Select Committee on Health Second Report

2. WHAT IMPLICATIONS WILL THE PROPOSED CHANGES HAVE FOR PATIENTS BEING TREATED IN THE REST OF THE NHS?

73. While we believe that some refinements need to be made to the proposed local governance model, we were struck by the high level of enthusiasm expressed for the Government proposals by representatives of some NHS organisations, and we accept that for some trusts, attaining Foundation Trust status has at least the potential to help them improve services for their patients. However, a more contentious issue is the likely impact of the implementation of these proposals on the rest of the NHS, and, most importantly, the patients they serve. While we understand that the Government's intention is that within four to five years all acute hospitals will be Foundation Trusts, the transitional period between now and then still warrants careful analysis, as does the ongoing impact of Foundation Trusts on other NHS organisations such as PCTs.

Are local communities being sufficiently consulted?

74. Community ownership is a key aim of these policies, and concerns have been expressed from many quarters that this policy, at least initially, may have adverse effects on surrounding hospitals and other parts of the local health economy. With this in mind, it would seem important that in deciding whether a trust becomes a Foundation Trust or not, the views of a local community wider than that served directly by the Foundation Trust should be taken into account. Diane Dawson and Maria Goddard, health policy specialists from the Centre for Health Economics at the University of York, argued that currently decisions are being taken on a trust rather than a community basis:

Whilst it is clear that the new governance arrangements may offer benefits for local communities and commissioners if they give stakeholders a greater chance to influence the provision of services, the decision to seek Foundation status will rest with the hospital itself. The incentive to take up this option hinges on perceived benefits to the hospital and its staff, rather than any wider benefits to the local community.[77]

75. The Democratic Health Network also felt strongly that "if the community are going to become involved, if Foundation Trusts go ahead, they will need to have had some sort of a say in whether they are set up or not".[78] The Secretary of State told us that trusts were not expected to have consulted local stakeholders during the initial stage of the application process, where preliminary expressions of interest are invited from trusts:

I think there have been some informal soundings but probably no more at this stage. At this stage it is for the trust to decide whether or not it wants to express an interest and basically get itself over the first hurdle ... I think it would be a matter for the individual trust to decide what the appropriate means of consultation is at this stage ... Some will have consulted informally and some will not.[79]

76. The Secretary of State told us that more detailed consultation would be required for the second stage of the application process:

They will need to work up a fully fledged plan to move to NHS Foundation Trust status and that will involve them in pretty detailed discussions not just inside the trust but outside too. For example, they will need to have discussions with their staff, they will need to have discussions with local primary care trusts, they will need to have discussions with various stakeholder groups in the community and they will need to gauge the depth of community and local health service support for their proposal to move forward and we will look at that very carefully.[80]

77. However, Fiona Campbell felt very strongly that a meaningful level of local consultation would not be practicable: "you certainly cannot do that kind of role, consultation and education process in the proposed timescale."[81]

78. The Guide specifies that "second­stage applicants will need to provide evidence that both the NHS trust Board and key stakeholders - for example, Primary Care Trusts, staff, partner organisations and local people - have been consulted and support the application and the strategic vision". The Secretary of State told us that he will then have "the job of gauging their opinions".[82] We welcome this duty to consult, although it is less clear by what standards local support will be gauged, and what proportion of staff or local support would be considered an endorsement. Joan Rogers felt that PCTs and the local population would have a very powerful influence, and told us "I sat down with my own top team and the first question we asked was, 'What's in it for Primary Care Trusts and the local population?' If they do not like it they will not vote it in; it is as simple as that".[83] But again, we are not clear at this stage how potential Foundation Trusts would actually be able to put their proposals to a 'vote' amongst local people and stakeholders. It is also unclear whether or not the information trusts submit in their applications will be available to the public, or whether organisations or individuals would be able to make separate representations to the Secretary of State if they opposed the plans and felt that their views had not been adequately captured in the trust's submission.

79. Given the suggestion that has been widely reported in the media over recent months that Foundation Trusts may have a negative impact on neighbouring health economies, it will also be vital for public confidence as well as for equity, that prospective Foundation Trusts are able to demonstrate the support of neighbouring trusts and the communities they serve. The Secretary of State agreed that it would be "wise" for prospective Foundation Trusts to secure the support of neighbouring health economies.[84]

80. We feel that there is much that needs to be clarified surrounding the Government's proposed requirement that prospective Foundation Trusts must demonstrate the support of local communities as part of their application for Foundation status. If trusts have to undertake lengthy consultation with local communities, which might include public meetings, roadshows, surveys and votes, this could have high administrative costs and could potentially be open to manipulation rather than contributing constructively to debate on how best to deliver healthcare for that locality. However, there is also the risk that if these proposals are implemented only in a tokenistic way, consultation could continue to be the "charade" described by one of our witnesses. Although applications for Foundation status will be assessed on whether their plans are supported locally, it is not clear how such support will be measured, and whether information about this will be made public. If consultation on Foundation status is to withstand accusations of tokenism, it will need to include stakeholders from early on in the process, even before an expression of interest in Foundation status is expressed. It should also include neighbouring health organisations and service users as well as those served by the prospective Foundation trust, and it is important to recognise that the local community of any particular hospital cannot necessarily be defined along boundaries of existing PCT catchment areas or local authorities, or else significant parts of the population may be excluded. These issues must be addressed and resolved by the Government if local ownership is to succeed.

Implementing Foundation Status across the NHS

The star-ratings system

81. In the first instance, Foundation Trust status will be available only to acute trusts who score 3-stars in the star ratings published in July 2003 (based on performance in 2002­03).[85] The issue of whether the benefits associated with Foundation status should be limited, in the first instance, to the acute hospital sector, is discussed more fully below. But given the benefits which it is hoped will flow from Foundation status, many have questioned the logic of confining the reforms to the best performing organisations. The King's Fund was unequivocal on this point: "the poorest performing hospitals should have access to the same mechanisms that have led to improved performance in Foundation Trusts, whatever those prove to be".[86] The BMA supported this view, arguing that "helping under­performing trusts to improve should have higher priority, and they would be better able to do so if they had greater freedom to innovate".[87] This argument was also endorsed by the NHS Confederation: "if freedoms are required by Foundations to achieve modernised and innovative care then they are required by all NHS organisations."[88]

82. The Secretary of State told us that although eligibility for Foundation status will remain conditional upon attaining 3-star status, he was confident that all trusts would be able to achieve this within a four to five year period.[89] The reasoning behind using 3­star status as a gateway was twofold. Firstly, he argued that non 3-star trusts would not be able to cope with the additional freedoms Foundation status would confer:

I strongly resist the idea that somehow or other the best solution for organisations that, frankly, are not performing terribly well at the moment is yet more freedom ... It is not more freedom that they need, they need more help and support to help them to improve, otherwise you are into sink or swim territory.[90]

83. The Secretary of State was clear that a big bang where all trusts became Foundation Trusts at once "would have a cataclysmic effect on the National Health Service".[91] The second reason he advanced was that although the Government planned for all NHS hospitals to have become Foundation Trusts within the next four to five years, he hoped that reserving Foundation status for 3­star trusts would increase the incentive for organisations across the NHS to improve their performance in order to reach the top level of the star rating system and apply for Foundation status.[92]

84. However, a significant logical problem connected with this roll­out was articulated by the King's Fund: "it is obvious that not all acute trusts will gain the 3­star status, since the star rating is based on a relative not absolute scoring system."[93] This is because for one element of the star ratings system, the performance of trusts on 28 performance indicators, an individual trust's performance is assessed and then compared to all other trusts. It is this element of the system that is used to allocate1­ and 2­star ratings for trusts with a few failings in their key targets and 2­ and 3­ stars for those that achieved all or nearly all the key targets. The Secretary of State was clear in his evidence that he expected Foundation trust status to be extended to all trusts within four to five years. His evidence also suggested that rather than lowering the hurdle and allowing 1- and 2-star trusts to become Foundation Trusts, this would be done through raising the performance of all trusts up to 3-star level, therefore enabling them to apply.[94] As the current star rating system has a relative component, it is not clear whether all trusts will be able to achieve 3-star status or not, as their performance will be measured relative to the performance of the rest of the NHS. When we asked the Department for further information, they told us that the relative element of the current system might be reviewed in future, but did not provide a full explanation of how the system would work if the relative element remained in place.[95] We feel that there is some confusion about this area of the policy, and urge the Government to provide clarification on this point.

A system which is "fundamentally flawed", "too blunt an instrument"?

85. The star rating system has itself been subject to considerable controversy, prompting the question of whether it is a useful or rational basis on which to base the introduction of these reforms. Star ratings are based on a combination of three different performance measures - nine key targets, CHI clinical governance reviews, and 28 performance indicators. The three elements of the star rating system are each ascribed different weightings. The system is described in detail in the Annex.

86. The Secretary of State told us that "the star rating system is not perfect, but it is getting better", and also highlighted the lack of appropriate measures of clinical outcomes of NHS care, the single most important element of health service performance.[96] This view was borne out by an example given by Birmingham NHS Concern, who argued that "under the star rating system, the University Hospital Birmingham NHS Trust is one of the best performing acute trusts. It meets eight out of the nine key Government targets and is likely to be in the first wave of hospitals to apply [for Foundation status]. It also has some of the highest readmission rates and the worst record for MRSA infections in the country. Clearly, a 3-star rating does not necessarily mean top clinical performance".[97]

87. The star rating system has only been in operation for two years, and its measurements have changed within that time. Comparing the results for 2000-01 and 2001-02 reveals quite startling changes in performance throughout the system:

• The majority of trusts had different ratings in 2001-02 and 2000-01.
• Just under half of the trusts with a 3-star rating in 2000-01 went down to a lower rating in 2001-02.
• Three trusts in fact went from 3-stars in 2000-01 to1-star in 2001-02.
• Nearly two thirds of those rated as 3-stars in 2001-02 had lower ratings in the previous year.[98]

88. It is not clear whether this instability is a result of the unreliability of the measures used to determine the ratings, or significant year­on­year fluctuation in the performance of NHS organisations. However, it is clear that whatever the cause of this variation, caution should be applied in assuming that 3­star status is a reliable indicator of consistently high performance in an NHS organisation.

89. Dr Ian Rutter, Chief Executive of North Bradford Primary Care Trust, described the star system as "fundamentally flawed, it is too blunt an instrument. Even my Autocar rates cars out of ten, ten stars not three stars".[99] Mr Ken Jarrold, Chief Executive of County Durham and Tees Valley Strategic Health Authority, told us that he would be very dubious about the star ratings "except for the fact that the star ratings are now being taken over by CHI and they will be responsible for star ratings in future. I feel a lot more comfortable knowing that is going to be the case, because they will be independent of Government and they will be taking into account a wider range of factors".[100] However, CHI has only been operational for a little over two years, its review system is as new and untested as the star ratings system, and its own performance as an organisation is also untested. Any hoped for 'independence' may, at least in the short­term, be largely illusory, as the Secretary of State currently holds the same powers of direction over CHI as he does over NHS trusts, and this year's star ratings, although they will be collated and published by CHI, will be calculated using Department of Health information and, more importantly, will be measuring performance against Department of Health performance indicators and key targets.

90. Something that is problematic for all indicators of healthcare performance is variations in casemix and other external factors. Joan Rogers, Chief Executive of North Tees and Hartlepool NHS Trust, argued that in some circumstances the system could be a disincentive rather than an incentive even for a high performing organisation:

It is not all about working harder ... it is a fact that a tertiary centre would find it harder to attain 3-stars. At some point it would not matter how hard they were working, for example if they could not recruit plastic surgeons, which they cannot right now, they are not going to hit that waiting list [target]. That is where it gets demoralising. As a 3­star trust myself, the staff are amazingly worked up about the status and I dread the day somebody dies in a mountaineering accident or something similar, as doctors tend to, and the next thing is your service is cut and you have lost your stars ... it is not only about hard work: some of it is about the inescapable problems the NHS has and that can be very demoralising.[101]

Two­stars missing out

91. Another problem with relying on the star rating system as a gateway to Foundation status is that organisations just as capable of innovation and success may be held back from improving if they narrowly miss 3­star status. Nik Patten, Deputy Chief Executive of South Tees Hospitals NHS Trust, described to us how his trust "missed it very marginally last year; our inpatient data was very, very good but our form in two areas was slightly off the leading pace which has been set by trusts like Joan's".[102] While he claimed his trust had been energised rather than demoralised by this failure, Dr Rutter told us of his sense that 2-star trusts who had just missed 3-stars felt "quite aggrieved", particularly given the new significance now attached to 3­star status, as a gateway to Foundation status.[103] Peter Dixon described an innovative scheme for which his trust had managed to secure funding "by luck", and expressed the hope that, for Foundation Trusts, this type of ready access to capital to promote service development would happen automatically.[104] However, UCLH was a 2­star trust at the time of this "lucky" bid. This suggests that limiting Foundation status to 3­star trusts might, in the short term at least, systematically hamper this type of innovation in the vast majority of trusts.

Star­stability

92. The Secretary of State was quite clear to us that Foundation Trusts would continue to be subject to the star rating system in exactly the same way as any other NHS organisation, as he told us it would be "difficult and probably invidious"to set up "two parallel sets of assessment".[105] However, the Secretary of State also told us that "the structure of the performance rating system will need to take account of the mixed economy of both NHS Foundation and non-Foundation trusts for a number of years". We find these two statements confusing and contradictory, and endorse the requirement for Foundation Trusts to continue to be subject to the same performance ratings system as the rest of the NHS.

93. However, this does raise a key question: if only 3­star organisations are thought able to cope with the additional freedoms Foundation status will confer, what will happen if a Foundation Trust drops below a 3-star rating? The Secretary of State told us that "One's expectation is that this will not happen since these are hospitals that are performing well".[106] However, given that as we have noted almost half (16 out of 35) of acute hospitals rated as 3-stars in 2000­01 lost their 3­star rating in 2001­02, this is clearly all too possible, making the Secretary of State's optimism here rather puzzling. The Secretary of State told us that it was not his intention to establish "a hard­and­fast rule that says¼that if in one year when, for example, you might have a major reconfiguration going on in the local area, or you might have new services coming in, whatever, in that one year if it moves from three to two, at that stage automatically they lose Foundation Trust status as I do not think that would be a good rule to establish".[107] Instead, the independent regulator would be able to use his or her discretion in how the situation is dealt with. This might include writing publicly to the NHS Foundation Trust expressing concern and asking for an action plan to improve performance, implementing various special measures, inviting an external organisation to come in and help turn round performance, or in the most extreme case, dismissing the management team or part of the management team or revoking Foundation status. The Secretary of State went on to tell us that he would only expect these powers to be used "appropriately" and with "discretion", "otherwise we will be back into precisely the sort of heavy­handed regulation that very often people in the Health Service complain about".[108]

94. Although the Secretary of State felt that using different sets of performance assessment for Foundation Trusts and non­Foundation Trusts would be "invidious",[109] it appears from our evidence that while the same performance assessment will be applied to both they will not be applied in a consistent or fair way, a point clearly made by the King's Fund:

Since some 3­star trusts will inevitably fall down to 2­star or lower in future, this raises the prospect of some 2­star trusts not being allowed Foundation status, yet other trusts that may be 2­star or lower will continue to be allowed Foundation status. This is not logical, or fair and will need to be thought through.[110]

95. If star ratings are not considered a reliable or subtle enough tool to warrant immediate revocation of Foundation status if a trust's performance drops, then surely they are not a subtle enough tool to establish, on their own, whether an organisation's performance makes it worthy of acquiring Foundation status. Under the proposed system, there could well be Foundation Trusts who are enjoying the considerable advantages that Foundation status will confer both in terms of status and resources, which actually have considerably worse performance than other non­Foundation Trusts who are not allowed to apply for Foundation status. If a service reconfiguration is seen as an excuse to let a Foundation Trust underperform one year, then surely Foundation status should be opened up to 2­star trusts which are able to demonstrate extenuating circumstances.

96. The Secretary of State told us that

Whether or not the star ratings are right, wrong or indifferent does not really matter. The truth is that what the star ratings have exposed is what everybody around this table and, incidently, what every member of staff and probably every patient knows, which is that some hospitals are really good, a few are poor and most need to improve.[111]

97. While we agree with the Secretary of State that performance varies considerably across the NHS, and support his attempts to improve performance, we feel that the question of how good the star ratings system is, whether, in his words, it is "right, wrong or indifferent", is crucially important. NHS patients as well as NHS staff have the right to expect a performance measurement system that is as sophisticated and reliable as possible, and focuses on issues that matter to patients, most importantly the quality of clinical care. This importance is only reinforced by the fact that star ratings are to be used as a gateway to increased freedoms and privileges.

98. The considerable fluctuation in performance ratings undergone by the majority of trusts suggests that achieving 3­star status is not necessarily a guarantee of long­term high performance or the ability to use freedoms appropriately. If the Government believes that Foundation Trusts that fall to back to 2­stars should not be arbitrarily stripped of their Foundation status, then this might imply that the cut­off for Foundation status applications should be rolled back to include 2­star trusts. Alternatively, if 3-star status is to be rigidly applied as the performance benchmark for aspiring Foundation Trusts, then the Government should consider restricting Foundation Trust status to those who have demonstrated sustained high performance by achieving 3-stars for perhaps two or three years running. First, we believe it is important for the Government to ensure performance ratings are as accurate and sophisticated as possible. Secondly, we feel that the contradictions in using the star ratings system as a 'one­way' gateway to Foundation status need to be addressed and resolved.

Managing performance within Foundation Trusts

99. High performing 2-star trusts may be disadvantaged by this system, and there is the possibility that trusts who consistently miss 3-star status by only a small margin may feel that this system is unjust if a neighbouring trust is actually performing worse on key targets than they are, after having achieved Foundation status. Anomalies in the system may leave non­Foundation trusts less inclined to strive to improve their performance. However, as the possibility of attaining Foundation status will remain open to them, perhaps of more concern is the issue of 3­star trusts who attain Foundation status and then let their performance slip, confident in the knowledge that their freedoms are now guaranteed unless there is a very extreme problem. The Secretary of State told us that "the ones that are doing well, honestly, I do not need to worry about".[112] However, as pointed out by Birmingham NHS Concern, 3­star status does not mean there is no further room for improvement. Dr Rutter expressed his concern about the performance of 3-star trusts that might be able to keep their stars too easily: "the issue is that if you are already a 3­star trust you sit back and rest on your laurels".[113] Maria Goddard and Diane Dawson of the Centre for Health Economics made the point that if the performance of Foundation Trusts was going to continue to be measured in the same way as non­Foundation Trusts, then contingencies would need to be put in place to support and improve the performance of failing Foundation Trusts, support currently provided for non­Foundation Trusts by the Department of Health through its Modernisation Agency: "if CHAI reports adversely on, say paediatric surgery in a Foundation Trust, is the independent regulator expected to have the in house expertise to help the trust deal with its problems?"[114]

100. A key argument in favour of the policy of Foundation Trusts is that it presents a genuine incentive for trusts to improve their performance. However, we are not clear that once Foundation status is achieved there are adequate incentives in place to ensure that trusts improve or even maintain high levels of performance. This shortcoming must be addressed as it has very serious consequences for performance and standards in the NHS, both in the short and the long term.

Rolling out the system

101. Speaking in the House on 8 January, John Hutton MP, Minister of State for Health, expressed his view that "we should begin the reforms in the right place and we should start them carefully".[115] Clearly, there is considerable debate around whether the reforms are being started in the right place, and the King's Fund have argued that the system should instead be piloted in a whole geographical health economy, which would provide a better proxy if the final intention is that all or most NHS trusts will be Foundation Trusts.[116] However, the Secretary of State was quite clear that this option had not been considered, because it removed the 'incentive value' of the policy.[117]

102. As this is a far reaching policy that has the potential fundamentally to change the governance and culture of the NHS and the way in which health services are delivered in England, it is clearly just as important, as the Minister said, to begin the reforms "carefully". This point was driven home to us by Mark Sesnan, Chief Executive of Greenwich Leisure:

The answer is that no, we have not done it in something as complex yet and to say that possibly we should be saying, "Why don't we just do it in one or two hospitals?" Indeed in this process we may end up with only one or two. You should pilot these things because it is very dangerous to go launching off until you understand what you are doing ¼ I am not sure it is something the Government would be wise to go at wholesale without having some very carefully constructed pilots to start with.[118]

103. The Secretary of State agreed with us that there were few examples of organisations as large or complex as NHS acute hospitals being run along the lines of a mutual or socially owned company.[119] However, he rejected the idea of a more cautious piloting scheme: "it would be very easy just to say that we are going to have lots of pilots, let's just see how it goes, and so on, but I think what people in the Health Service and in local communities want is just some degree of certainty as well."[120]

104. Instead, the Secretary of State told us that the policy would be introduced through a series of annual waves of Foundation Trusts, with interested 3-star trusts submitting applications shortly after the publication of star ratings in July each year, with the establishment phase beginning three months later, and new Foundation Trusts 'going live' in April 2004.[121] As well as 3­star trusts, trusts which are currently rated as 2-star are also being encouraged to think about applying in case they are given a 3-star rating, and if any current 0- or 1-star trusts improve their ratings to 3-stars in July 2003 presumably they would also be eligible.[122] The Secretary of State felt that the planned introduction in annual waves would enable evaluation, telling us: "I think we have an opportunity to test it".[123] However, candidates for the second wave of Foundation Trusts will have to submit their applications only three months after the first wave of Foundation Trusts go live, before they have been subject to any form of performance assessment. Although they will receive a star rating, this will be based on the financial year 2003­04, during which they will not have been Foundation Trusts.

105. The introduction of Foundation Trusts is centred on improving services for patients, whether those improvements are achieved through increased access to resources, more freedom to unleash local entrepreneurialism, or better engagement with the communities the NHS serves. However, as we have seen, organisations whose performance drops will not be returned to NHS trust status, suggesting that these significant reforms will prove easier to make than to unmake. Although the Regulator will have powers to intervene if services are not being delivered or if an organisation is failing dramatically, this is no guarantee that hospitals will deliver greater improvements under the new system than the current system, or that other organisations and health communities will not be disadvantaged. The answers to these questions will only emerge once the first wave of Foundation Trusts are up and running.

106. We note the Government's commitment to piloting this policy with a selected group of trusts rather than opting for large­scale 'big bang' implementation. We recommend that consideration is given to establishing an additional pilot allowing all trusts in a particular area to become Foundation Trusts, as this would help to evaluate how the system would operate in the long term. We do not think that the proposed very tight schedule of annual waves of reform allows sufficient opportunity for the advantages or disadvantages of Foundation status to be evaluated, or for lessons to be learnt, good practice disseminated, and the policy refined for further waves. In particular, we feel that in the early years of this policy, the success of public involvement measures, and the impact on wider health economies will merit very close scrutiny. We recommend that the Government should commission an independent evaluation specifically aimed at assessing the impact on wider health economies and on public involvement, and geared towards helping refine the policies for 'second wave' Foundation Trusts, before announcing the second wave of trusts.

107. The Guide states that eventually Foundation Trust status "may be available to organisations that are not currently part of the NHS"[124]. The Department have since clarified that "organisations that are not currently part of the NHS but that hold similar values and can contribute to wider health service objectives" would be eligible to apply to become NHS Foundation Trusts.[125]

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77   Ev 139 Back

78   Q327 Back

79   Q347 Back

80   Q342 Back

81   Q327 Back

82   A Guide to Foundation Trusts, Department of Health, December 2002, p 45; Q343 Back

83   Q25 Back

84   Q365 Back

85   A Guide to NHS Foundation Trusts, Department of Health, December 2002, p 13 Back

86   Ev 126 Back

87   Ev 131 Back

88   Ev 132 Back

89   Q348 Back

90   Q355 Back

91   Q348 Back

92   Q348 Back

93   Ev 126 Back

94   Q348 Back

95   Ev 150 Back

96   Q408 Back

97   Ev 114 Back

98   NHS Performance Ratings - Acute Trusts 2000-2001, Department of Health, September 2001; NHS Performance Ratings - Acute Trusts 2001-2002, Department of Health, July 2002 Back

99   Q61 Back

100   Q53 Back

101   Q65 Back

102   Q63 Back

103   Q61 Back

104   Q106 Back

105   Q409 Back

106   Q413 Back

107   Q415 Back

108   Q415 Back

109   Q409 Back

110   Ev 126 Back

111   Q361 Back

112   Q361 Back

113   Q61 Back

114   Ev 140 Back

115   HC Deb, 8 January 2003, col. 278 Back

116   Ev 121 Back

117   Q363 Back

118   Q283 Back

119   Q422 Back

120   Q423 Back

121   Q431 Back

122   Q432 Back

123   Q420 Back

124   A Guide to NHS Foundation Trusts, Department of Health, December 2002, p 13 Back

125   Ev 151 Back

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Prepared 7 May 2003