Select Committee on Health Sixth Report

Annex A - Background to Foundation Trusts

What are foundation trusts?

In 2003 the UK Parliament passed the Health and Social Care Act to create a new type of organisation transforming English NHS trusts into foundation trusts (FTs). FTs are independent not-for-profit public benefit corporations. They are required to meet national targets, like any other trust, but have more freedom to decide how they achieve these standards. There are currently 107 foundation trusts in the English NHS, mostly acute facilities and, more recently, including some mental health units. Foundation status is granted to high performing trusts after successfully completing an application process administered by Monitor, the independent regulator of foundation trusts.

The Government's original aim was that all NHS trusts would eventually become foundation trusts. However in late 2007, the DH recognised that some trusts would not reach the standard necessary to achieve FT status and that the target of all trusts having the opportunity to become FTs by 2008 would not be achieved. The DH now intends that, over the next three years, all acute and mental health services will be delivered by FTs, with the implication that FTs will merge with or buy out the remaining non-foundation hospitals. The following table shows how the proportion of acute and specialist trusts which have been granted foundation status has increased.

The number of FTs is increasing, but the aspiration to have 100 FTs by December 2007 was not met

Note: 2008/09 figures correct at time of publication (June 2008). Data excludes mental health trusts

Source: Audit Commission and Healthcare Commission

Geographical distribution of FTs is shown at Annex C.

Foundation trusts differ from NHS Trusts is three key respects:

  • Local accountability—as well as Boards of Directors, FTs have Boards of Governors, and members, drawn from staff and the local public, who participate in elections for boards of governors.
  • Freedom from central control—FTs are not directly accountable to the Secretary of State, but instead to an independent regulator, Monitor.
  • Financial freedoms; FTs:
    • have greater financial flexibility: FTs do not have to break even and are allowed to retain surpluses
    • can invest in buildings and new services
    • can manage their own assets
    • can borrow both from the public and the private sector
    • can recruit and reward staff with more competitive salaries

Foundation trusts have been introduced against a backdrop of system-wide reforms to the NHS including Payment by Results, patient choice and the introduction of Independent Sector Treatment Centres, all of which have been introduced as incentives to improve the quality and efficiency of secondary care. At the same time a desire to shift more traditionally secondary care services into primary care settings closer to people's homes was expressed in the Our Health, Our Care, Our Say White Paper, and this has been underpinned by the introduction of practice-based commissioning, alternative primary care providers, and the consideration of other models of primary-secondary care services delivery such as polyclinics. At the same time the period during which foundation trusts have been operating has also seen the NHS as a whole slide into and recover from major financial deficit, and a wholesale restructuring of PCTs, which are the organisations responsible for commissioning care from FTs and other providers.

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Prepared 17 October 2008