Examination of Witnesses (Questions 1-19)
20 MAY 2004
RT HON
JOHN HUTTON
MP, MR JOHN
BACON, MS
ANN STEPHENSON
AND MR
GORDON HEXTALL
CB
Q1 Chairman: Colleagues, good morning.
May I welcome our witnesses and express our thanks to you for
coming before the Committee today. Minister, could you briefly
introduce yourself and each of your colleagues to the Committee?
Mr Hutton: I am
very happy to do that. On my left is John Bacon. John Bacon is
here to assist me in relation to issues to do with foundation
trusts. On my right is Gordon Hextall, who is supporting Richard
Granger in the National Programme for IT. To Gordon's right is
Ann Stephenson, who is one of my officials who advises me about
specialist commissioning work.
Q2 Chairman: We have identified four
key areas we want to look at. I cannot guarantee that my colleagues
will necessarily stick to those areas but we do hope to explore
some of the issues in some detail. One of the things we wanted
to start with was Mr Bacon's area and your own involvement in
the foundation trust concept. I had a meeting last week with the
regulator, Mr Moyes, which was interesting and useful. He is playing
a key role in addressing some of the concerns one or two of us
have about the possible implications of the foundation concept.
One of the things which struck me from our conversation was that
he was obviously concerned at the work he had had to do with regard
to the financial projections, the financial situations, the financial
information which were presented initially by the applicants.
I wondered whether his discussions with the department had led
you to look at the financial situation, not just of foundation
applicants but NHS providers as a whole, in a different light?
He clearly was concerned that what was being projected by these
applicants, who were in theory successful providers, raised some
questions about what was in the public arena. Would that have
been passed on to you and what are your thoughts?
Mr Hutton: As you would imagine,
I have had a number of conversations with the independent regulator
and he has relayed a similar set of concerns to me. If you look
at the general position and the historic position in relation
to long-term financial planning in the NHS, it would be true to
say that it has not been one of our strongest cards. The discipline
and the structure of the NHS foundation trusts have served to
spotlight that and brought that into focus. That is not a bad
thing; that is a good thing. We take the opportunity that the
process for establishing NHS foundation trusts creates to take
a long hard look at some of that very important deep background
financial planning issues. I think that will be of benefit to
the NHS and not a burden to it. It is true to say that the regulator
has a view on these matters, but we must discuss with him the
need for support for the office of the independent regulator so
he can discharge his statutory functions properly. We shall make
sure that he is able to do that. It is important that we all pay
attention to his view, which is that this has been a complicated
and complex process which has required a fair amount of work and
input from his side into making sure that the business plans for
these foundation trusts are robust, because it is in no-one's
interest at all to green-light an application, if there are concerns
about the long-term financial viability of that organisation.
He will not do that and that is entirely right.
Q3 Chairman: There has been a lot of
speculation about the rejection of the two applicants. Was it
primarily financial concerns which were behind the reasons for
the rejection of those initial trusts?
Mr Hutton: The regulator did not
reject those two applications: the two trusts decided that they
would defer their applications for a later wave. Their concerns
essentially were around the robustness of the long-term business
plans for their organisations; yes.
Q4 John Austin: Although the foundation
hospitals have only been operational for a very short time, about
a month or so, we have been given a number of examples where the
development plans of the trust have not altogether taken account
of what other facilities exist in the area and may be duplicating
facilities which are already there. There has also been a suggestion
that they may focus too much on elective surgery and targets to
the detriment of what might be seen as less attractive services.
How would you comment on that?
Mr Hutton: I should like to know
what those detailed comments are, in relation to what trusts and
what services, and then I could maybe reflect more specifically
on them. Ultimately it is the job of the regulator to assess the
business development plan of the foundation trust with a view
to making sure that those plans fit in with the overall effectiveness
of the local National Health Service. Remember that the regulator
has to discharge his functions under section 3 of the Act in a
way which is consistent with the discharge by the Secretary of
State of his functions. The regulator has to take into account
the overall impact of the NHS foundation trust's strategy for
developing services, because these foundation trusts do not exist
in isolation. They are not a separate part of the NHS, they are
an integral part of it. Parliament has given the job of assessing
these plans to the regulator. He has to make the judgment calls
in relation to those sorts of concerns and expressions of concern
and those concerns will properly surface through the formal process
of review and approval of the application. That is the right place
to take it and it is the job of the regulator to make those judgment
calls. If the Committee or any members of the Committee have specific
illustrations or concerns they want to raise with ministers directly,
they should do so.
Q5 John Austin: May I raise one which
we have? My colleague Keith Bradley may know more about it because
it is more his area. Stepping Hill Hospital in Stockport announced
that it was going to focus on elective surgery and build a new
cardiac unit, when elsewhere in Manchester there was a brand new
NHS cardiac centre which was not functioning due to lack of funding.
That does seem to be a rather unfortunate set of events.
Mr Hutton: Obviously it is the
job of the regulator to make those judgment calls, to make those
assessments, and primary care trusts can feed their concerns into
the regulator about the way these services are developing. At
the end of the day it will be primary care trusts which commission
services from any of these services which are run by NHS foundation
trusts. The NHS foundation trusts will have to provide a good
business case to primary care trusts to commission from those
types of new facilities. All of that is looked at as part of the
approval process and certainly what we do not want to do, do not
want to see happen, are inefficiencies creeping in; that would
be in no-one's interest and certainly not what we expect will
come through from this whole process. I am very happy to take
concerns from members on those issues and to reflect on them.
Q6 John Austin: Would you accept that
in this kind of market good acute medical psychiatric and geriatric
services are not only costly but unattractive commercially in
that sort of environment and are less likely to be provided?
Mr Hutton: No, I would not accept
that at all. In the context of the financial flow reforms and
payment by results, which we shall be introducing over the next
three or four years, providers will be fairly remunerated for
the cost of that. There will be a proper system of remuneration
in relation to those services. Remember that we have always made
this argument about NHS foundation trusts and I know that you
took a different view about this. It is not for NHS foundation
trusts to cherrypick and to prioritise the services they want
to provide. There is a coherent planning system, the regulator
has to take into account the impact of NHS foundation trusts'
activities on the wider NHS, he has to reflect on that in approving
business plans and supporting an application for foundation trust
status, so we can keep the good things in the service that we
value. One of the really important things in the NHS, which can
contribute to better health care, is coherent planning. It is
certainly not part of the government's intention to see the sensible,
coherent bits of NHS planning chucked out of the window for some
sort of theology about the importance of NHS foundation trusts.
NHS foundation trusts are a means to an end and the end is greater
devolution, more innovation at a local level, but not an end in
itself. We always have to keep that in mind.
Q7 John Austin: I do not have the full
details of the case but are you saying it would be within the
powers of the regulator, if the regulator felt there was an over-provision
or distortion . . . ? Let us take the Stepping Hill example. If
the regulator took the view that there were adequate facilities
in the Manchester area, which were under-used, would the regulator
have the power to stop the foundation hospital developing a duplicate
facility?
Mr Hutton: I think the answer
to that question is that yes, he would. John was just saying that
there is of course a statutory duty of partnership which applies
to NHS foundation trusts in the same way that it applies to other
parts of the NHS, acute trusts and primary care trusts for example.
The key moment in all this is the authorisation for the foundation
trust. If there is going to be additionality or additional services,
there is then the opportunity for the regulator to reflect upon
that as well and whether he wants to extend the limits of authorisation
and so on. Primary care trusts are able to make representations
to the office of the independent regulator about all of these
things and to express their concerns. With these changes, because
they are significant changes in the NHS, we have to make sure
that other parts of the NHS feel quite confident that they have
a voice in all of this too. They have a legitimate right to be
heard if their concerns are as serious as you suggest. I would
always expect the regulator to listen to those concerns and reflect
upon them. I am sure he will.
Q8 Mr Burns: How much money is government
and the Department of Health spending in effect on protecting
foundation hospitals from the impact and bringing in of the policy
and protecting PCTs which might conceivably be adversely affected?
Mr Hutton: I think the costs you
are referring to there will arise primarily in relation to the
earlier introduction of payment by results systems for NHS foundation
trusts and in pioneering the work of payment by results, the NHS
foundation trusts are doing a very important job for the wider
NHS.
Q9 Mr Burns: And the answer? Is it £90
million?
Mr Bacon: In total it is £127
million, split into three portions. I do not have the exact percentages
in front of me, but the first tranche is to support foundation
trusts which, under the minimum income guarantee, are protected
in their first year up to the level of their current income. The
second tranche is compensation to PCTs who are paying into trusts
under the payment-by-results system. The third element is to support
specialist services in that group of hospitals which provides
very specialist services, where we have yet to develop the payment-by-results
mechanisms to compensate properly.
Q10 Mr Burns: Would it be fair to say
that approximately £50 million is going to the PCTs and £40
million to the hospitals and the rest to the third group?
Mr Hutton: It would be something
of that order; yes.
Q11 Mr Burns: It is quite a substantial
amount of money in the year. Is it new money or is it being deferred
from other areas of health spending?
Mr Hutton: No, it is not being
deferred from other areas of health spending; it is not having
a negative impact on other parts of the National Health Service.
Q12 Mr Burns: Is it new money, or is
it existing money within the health budget which could have been
spent on other services if you did not have foundation hospitals?
Mr Hutton: John is my accountant.
He can tell you where this is coming from.
Mr Bacon: This is coming out of
the Department of Health budget.
Q13 Mr Burns: Existing or new, extra
money from the Treasury?
Mr Bacon: Under our current Vote
I allocation.
Q14 Mr Burns: So in effect it is existing
money.
Mr Bacon: Yes.
Q15 Mr Burns: So it is £127 million
which is being spent which could, if you did not have foundation
hospitals, be being spent elsewhere within the NHS. Is that right?
Mr Bacon: As we move into payment
by results clearly this is a self-balancing sum, because what
you do is reward people who are currently operating below tariff
at tariff and you encourage people who are above tariff to come
down to tariff. Because we are running the wave one of foundation
trusts a year in advance of the rest of the system, we are using
that money to support that transition a year early into the payment-by-results
system.
Q16 Mr Burns: Forgive me, I am not an
accountant and you are not my accountant, you are the minister's.
Can I just clarify this, because I am still confused? Is the £127
million being spent in the first year money which is in the existing
Department of Health budget, which would, if we did not have foundation
hospitals, be being spent elsewhere in the health budget and is
it extra money which has been built into the Department of Health
budget from the Treasury to take account of this new policy, so
that other services are not getting less money? Yes or no.
Mr Bacon: I think I have already
answered you in saying that it is coming out of the existing Department
of Health Vote.
Q17 Mr Burns: So it is not new money.
Mr Bacon: It is not additional
money to that which we have been voted.
Q18 Mr Burns: I just want to get this
clear so I fully understand it. It is not new money and if we
did not have foundation hospitals, £127 million could be
spent elsewhere within the NHS.
Mr Bacon: No, because the first
element I described, which is the support to foundation trusts
under the minimum income arrangement, is simply ensuring that
they would get the same amount of money as a foundation trust
in their first year as they would have got had they not been a
foundation trust. So that element is not money which could have
been used in other areas.
Mr Hutton: That is right. They
would have had that money anyway, because that is the current
level at which they are commissioning and the cost of the services
they are providing. Not to provide that money to them would be
to take £60-odd million away from NHS foundation trusts.
With the best will in the world, that would be a perverse thing
to do. It is also important to bear in mind that what we are trying
to do with the first wave of NHS foundation trusts is learn some
important lessons for the rest of the NHS around payment by results.
John referred to the need to support the commissioning of specialist
services. Many of the first wave of NHS foundation trusts are
not specialists and tertiary providers. If you talk to the specialists
and tertiary providers across the NHS, as I am sure you do, the
one thing they will say to you about payment by results is that
we have to make sure payment by results reflects arguably the
higher costs these specialist and tertiary role providers incur
because of the specialist nature of the work they do. They do
very hi-tech, cost intensive work. There are some concerns out
there. This came through in a consultation on payment by results
about whether payment by results itself as a mechanism properly
reflects the additional costs of some of these specialist procedures.
What we have done with £25 million of this money, in addition
to the £60 million which allows purchaser parity to be maintained
because of the issues John has referred to, that some of these
providers are above tariff and so on, is to make sure that the
NHS foundation trusts do not lose out and that we make a sensible
migration from where we are with bulk purchasing and no payment
by results, to sensible purchasing through payment by results.
It would be quite wrong of Mr Burns to say that this is a £127
million fund to the NHS foundation trusts. That would be completely
untrue.
Q19 Mr Burns: I have not said that.
Mr Hutton: No, but it is, I think,
what you have been suggesting.
Mr Burns: That is for you to interpret.
| 
