Background to Foundation Trusts
Earned autonomy
1. While the new governance arrangements for
Foundation Trusts represent a departure from the system that applies
to the rest of the NHS, reforms stemming from the NHS Plan's
promise of a system of 'earned autonomy' mean that there is already
a continuum of freedom and flexibility in the NHS acute hospitals,
with four distinct levels linked directly to organisations' performance
in the star ratings system. These freedoms are set out in full
in Raising Standards Across the NHS - a Programme of Rewards
and Support for all trusts, and are supplemented by Agenda
for Change, the recently published NHSwide human resources
framework.
3star trusts
2. 3star trusts currently receive:
i. More resources, including automatic access
in 200203 to up to £1m additional capital, depending
on the size of the trust; higher delegated limits for approval
of capital investments; freedom to retain more of the proceeds
of local land sales; and access to additional Local Capital Modernisation
Funds;
ii. More autonomy reduced central reporting
requirements, fewer inspections and greater freedom to set up
"spinoff" companies;
iii. More influence - 3star trusts are
used as pilot sites for new initiatives, their chief executives
contribute to developing the policy on earned autonomy and their
staff support modernisation work (for which the trust can apply
to be reimbursed);
iv. More opportunities - 3star trusts can
apply for NHS Foundation Trust status and automatically go on
the NHS Franchising Register of Expertise, giving them the opportunity
to bid for franchises of failing trusts.
2-star trusts
3. 2star NHS trusts are viewed by the Department
as "organisations which are already performing well overall
across the range of indicators, but which need to improve in particular
areas". They are subject to the normal reporting arrangements,
but do have access to some of the "earned autonomy"freedoms,
namely higher delegated limits for approval of capital investments
and the freedom to retain more of the proceeds of local land sales
and additional freedom when establishing "spin out"
companies. Proposals are also being drawn up to lighten the inspection
burden on 2- as well as 3star trusts.
1-star trusts
4. 1star NHS trusts are organisations which
are "giving some cause for concern against particular key
targets". This means there will be much closer oversight
by the relevant Strategic Health Authority (SHA). The trust will
be supported by the SHA in developing plans to improve the trust's
position, and on occasion key personnel will be seconded in, for
example at chief executive level, to drive forward improvements.
All 1star acute trusts will be expected to participate in
Modernisation Agency's Hospital Improvement Partnership programme
(HIP), which is aimed at achieving better care without delay along
whole hospital pathways, and contributing substantially to reductions
in waiting times. The Department of Health estimates that this
expert support from the Modernisation Agency will be worth the
equivalent of £200,000 per trust, and further financial help
will also be available where needed.
0star trusts
5. 0star NHS trusts, as "organisations
showing the poorest levels of performance against key targets",
are required to produce Performance Improvement Plans within three
months of their 0star rating, to demonstrate how they intend
to turn the organisation around. The most hardpressed health
communities, including where appropriate 0star trusts, are
able to access support from the NHS Bank, a centrallymanaged
£100 million Special Assistance Fund, to facilitate service
improvements. 0star trusts also receive a targeted programme
delivered by two teams in the Modernisation Agency, the Performance
Improvement Team (where a trust has failed key access targets)
and the Clinical Governance Team (where the cause of the 0-star
rating is an adverse review by the Commission for Health Improvement
(CHI)).
6. The last resort for failing 0star trusts,
where the SHA considers that there is insufficient capacity within
the trust to deliver the necessary improvements, is to franchise
the management. The Department has now published an official 'franchisers'
register, to which all 3star trusts are automatically added,
but which also includes appropriately qualified private companies.
If a trust comes up for franchising, any organisation on this
register may apply to take it over.
Further freedoms for Foundation Trusts
7. The Guide states that
An NHS Foundation Trust, as an organisation with
a proven track record of success in delivery of care for NHS patients,
and in management and financial prudence, will have increased
financial freedoms in three key areas:
· to retain proceeds from asset disposal
· to retain any operating surpluses
· to access capital from public and/or private
sector sources based on financial performance and not on the basis
of national or local capital rationing by the Department of Health
or SHAs.
Like other NHS Trusts, Foundation Trusts will also
continue to have access to capital through the Private Finance
Initiative.[212]
8. Foundation Trusts will not be able to dispose
of certain 'regulated assets' which are deemed necessary for clinical
care. An example of an 'unregulated asset' frequently given by
the Department is a hospital car park, but it is not yet clear
exactly where the line will be drawn between regulated and unregulated
assets.
Staffing freedoms and Agenda for Change
9. Following the establishment of the internal market
in the early 1990s, trusts were able to set their own terms and
conditions for staff. Although different professional groups have
their terms, conditions and grading structures negotiated nationally,
trusts have considerable flexibility about the gradings they give
to posts, or for example about oneoff recruitment bonuses
they can offer to staff.
10. These difficulties have led to the publication
of Agenda for Change, which sets out a national pay framework
for the whole of the NHS. The reforms bring all NHS staff, with
the exception of doctors, dentists and very senior managers into
an integrated payscale. If accepted, this will mean that in future,
for most employees, basic pay will be determined according to
job weight. Job weight will be determined using a standardised
NHS job evaluation scheme, which will measure 16 factors covering
knowledge and skills, responsibilities, and the physical, mental
or emotional effort required. Evaluations of common NHS jobs are
currently being finalised on a national basis. Staff will progress
up the relevant payspine at an incremental rate, and the system
includes provision for an initial 10% uplift over three years
for all staff. Staff will also be subject to standardised arrangements
for working hours, overtime, oncall and annual leave payment.
Another aim of the framework is to harmonise the current disparate
system of allowances available for staff working in highcost
areas. The Agenda for Change framework represents an attempt
to standardise job roles and pay between NHS organisations as
well as within them. However, over and above normal pay arrangements,
different types of trusts will have different levels of freedom
in relation to certain aspects of the settlement.
11. 0-, 1- and 2-star trusts will be able to offer
recruitment and retention premiums to staff coming to posts which
are difficult to recruit to, but these will be limited to no more
than 30% of basic pay, and will be subject to explicit formal
agreement by the NHS Staff Council and, where appropriate, the
local Strategic Health Authority.
12. 3-star trusts will be able to offer recruitment
and retention premiums at levels above 30% of basic pay without
formal agreement from the NHS Staff Council or the Strategic Health
authority but will be required to consult with local or neighbouring
employers before final decisions are taken on the use of these
freedoms
13. Foundation Trusts will be able to award Recruitment
and Retention Premia above 30% of basic pay, without prior clearance
for the Staff Council or Strategic Health Authority, and without
the requirement to consult with local or neighbouring employers.
Foundation Trusts will also be able to offer individual, team
or organisational performance reward schemes, which must be related
to "genuinely measurable" targets. Foundation Trusts
will also have further flexibility to offer alternatives in the
packages of compensatory benefits available as long as they are
of an equivalent value to those in the Agenda for Change
framework (for example greater leave entitlements but longer hours).
They will be able to establish schemes offering additional nonpay
benefits above the minimum specified in Agenda for Change
and will be able to offer accelerated development and progression
schemes, giving them greater autonomy to enhance career progression.
Current governance arrangements in the NHS
14. Currently, NHS trusts are subject to the direction
of the Secretary of State, which means that although in practice
they may be permitted greater or lesser degrees of freedom, the
Government retains ultimate control over organisations, and is
able to issue directives concerning the conduct of any of their
functions. The Government has drawn attention to its efforts to
curtail the relentless flow of central directives from Department
of Health officials to the chief executives of NHS organisations.
However, fewer central directives do not necessarily correlate
directly to increased freedom and flexibility, as performance
management and control over a trust's activities is now filtered
through two more local layers of performance management and control.
Firstly, PCTs, as budget holders, hold NHS trusts to account for
the delivery of the services they have commissioned. PCTs have
their own performance managed by Strategic Health Authorities
through Local Delivery Plans, which must include key targets set
by the centre, including, for example waiting times and performance
in key clinical areas such as cancer and coronary heart disease.
Secondly, overarching Strategic Health Authorities have a responsibility
for keeping a strategic overview of all the PCTs and NHS trusts
in their area, and will step in if problems arise.
15. As well as the performance management that is
conducted between NHS organisations, NHS trusts also now have
their performance assessed publicly, in the annual star ratings
compiled and published by the Department. The star ratings system
is discussed more fully below. There is also now another aspect
of performance management, ostensibly separate from government,
but still issuing central targets. The Commission for Health Improvement
is a NonDepartmental Public Body which carries out largescale
reviews of clinical governance in each trust once in every fouryear
period. Subject to legislation, the Commission for Health Improvement
will be replaced by the Commission for Healthcare Audit and Inspection
(CHAI), which will also take over the National Care Standards
Commission's responsibilities for licensing private healthcare
providers. CHAI's new inspection regime will consist of annual
assessment of each NHS organisation's performance against targets
and standards set by the Secretary of State, and publication of
performance ratings.
New governance arrangements for Foundation
Trusts
16. The Guide pledged that "NHS Foundation
Trusts will be guaranteed, in law, freedom from Secretary of State
powers of direction, removing control from Whitehall and replacing
it with greater local public ownership and accountability".
It is not yet clear what this will mean in practice, but the Secretary
of State told the Committee it was his intention to 'codify' exactly
what freedoms there would be.
17. Foundation Trusts will be accountable to the
local communities they serve via an elected Board of Governors,
and PCTs will also hold them to account for efficient service
delivery through the contracting process. Both of these aspects
of governance are discussed more fully below. In addition to this
Foundation Trusts will be subject to a number of other central
controls. Firstly, CHAI will conduct annual reviews of performance
against central targets and standards, culminating in a star ratings.
In addition to this, there will be an independent regulator which
will issue and review Foundation Trusts' licences, which will
specify the clinical services it must provide to the local community,
its duty of partnership with other NHS and social care bodies,
the circumstances in which it can make changes in the services
it provides for NHS patients, and the financial duties under which
it will operate, including reference to the prudential borrowing
regime and restrictions on the disposal of assets used in the
provision of NHS clinical services.
18. The independent regulator will also agree the
prudential borrowing limit for each Foundation Trust, decide on
changes to regulated services, consent to the disposal of regulated
assets and ensure that the proceeds from such disposals will be
used in the public interest. The independent regulator will be
able to intervene when there is suspicion that a Foundation Trust
may be in breach of its license. Triggers for intervention could
include information from the Board of Governors, an adverse CHAI
inspection report, or financial information provided by the Trust.
There is a range of 'step in' powers that the independent regulator
could exercise including the imposition of extra inspections,
warning letters, removal of some or all of the Management Board,
and ordering new elections to the Board of Governors. In the worst
cases they could recommend that the assets of the Trust are transferred
to another NHS body.
Star Ratings
19. The Government's star ratings system, according
to which each NHS trust is given a rating from zero to three,
will serve as a gateway to Foundation status, with all 3-star
trusts being eligible to apply. The Government began publishing
NHS Performance Ratings in September 2001. In the first year this
only covered those trusts providing acute hospital services, but
in July 2002, the system was extended to include other types of
NHS organisations, including mental health trusts and ambulance
trusts, although PCTs and Strategic Health Authorities were still
deemed too new to be given meaningful ratings.
20. Trusts are awarded a star rating of between zero
and three stars based on their Commission for Health Improvement
(CHI) report and performance against nine key targets and 28 Performance
Indicators (PIs) in the previous year. The current nine key targets
are:
· 18month inpatient waits
· 15month inpatient waits
· 26week outpatient waits
· 12hour trolley waits
· Cancelled operations
· Twoweek cancer waits
· Improving working lives
· Hospital cleanliness
· Financial management.
21. The three different factors which determine information
sources which feed into the ratings system do not command equal
weight. A poor rating on the key targets will assign it to one
or zero stars, regardless of how well it does on the remaining
28 Performance Indicators, which cover "Clinical Focus",
"Patient Focus" and "Capacity & Capability".
The PI assessment is done on a 'balanced scorecard' approach,
where each trust receives a rating between 1 (significantly below
average) and 5 (significantly above average) for each indicator.
An individual trust's performance is then compared to all other
trusts for each of three focus areas. This is used to allocate
one and two star ratings for trusts with a few failings
in their key targets and two and three stars for those
that achieved all or nearly all the key targets.
22. 3star status is not a guarantee of very
high performance in every aspect of the performance assessment
process. Although CHI reviews form part of the starrating
performance, these are only included when a trust has had a CHI
review in the past year. 12 of the 32 3star trusts applying
for Foundation status (38%) did not have a CHI review taken account
of in the most recent round of starratings. Equally, a trust
can underachieve on one of the key targets (including financial
management) and still achieve three stars. If a trust that does
very well in its key targets and if it has a current CHI review
showing significant strengths and no weaknesses, then it will
be awarded three stars regardless of its performance on the other
28 PIs. Many 2-star trusts do significantly better on the 28 performance
indicators than the worst performing 3star trusts.
Reforms to financial flows and commissioning arrangements
23. Shifting the Balance of Power, published
in April 2001, set the scene for largescale structural reform
of the NHS, which was implemented through the NHS Reform and Healthcare
Professionals Act 2002. PCTs are now taking over commissioning
responsibilities from recently abolished Health Authorities, and
Department of Health Regional Offices have been replaced by Strategic
Health Authorities. PCTs have now received their first 3year
funding allocations, calculated on the basis of a new resource
allocation formula. By 2004, PCTs are set to control 75% of the
total NHS budget, a figure which is set to increase further by
2008.
Reforming NHS Financial Flows
24. Delivering the NHS Plan promised the establishment
of a new system of 'payment by results' as an incentive for hospitals
to improve their performance, and in October 2002, the Department
of Health issued Reforming NHS Financial Flows: introducing
payment by results, setting out plans for changes in the way
that healthcare providers will be in paid in the NHS. These plans
include reforms to the way in which Primary Care Trusts contract
with NHS hospitals, and reforms to the pricing system.
25. Starting in 200304, a fixed level of services
will be contracted with in each trust in order to meet waiting
list targets. However, over and above this, hospitals will be
paid on a case by case basis. Historically, NHS commissioners
have relied on 'block contracting' to purchase care for NHS patients,
where funding is fixed regardless of activity, and need is projected
on the basis of historical precedents. Theoretically this means
that there is little flexibility or incentive for hospitals to
improve efficiency and outperform on their contracts, as funding
limits have already been set. Reforming NHS Financial Flows
specifies that in future Service Level Agreements (SLAs) must
include 'explicit links between funding and the volume of services
provided'. SLAs will need be agreed at a specialty level, starting
with six specialties (ophthalmology, cardiothoracic surgery, ear
nose and throat surgery, trauma and orthopaedics, general surgery,
and urology). According to the Department, the new system will
guarantee that "hospitals generally only receive funding
for the activity they actually deliver". Hospitals who perform
fewer procedures than they have agreed to over a set timeframe
could have their funding reduced inyear.
26. Currently, the rate at which hospitals are paid
for the services they provide for their patients is calculated
using a system of 'NHS Reference Costs'. These costs are supposed
to provide a genuine reflection of how much a particular procedure
or intervention costs to perform, but are weighted to take account
of local cost variations, for example in the prices charged by
suppliers, or in staff wages. However, Reforming NHS Financial
Flows promises a new system based on a single national tariff.
Prices will be determined through a system of 'Healthcare Resource
Groups' (HRGs) which will exist within different surgical and
medical specialities, covering individual procedures. HRGs within
the initial six specialties (for example cataract extraction)
will have a national tariff price set, and HRGs will enable commissioners
to adjust contracts to reflect the precise casemix. Because there
will eventually be a comprehensive range of national tariffs,
trusts will not be able to compete with each other on the basis
of price, but Foundation Trusts will be able to keep any surplus
they generate from treating patients at a cost lower than the
national tariff.
27. These reforms will be phased in gradually over
the next three years. By 200506, the Department expects
'most Trust activity to be commissioned on the basis of costandvolume
agreements' and for 3045 HRGs to be commissioned on the
basis of output targets and funded at the national tariff. Foundation
Trusts and the PCTs who commission services from them will be
expected to implement these changes at an accelerated rate.
Introducing patient choice
28. As well as improving efficiency, the Government
hopes that allowing PCTs the freedom to contract with providers
more flexibly will enable improved patient choice, including greater
choice of hospital, with "cash following the patient".
The concept of patient choice will be reinforced by 'patient prospectuses',
which will be published by PCTs to give comparative information
on local health providers. This policy is already being be taken
forward, and a pilot scheme has been running since last year,
whereby patients in London who have waited over six months for
a heart operation are able to choose to be treated by a different
provider, either within the NHS, privately in the UK, or abroad.
This scheme is currently being extended to cover patients in London
waiting more than six months for any types of elective surgery
by this summer, and rolled out throughout England by summer 2004.
Choice will also begin to be offered routinely to all patients
regardless of how long they have been waiting: Reforming NHS
Financial Flows states that 'patients needing elective surgery
will be offered choice of provider at the point of referral by
2005'.
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