Examination of Witnesses (Questions 20-39)
20 MAY 2004
RT HON
JOHN HUTTON
MP, MR JOHN
BACON, MS
ANN STEPHENSON
AND MR
GORDON HEXTALL
CB
Q20 Mr Burstow: On this issue of coming
into balance over a period of time, can you say a little more
about what the planning assumptions are? Over what period of time
is balance to be achieved and, if balance is to be achieved over
seven years, would that imply additional sums having to be allocated
in order to achieve the smooth running of the system in the meantime?
Mr Hutton: Are you talking about
NHS funds coming into balance?
Q21 Mr Burstow: This was in the context
of what Mr Bacon was saying just now to Mr Burns about £127
million being in year one and the system being intended to come
into balance.
Mr Bacon: There are three possible
answers to your question, the first of which is of course that
the financial arrangements for foundation trusts per se
are a matter for the regulator. However, there are two other possibilities,
the first of which is that the introduction of the payment-by-results
system over a four-year run for first wave foundation trusts has
in it some tapering arrangements or adjustments, so that we have
the four-year introductory phase where in the first year there
is 25% movement towards tariff and in the second year a further
25%, etcetera. The same will apply to NHS trusts, but over a three-year
run at 33%. There is a fairly complex transition arrangement to
get from where we are now, which is a range above and below tariff,
to a position where all organisations will only be reimbursed
a tariff. A third possible answer is that under NHS trust regulations
all NHS trusts have a duty to break even, taking one year with
another and we regard that as either a three or a five-year run
by agreement with the individual organisations.
Q22 Mr Burstow: So in budgeting for the
rollout and transition arrangements we know the figure, £127
million for year one. Are there figures already clearly in the
budget to cover the transitional costs for the other three years?
Mr Bacon: It is somewhat different
once we get into the first year proper for the whole of the NHS.
That is essentially a self-balancing sum, because there are aboves
and belows and we adjust to the same ratio. When we have the whole
system coming in from next April, there is no support mechanism
of the sort described. The reason there has to be this year is
because we are running wave one of the foundation trusts a year
ahead of the overall system. The one proviso I should make on
that is that we are currently looking at the best method of bringing
the very specialist service into a payment by results system and
it is not inconceivable that over a period we may have to find
a way of supporting those very high cost specialist services.
That is one of the issues we are currently working with. It was
an issue which came through very strongly in the recent consultation
we carried out on payment by results and an issue we need to look
at very carefully over the next few months.
Mr Hutton: I do not know whether
the Committee would like to talk about the financial flows performance
at some point, but, given that Mr Burns and Mr Burstow raised
essential issues around payment by results, there are three or
four quite significant decisions which we have to make about payment
by results, if we are going to make sure we can introduce this
new system of financial flows in the NHS without huge financial
instability, sudden lurches and money disappearing from PCT budgets.
Naturally we do not want any of those things to be the case. The
area to which John has just been referring, in relation to how
we use the tariff system to reimburse providers in relation to
specialist and tertiary treatment, is one of the top three or
four concerns we still have to make a decision on: whether to
include them in tariff or not, whether to do something like this
in relation to all of these specialist and tertiary referral centres,
or whether to try to find a way to reflect specialist and tertiary
care within tariff. We have issues to decide about how we factor
in the market forces factor, which seeks to represent an additional
cost in relation to local high land values, high labour costs
and whatever, into the standard tariff price. We want financial
flows to be about improving innovation and focusing on quality,
not about bargain basement, knock-down competition and who can
provide operations at the lowest possible price. We want to reflect
that type of decision, that type of approach in the final set
of decisions we have to make about PBR. Those decisions will need
to be made quite soon, because obviously the NHS needs to know
where we are heading with this. I am pretty sure we shall be able
to make those decisions and communicate them to the service in
the next few weeks.
Q23 Mr Burstow: One final thing on foundations;
we are coming back later to financial flows. During the passage
of the legislation mention was made by way of reassurances that
a review would be conducted of the implementation of foundation
trusts in terms of their impact on health economies. Could you
outline when that review might take place, who will conduct it
and what its remit will be?
Mr Hutton: I am advised that the
Health Care Commission will be beginning the review in October
of this year and we obviously expect the fact-finding element
of that review to be finished within three or four months of the
start of the review. It will be conducted by the Health Care Commission
in co-operation with the office of the independent regulator.
Q24 Mr Bradley: Going back to the example
John Austin raised in Manchester, there is concern about the Stockport
announcing as soon as they were granted foundation status that
they would focus in on elective surgery and build a new cardiac
unit. Obviously that would have implications for the rest of the
services in the Greater Manchester area. When a hospital bids
for foundation status, do they indicate in their bid that they
are going to specialise in a particular way and how is that then
related to the wider service provision in the area?
Mr Hutton: They should be and
they are expected to do precisely that. It is part of the local
consultation and then it will be part of the service development
strategy which they submit, firstly to the Secretary of State
for his approval and then ultimately for the office of the independent
regulator to approve as well.
Q25 Mr Bradley: So you have a situation
where in total isolation from the other hospitals they bid for
foundation status, identifying to you what services they want
to develop, but do not actually at that point take a view about
what that impact will be on the other services in the area. Would
that be correct?
Mr Hutton: The Secretary of State
does not actually make a decision on the merits of its application.
The Secretary of State's job is not to second-guess or pre-empt
the decision of the regulator. The Secretary of State has established
a set of criteria with which he expects applicants to comply.
So they have to set out their service development strategy, their
human resource strategy and also their arrangements for local
governance. The Secretary of State's job is to make sure they
have done that adequately and thoroughly and once he is satisfied
that has happened, it is then the job of the independent regulator
to make a judgment call about the credibility of that strategy,
the coherence of it, the financial underpinning of it as well.
If he is satisfied, as he was in the case of Stockport, he will
approve the service development strategy as part of the licensing
which he attaches to their authorisation.
Q26 Mr Bradley: It is a slightly chicken
and egg situation, is it not? They are getting approval for their
foundation status based on developing certain specialties which
have not yet been discussed within the local area, local economy.
Then there is a presumption, because they announced it as soon
as they got the status, that they are going to develop those services
and it may be it is not in the interests of general service development
in the area to do that. Where is the power lying within that,
within the foundation hospital or within the strategic planning
through the SHA and the PCTs?
Mr Hutton: The short answer is
probably that it is a mixture of all of that. In preparing its
application there will be local consultation and that will involve
the strategic health authority and other primary care trusts and
so on and local Members of Parliament, because clearly they need
to be involved.
Mr Bradley: I do not think they consulted
me on that.
Q27 Chairman: Does the regulator not
have a role in looking at this kind of situation?
Mr Hutton: Yes, he does; he does
as well. What I am trying to do is chart the progress from the
beginning of the formulation of the plan where it is essentially
coming from within the NHS, the wider NHS actually, with the SHAs
in a strategic position to look at the development of the plans,
through then to the submission, once the Secretary of State has
approved the application, to the office of the independent regulator
and then clearly it is the statutory function of the regulator
to make a judgment about whether he wants to authorise that application.
That is the point where Parliament would expect the regulator
to be the person making the judgment calls about whether the plans
of the particular NHS applicant for foundation status fit into
a coherent plan locally as well as for the trust itself.
Mr Bacon: One of the tasks the
regulator will be carrying out in his assessment of the applications
is the strength of the forward plan and whether that produces
a service and a financially viable organisation. One of the members
of the Committee referred earlier to the two applications which
were deferred through the first wave. Those were the sorts of
issues on which the regulator and the organisations were having
further discussions about whether the longer term strategic intentions
of that organisation were sensible. I do not know the details
of this particular case, but I am sure the regulator will have
gone through that discussion. Perhaps I could just flip the coin
over and say that you said the trust wanted to specialise in elective
and in cardiac in this case. In the licence the regulator will
specify the core of services that individual organisation has
to provide, which will include the key services you alluded to
and they will have to provide those at the standards the regulator
observes, which are the same standards as the rest of the NHS.
They will not be allowed, without agreement with the regulator,
to opt out of the things which are in their licence's core services.
Mr Hutton: It could not be the
case that they would make the pursuit of cardiac surgery their
objective at the expense of everything else they do, accident
and emergency, any routine elective surgery which a district general
hospital would be required to perform. It is just a case of trying
to get the judgment right in all of this and Parliament has said
that is the job of the regulator.
Q28 John Austin: If you were to approve
the foundation status on the basis of the intentions of the trust,
if that were then substantially altered as a result of the regulator's
decisions, would there then be a review by you of the decision,
since the basis on which the approval had been given would have
changed?
Mr Hutton: The Secretary of State
cannot review the decisions of the regulator.
Q29 John Austin: On the basis of the
granting of foundation status. You will have done it on a set
of presumptions which have been changed.
Mr Hutton: It is very important
we are clear about this. The job of the Secretary of State is
not to make a decision about whether an applicant should have
foundation trust status. That is not his role and that is not
what Parliament has given him the authority to do. What he does
is set out a format through which the application has to be developed,
the processes and detail. If he is satisfied that the applicant
has complied with those requirements, there would then be no good
reason for that application not to be referred to the regulator.
That is basically how we have decided to proceed, not to put the
Secretary of State in the shoes of the regulator, because that
would be quite contrary to the legislation, but to satisfy himself
that the plans are robust and meet the format and the processes
he has set in place. It is very clearly the job of the regulator
then to make a decision on whether the application should be granted
or not. The Secretary of State does not have the power to say
to the regulator he wants him now to withdraw foundation trust
status. That is quite clearly not possible.
Q30 Chairman: Do I get the impression
that in the kind of scenario which John Austin and Keith Bradley
have been talking about that might have had a bearing on the two
which did not proceed and that it was not just financial? I got
the impression that the financial issue might have been key, but
it might have been to do with what they were wanting to do in
relation to their provision of the kind illustrated in Stockport
and Manchester.
Mr Hutton: That is broadly true.
Q31 Chairman: That was possibly a factor
in those two.
Mr Hutton: Yes, that could have
been. There were other factors as well, but broadly that is the
ballgame we are in.
Q32 Chairman: May I move onto the issue
of local ownership of foundation hospitals? There was some common
ground politically among those who opposed foundation hospitals
and those who supported them, that the one area where we need
to do some thinking about the NHS is the actual ownership at the
local level. The problem some of us had was that we thought the
models which were adopted were open to question. I want to ask
for your views on the way membership take-up has gone and voting.
You will be aware of the figures, one or two of which we have
here. At Homerton, out of a population of 250,000 just 1,155 people
voted out a membership of less than 3,000, which seems a very
small number compared with the size of the population. At the
Basildon and Thurrock trust 346 voted out of a population of 310,000.
It is not exactly an overwhelming kind of response. Certainly
assumptions were made. When Alan Milburn was before the Committee
we got some specific estimates of the average membership of these
foundation trusts and it would appear that we are nowhere near
the average membership. My question is: have we misunderstood
the public's desire to engage with the Health Service or is it
that the public would like to engage but not with the foundation
hospital concept?
Mr Hutton: I do not think we have
got it wrong. In relation to Basildon and Thurrock, they have
got 7,000 members in total. Homerton has nearly 3,000 members.
Q33 Chairman: But 7,000 out of a population
of 310,000.
Mr Hutton: Yes, I accept that.
Q34 Chairman: It is not a lot really.
Mr Hutton: No, obviously I accept
that. It is important that we understand the starting point of
this and not the ending point. There is not a closed membership
list for Basildon and Thurrock of 7,000 people. The trust will
be continuing to recruit and I hope successfully attains a much
wider membership base. The legislation gives them the flexibility
to do that. In relation to turnout, figures I have show that the
turnout rate in relation to these first elections are over 50%
in most of the trusts and well over 60% in some.
Q35 Chairman: That is those people who
have registered as members though.
Mr Hutton: Of course.
Q36 Chairman: In relation to the overall
population served by the trusts frankly it is miserable. We worry
about electoral turnout but if the proportion in Basildon or wherever
is 300 people out of 310,000 we would be worried as politicians
if that were the democratic involvement of people.
Mr Hutton: I should like more
members and I am sure the NHS foundation trusts themselves will
be doing all they can to increase the number of members they have.
If one looks at the electorate and the turnout, that is a pretty
good start.
Chairman: What was the basis then for
the projected membership figures of 10,000, if I recall correctly?
Jim Dowd: The guy from Bradford said
10,000.
Q37 Chairman: I think we got them from
departmental officials as well and the Secretary of State confirmed
yesterday that the estimate in the department was an average of
10,000. We are nowhere near that. Why have we misunderstood the
views of the public on an issue as crucial as this?
Mr Hutton: I do not think we have
misunderstood the public.
Q38 Chairman: Then why are we so far
apart from the actual estimates which the government clearly had
when we were talking here when the legislation was being discussed
and when Alan Milburn was before the Committee. At that stage
we were talking of an average of 10,000 per trust; it was the
figure which was being used. We actually put costings to the government
on the estimate of it being 10,000 and worked out what the costings
would be in relation to the establishment of each trust. Broadly
the department accepted our estimates of the costing on a figure
of 10,000.
Mr Hutton: Some trusts have done
better than others at recruiting more members. I do not think
you could argue from the figures that there is something fundamentally
wrong with the model. If some trusts are able to recruit more,
that is an indication that there is more to be done. You could
not take that as an argument that because some have not reached
that point the whole model is flawed. With any experiment—and
this is a major change for us in the NHS about how we structure
government's arrangements—with the best will in the world
you are going to find some trusts who are better at it than others.
I think that is to be expected. What is important is that we continue
to work with trusts to recruit actively more members and I know
the office of the independent regulator will be doing that. I
am very happy to give the Committee the latest figures we have
in relation to NHS foundation trust members and I am sure the
office of the independent regulator will want to keep me informed
about progress in this area. I know, for example, in Gloucester
they have done a very proactive campaign around membership and
they had 15,000 members on 13 April. If Gloucester can do it,
the others can do it.
Q39 Chairman: I thought you might be
saying that these low turnouts were an indication of complete
public satisfaction with the health policies of the labour government,
but you have not said that.
Mr Hutton: I think you are confusing
two things. I think you are confusing membership and turnout.
I agree with you that we want more people to come forward as members
and I think they will, as NHS foundation trusts become properly
established and people understand and see the benefits and the
attractions of being a member of the foundation trusts. Some trusts
have been able to sell that message really well and Gloucester
has 15,000 members. It would be quite wrong and inappropriate
to say, six weeks into the operation of this policy, that you
could draw a line through it in the way you are suggesting.
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