Select Committee on Health Sixth Report

3  Impact of foundation status on wider health communities


63.  Like other hospitals, foundation trusts (FTs) operate within health communities and are contracted by PCTs, so a degree of engagement with other local health organisations is essential to their survival. Dr Moyes told us that where FTs have got into financial difficulties, poor engagement with PCTs was in one case a key factor, highlighting the importance of good collaborative working:

When we had our financial problems with Bradford in 2004 that was part of the reason. They built a modular theatre and, if I remember rightly, they took on something like 300 staff, but there was no commitment from the commissioners to transfer patients to the hospital to use those facilities.[45]

64.  Perhaps the most vocally expressed concerns before the introduction of FTs related to their wider impact on local health communities and on the rest of the NHS. Concerns included:

a)  Staff poaching and wage inflation

b)  Unequal distribution of funds and services

c)  Barriers to the development of care pathways and 'whole systems working'

d)  Barriers to delivering more care in a primary care setting

65.  So have these concerns proved justified? Some have not materialised: according to Marini et al, one important threat that does not seem to have materialised is that of FTs poaching staff from other trusts: "contrary to some predictions there have been no reports of widespread poaching of staff by FTs from other Trusts".[46] The key concerns expressed in our evidence have been:

  • the relationships within local health communities;
  • surpluses
  • the impact on shifting care to primary care settings; and
  • the role of commissioning.

Relationships within local health communities

66.  The Healthcare Commission's 2005 review of FTs reported little change in local relationships between FTs and other organisations, with those that had always been good remaining so; those that were poor have shown few signs of improvement. However, according to Mark Exworthy,

Provisional evidence suggests that FTs are `picking and choosing' the issues on which they are cooperating (especially if it is in their self-interest). There are some perceptions that FTs have secured an unfair advantage in the Local Health Economy (for example, as a result of transitional relief arrangements associated with PbR). PCTs still remain generally weak (in capability and intelligence) compared to FTs, comprising the strategic perspective of PCTs.[47]

67.  In oral evidence he gave more detail, arguing that the degree of collaborative working was likely to depend on historic relationships:

Clearly foundation trusts have been given a set of incentives in which they are much more responsible for their own activities and affairs and, as we have just heard, surpluses as well. So clearly there is a much greater focus on their internal processes and decision pathways if you like and that clearly sets up a self interest type model that they are responsible for the boundaries of their trust and outside that is an externality; it is beyond their responsibility. Clearly in terms of some of the activities that might be going on in the local health community they are deciding the degree to which they might cooperate. Clearly there are areas in the country where there has been a history of collaboration and foundation trust status does not immediately change that; there has been an on-going network, many people will have worked in similar organisations, their friends and colleagues work similarly. There is a level of trust often between foundation trusts and non-foundation trusts in the local health community in the development of HR policies or clinical networks et cetera.

There might be some places where the foundation trust status sets up a difference of position, responsibility and interest such that there is…more of a silo mentality. That has created not just the acquisition of their foundation trust status but some of the central rules and implementation of those rules that set up a degree of resentment between foundation trusts and non-foundation trusts. That might hinder future collaboration. Some of the specific examples where they might wish to collaborate, for example in some of the big service reconfigurations that have been going on and are likely to continue, in the sense that it is very much in their long term interests for foundation trusts to get involved in these decisions. Helping shape that debate locally within the county, city or whatever is part of their interest. As we have heard surpluses might be retained which might set up a kind of tension, the degree to which they are seen to be retaining the surpluses and/or hindering or hampering local service developments. I think it will be very different in different places depending on the history and culture of collaboration.[48]

68.  However Keith Palmer, who has served on the boards of both FTs and non- foundation trusts, argued that tensions were more related to the system of Payment by Results, and it made little difference whether a hospital was an FT or not, as long as it was high performing and in financial surplus:

I do not think that the tensions in the system about service re-design and cross-organisations makes very much difference whether they are foundation trusts involved or not. I am now at Barts and the London; we are a high performing, financially in surplus major teaching hospital trying to do re-configuration with clinically less high-performing, financially very troubled DGHs. I think that situation creates enormous tensions in trying to do things that are good for patients that the losers will sign off on and losers will usually be the district general hospitals. I see that exactly the same in the Northeast where we do not have foundation trusts as it was in the Southeast where they have the same issues. I think they are inherent in service re-design and the way that payment by results works more than whether you are engaging with a foundation trust or not.[49]

69.  Before their establishment a number of fears were voiced about the impact FTs might have on wider health communities. There is little evidence that FTs have poached staff from other trusts. Evidence from Dr Mark Exworthy and the Healthcare Commission suggests that in local health communities where collaborative working has historically been good this has continued to be the case; Dr Exworthy did suggest that in other areas the presence of FTs may be generating tensions and resentment. However, others felt that tensions exist between high-performing and less well performing trusts regardless of their status because of the system of Payment by Results.


70.  As discussed in the previous chapter, FTs are able to keep any operating surpluses they generate and re-invest them as they choose. FTs are keen to keep surpluses and report that they are a motivating factor for clinicians and managers and enable them to invest in things quickly:

Prior to being a foundation trust there was no incentive to make or declare a surplus because we were essentially given a block of money on the first of April and you were expected to have spent it all by 31 March otherwise the risk—and often the reality—was that any left over was used to cover problems elsewhere in the health economy. Now that there is a recognition that if we work with commissioners and work with our commissioners to generate a surplus and we can carry that over and invest it in ways that are agreed with governors and commissioners that has made a huge difference. This year… we have put part of it into developing a personality disorder day hospital which is part funded by commissioners but part funded out of our surplus. That would not have happened; we would not have been able to do that.[50]

We have submitted evidence that shows that we have nearly tripled our capital expenditure since being a foundation trust. To be able to plan for that and prioritise for that you need to build up surpluses …it is surplus with a purpose…The surplus and the cash balance give us flexibility to be able to react, whether it is a short term issue or a long term issue. For me it absolutely underpins the principle of foundation trusts.[51]

71.  However, at the time of our inquiry £1.7 billion was being held by FTs collectively, raising questions firstly about whether it is equitable for FTs to have full control over how these resources are invested, and, if so, whether there should be a mechanism for sharing and using resources more efficiently in the short term. In their recent report, Is the Treatment Working?, the Healthcare Commission and Audit Commission highlighted these problems:

FTs have been successful in generating surpluses. However, there is clearly an issue with the size of unused but available funds for FTs. Some FTs said that they felt unable to invest in services due to a lack of clarity about future commissioning intentions. Other FTs wanted to build up funds to cope with the anticipated decrease in the growth of health funding from 2008/09 and uncertainty around the national tariff. Some have also only recently moved to FT status. With the improving financial position of the NHS overall, large surpluses may also disincentivise innovation and the achievement of further efficiency gains.

Taxpayers and patients have a reasonable expectation that FTs will not retain large cash balances over prolonged periods. FTs in such a position must set out clearly how they intend to use these balances … In order to achieve this, PCTs need to clarify their commissioning intentions on a timely basis.[52]

72.  The Healthcare Commission and Audit Commission went on to argue that:

To ensure that money is spent on patient care, PCTs need to be clearer about their future plans and FTs need to engage in these discussions, despite their concerns over the lack clarity about PCT commissioning intentions following the 2006 PCT reorganisation.

73.  They also suggested a role for Monitor in this area:

Monitor should also consider whether the performance management and regulatory systems for FTs should ensure that where there is such a balance, it is used for the benefit of patients.

74.  Monitor did not agree with this, arguing that "in the first instance we are looking to commissioners to be clear about what they need to see by way of investment by foundation trusts."[53] Dr Moyes told us that if FTs were building up surpluses at too high a level despite making necessary investments, that might indicate that PCTs were paying too much and that contracts and tariffs needed revision.

75.  Unfortunately, the evidence we received suggested that PCTs are not yet in a position to give FTs the guidance they need to invest their surpluses. Dr Moyes argued that:

I do not think many foundation trusts today—even those like University College Hospital London that does have surpluses and is ready and keen to invest—could say to you, "We are absolutely confident that we can make an investment of this nature and be absolutely sure that that this what our commissioner would want". I think that is a key requirement, to get to the stage now where commissioning can describe the pattern of services that they think is required to deliver the services the population needs.[54]

76.  John Carrier, Chairman of Camden PCT, told us that for his PCT the issue of FTs' surpluses and how best to invest them what not yet a priority issue:

In a sense that surplus is a hidden iceberg and what we are constantly debating with them are issues like coding of procedures and whether the returns we get quarterly are accurate and validated and so on. So there is that very administrative financial detail and we tend not to look at that big issue of the surplus and tax payers' money. We tend as a PCT not to think about the surpluses; we tend to argue about our bottom line and us coming in on budget.[55]

77.  He did, however, agree that in a tighter financial climate where PCT budgets had stopped growing, FT surpluses might be more cause for concern for him.

78.  Mark Exworthy pointed out that there are differences between short and long term investments of surpluses, and that funding long term projects would obviously necessitate some build up of surplus capital:

there is a difference between, as it were, short term improvements you might be able to make and say, capital expenditure which might take several years of surpluses to accrue. Building a new wing of a hospital or even a new hospital would clearly be on a different scale than, for example, I know from the Darzi report one of the foundation trusts in Gloucestershire paid £100 to each member of staff as a bonus. There is a short term/long term issue.[56]

79.  The ability to retain surpluses was a key element of the FT reform, and FTs are now building up surpluses. FTs report that they are looking to PCT commissioners to collaborate on how these surpluses should be reinvested to improve patient care, but that PCTs are not in a position to give this guidance. We did not see any evidence that PCTs are thinking strategically about how FT surpluses might best be reinvested in their local health communities, a situation which we find extremely worrying. We recommend that the Department of Health takes steps to ensure that PCTs are able to play the strategic planning role urgently required of them; without this, public money risks sitting idle or being invested without proper strategic planning.

Shift to primary care

80.  A 'primary care led NHS' has been a frequently cited aspiration of Government policy over the last six years. However at the time of FTs' inception considerable worries were expressed that this reform would in fact tip resources and power more firmly in favour of the acute sector. The evidence we received has not shown that FTs have helped shift any more traditionally acute care into the community, with Mark Exworthy arguing that so far it has proved a 'hindrance'[57]:

Given my earlier comments about their self interest, they have a clear interest in looking at acute care.[58]

81.  John Carrier suggested that incentives were pulling in different directions:

My own feeling is that there is a paradox here and the paradox is that the centre wants more and more care out of hospitals and while we are trying to support centres of excellence which are these hospitals in the middle of London there is a real demand management question here which is quite tense I think.[59]

82.  It is perhaps unsurprising that FTs have not contributed to the drive to deliver more care in a primary care setting, as the PbR payment system gives them strong incentives against doing so. Monitor did not see that helping move more healthcare care out of hospital settings was part of its role, instead looking to commissioners to create capacity in the community and ensure FTs' activity is appropriately limited.[60]

83.  An interesting exception is that of mental health, where Payment by Results has not yet been introduced. This, coupled with foundation status, has actually provided a strong incentive to get more patients treated in the community, as Stephen Firn, the Chief Executive of Oxleas trust, described:

If we do more expensive interventions like admit people to hospital we do not get any more money for that so it is not in our interests financially and it is often not in the patients' interest either. A lot of the way in which we generate its surpluses has been by reducing our occupancy levels, providing more home treatments, providing more crisis treatments and working more closely with GPs to try to both respond quickly to their referrals but also transfer people back to GP care whenever possible. That is what we have been working on and we will continue to do so.[61]

84.  In future the planned introduction of PbR into the mental health sector may, however, undermine this.

85.  Mark Exworthy believed that there was the potential for FTs to move into providing primary care services themselves—and Richard Gregory told us that this was certainly an aspiration for his FT—but this itself raises a different set of issues surrounding the gatekeeper function and monopoly provision.[62] GPs are the 'gateway' to NHS hospital services, with patients needing a referral from a GP before they can access more specialist care at an NHS hospital. This helps prevent inappropriate referrals, saving the NHS money, and acts as an important counterbalance to acute trusts which, under Payment by Results, have an incentive to treat as many patients as possible to maximise their income. If a FT provided both primary and secondary care services, the gatekeeper demand management function, currently provided by GPs who are independent of hospitals, would be lost.

86.  A major concern at the inception of FTs was that they, together with Payment by Results, would strengthen the acute sector to the detriment of primary care services. This seems to be the case, although it is probably more because of introduction of Payment by Results than the introduction of FTs. By this stage we might have hoped for better collaboration within health economies, particularly with a view to providing more care in the community. Mental health provides an interesting contrast: mental health FTs, which are not subject to the Payment by Results regime, argue that they have a strong incentive to get more patients treated in the community in order to generate surpluses. This Committee is very concerned that PbR is to be extended to mental health and community care in the next two years. We recommend that the Government address this issue.

Commissioning and 'Darzi blight'

87.  Weakness in PCTs' commissioning was cited by witnesses as the cause of many perceived problems relating to FT status, including FTs not investing their surpluses, FTs not being able to innovate, and the lack of shift to primary care. Bill Moyes was emphatic on this point:

I think the Committee has to recognise that foundation trusts need their commissioners to be clear about what investment they want to see made: investment in buildings, investment in equipment, investing in some new staff to deliver new services. As commissioning becomes a stronger function with a greater degree of clarity about what they want to see—Lord Darzi's report obviously [gives] them a platform to do that—then we will see foundation trusts respond to that. My sense of foundation trusts is that they are anxious to make investments; they recognise the issue that you are putting to me and they are anxious to respond. However, what they do not want to do is to make investments that do not meet the needs of their commissioners.[63]

88.  Richard Gregory agreed:

At the moment our innovative capability and capacity from where I sit is constrained by the quality of the contract and by the quality of the dialogue between the commissioner and the provider.

89.  Several of our witnesses described what has been termed elsewhere as 'Darzi blight'—organisations delaying their forward planning and investment pending the publication of the Darzi report, which was published on 30 June 2008:

My hope and my expectation is that when the operating framework is published in the autumn, after Lord Darzi, we will start to see in that a clearer description of what the Department of Health is looking to commissioners to create and that will flow into their own local commissioning plans.[64]

I think we are now at the point in time after the Darzi report and the discussions about how Foundation Trusts can engage with their commissioners not simply in terms of negotiating the traditional bones of the activity and payment structure, but in actual fact trying to reshape services to improve them for the benefit of the patients in the local community. Those challenges that were laid out a few days ago will enable Foundation Trusts and commissioners, hopefully, to engage in some innovation.[65]

90.  It appears that even now the final report has been published uncertainty still persists:

At the moment we are still in this position where we have a lack of clarity around how Darzi will actually play out in the way that services are delivered in local areas and it will be different in local areas.[66]

91.  While some degree of delay may be attributable to 'Darzi blight', it seems that PCTs themselves must be held responsible for not providing sufficient strategic planning. The recent report on system reform by the Healthcare Commission and Audit Commission is clear that "despite the intention to move care out of hospitals and into a primary or community care setting, limited progress appears to have been made." They argue that the reason for this lies with commissioning organisations:

Commissioning and contracting skills are not yet strong enough to drive this agenda, although some PCTs can point to successes. PbR also needs further refinement to facilitate care transfers more effectively.

Improving commissioning capacity and capability is critical to the success of the reform programme. Given the 2006 reorganisation, PCTs need time to progress this agenda. More work is needed to strengthen commissioning and without this, the reform programme will not provide the necessary balance of power between primary and secondary care.[67]

92.  Alan Maynard gave a stark description of the scale of the challenge faced by PCTs in managing demand when commissioning from FTs:

To stay in balance PCTs should introduce demand management that diverts patients from hospitals in primary and community care. Whilst the theory of this is intuitively attractive (e.g. anticipatory care maintaining the chronically ill in their homes), PCTs have had limited impact with such policies. This is unsurprising as they have insufficient leverage to moderate hospital activity and switch care into the community. Consequently they have great pressure on their finances.

FTs have an incentive to attract patients as increased activity creates increased income and their status requires payment at tariff rates for work done. It has been alleged that hospitals allow erosion of conversion criteria to increase patient flow e.g. reducing treatment thresholds and converting more out-patients into in-patients. The original rhetoric of "payment for services delivered" has now been watered down by strong DH advice that FTs and their PCTs should collaborate on agreeing volume levels so as to cap by mutual agreement the open ended nature of the PCT liability. DH rhetoric about "world class commissioning" is supposed to assist this process but PCTs, generally with weak management and poor use of comparative quantitative data, continue to find difficult the tasks of capping hospital activity and switching resources to a "primary care led" approach.[68]

93.  Professor Maynard suggested that one way to encourage commissioners and providers to develop alternatives to hospital care would be to adjust the two part tariff for emergency care.

94.  Weakness in PCTs' commissioning was cited by witnesses to this inquiry as the cause of many perceived problems relating to FT status, including FTs not investing their surpluses, FTs not being able to innovate, and the lack of shift to primary care. We note that the Government is now developing a specific support package to enable PCTs to become 'world class' commissioning organisations; however in our view focusing on provider side reforms, including payment by results and the introduction of FTs, before PCTs were ready to meet the challenges set before them was ill-judged.

95.  As part of its 'World Class Commissioning' initiative, we recommend that the Government sharpens incentives for acute trusts to ensure they are fully engaged in keeping people who could be treated in the community out of hospitals. One option would be further adjustment of the two part tariff for emergency care, thereby increasing incentives to commissioners and providers to develop more rapidly alternatives to hospital care.

45   Q81 Back

46   'Foundation Trusts in the NHS: does more freedom make a difference?' Marini et al, Health Policy, University of York, 2007 Back

47   FTM 03, Mark Exworthy Back

48   Q39 Back

49   Q42 Back

50   Q92, Stephen Firn Back

51   Q62, Richard Gregory Back

52   Healthcare Commission and Audit Commission, Is the Treatment Working?, May 2008 Back

53   Q63 Back

54   Q79 Back

55   Q27 Back

56   Q37 Back

57   Q49 Back

58   Q43 Back

59   Q14 Back

60   Q124 Back

61   Q126 Back

62   Q125 Back

63   Q62 Back

64   Q63, Moyes Back

65   Q97, Gregory Back

66   Q100, Firn Back

67   Healthcare Commission and Audit Commission, Is the Treatment Working?, May 2008 Back

68   FTM 02, Alan Maynard Back

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