Select Committee on Health Second Report

Promoting integrated and non­hospital based care - will Foundation Trusts reinforce divides?

108. The ongoing need to promote integrated care across health economies was captured well by Dr Ian Rutter:

For far too long we have actually blamed the acute trusts for not delivering waiting list targets, for not delivering on a whole range of issues, when it is a whole health economy problem where the demand generated by primary care is just as important as the efficiency of the supply you are delivering and much more crucial is the flow between primary and secondary care.[126]

109. However, much of the evidence we have received has pointed to the conflict between improving integration and patient care across organisational boundaries, and the policy of Foundation Trusts which appears to centre local involvement, innovation and resources around an acute hospital rather than a wider health economy. The King's Fund pointed out that the policy of Foundation Trusts bolsters the concept of institutions as central to patient care, perhaps at the expense of other Government initiatives to improve care pathways and 'whole system working' which put patients at the centre of good patient care. Examples of these initiatives include National Service Frameworks, clinical networks, the care collaboratives and the expert patient programme. According to the King's Fund, "Focusing on institutions, such as developing Foundation Trusts, could erect unnecessary barriers in the development of care pathways and integrated care".[127] Bob Hudson, of the Nuffield Institute, agreed strongly with this point:

Even the latest generation of hospitals are in danger of becoming quickly redundant. The King's Fund, for example, has forecast that 50,000 new beds will be available to the NHS through new technology allowing patients to be monitored in their own beds at home. Other new developments will include nurse­led minor injury treatment centres, combined health and social care centres, and hi­tech specialist care units considerably smaller than existing hospitals . The last thing the NHS needs right now is a system of governance that fuels loyalty to an institutional building rather than an evolving system of health and welfare.[128]

110. By the same token, the policy of Foundation Trusts and many of the other initiatives that underscore it, including the patients choice initiative and the reforms to financial flows, seem primarily aimed at addressing the needs of patients on waiting lists for elective treatment. In fact the most costly conditions for the NHS to treat are chronic medical diseases, and patients with chronic illness mostly use primary care or community services.

111. This Government has explicitly recognised the need to change the balance of power, resources and prestige from hospital care towards care in primary or community settings. Evidence suggests that rehabilitation and stepdown care are provided more cost­effectively and to higher standards away from large hospital sites, and there is enormous potential for community­based measures to reduce emergency admissions.[129] Similarly, modern technology offers the scope for much of outpatient care, including a range of surgical and diagnostic procedures, to be carried out in GP surgeries or small community hospitals. Yet, paradoxically, the policy of Foundation Trusts positions acute trusts as paragons of innovative service delivery and patient involvement, before community-based services driven by PCTs have had the chance to demonstrate their worth.

112. Dr Rutter told us that "we would have no problem about our trust keeping a surplus because we would be in a dialogue and we would see that as part of developing quality and the whole quality agenda".[130] Indeed, much of the evidence we have taken from NHS trusts and Primary Care Trusts has shown that they are well aware of the importance of establishing and maintaining good cross­sectoral relationships. However, Dr Rutter did express concern about the possibility that a Foundation Trust might decide to sell off a community hospital, bringing benefits to the Foundation Trust through increased access to capital, but disadvantaging the broader community it served.[131] (A community hospital would be a regulated asset but we presume that regulated assets can be sold to provide alternative patient provisions - if not, innovation will be stifled in Foundation Trusts). This serves as a useful illustration of the problems that could be caused by shifting resources to individual organisations which only have a responsibility to their own 'members', without having, as PCTs do, a responsibility for strategic overview of the health needs of a whole community. The NHS Confederation also voiced concerns in this area:

Whilst we recognise the importance of the freedom to dispose of assets we would hope that Foundations would take into account the interests of the wider community in how the proceeds were applied. This was not always the case in the early period of trust status with sometimes regrettable results.[132]

113. The Secretary of State told us that he hoped to see "NHS Foundation Trusts coming up with proposals for how they can use their borrowing freedoms, their access to capital, not just to provide better diagnostic and treatment centres and more surgery, but how, for example, they can provide better intermediate care or help with primary care".[133] This is an outcome we would welcome. However, although, as we were told by David Jackson, additional capital and surpluses would get "ploughed straight back into services and because the income streams come from the Primary Care Trust, they have to be services which Primary Care Trusts want to buy",[134] the discretion over what to spend the surplus on, whether it is service development in the acute hospital or in the community, rests with the Foundation Trust, not the PCT, and the system still prevents the surplus money from being reinvested at a strategic level, perhaps on community services or preventative medicine. As Chris Willis accepted, without national tariffs the policy of Foundation Trusts does not help PCTs "pull money back to a community level".[135]

114. In response to a question about the apparent divergence between the policy of Foundation Trusts and the drive towards more integrated, community­based care, the Secretary of State told us of the need to consider Foundation Trusts in the context of the wider reforms of the NHS:

I think you would have a very good point if this was the only policy that we were advocating; it is not ... There are very, very powerful levers that link the acute sector to the primary care sector and to the broader community ... Primary Care Trusts are an absolutely crucial part of the architecture and we want to strengthen that. The reason, for example, that we are introducing Healthcare Resource Groups and new forms of financial flows in the National Health Service is precisely to strengthen primary care and primary care services so that commissioning works.[136]

115. We are concerned that operating surpluses and capital will be invested on a trust rather than a health economy basis. Equally, it is far from clear that these reforms will give PCTs any additional leverage in terms of how acute services are developed. This type of input will come solely through Foundation Trusts' Boards of Governors, and as discussed previously, PCTs may only have one seat, and no power of veto.

116. Aside from the issue of how and where resources are invested, we also heard concerns about ensuring the appropriate engagement of Foundation Trusts with their local partners. Chris Bell, Chief Executive of Huntingdonshire PCT, told us that she would like an assurance that all local PCTs, not just lead PCTs, would be involved in the governance of Foundation Trusts:

That will be particularly important for us in terms of Addenbrookes because we work really closely together in the two trusts and we have clinical networks that go across the two trusts. There is going to be more of that in the future, not just in Cambridgeshire but across the country. I think it would be really important that that connection is made and maintained so that local people in Huntingdonshire feel that we have influence with Addenbrookes.[137]

117. It has been suggested that Foundation Trusts have the potential to fragment relationships between health and social care. Local social services are not included, by right, on Foundation Trust Boards of Governors. The Secretary of State told us in clear terms that co­operation between health and social care was vital:

Unless we can get the Health Service and social services working more co­operatively together, then we will have a problem. It will not be us, but actually it will be the most vulnerable people in the community, the elderly people, people with a mental health problem, people with a disability who overwhelmingly rely not just on the Health Service, but on social services and, for that matter, housing services too.[138]

118. But although the Secretary of State told us he would support the inclusion of social services on Foundation Trust boards, he was clear that that would be a matter for Foundation Trusts to decide for themselves:

Now, we are flexible, as the Guide says. If, for example, the Foundation Trust decides that it wants to co­opt people from local social services, it will get a thumbs­up from me. That is fine. I think that will be a great thing. If it wants to have people represented from the local universities if it is a teaching hospital, that is absolutely fine, but in the end the local hospital provides the local service to the local community and, in my view, it is the local community that should have the say over how the hospital is run.[139]

119. The duty of partnership set out in the Health Act 1999 (whereby all parts of the NHS and the local authority are charged to 'work together for the common good') has been frequently cited by the Government as the key safeguard to ensuring that the viewpoints and interests of key partners are reflected within Foundation Trusts' arrangements for partnership.[140] However, it is difficult to know how robust this duty will prove in practice. We are strongly supportive of recent efforts made to promote the development of primary and community based care, and of whole systems models of care. It is imperative that the introduction of Foundation Trusts does not undermine the good work that has been done, or reverse this trend by re­focusing efforts on acute service provision. In particular, patients rather than buildings should remain at the centre of healthcare, and the needs of people suffering from chronic illness, including mental illness, many of whom receive the majority of their care in community settings, should not be marginalised in favour of those in need of elective care in acute hospitals. We were impressed by the evidence of good partnership working we received from our witnesses from Teeside and East Anglia, but we are not convinced that such good practice exists across the board. The policy of Foundation Trusts does not necessarily mean that partnership between acute and community settings will be damaged, but we believe it does introduce the need for stronger safeguards to ensure continued co­operation between PCTs, Local Authorities, and other NHS organisations across the board, and a continuing emphasis on whole systems working.

Foundation Trust status for other NHS organisations

120. At the moment, Foundation status is not open to mental health trusts, on the grounds that star ratings for mental health trusts are relatively new and still "pretty rudimentary".[141] However, Moira Britton, Chief Executive of Tees and North East Yorkshire NHS Trust, a mental health trust, argued strongly that "if foundation status is to be provided as a means of improving care, then it should be a level playing field and mental health organisations ought to have the option of considering its relevance to them".[142] She went on to argue that Foundation status could in fact be particularly useful to mental health trusts:

We usually cover a number not only of Primary Care Trust areas, but local authority areas. At the moment my governance arrangements at Board level restrict me in terms of quite how I can pull all these partner agencies in to develop integrated services. As I read the guidance at the moment in terms of Foundation Trusts, it would seem to offer me the opportunity of developing much closer working relations with service users, carers and their organisations in each of the six separate localities where I work with different local authorities. I think that could probably move us forward.[143]

121. The Secretary of State informed us that he is keen to learn from the experience of establishing Foundation Trusts in the acute sector, and to examine how the model could be adapted for other NHS organisations, and he has stated that he will soon be writing to mental health trusts to advise them of future developments. The extension of Foundation Trust status to mental health trusts could counter­balance the acute hospital emphasis of the first wave of Foundation Trusts. If the policy of Foundation Trusts is to be pursued, we urge the Government to address the extension of Foundation Trust status to mental health trusts as a matter of priority.

  122. Many of our witnesses expressed frustration that PCTs are also currently excluded from applying for Foundation status. Chris Willis, Chief Executive of North Tees PCT, felt the burden of central requirements and directives as keenly as the chief executives of prospective Foundation Trusts, and, along with Fiona Campbell of the Democratic Health Network, herself a non­executive director of a PCT, felt that PCTs would benefit from the increased local accountability Foundation status could confer.[144] Chris Willis went on to argue that the structure, organisation and nature of PCTs, not to mention their statutory duty to involve and consult the public, meant that many were already ahead of the game when it came to engaging the communities they served.[145] For Fiona Campbell, this suggested that PCTs would be a far more natural starting point from which to introduce Foundation status, rather than acute trusts, many of which in her view were still struggling to understand existing arrangements for patient involvement.[146]

123. Although most of our witnesses were supportive of the idea, we received little indication from our evidence of what a Foundation PCT would actually look like. While a Foundation PCT would continue, along with acute Foundation Trusts, to be subject to review and rating by CHAI, the removal of the Secretary of State's powers of direction could give PCTs considerably more local freedom and leverage, and the ability to retain capital and surpluses could promote increased investment over whole health economies, which would seem to be advantageous, in addition to the improved accountability brought about by elected boards of governors. However, the Secretary of State told us he felt PCTs would not be able to cope with the additional change at this stage:

I think it would be a fundamental mistake at this stage, although I do not rule it out at all for the future, to put that bit of the organisation through a further period of organisational upheaval because I do not believe they are ready for it. They are new young organisations that have barely begun their work. In time it might be different, but that is not where we are at today. They have barely come on line and they need to develop their ability to commission.[147]

We welcome the Government's aim of shifting power from the secondary to the primary sector, and it is vital that these proposals do not reverse this trend. During this inquiry we have heard much support for extending these reforms to PCTs, and also suggestions that PCTs would be a more natural starting place for these reforms than acute trusts. As PCTs are commissioning organisations, the concept of Foundation PCTs raises a different set of issues and concerns. However, if proposals for Foundation Trusts go ahead it will be necessary to explore these issues as a matter of priority to ensure that the balance of power between primary and secondary care is maintained.

PCT capacity

124. Another key concern expressed in evidence was that, as the Secretary of State argued, many PCTs are very new organisations and relatively inexperienced as commissioners. This means they may not have the managerial expertise, or the information necessary to hold Foundation Trusts properly to account for performance against local contracts. By contrast, Foundation Trusts, which are recognised high performing providers, are likely to be staffed with more experienced managers and have more comprehensive information about activity and costs of services. This imbalance of expertise and information could leave PCTs in a much weaker position in arguing for their own local priorities, and in countering the priorities of the Foundation Trusts where they are different from those of the PCT or other local NHS organisations. The Secretary of State said he recognised these concerns, but argued that making PCTs budget holders would give them great leverage, even without such good skills and information:

I understand the pressures that PCTs feel under, they are new organisations and there is what some call information asymmetry between PCTs and the acute trusts, in other words, the acute trusts have got all the information about prices and so on and the PCTs have not, but what the PCTs have got that the acute trusts have not got is all the money. We have given them the money. We have given them three years' worth of money.[148]

125. The King's Fund agreed that "in principle, locating purchasing power at local level makes it easier to develop community options and puts a brake on the provider power of the large acute trusts" but argued that "in practice, PCTs are unlikely to manage to impose themselves in this way".[149] This view was echoed by our witnesses from the NHS. Chris Willis told us that the imbalances between Foundation Trusts and PCTs in terms of management and negotiating skills was "certainly a matter of concern to PCTs".[150] Dr Rutter, Chief Executive of North Bradford PCT, also felt that concerns about power imbalances would probably be justified "if you do not have very sophisticated, well developed PCTs".[151] Approximately half of the NHS's 303 PCTs have been in operation for less than a year, and even the most experienced PCTs, which account for only 10% of the total number, have been in operation for less than three years.[152]

126. Dr Rutter told us that it was "imperative to make sure that the PCTs, in the areas in which these foundation hospitals come to be, are given the support they need",[153] and we are glad to see that the Government has anticipated this need by planning to provide considerable support for PCTs. However, this may not go far enough. The NHS Confederation argued that "to prevent stagnation, domination by the hospital or disaffection in primary care strong, innovative Foundations need to face imaginative and well developed PCTs. This should be a key criterion for the selection of hospitals for Foundation status".[154] We recommend that in assessing applications for Foundation status, the Secretary of State should make specific provision to assess the readiness of local PCTs who will be commissioning services from prospective Foundation Trusts to meet this new challenge at such an early stage in their organisational development.

Will competition corrode co­operation?

127. In recent weeks much debate has centred on the issue of competition and market forces, and whether this signals a reintroduction of the 'internal market' in the NHS. The Secretary of State recently told the House that "foundation hospitals have nothing to do with market forces"[155] and went on to explain the details of the reforms in oral evidence to us:

The internal market was competition based on price, that was what happened, people competed on price. It is not about that. However, I think it is quite right that both Primary Care Trusts, as the commissioners of services, and most importantly of all, individual patients as the recipients of services have some choice about where they get their health care from".[156]

128. Whether they are described as 'market' reforms or not is largely a matter of semantics. However, it is clear that Foundation Trusts will be introduced at the same time as a strong push to increase patient choice to enable patients to be treated by whatever hospital is able to offer them, in their opinion and that of their GP, the best, most convenient and most timely care, whether it be in an NHS trust, an NHS Foundation Trust, a private hospital or even a hospital abroad.

129. This inquiry has not directly addressed the likely success or failure of these policies. Recent research has hypothesised that the internal market may have contributed to between 2000 and 4000 extra deaths from heart attacks, as increased competition led NHS organisations to focus more on financial imperatives than on clinical quality. That research has been questioned in many quarters, and it is difficult to draw exact parallels with the reforms of the early 1990s and those under consideration now.[157] However, it is widely accepted that health care cannot function in exactly the same way as a genuine market and deliver the same increases in efficiency and quality. In the first instance, those that use the health service, the sick, the elderly, the socio­economically disadvantaged, are often the least able to articulate choice in where they have their healthcare, perhaps due to a reluctance to travel, or an inability to negotiate the system. There is also the wider point that the delivery of healthcare is very complex and it is incredibly hard to supply patients with the information they need to make informed and meaningful choices.[158] It is clear that if the patient choice initiative is going to deliver substantial improvements to the quality of care, GPs will have to work very closely with patients to ensure they have access to the best available information.

130. Dr Rutter felt that the new contracting system put PCTs "in a position to exercise some significant control".[159] However, he told us that it was "imperative that quite detailed contracts and the financial flows are introduced alongside this initiative".[160] With the system of block contracting, there would, he argued, remain the potential for Foundation Trusts to act against the interests of the local community, for example by only selecting the most 'profitable' patients to treat in order to maximize their surpluses. The Guide specifies that all Foundation Trusts and their commissioning PCTs will be encouraged to contract for services on a cost­and­volume basis across as wide a range of services as possible from 2004­05.[161] The Department has also said that it would explore the possibility of beginning the convergence process to national tariff prices a year earlier for Foundation Trusts than the NHS as a whole.[162] We have not studied the financial flow arrangements in depth in this inquiry, but we have heard several concerns relating to commissioning arrangements between PCTs and Foundation Trusts. If these proposals go ahead, these concerns must be addressed by Government.

131. Questions have also been raised over how genuine the choice and competition will actually be, and whether it will, in fact, be weighted in favour of Foundation Trusts. In December 2002 there were reports in the press that the Secretary of State was planning to guarantee Foundation Trusts' income for up to seven years.[163] The BMA argued that "the concept of guaranteed income streams is essentially incompatible with that of exposure to market forces (including patient choice). It is not clear therefore how this requirement can be reconciled with the maxim that funding must follow patients".[164] In evidence to us the Secretary of State strongly refuted suggestions of guaranteed incomes, saying that it would be up to PCTs how long their contracts were for,[165] although the Guide anticipates that PCTs will enter into at least three year service level agreements with Foundation Trusts in order "to ensure stability".[166] This needs to be clarified. We support PCTs having a right to determine the duration of contracts.

132. It is not clear how easy it will be in practice for PCTs to move patients away from Foundation Trusts that are not performing well. Also, as General Healthcare, a major provider of private healthcare argued, for the system of patient choice to work, there needs to be genuine contestability amongst providers in PCTs local areas.[167] However, if Foundation Trusts take over failing 'Franchise Trusts' in their own local area, this could have the effect of recreating a local monopoly.[168] We feel that the key to the success of the patient choice reforms is that safeguards are put in place to ensure that Foundation Trusts do not abuse a monopoly position, either by a cumbersome process of legal contracting which curtails PCTs' flexibility to move patients, or by expanding their services to such an extent that patients have no other viable choice. The Government must take immediate steps to address these points.

Will patient choice ultimately drag resources away from poorer­performing hospitals?

133. Another well­rehearsed argument is that coupling the introduction of a new 'elite' type of hospital, albeit for a transitional period of five years, with reformed financial flows arrangements where cash follows the patients means that, in the words of the BMA, "a system of winners and losers seems inevitable, in which funding flows away from unpopular providers, possibly trapping them in a cycle of decline in which they have a higher proportion of the more complex and 'unprofitable' cases but fewer staff".[169] Potentially, if Foundation Trusts, through their increased access to resources, are able to develop their services in a way that dramatically lowers waiting times or improves quality, GPs and patients will rightly choose to use their services rather than those of poorer­performing local hospitals. As money follows patients, poorer performing hospitals will see their revenue streams dry up and will have even less to invest in improving services, locking them into a downward spiral of poor performance that may ultimately culminate in their closure. Hinchingbrooke Hospitals NHS Trust, although a 0­star trust flanked by two prospective Foundation Trusts, serves a well defined population in Huntingdon, and did not feel any anxiety about 'patient poaching' depleting its services.[170] However, in London, where there is a greater concentration of hospitals and communities are far more mobile, we heard a very different view. Peter Dixon, Chair of University College London Hospitals NHS Trust (UCLH), told us:

We are anticipating that more people will want to use our trust. That is very much an institutional view rather than a system view shall I say. We have one no­star trust which is not a long way away from us. I am aware that they are having difficulties in filling vacancies. They are also having difficulty in meeting their waiting lists; the waiting list is still there, so patients are not yet voting with their feet. I would anticipate that we shall actually be taking patients from that hospital.[171]

134. Mr Dixon went on to describe how the recent opening of a Diagnostic and Treatment Centre within UCLH had meant "other trusts start getting retentive about their waiting lists, because they can see their income streams getting truncated".[172]

135. Mr Pattison told us that he felt the possibility of the new system forcing a hospital to close was very remote:

If a hospital were to be branded as a hospital that seemingly was not able to improve its performance and there were consistent, longstanding concerns about its service, if that were allowed to continue, I suppose people might want to think about where they went for treatment. In the well regulated service that we live in, that simply would not be tolerated.[173]

136. However, in evidence to us the Secretary of State took a different view, arguing that the threat of diminishing funding streams and even closure might be no bad thing for failing hospitals:

(Sandra Gidley) If lots of patients do vote with their feet funding streams are not guaranteed and where does that leave the lesser performing hospitals?

(Mr Milburn) Why should I want to stop patients exercising choice? Why on earth should I want to do that?

(Sandra Gidley) I am not saying it is wrong but what is the consequence for the other hospitals? The 1- star and 2-star trusts neighbouring the other trusts who are losing their patients, losing their funding stream, will find it increasingly difficult to turn it round.

(Mr Milburn) It might make them sit up and take notice. It might make them get focused on improving quality. No public service has got a God given right to provide services. It has got to earn that right because either we believe in the language of patient centredness, either we believe that these services should be designed around the interests of patients, either we believe that the people who come first in public services are the people who are on the receiving end of them, or we do not.[174]

137. We strongly endorse the drive to put the patient at the heart of the NHS. However, we believe that the introduction of Foundation Trusts, coupled with increased patient choice, has the potential to alter the distribution of hospital services. We therefore urge the Government to overlay these plans with a mechanism to ensure that these potential problems do not materialise. This could include placing a legal duty on the Regulator to safeguard the best interests of the NHS as a whole.

Will staffing freedoms lead to inequities?

138. Although Foundation Trusts will not receive any additional freedoms to those set out in Agenda for Change, that in itself provides for significantly enhanced local autonomy. According to Agenda for Change, Foundation Trusts will be able to award recruitment and retention premiums above 30% of basic pay, without prior clearance from the Staff Council or Strategic Health Authority, as required of 0­, 1­, and 2­star trusts, and without the requirement to consult other local NHS employers, which is required of 3­star trusts. Foundation Trusts will also be able to offer several other benefits which will not be available in NHS trusts, including team or organisational bonus schemes, additional non­pay benefits, and alternatives in the packages of compensatory benefits such as leave and hours. In addition, Foundation Trusts will have greater autonomy to enhance career progression.[175]

139. These extra freedoms have prompted claims that Foundation Trusts will have an unfair advantage over other local trusts in terms of staff recruitment, "poaching" the best staff and potentially sparking wage inflation, where other trusts have to match the packages on offer at Foundation Trusts (if they can) just to keep their core staff. However, our witnesses from the NHS were unanimously vehement in their wish to avoid wage inflation, as many had experienced this during the early days of the internal market:

We have all had bad experiences in the past where we set up a wage spiral. Where we have done that in the past, as most of us as trust chief executives did in the heady days of the trust movement, we got trouble at the ranch, because one particular doctor was then in effect valued more highly by me. A whole load of really irritable other doctors were then putting in wages claims or you did attract from another trust and then personal relationships with another trust quite near by were hugely damaged. The whole thing was really awful.[176]

140. Mr Jackson argued that "at the moment we have freedom to pay staff what we think is appropriate and it is being used on a very limited basis. My own experience is that trusts have not set out to poach staff from other organisations aggressively by offering higher pay".[177] According to Mr Jackson, one obvious and simple reason for this was that trusts would not be able to afford it.[178] However, Mr Dixon described his "considerable reservations" over pay freedoms, and his fears of pay spirals in London, arguing that for his trust, costs may not be an issue: "My trust happens to have low reference costs. It has low reference costs because of the way in which the funds flow system appears to work. I think we would have the freedom to up the ante on staff pay¼This is the risk area".[179] Mr Dixon went on to suggest that the legal duty of co­operation between local trusts would be unlikely to prevent such a situation arising once Foundation Trusts had entered the arena:

People want to come and work in my trust, because it is a good place to be. There will undoubtedly be temptations at some point to add money to the other good things. I do not think we should be allowed that freedom, because it is potentially dangerous. In terms of the London issues, I think we should be restricted.[180]

141. Although 3­star trusts will be obliged to consult with other local NHS employers before implementing their additional freedoms, and 0­, 1­ and 2­star trusts will have to gain formal approval from a central council and their local Strategic Health Authority, Mr Jackson was firmly opposed to the extension of these safeguards to Foundation Trusts: "To have another regulation which says before you agree a minor change for a particular member of staff in particular circumstances you have to get all your colleagues in the community to sign it off, is just overkill frankly."[181]

142. Ms Rogers told us that she felt recruitment issues went far deeper than pay:

I do know local trusts who are doing rather better on breast screening and their retention of radiographers because they are paying a bit more, but I do not think that is the whole thing at all. Moira's trust had a brilliant report in CHI about morale of staff. I just thought "Wow". If I were a member of staff, I would wish to go to a trust which had that.[182]

143. However, staff morale is unquestionably affected by star ratings and the further distinction of Foundation status may act as another lure for staff in less well performing hospitals. Douglas Pattison, Chief Executive of the 0­star Hinchingbrooke Hospitals NHS Trust, told us that although morale had now improved, "plainly when the trust was awarded 0-stars, that was not something that was warmly welcomed by the staff ... I think people were anxious about it. Nobody wants to be labelled as 0-star, do they?"[183] Mr Jackson described the "very positive effect" a 3­star rating had had on the atmosphere in his trust,[184] and Foundation status is probably likely to be even more attractive to staff: according to Joan Rogers, staff at her trust were immediately in favour of the idea of applying for Foundation status "on the grounds that it gave them status, which they want, in a hospital in the North East, and it gave them a kite mark badge for quality".[185]

144. Our evidence suggests that in local health economies where trusts, PCTs and other health organisations have close and well developed working relationships, the introduction of Foundation Trusts may be less likely to result in wage inflation and aggressive staff poaching. However, in areas where links between local partners function less well, and in areas of high mobility and workforce shortages, for example London, we believe that these problems may emerge.

145. The Secretary of State told us that "there are other safeguards that we have in place within the NHS Foundation Trust policy precisely to ensure that some of these things around aggressive poaching and unfair competition simply cannot happen".[186] He went on to list the statutory duty of partnership, and Agenda for Change. However, it is not clear what measures are proposed within Agenda for Change to ensure Foundation Trusts use their additional freedoms responsibly, and Peter Dixon told us he felt the statutory duty of partnership would not be a practical or realistic solution to this: "I believe that will not be sufficient, in the context of London particularly, where recruitment issues are around a lot more than just money."[187]

146. The Secretary of State went on to tell us that "even if what you said was true ... it would be a transitional problem, would it not? It would be a problem for a four or five year period because our ambition, as I say, is to get every hospital to be a foundation hospital".[188] However, even if Foundation Trusts do not begin to offer different terms and conditions to staff until they come on­stream in April 2004, or even later, the prestige of the new and, for the time being, exclusive Foundation 'kitemark' is likely to attract staff from as early as September 2003, when the first wave will be announced. If poorer performing trusts begin to lose staff, they may become locked into a cycle of further worsening performance that in fact prevents them from ever achieving Foundation status, meaning that inequity will become even further entrenched into the system.

147. We understand that in time it is the Government's intention to ensure a 'level playing field' within the NHS, with high performing NHS Foundation Trusts being the norm rather than an elite. However, if these reforms are implemented in their present form, we conclude that, at least in certain areas, stronger safeguards will need to be put in place to ensure that aggressive poaching of scarce staff does not take place. These should include an obligation on Foundation Trusts to consult local NHS employers before altering staff terms and conditions. We recommend that the Government monitors closely the impact of the reforms on standardisation of staff terms and conditions as this was a founding principle of the NHS that encouraged equitable distribution of staff.

Inequitable access to resources - will this compound health inequalities?

148. Moving beyond the potential inequities that might be generated by differences in pay and recruitment, much of our written evidence maintained that allowing Foundation Trusts privileged access to capital and other resources, for example the right to retain operating surpluses, would have the ultimate effect of draining resources away from other parts of the service that need it most. Ken Jarrold initially argued that "a foundation hospital will not have in the main, in terms of its regulated income, sources of income which are different to NHS trusts", but did agree that retaining operating surpluses would bring extra financial help to Foundation Trusts.[189]

149. Mr Jackson argued that the problem of accessing capital was holding back the development of services not only in 3­star trusts, but "right across the board".[190] While recognising that this was an NHS­wide issue, Mr Jackson was understandably primarily motivated to secure improvements in the services offered by his own trust, going on to tell us "where I am coming from is that I cannot solve the problem for everybody else, but if there is an opportunity for Bradford to be able to move forward on this, without damaging anybody else, then it is an opportunity we would want to grab".[191] However, the NHS Confederation argued that preferential access to capital may in fact have the potential to cause inequities which are damaging to other parts of the NHS:

As long the NHS underspends its capital allowance the differential access to capital enjoyed by Foundations should not present a problem. However, it cannot be assumed that this underspending will continue and in this case there is a danger of rewarding successful organisations whilst depriving those that are struggling and that need capital to solve their problems.[192]

We have not had any indication that the underspend is due to anything other than time lags in spending, so the first part of this argument does not hold.

150. The freedom to dispose of assets could lead not only to inequities between Foundation and non Foundation Trusts, but also between different Foundation Trusts, as some may have access to greater resources than others according to their initial asset base and property values in their local areas. Joan Rogers told us that her trust had "no assets worth discussing which we could sell off so that is not a major feature of any positive kind to us".[193]

151. A commonly­voiced concern has been that borrowing by Foundation Trusts will be counted against departmental spending limits and that this will restrict the capital resources available to non­Foundation Trusts. We urge the Government to clarify this issue and to provide reassurance that capital schemes based on capital allocations to trusts will proceed on the basis of need, not according to whether or not the trust in question is a Foundation Trust.

152. There is also the possibility that organisations which hope in the future to become Foundation Trusts might decide to retain assets where it might otherwise have been in the interest of the NHS to dispose of them, in the hope of retaining a larger asset base to sell off when they become Foundation Trusts. This could cause serious problems for the NHS, as the Department of Health Expenditure Plans 2002­03 to 2003­04 indicate that £270 million of (English) NHS capital expenditure in 2003-04 is to be financed by asset sales.[194] If trusts hold on to assets instead of selling them, future capital spend may be delayed as a result of this policy.

153. Mr Jarrold, felt that these issues fundamentally came down to "the balance between equity and incentives ... If you have no incentive, it is very difficult to improve performance. If on the other hand you have no safeguards, you do have a risk of two­tierism".[195] But although CHAI and the independent regulator together provide a set of regulations to safeguard against, for example, poor quality of care, lack of service provision, asset stripping, and financial mismanagement, the only safeguard that could be construed to apply to resource equity appears to be the Regulator's power to determine 'prudential borrowing limits' for each trust. However, it has not been indicated that this will include an explicit duty on the independent regulator to weigh the needs of Foundation Trusts and the patients they serve against the needs of the rest of the NHS and their patients. The freedom for Foundation Trusts to spend their surpluses and capital funds, without first seeking approval from wider local, regional or national organisations charged with assessing communities' overall health needs, means that for the first time in the NHS, potentially significant spending will be determined by local organisations.

154. The King's Fund argued that the policy of Foundation Trusts marked a deliberate shift in Government policy away from one of the basic principles guiding the NHS - equity of access to care, pointing out that the in the list of NHS core principles republished in the latest guidance on Foundation Trusts, the principle of equity of access for equal need does not appear.[196] However, the Secretary of State gave us a clear assurance that equity of access to high quality care remains one of the Government's guiding principles:

What I have always wanted and what I want ... is to ensure that there is equity in the system, that there are national standards that apply across the piece so that cancer patients in one part of the country can be assured that they are going to get the sort of treatment that cancer patients in another part of the country will get, not according to their ability to pay or on where they happen to live, but according to their right to treatment ... We talk about a National Health Service and of course that is what we want to have with national standards and fairness in the system and appropriate means of inspection ... What I want to see is a level playing field and I am determined that over the course of a four or five year period that is what we will have.[197]

155. The Secretary of State put forward to us a strong argument for structuring services to meet the individual needs of local communities:

If you are going to address what the NHS has singularly failed to do for 50 years, which is to narrow the health gap between the poorest communities and the better off communities, then what you have got to move out of is this idea that you can have one­size­fits­all, top down services decided by one person in Whitehall because it will not work.[198]

156. However, as pointed out by Fiona Campbell for the Democratic Health Network, the "national character" of the NHS is also "very, very important for tackling the huge health inequalities which exist between different parts of the country and for redistributing health as well as wealth".[199]

157. We received many submissions arguing that the introduction of Foundation Trusts would lead to the creation of a "two­tier health service". It will create, at least in the short term, legally two different types of trusts, but in terms of NHS services we believe the two tier claims originate from an overly simplistic argument, which fails to recognise that despite the best of efforts, the NHS is a multiple tier service, with significant variation in both access to and quality of care. However it is important to acknowledge that the NHS was established precisely to tackle the severe inequities in service provision and broader health inequalities that existed across the country, and that today that aspiration is, if anything, more rather than less relevant. The Department of Health needs to ensure that in creating Foundation Trusts it does not undermine its determination to reduce inequality in the NHS.

158. The Secretary of State agreed that the argument that non­Foundation Trusts would be disadvantaged against Foundation Trusts would be perfectly valid and reasonable if the overall intention was to limit Foundation status to an elite tier of hospitals. But he was quite clear that this was not going to happen:

It has never ever been my view that this should be a policy that should apply to an elite group of NHS hospitals ... What we want to do is make sure that NHS foundation hospital status is available not just to some hospitals but to all and I do not see any reason why we should not be able to achieve that in a four or five year period. So the problems that many people have identified in the informal discussions I have had with colleagues in a sense become transitional problems.[200]

159. While we welcome the Government's aim to ensure 'a level playing field' within the NHS, we feel that the Secretary of State may be being too ambitious in assuming that it will be possible to introduce Foundation status to all NHS trusts within four to five years. During the time that star ratings have been in operation, the record shows that the performance of 70% of trusts either remained static or fell. Early implementers of Foundation status will attract more resources, as well as perhaps attracting more and higher calibre staff, which given current shortages in many professions may be at the expense of other worse performing hospitals. The potential for inequity posed by Foundation Trusts therefore needs to be addressed.

160. While this problem could be easily solved by removing the additional financial freedoms on offer to Foundation Trusts, such a measure could seriously limit the Government's aims for these reforms and would diminish the attractions of seeking Foundation Trust status. An alternative would be to create an immediately level playing field by extending the financial freedoms to all NHS trusts. However, we understand the Government is likely to be reluctant to extend these freedoms to organisations whose performance is not yet top level. We believe there should be established a detailed monitoring system to assess the impact of these reforms on the equity of resource distribution across NHS acute trusts. This monitoring should also involve regular consultation with non­Foundation trusts to identify any problems as they emerge. It could be underpinned by ongoing annual performance assessment of all trusts by CHAI, with particular attention focused on trusts which are failing to improve their performance ratings, to discover whether their problems are related to the introduction of a local Foundation Trust.

161. In launching these proposals, the Secretary of State declared they would entail a 'lock on assets' in order to protect these assets required for delivering NHS care. The distinction is between regulated and unregulated assets, the former being regarded as essential for delivering NHS care. Foundation Trusts will be able to do as they wish with unregulated assets. Borrowing against unregulated assets could involve new risks for Foundation Trusts. With responsible management teams, we believe that these arrangements will yield no significant practical difficulties. Further, we assume that the National Audit Office will ensure that best practice is being followed.

162. The determination of which assets will be regulated in any given Foundation Trust will rest with the independent regulator via the process of issuing the operating license. This appears to imply that the 'lock on assets' actually allows scope for considerable discretion in specifying precisely which services are essential to the provision of health care.

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126   Q13 Back

127   Ev 121 Back

128   Ev 143 Back

129   Ev 122 Back

130   Q134 Back

131   Q108 Back

132   Ev 133 Back

133   Q442 Back

134   Q128 Back

135   Q27 Back

136   Q447 Back

137   Q175 Back

138   Q403 Back

139   Q389 Back

140   Q403; Q437 Back

141   Q449 (Secretary of State for Health) Back

142   Q38 Back

143   Q38 Back

144   Q31; Q335 Back

145   Q37 Back

146   Ev 57 Back

147   Q327 Back

148   Q442 Back

149   Ev 123 Back

150   Q70 Back

151   Q126 Back

152   Data supplied by NHS Alliance Back

153   Q126 Back

154   Ev 132 Back

155   HC Deb, 3 December 2002, col. 751 Back

156   Q455 Back

157   'NHS Competition Costs Lives', BBC News Online 29 January 2003, http://news.bbc.co.uk Back

158   See for example 'The social psychology of making and responding to complaints: An account model of complaint processes' (1994) 16(2) Law and Policy 123, reprinted in D Galligan (ed.) Administrative Law. Oxford Readings in Socio-Legal Studies (Oxford University Press, 1995); The Autonomous Patient, Angela Coulter, 1996, London: Nuffield; Strained Mercy: the economics of Canadian Healthcare, Robert Evans, 1985, Toronto: Butterworth. Back

159   Q77 Back

160   Q78 Back

161   A Guide to Foundation Trusts, Department of Health, December 2002, p 38  Back

162   Ibid., p38 Back

163   'Milburn to Underwrite Foundation Hospitals', The Times, 11 November 2002 Back

164   Ev 129 Back

165   Q467; Q468 Back

166   A Guide to Foundation Trusts, Department of Health, December 2002, p 31 Back

167   Ev 134 Back

168   Ev 134 Back

169   Ev 129 Back

170   Q204 Back

171   Q73 Back

172   Q132 Back

173   Q208 Back

174   Q456; Q458 Back

175   Agenda for Change, Department of Health, March 2003, p 31 Back

176   Q88 Back

177   Ibid Back

178   Ibid Back

179   Q86 Back

180   Q76 Back

181   Q94 Back

182   Q90 Back

183   Q188 Back

184   Q66 Back

185   Q1 Back

186   Q476 Back

187   Q76 Back

188   Q464 Back

189   Q60 Back

190   Q97 Back

191   Q97 Back

192   Ev 133 Back

193   Q108 Back

194   Supply Estimates 2002­03 to 2003­04, Department of Health, 2002 Back

195   Q60 Back

196   Ev 121 Back

197   Q401; Q458 Back

198   Q371 Back

199   Q283 Back

200   Q347 Back

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Prepared 7 May 2003