 19A in the 1977 Act, imposing on the Secretary of State a duty to provide "independent advocacy services", i.e. services providing assistance (by way of representation or otherwise) to individuals making or intending to make complaints under the various NHS complaints procedures. None of these sections have yet been brought into force.

Inquiries, and default, emergency and intervention powers

266.     Section 84 of the 1977 Act enables the Secretary of State to appoint an inquiry in connection with matters arising under the 1977 Act, Part I of the 1990 Act or Part I of the Health Act. In addition to these formal inquiries, the Secretary of State conducts or appoints a variety of 'informal' inquiries, investigations and reviews in the exercise of his powers under section 2(b) of the 1977 Act. Finally, the Commission for Health Improvement may investigate matters relating to the management, provision and quality of health care for which NHS bodies are responsible (see section 20(1)(c) of the Health Act).

267.     The Secretary of State has powers to intervene if NHS bodies fail to perform their functions or fail to comply with regulations or directions (section 85) and if, by reason of an emergency, a service under the 1977 Act may cease to be provided (section 86).

268.     Sections 84A and 84B of the 1977 Act, as inserted by section 13 of the HSC Act, which came into force on 1st August 2001, provides for the Secretary of State to make intervention orders where NHS bodies are not performing functions adequately or there are significant failings in the way they are being run. The orders may provide for the removal, suspension and replacement of the members/directors of the body in question, and for the body to enter arrangements for another person or body to perform its functions.


269.     Many of the functions of the Secretary of Sate in relation to the NHS have been exercised in Wales since 1 July 1999 by the National Assembly for Wales (see the National Assembly for Wales (Transfer of functions) Order 1999 SI 1999/6720)

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Prepared: 9 November 2001