APPENDIX 10
Memorandum by General Healthcare Group
(FT17)
1. SUMMARY
1.1 GHG welcomes the establishment of NHS
Foundation Trusts as a new means of disseminating best practice
across the NHS, of providing beacons of excellence, of offering
patients more choice and, above all, of driving up standards throughout
the NHS.
1.2 Greater freedom from central control
will enable health purchasers and providers better to reflect
and to respond to the health care needs of their locality, and
to be held accountable for their actions by representatives of
the local community.
1.3 The introduction of NHS Foundation Trusts,
alongside other initiatives such as extending opportunities for
the private sector, will also offer patients more choice and foster
a diversity that has been to a large extent absent from the NHS
to date. Greater diversity of provision is essential if patients
are to have more of a say in their treatment and if new, more
effective ways of delivering healthcare are to be created.
1.4 If the benefits that flow from greater
diversity are to be realised and local accountability is to be
effective, then there is a need for real transparency. This in
turn will require sound cost accounting. Moreover, patients will
only be able to benefit fully from this diversity and exercise
real choice if all providers are able to bid for contracts on
an equal basis.
1.5 For Primary Care Trusts (PCTs), which
will from April control 75% of the NHS budget, to operate successfully
and to optimise the resources at their disposal, then there needs
to be contestability amongst providers in their catchment area.
Foundation Trusts should therefore be prohibited from bidding
to take over Franchise Trusts in their own catchment area and
from recreating a local monopoly. They should also be prevented
from using public funds to subsidise commercial activities, and
to compete unfairly with other local independent providers. GHG
believes that further thought needs to be given to the competition
implications of the Government's proposals for NHS Foundation
Trusts.
1.6 With this in mind, GHG recommends that:
— The Statement of Purpose[15]
must provide NHS Foundation Trusts with a clear commitment to
NHS patients. It should also be introduced for other organisations
within the NHS, including trusts, PCTs, PCGs and Health Authorities.
— The limitation on private patient
activity proposed for NHS Foundation Trusts should be fixed at
an absolute level (eg the level at the March 2002 year-end), rather
than as a percentage of income from clinical services.
— NHS Foundation Trusts should be prevented
from taking over NHS franchise trusts in their own catchment area
where this would have the effect of creating a local monopoly.
— The proposed national tariff for
clinical services currently under development should be abandoned,
leaving negotiating power in the hands of those best suited to
making such decisions—those NHS managers and clinicians
who commission the services.
— The National Audit Office should
consider looking at the issue of NHS accounting. In particular,
it should look at the issue of the opportunity costs of Trusts
not treating NHS patients as quickly as they could because of
private work. The NAO should also consider the accuracy and consistency
of the calculation basis of Reference Costs within the NHS, to
give Parliament and the public confidence that NHS finances are
soundly based.
— The Government should give further
consideration to the competition implications of the proposals
for NHS Foundation Trusts, particularly where "unregulated
services" are concerned.
— Consideration should be given to
extending some of the freedoms being awarded to NHS Foundation
Trusts to Franchise Trusts, where new managers are brought in
to turn around under-performing trusts.
2. INTRODUCTION
2.1 With high waiting lists and inequality
in standards across the country, public support for significant
reform to the NHS is now unquestionable. The structures of the
past simply cannot provide the level of service that today's patients
require.
2.2 The creation of NHS Foundation Trusts
a crucial constituent of this Government's modernisation and reform
programme. We recognise, however, that there is concern that NHS
Foundation Trusts will result in the development of a "two-tier
healthcare system". We do not believe this concern is justified.
Proponents of this view fail to acknowledge the extent of inequality
in the current NHS system. There is neither equity in standards
of treatment, nor in access to treatment in the NHS across the
UK at the present. As the waiting lists and performance measures
clearly show, standards of care vary radically from one trust
to another. The NHS today is a "multi-tiered" healthcare
system and should be recognised as such.
2.3 Variety does not, however, justify any
patient receiving poor service and, if services are to be improved
across the board, it is essential that those NHS Trusts that are
meeting the appropriate benchmarks have the freedom to be able
to respond to the individual needs of their local communities.
In our experience, it is only by returning decision-making power
to those delivering services on the ground that management and
operational excellence can flourish and standards can be raised
across the board. Providing managers and clinicians with the opportunity
to develop and test out new and innovative ideas will enable them
to start focusing on succeeding, rather than simply on avoiding
failure.
SETTING A
CLEAR DIRECTION
3.1 GHG welcomes the Government's proposals
to establish a "Statement of Purpose" for NHS Foundation
Trusts and to prioritise the principles by which such structures
should operate—namely, that the Trust exists "to provide
health and health related services for the benefit of NHS patients
and the community"[16].
This is a welcome development that should help to give these new
structures greater direction and purpose. It is, however, important
that this strong commitment to NHS patients first and foremost
indicated in the Guide to NHS Foundation Trusts is carried
through in the forthcoming legislation and drafting of the Statement
of Purpose. We would also invite the Government to look at establishing
similar Statements of Purpose for all other trusts, as well as
for PCTs, PCGs and Health Authorities.
4. PRIVATE PATIENT
ACTIVITY
4.1 The core principle that NHS Foundation
Trusts exist to provide health and health related services for
the benefit of NHS patients and the community clearly underlies
the Government's proposals to limit the private patient activity
carried out by such trusts. GHG welcomes the sentiment behind
these proposals. The rise in National Insurance Contributions
to generate additional funding for the NHS was promoted as being
essential to provide further capacity for NHS patients. Using
this additional capacity to treat private patients instead would
severely undermine this compact with the taxpayer.
4.2 At the present time the NHS is still
looking for private providers, whether from the UK or abroad,
to help it to meet the demand on its services. This was formalised
through the Concordat with the independent sector. Whilst the
NHS continues to seek outside help to meet its capacity constraints,
it would be perverse to see an increase in the level of private
work being carried out within NHS facilities.
4.3 Whilst GHG welcomes the clear indication
from Government that NHS patients should come first, we have some
reservations about the detailed proposals being put forward, particularly
where private patient activity is concerned. According to the
Guide to NHS Foundation Trusts, the income NHS Foundation
Trusts receive from private patients will be fixed as a percentage
of their total income from clinical activities, set at the 2003
percentage. In allowing NHS Foundation Trusts to continue providing
treatment to paying patients at current levels, the Government
appears to be assuming that private patient activity is beneficial
to the NHS. GHG believes that this is a false assumption. We estimate
that private patient units generate, on average, a return of only
10%. What this means in absolute terms is that all the staff and
resources dedicated by the NHS in their own hospitals to treating
private patients generates a net surplus equal to less than 0.05%
of the NHS budget. Given this, we would challenge the assumption
that private patient activity is of benefit to the NHS and, more
importantly, NHS patients.
4.4 Of even greater concern is the long-term
effect of permitting private patient activity. In setting a limit
as a percentage, rather than an absolute, Trusts are still incentivised
to increase the amount of private patient activity they carry
out. If the overall activity levels of the trust rise, then with
a percentage limit there is scope to increase the absolute level
of private patient activity. As long as NHS Foundation Trusts
are able to increase the amount of private work they do, there
is a risk that they will focus on revenue maximisation, rather
than on providing high quality care for NHS patients.
4.5 This risk is compounded when the additional
freedoms being awarded to NHS Foundation Trusts are taken into
consideration and in particular, the ability for such Trusts to
borrow money. For, if an NHS Foundation Trust borrows funds and
finds itself unable to meet its debt obligations through its existing
clinical and commercial operations, it will be increasingly tempted
to look for private patients to meet this shortfall. In order
to remove incentives for managers to focus inappropriately on
revenue maximisation GHG recommends that the limitation put on
private patients activity being carried out NHS Foundation Trusts
should be fixed at an absolute level, rather than at a percentage
of current income from clinical services. We suggest that this
level is fixed at the level of private patient activity at the
2002 year end. This will ensure that NHS Foundation Trusts have
absolutely no incentive to increase the amount of private patient
activity they carry out.
4.6 Indeed, we would go further than this,
contending that an NHS Foundation Trust carrying out any private
patient activity will almost always find itself in conflict with
its own constitution. The forthcoming legislation will limit the
activities of NHS Foundation Trusts to those that "are conducive
to and not detrimental to achievement of the primary purpose",
namely to provide health and health related services for the benefit
of NHS patients and the community[17]
if the NHS was to take into account the opportunity cost of treating
private patients at the expense of NHS patients (such as the discomfort
and pain of those whose operations are cancelled because a theatre
is tied up with a private patient), they would find that the true
costs of private patient activity are radically different from
those being reported by NHS Trusts. Taking this more comprehensive
view of the relative costs and benefits of using public funds
to treat private patients, GHG believes that there are very few
circumstances in which private patient activity will be "conducive
to and not detrimental to the achievement of the primary purpose".
Private patient activity should therefore be minimised unless
Trusts can demonstrate overwhelming benefit for their NHS patients
and local community. This calculation should take into account
the "opportunity costs" of delaying the treatment of
NHS patients.
4.7 This need not preclude NHS Foundation
Trusts from identifying additional sources of revenue that do
not carry the same risks and that will benefit NHS patients. Foundation
Trusts could for example build on the concept of Partnership Hospitals,
where independent operators lease NHS land from the trust to finance
and build small hospitals to treat private patients alongside
the main NHS hospital. In short, the Trust receives the benefit
of a profit-sharing agreement, without carrying any of the risk.
5. LOCAL EMPOWERMENT
VERSUS NATIONAL
CONTROL
5.1 The concept of NHS Foundation Trusts
is founded on the principle of "earned autonomy"—that
where managers and clinicians have proven they are able to meet
the baseline of centrally driven targets, they should be given
greater freedom to innovate. Underlying this concept is the belief
that greater independence can produce increased performance, or
in the words of the Secretary of State for Health "people
perform best when they have control"[18].
In our experience this is certainly the case.
5.2 Given the increased emphasis on local
empowerment, it is somewhat surprising that the Government is
simultaneously putting in place national tariffs for "regulated
services"—a system that GHG understands will eventually
apply not only to public sector providers, but also voluntary
organisations and private sector providers offering services to
the NHS. Whilst we welcome mechanisms that would speed up the
process of commissioning (such as by creating standard terms and
conditions), setting national prices with marginal regional variations
is entirely at odds with the principle of devolving power to frontline
staff—central to the NHS Foundation Trust initiative.
5.3 This is not an esoteric issue. An inability
of central government to loosen its grip, particularly over financial
matters, risks stifling such excellent initiatives as the establishment
of NHS Foundation Trusts and the use of the private sector. Our
experience of working with the NHS over the past two decades has
shown that where initiatives are centrally led, they often fail
to deliver. For example, a website initiative, which sought to
match available capacity in the independent sector with NHS demand,
failed to result in any NHS patients being treated. This is in
stark contrast to negotiations with local purchasers and hospital
managers, who through concentrating on making pragmatic deals
with the private sector have succeeded in getting thousands of
NHS patients treated in the past few months.
5.4 Although value for money is of course
an important consideration, GHG is concerned that it is providing
a pretext for some parts of the Government to retain central control
over healthcare delivery. If managers have proved themselves capable
to the extent that they have been given additional freedoms, why
are they not capable of negotiating at a local level with external
providers of services and securing the best price for the services
they need? Surely it is managers at local level that are best
placed to ensure that they are getting value for money, as they
already do for other services, such as cleaning, catering, facilities
management and IT. GHG recommends, therefore, that the national
tariff structure currently under development should be abandoned
and that negotiations on price for clinical services should remain
in the hands of those best suited to judging value for money—those
commissioning the services.
5.5 In addition to stifling local flexibility
and innovation, GHG has grave reservations about the practicalities
of a national pricing structure, as we believe it will be based
on poor accounting mechanisms. Our understanding is that national
tariffs will be set at speciality level, based on volumes adjusted
for case mix using Healthcare Resource Groups (HRGs). The weights
used to adjust for case mix will be based on "national averages
using national Reference Costs as a guide"[19].
GHG has expressed its reservations to the Committee in the past
about the use of Reference Costs for setting prices. We have found
a number of instances where the Reference Costs provided by NHS
Trusts for a particular procedure have not even covered the materials
involved eg the prosthetic implant for a hip operation. This clearly
demonstrates that more work needs to be undertaken by the Government
(and potentially the National Audit Office) to ensure that Reference
Costs are a reliable guide for pricing within the NHS. This is
particularly important if such measures are to be used as a mechanism
for setting national tariffs which will bind not only NHS providers,
but also those in the voluntary and private sectors providing
services to NHS patients.
6. COMPETITION
IN "UNREGULATED
SERVICES"
6.1 According to the Guide to NHS Foundation
Trusts some of the services provided by NHS Foundation Trusts
will be singled out as "regulated services" in the Trust's
licence. The Trust will be obliged to meet "reasonable demand"
for these services, which, as we understand it, will encompass
all clinical services currently being provided by the Trust. It
is essential that the licence does indeed cover all clinical services
currently offered and that strong safeguards are put in place
to prevent NHS Foundation Trusts from failing to continue fulfilling
their core responsibilities to NHS patients. It would, after all,
be deplorable if such Trusts began to concentrate on the more
"profitable" areas of elective care, for example, at
the expense of its A&E services.
6.2 Where "unregulated services"
are concerned (those that are not included within the narrow definition
of clinical services outlined in the Trust's licence), the Trusts
will have a great deal more freedom—both in borrowing against
operating revenues and in releasing additional income generated
through, for example, property disposals. This raises some significant
questions about competition in healthcare, including:
— Cross-Subsidisation: Although the
Government has set out where the various income streams for NHS
Foundation Trusts will come from, there is as yet nothing to prevent
income from regulated services being used to subsidise income-generating
activity ie unregulated services. Although Trusts will have a
prima facie responsibility to deliver services for NHS patients,
it is entirely possible that some of this funding generated from
regulated services could be used to enhance the Trust's commercial
offerings—for example, occupational healthcare services
for businesses. This kind of cross-subsidisation has already occurred
in some Trusts that are operating Private Patient Units (PPUs),
where in our experience, prices are kept low for paying patients
by not fully accounting for the NHS resources being used to treat
them.
— Accounting Procedures: The NHS does
not currently face the same commercial auditing requirements that
independent providers have to, in order to succeed in a market
environment. In our experience this results in them failing to
truly account for the costs involved in treating patients. Not
only are opportunity costs not taken into account (see section
4.6), but comparisons with costs of carrying out elective procedures
in the private sector have clearly demonstrated that many Trusts
are not currently accounting properly for the resources involved
in such procedures. This not only makes comparisons between providers
of services difficult, but also raises the risks of cross-subsidisation.
6.3 Allowing NHS Foundation Trusts to compete
in commercial sectors, albeit limited to those services that are
"unregulated", does have competition implications, particularly
as such activities undertaken by NHS Foundation Trusts look likely
to fall under the Competition Act 1998. The recent Competition
Commission Appeals Tribunal decision regarding the Bettercare
Group case demonstrated clearly how public bodies can become tied
up with the competition authorities as a result of their (unintended)
anti-competitive actions. The effective monopoly the NHS has in
the UK healthcare market makes it essential that NHS Foundation
Trusts, when set loose to compete with other providers, do so
on a level playing field. It would be perverse if managers of
NHS Foundation Trusts found themselves spending time embroiled
in OFT and competition enquiries as a result of abusing their
dominant market positions through the use of their new freedoms.
Once again, this would cause a major distraction for managers,
whose core focus should remain on ensuring that NHS patients receive
a high standard of care. GHG believes that further consideration
needs to be given to the competition implications of the establishment
of NHS Foundation Trusts.
7. EXTENDING
THE FOUNDATION
TRUST MODEL
7.1 Whilst some of the detailed proposals
for NHS Foundation Trusts have still to be considered in more
detail, GHG is broadly supportive of the proposals, believing
that they will help to bring more diversity into the provision
of healthcare for NHS patients. Indeed, we believe that the model
should be extended to other areas of the NHS—in particular,
those that are failing to meet their targets in providing core
services and where management is being franchised.
7.2 BMI Healthcare (part of the General
Healthcare Group) is pleased to have been included on the Register
of Expertise for Franchise Trusts. This is an important facet
of the Government's modernisation agenda, ensuring that where
management has failed to deliver in the past, new teams with proven
track records can be brought in to address the key areas of under-performance.
7.3 Whilst the introduction of franchise
trusts is a welcome development, if new managers brought in to
turn around poorly performing trusts are shackled by the same
rules and regulations that contributed to the poor performance
in the first place, they will not succeed. It is therefore essential
that some of the new freedoms being awarded to NHS Foundation
Trusts are extended to franchise trusts. In particular, the freedom
to innovate, to reward good staff and, above all, to limit Whitehall
control will be essential if failing Trusts are to begin to deliver
the quality of services required by both central government and,
more importantly, those communities they serve.
8. CONCLUSION
The Government's proposals for NHS Foundation
Trusts are a welcome development. They demonstrate a real commitment
to increasing diversity of provision in healthcare, with all that
it brings both for increasing patient choice and raising standards
of treatment. However, GHG is keen that the full implications
of the proposals, and in particular the repercussions for competition
in the industry, are carefully thought through before the new
structures are established.
January 2003
Annex A
General Healthcare Group
General Healthcare Group is a leading provider
of independent healthcare services throughout the UK. The group
retains a focus on quality of service and efficiency, with a deserved
reputation in the independent healthcare sector for consistent
achievement of these values. General Healthcare Group offers a
range of services including acute care, long term psychiatric
care and preventive healthcare, through its three operating divisions.
General Healthcare Group is:
— The largest private healthcare provider
of its type in the UK through BMI Healthcare
— The largest medium term psychiatric
care provider in the UK through Partnerships in Care
— The largest full-service provider
of outsourced occupational health, through BMI Health Services
In addition:
— BMI Healthcare operates 47 hospitals
providing over 2,400 private acute care beds.
— Partnerships in Care operates 12
psychiatric hospitals providing over 700 beds.
— BMI Health Services holds 23% of
the health screening market and 26% of the occupational health
sector.
BMI HEALTHCARE
BMI Healthcare is the largest independent provider
in the UK, with over forty hospitals serving the needs of their
local communities. Committed to providing a consistent, high quality
service across the nation, BMI hospitals have built an enviable
reputation for providing excellent medical and surgical facilities
supported by state-of-the-art equipment and a high standard of
nursing care, within pleasant and comfortable surroundings. Equipped
with the latest technology, BMI hospitals perform more complex
surgery than any other independent healthcare provider in the
country. With Intensive Care or High Dependency Units at each
hospital, BMI's specialist staff are able to undertake a wide
range of procedures from routine investigations to the most complex,
high acuity cases such as cardiac and neuro surgery. BMI hospitals
attract consultants from a wide range of specialties and most
come with extensive experience gained within the NHS. They are
supported in each hospital by a team of Resident Medical Officers,
available 24 hours a day. BMI Healthcare's commitment is to quality
and value, providing facilities for advanced surgical procedures
together with friendly, professional care.
BMI Healthcare works with and supports the NHS
in a number of ways across the country. These include the management
of NHS private facilities, the leasing of facilities within NHS
Trusts, and working with the Trusts and Health Authorities to
help reduce waiting times. A number of smaller BMI hospitals are
located on NHS sites and have developed close working relationships
with the NHS hospitals whose sites they share. Through links with
their NHS host, they are able to provide a sophisticated level
of care not always available in stand-alone hospitals of a similar
size. BMI hospitals have rapidly established their position as
market leaders in such private/public partnership ventures, providing
a complementary private patient service linked to an NHS hospital.
BMI HEALTH SERVICES
BMI Health Services, is a major provider of
preventive healthcare throughout the UK, delivering occupational
health services and health screening to organisations and individuals.
A network of dedicated screening centres is complemented by outlets
in BMI Healthcare hospitals across the country, enabling the provision
of services to large corporate clients. Continuous research and
development using high quality medical and scientific expertise,
information and analysis, help BMI Health Services to provide
the most up-to-date, appropriate and ethical services.
PARTNERSHIPS IN
CARE
Partnerships in Care (PiC) is the leading provider
of specialist psychiatric rehabilitation and non-acute psychiatric
care services in the UK. Patients are mainly public sector funded
and inpatient stays are usually measured in months or years. The
main sectors of the business are medium secure psychiatric services
for those with significant mental illness, personality disorders,
learning disabilities and acquired brain injuries. The division
also provides telephone counselling services to employees with
difficult health, financial, medical, domestic or legal issues.
Partnerships in Care has significant presence in each of its markets.
15 See paragraph 3.1 below. Back
16
A Guide to NHS Foundation Trusts, DoH, December 2002, p8. Back
17
A Guide to NHS Foundation Trusts, DoH, December 2002, p25. Back
18
Speech by the Secretary of State for Health, Wednesday 22nd May
2002. Back
19
Reforming NHS Financial Flows-Introducing payment by results,
October 2002, p4. Back
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