APPENDIX 16
Letter from the Secretary of State for
Health to the Chairman of the Committee (21A)
NHS FOUNDATION TRUSTS
When I gave evidence to the Committee on 4 March
I promised to write with further information on several points
that had been raised.
First, I understand that you have been sent,
separately, a list of the 32 preliminary applications that have
been received for NHS Foundation Trust status.
You asked for further information on "Foundation-type"
healthcare institutions in Spain—this is attached at Annex
A.
I also undertook to provide more information
about the package of support the Department of Health will be
providing for PCTs commissioning services from NHS Foundation
Trusts. This will complement the support arrangements and learning
opportunities already being provided through National Primary
and Care Trust Development Programme and will include:
— development of model "template"
contracts, including standard terms and conditions, for PCTs to
adopt when commissioning services from NHS Foundation Trusts;
— access to formal training and development
opportunities;
— spreading best practice through an
internet based support network;
— access to specialist advice to support
contract negotiation and the development of effective arrangements
for contract management.
The rest of this letter addresses additional
points that you raised in your letter of 7 March. The paragraph
numbers relate to the numbering in your letter.
ROLL-OUT
OF NHS FOUNDATION
TRUST STATUS
1. The Secretary of State is quite clear
about his intention to roll out Foundation status to all NHS Trusts
in the next four to five years. However, as the present star-rating
system relies on relative rather then absolute scoring for the
28 Ps, how will this work? Will the relative element be of the
star ratings system be removed? (For example, under the current
system, if there are only two non-Foundation Trusts left in the
NHS, both of whom do well in their CHI review and their key targets,
then unless they get absolutely identical scores on all 28 Pls,
then one will be a three-star and one will not)
The Commission for Health Improvement (and after
April 2004 the Commission for Healthcare Audit and Inspection)
will develop and produce performance ratings for NHS organisations
consistent with the targets and priorities that the Department
of Health sets for the service. Although the present system uses
relative scoring for the "balanced score card" this
may be reviewed. 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.
It is also important to remember that overall
standards in the NHS are rising—in future two-star organisations
may be the equivalent of today's three-star—and that the
test for NHS Foundation Trust status does not rely solely on the
star ratings.
2. What is the likely timescale for extending
Foundation status to Primary Care Trusts, Mental Health Trusts,
and Ambulance Trusts?
At present, the timetable for establishment
of NHS Foundation Trusts applies only to acute and specialist
NHS Trusts. However, we are keen to learn from this experience
and to examine how the NHS Foundation Trust model could be adapted
for other NHS organisations in due course. I will be writing to
NHS mental health Trusts about these issues soon, but not to PCTs
for reasons I set out to the committee.
3. The Guide to Foundation Trusts states
that eventually NHS Foundation Trust status "may be available
to organisations that are not currently part of the NHS"
What types of organisations are envisaged here?
The model will be flexible enough to be adopted
by organisations that are not currently part of the NHS but that
hold similar values and can contribute to wider health service
objectives.
The Health and Social Care (Community Health
and Standards) Bill provides for NHS Foundation Trusts to be established
as independent, Public Benefit Corporations. A non NHS Trust applicant
for NHS Foundation Trust status would first have to set up a new
Public Benefit Corporation to prepare a full application for consideration
by the Independent Regulator. The Independent Regulator will be
able to consider any applications to set up Public Benefit Corporations
that are supported by the Secretary of State.
WORKFORCE ISSUES
4. In evidence to the Committee, the Secretary
of State mentioned safeguards that will be put in place to guard
against aggressive poaching of staff and ensure NHS Foundation
Trusts use their additional recruitment flexibilities in a way
which is "consistent with the needs of other local NHS organisations".
(a) Precisely what safeguards will these
be?
(b) If these safeguards are to be included
as part of a Foundation Trust's license, will other NHS organisations,
such as Strategic Health Authorities, PCTs and other non-Foundation
acute Trusts be able to refer a Foundation Trust to the regulator
if they believe it is engaging in aggressive recruitment policies
that are to the detriment of other local services?
(c) What evidence will be used to determine
whether or not "poaching" of staff has actually taken
place?
There is nothing wrong with a member of staff
leaving one Trust and going to another. Such movement may, for
example, relate to opportunities for career development in the
NHS and does not necessarily depend on remuneration or terms of
service. There will be a number of safeguards to prevent abuse
of the new freedoms available to NHS Foundation Trusts:
— all NHS foundation trusts will, presuming
it is agreed, operate under the new Agenda for Change pay system;
— other local NHS organisations would
be able to exercise influence over the running of an NHS Foundation
Trust through its membership and participation in governance arrangements;
— NHS Foundation Trusts will be subject
to a statutory duty of partnership just like other NHS Trusts;
— NHS Foundation Trusts will provide
services at the national tariff rate and will be subject to a
system of financial flows that operates on the principle of payment
by results. They will not be able to increase charges for clinical
services to reflect higher wage costs; and
— under the national tariff any cost
increases relating to enhanced terms and conditions for staff
would have to be absorbed by NHS Foundation Trusts themselves
and it will not be in their interest to take action leading to
local wage inflation.
The Independent Regulator will be able to consider
submissions put forward by other NHS bodies and will have a range
of powers to take action in the event that a NHS Foundation Trust
breaches its licence or statutory obligations. But intervention
would have to be proportionate and the Independent Regulator would
have discretion to decide what, if any, action to take depending
on the particular circumstances of each case.
NEW FINANCIAL
ARRANGEMENTS
5. The Secretary of State told the Committee
in evidence that proposals for Foundation Trusts had drawn on
proposals put forward by the New Economics Foundation. These proposals
indicate that Foundation Trust-type organisations might consider
charging patients for some "non core" services. Are
there currently any plans for Foundation Trusts to be able to
extend charges to patients?
No. NHS Foundation Trusts will be prevented
by their terms of authorisation from extending provisions to charge
NHS patients. All NHS patients will continue to receive care free
at the point of use based on clinical need and not ability to
pay. They are part of the NHS.
6. Can the Department give a clear definition
of which assets would be regarded as regulated and which would
be unregulated? If a Foundation Trust borrows against its unregulated
assets, and the income required to service such borrowing fails
to materialise, what effects would this have on the trust's ability
to provide services? What analysis has the department carried
out of the risks which might be associated with the distinction
between regulated and unregulated assets?
The Independent Regulator will determine which
assets should be designated as "protected" (regulated)
taking account amongst other things of:
— the need for particular services
in the NHS (in the local area, or regionally or nationally for
tertiary services);
— availability of alternative provision;
— any interdependencies between services
or with training and education; and
— contracts with NHS commissioners.
Decisions on which assets should be protected
will relate to the particular circumstances of each NHS Foundation
Trust rather than a specified list. Assets that are not designated
as protected could include, for example, private clinical facilities,
retail premises, and car parks (to the extent that they are not
deemed to be essential).
NHS Foundation Trusts will borrow primarily
on the strength of their projected cash flows. Protected assets
(those used to provide essential NHS services) will not be available
as security for borrowing. Where necessary, other assets will
be available as additional security for borrowing. If an NHS Foundation
Trust was unable to service borrowing the lender would be able
to use security held against (unprotected) assets to induce restructuring
of the NHS Foundation Trust's debts and/or recover their costs
but continuity of protected services would be assured. The Health
and Social Care (Community Health and Standards) Bill includes
provision for a special regime which will protect essential assets
and provide a clear process for dealing with creditors in the
event of financial failure.
7. Foundation trusts are free to borrow,
but their borrowing will be constrained within departmental limits.
Can the Department explain whether or not Foundation Trust capital
schemes will consequently take precedence over capital schemes
for non-Foundation Trusts? Will a proportion of the NHS capital
budget be "earmarked" for first-wave Foundation Trusts?
Capital allocations will not be specifically
calculated for NHS Foundation Trusts. Access to capital will,
in the future, be based on the strength of an NHS Foundation Trust's
projected revenue/cash flows ie, their ability to service debt
and not on the basis of centrally controlled capital allocations.
Under the new financial flows regime being rolled out across the
NHS all NHS providers will be paid the same for the same service.
Any borrowing costs that NHS Foundation Trusts incur will be met
from surpluses generated through efficiency gains and not through
charging commissioners more for services.
Each NHS Foundation Trust will be able to borrow
up to a prudential limit assessed by the Independent Regulator
based on the individual Trust's ability to service the borrowing.
Allocations of "strategic" and "block"
capital have already been made to Strategic Health Authorities
and NHS Trusts respectively for the next three years (and include
increases of £263 million and 44%). We are satisfied that
within the overall funds available to the Department capital spending
by NHS Foundation Trusts can be financed without adversely affecting
NHS Trusts.
REGULATION AND
INSPECTION
8. In the absence of written evidence from
the Commission for Health Improvement, can you confirm:
(a) Exactly what will the CHAI inspection
regime consist of for Foundation Trusts?
(b) What performance targets will Foundation
Trusts be expected to meet?
(c) Will Foundation Trusts continue
to be awarded annual star-ratings in the same way as non-Foundation
Trusts?
The new Commission for Healthcare Audit and
Inspection will be responsible for carrying out inspections of
NHS Foundation Trusts against criteria agreed with the Secretary
of State and taking account of the same national clinical and
quality standards as apply to other providers of NHS services.
From 2004 the Commission for Healthcare Audit
and Inspection will be responsible for awarding performance (star)
ratings across all NHS providers. The new ratings system will
include NHS Foundation Trusts.
9. What powers does the regulator have to
require the provision of new services where none currently exists?
How would the regulator manage circumstances in which (a) a foundation
trust was declining to provide a service and (b) no suitable alternatives
were available in the locality?
10. Trusts must meet "reasonable demand"
for regulated services. What happens when they decline to do so
or if they declare that levels of demand are "unreasonable"?
11. If projections of "reasonable demand"
are based on existing levels of caseload and the particular casemix
treated, what happens if, as a result of demographic changes,
levels of demand rise in a particular locality? What guarantees
can be given that PCTs will always and everywhere be able to commission
services to meet the needs of local people?
12. What will happen if a Board of Governors
refuses to approve strategic plans related to meeting national
priorities which do not match its own local priorities?
Funding for NHS services will, as now, be held
by Primary Care Trusts who will develop their commissioning strategies
taking account of priorities set at local, regional and national
level. Three year financial allocations are made direct to PCTs.
The allocations are based on a weighted capitation formula that
takes account of population size and demography. The "need"
element of the formula has been updated for the 2003-04 to 2005-06
allocations so that it uses better measures of deprivation. The
Office of the Deputy Prime Minister's Indices of Multiple Deprivation,
for example, provide a useful up-to-date set of validated measures
of area deprivation, that are capable of being updated regularly.
PCTs will always be the major, and often the
only, contractors for the services provided by NHS Foundation
Trusts. As such, PCTs can be expected to exercise considerable
influence in the development of NHS Foundation Trust strategic
plans—including plans for development of new services.
Alongside this the representatives of local
people, members of staff and partnership organisations on NHS
Foundation Trust Boards of Governors will have a major role in
shaping the way that NHS Foundation Trusts respond to PCT commissioning
needs.
Given these two points its difficult to see
how a service (new or existing) that local people wanted or which
PCTs were willing to fund would not be provided to the levels
necessary to meet reasonable demand.
Under the terms of its authorisation an NHS
Foundation Trust will be required to provide certain NHS services
for NHS patients (protected services). The designation of services
as protected in the terms of authorisation for an NHS Foundation
Trust will mean that it is obliged to maintain those services
and continue to offer them for NHS patients. It would be in breach
of its terms of authorisation if it refused to provide such services
and no suitable alternatives were available in the locality. The
Independent Regulator will have discrete powers to intervene in
cases of breach including, for example, issue of formal or informal
warnings or imposition of special measures to require the NHS
Foundation Trust to continue to provide the service. In extremis
if the situation was not resolved, the Independent Regulator
would have powers to remove some or all of the management board
or revoke the licence and recommend that the assets be transferred
to another NHS body or merged with another NHS Foundation Trust.
Contracts between Primary Care Trusts and NHS
Foundation Trusts will specify the volume, standards and time
scale for the provision of NHS services. NHS Foundation Trusts
and commissioning PCTs will be expected to agree on the definition
of reasonable demand for a particular service. Ultimately the
Independent Regulator would be able to decide, on the basis of
the available evidence, if a level of demand was reasonable or
unreasonable.
13. If a Foundation Trust and a non-Foundation
Trust bring forward proposals—eg new investment—which
would result in duplication of services, what powers would be
available to the regulator to prevent this?
Strategic Health Authorities will continue to
have a significant role in shaping the overall development of
services in their area, backed by the commissioning decisions
of Primary Care Trusts. For more specialised services "lead"
commissioning arrangements (where one PCT commissions services
on behalf of others) should determine the optimum provision. "Local"
services inevitably involve some "duplication"—most
acute hospitals offer a similar range of services. Developments
in both areas will reflect the overall expansion of the NHS funded
through increased investment to bring about a greater range and
depth of high quality services that are more convenient for patients.
New capital investment by NHS Foundation Trusts
will need to be financed through revenue streams. Indeed the financial
regime for NHS Foundation Trusts will involve repayment of loans.
And payment for NHS services under a fixed national tariff will
mean that more risk than now will be entailed in undertaking capital
investment where there is no certainty that PCT funding will be
forthcoming.
14. How, both in principle and in practice,
will the role and powers of the Independent Regulator differ from
that of the Secretary of State for Health?
The office of the Independent Regulator will
be established as a non-ministerial Department accountable to
Parliament and not subject to direction from the Secretary of
State. The Independent Regulator will operate within a discrete
statutory framework and will not replicate the Secretary of State's
existing powers of direction or have a role in performance management—which
can affect the day to day running of NHS Foundation Trusts. In
normal circumstances the Independent Regulator will have no reason
to intervene in the running of NHS Foundation Trusts. The office
of the Independent Regulator is designed to give NHS Foundation
Trusts maximum freedom to operate while safeguarding the interests
of NHS patients and the wider NHS.
The Independent Regulator will have powers to:
— set the terms of authorisation (licence)
for NHS Foundation Trusts including the list of services and property
that are designated as protected;
— monitor the operation of NHS Foundation
Trusts to ensure they remain within the terms of the licence and
legislation. (This will include the ability to require information
from NHS Foundation Trusts but only to the extent necessary to
perform this function); and
— intervene in the running of an NHS
Foundation Trust either to prevent a breach of the licence or
in the case of a breach of the licence. The legislation will provide
for graduated step-in powers of intervention which the Independent
Regulator will be able to use in the event of non-compliance,
ranging from the issuing of warning letters to revocation of the
terms of authorisation.
NEW LOCAL
GOVERNANCE ARRANGEMENTS
15. Could the Department confirm whether
the Board of Governors and the Management Boards of Foundation
Trusts will share a Chair or have different Chairs?
One person will be elected to chair both the
Board of Governors and the Management Board.
16. The Board of Governors will have a role
in approving the appointment of the Chief Executive and executive
directors, but does it have the power to sack executive directors
or dissolve the management board?
The Board of Governors will be responsible for
appointment, or removal, of the Chair and non-executive directors
of an NHS Foundation Trust. However, unless specifically provided
for in a particular Trust's constitution, any action to remove
the whole Board would have to be initiated through a reference
to the Independent Regulator. The Independent Regulator will have
a range of powers to take action if the NHS Foundation Trust is
failing to comply with its terms of authorisation or statutory
obligations.
16. The Guide states that "The main
function of the Board of Governors will be to work with the Management
Board to ensure that the NHS Foundation Trust acts in a way that
is consistent with its objects and with the conditions under which
it is licensed to operate (see Chapter 3), and to help set the
strategic direction," It also specifies that the Board will
meet at least three times a year to do this. At these meetings,
will the Board of Governors have the explicit right to veto plans
made by the Management Board, or will the Board's only recourse
be to refer the matter to the Independent Regulator?
The provisions in the Health and Social Care
(Community Health and Standards) Bill are designed to create a
two-part governance system with distinct, but complementary rather
than adversarial, roles for the two boards of an NHS Foundation
Trust. Both will work to the same objects and be required to ensure
that the Trust complies with its statutory duties and terms of
authorisation. The Board of Governors will be responsible for
appointing the Chair and non-executive Directors and will have
a right to be consulted on the forward business plans that the
Board of Directors proposes. It is therefore very unlikely that
major disagreements would arise. But the Board of Governors will,
if necessary, be able to use its power to dismiss the Chair or
non-executive Directors of an NHS Foundation Trust (subject to
approval by 75% of the members of the Board).
The constitutions for individual NHS Foundation
Trusts may give additional powers to the Board of Governors beyond
the minimum specified in the Health and Social Care (Community
Health and Standards) Bill. These constitutions will be determined
following discussion with local stakeholders and may only be amended
with the approval of the Independent Regulator.
17. If disputes arise between the elected
majority of a Board of Governors and its PCT representatives,
how will these be managed?
In all cases disputes among the Board of Governors
could be put to a vote and, subject to locally determined voting
rules, the majority view would carry.
18. Which aspects of the activities of Foundation
Trusts will not be open to public scrutiny? What differences will
there be on this point compared to existing NHS trusts?
The provisions in the Health and Social Care
(Community Health and Standards) Bill will provide for enhanced
public scrutiny of the activities of NHS Foundation Trusts. Membership
will be open to people in the local area, patients and their carers
who use the services it provides and to staff. The members' elected
representatives on the Board of Governors will have a statutory
right to be consulted by the Board of Directors and meetings of
the Board of Governors will be open to the public.
NHS Foundation Trusts will be required to publish
an annual report and accounts and to send copies of these documents
and other specified information to the Companies Registrar, who
will be required to establish a register of NHS Foundation Trusts.
In addition, an NHS Foundation Trust, like other
NHS bodies, will be expected to develop a co-operative working
relationship with the local Overview and Scrutiny Committee and
will be under a duty to respond to requests for information by
the Committee. The Chief Executive of the NHS Foundation Trust
may be required to attend Overview and Scrutiny Committee meetings
to answer questions and explain decisions. It will also be subject
to a duty to consult the Overview and Scrutiny Committee at an
early stage on plans for substantial developments or variation
of services that are designated as protected under its terms of
authorisation.
19. Second stage applications will need to
provide evidence that key NHS stakeholders and others in the local
community support both the short and medium term goals (para 7.10
of the Guide). Applications will be assessed by a panel of experts.
It is stated in the Guide that the application process will be
transparent and fair. Does this mean that the criteria used to
assess these applications will be made public, and if so at what
stage of the process? How will the panel of experts be selected?
Details of what will be required will be made
available at the start of the second-stage process.
The Department will set up a panel to help in
development and assessment of second stage applications. The panel
will include people from inside and outside the Department of
Health selected for their expertise in particular fields that
are relevant to the development of NHS Foundation Trust applications.
20. Members of an NHS Foundation Trust are
to be drawn from people living in the local area and patients
of the NHS Foundation Trust, and employees of the NHS Foundation
Trust. What proportion of the local population would be expected
to register as members?
It would be wrong to set a particular figure
for local membership. The Independent Regulator will only authorise
an application for NHS Foundation Trust status when he or she
is satisfied that amongst other things, the constitution meets
the statutory requirements and necessary steps to prepare for
Foundation status have been taken. This will mean looking, for
example, at whether the applicant has got the right processes
in place and taken steps to establish a membership base appropriate
to its particular circumstances taking account of local factors
including:
— the type of services provided by
the NHS Foundation Trust;
— the number of other NHS Trusts in
the area;
— the success of local public/patient
involvement strategies; and
— the success of campaigns advertising
for membership.
Particular attention will be paid to ensuring
fair representation of all sections of the community.
21. Could clarification be provided on how
the membership is to be drawn for those specialist NHS Foundation
Trusts that serve a national (rather then predominantly local)
population base?
NHS Foundation Trusts will be expected to propose
their own membership arrangements based on the framework set out
in legislation. Membership will be open to people who live in
the area where the Trust is located and may (depending on individual
NHS Foundation Trust constitutions) also be open to people living
outside the area who have been patients of the Trust or their
carers. NHS Foundation Trusts providing specialist services can
be expected to draw a higher proportion of members from the out
of area patient group than those serving a predominantly local
population base.
22. What controls will be retained over
the use of the charitable assets of foundation trusts? Will foundation
trusts be able to use such sources of income to subsidise other
services?
The existing controls over the use of charitable
assets will remain for NHS Foundation Trusts. In particular, sections
91 and 96A(4) of the 1977 Act will apply to NHS Foundation Trusts.
This has the effect that any property given on trust must be applied
for the purpose it was given. In addition, the Health and Social
Care (Community Health and Standards) Bill gives the Secretary
of State for Health powers to appoint trustees for an NHS Foundation
Trust to manage charitable assets on its behalf. These arrangements
are analogous to those set out under the 1977 Act for NHS Trusts.
As for NHS Trusts, the appointment of trustees will be delegated
to the NHS Appointments Commission. The legislation also provides
that trustees for an NHS Trust that becomes an NHS Foundation
Trust will continue as though they were appointed to manage charitable
assets for the NHS Foundation Trust.
24 March 2003
Annex
"Foundation" Style Hospitals
in Spain
BACKGROUND
There are several, slightly different models
of hospital "foundation" currently operating in Spain.
Essentially these can be broken down into two categories:
— Publicly owned, privately managed
not-for-profit "foundations" (eg Alcorcon). The management
company is appointed by a Hospital Board which comprises of representatives
from the Regional Government, local town hall, trade unions, healthcare
professionals and patient groups.
— Privately owned and managed, profit-making
"foundations" under contract with the Regional Government
to provide healthcare services for a defined population (eg Alzira).
At present, none of the Spanish "foundation"
hospitals were previously state-run institutions. In every case
Spanish "foundations" are new hospital developments
that have always been run at arms length from the state. So it
is not the case that the above average performance of Spanish
"foundations" is due to them being formed out of previously
high-performing state-run hospitals.
ALCORCO«N
HOSPITAL, MADRID
Fundacio«n Hospital Alcorco«n, is
a public Foundation created by lnsalud on the 18 December 1996.
Fundacio«n Hospital Alcorco«n is based in Comunidad
de Madrid, and was created from the beginning as a "foundation".
The Alcorco«n Foundation is run as a public hospital, but
it is managed by a private company. The company is not allowed
to make profits from its running of the operation.
KEY FACTS
AND FIGURES
— Fundacio«n Hospital Alcorco«n
is offering health care to an approximated population of 220,000
people and for the specialities of Allergology and Nephrology
it is providing its services to a community of around 400,000
patients.
— It has 566 beds, mostly in rooms
of two beds.
— The average in-patent stay is 5.5
nights, compared to a national average of seven nights.
— Its average waiting time for an operation
is 54 days, compared to around 60 days nationally.
ALZIRA HOSPITAL,
VALENCIA
Alzira is a public "foundation" hospital
that is managed by a private sector consortium.
KEY FACTS
AND FIGURES
— There are no waiting lists. There
is an average 45 days between the consultant deciding the patient
needs an operation and the actual operation. This is a 25% shorter
waiting time than the Spanish average of 60 days.
— The average length of stay is 5.1
days, the lowest in Spain.
— Over half (51%) of the operations
the hospital performs do not involve an overnight stay. How many
people they send home the same day is one of the elements of doctors'
performance related pay.
— 95% of the users surveyed in Alzira
Hospital last year were satisfied by the service offered, and
would use Alzira Hospital again if needed.
— Greater efficiency: average costs
per annum, per capital 62% of the average for other public hospitals
in the Valencia province.
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