Health and Social Care Bill

Memorandum submitted by Monitor (HS 129)

1.0 Introduction

1.1 This written memorandum addresses points raised by the Committee in Monitor’s oral evidence session that we wish to respond to in greater detail in order to assist the Committee in its consideration of th e Health and Social Care Bill. It does not address all of the elements of Monitor’s proposed new role.

1.2 Monitor welcomes the Health and Social Care Bill. We support the Government's plans to continue the reforms to t he NHS and as part of these to make Monitor the economic regulator for health and adult social care. We believe it is valuable to have a sector regulator which is independent of direct political influence, accountable to parliament, can build specialist skills and ensures that there is transparen cy over its actions .

1.3 Monitor does not support competition for its own sake. We consider that competition is a means to an end and that end is to improve care for patients and value for money for taxpayers. There is a growing body of evidence [1] to show that competition under fixed prices can drive improvements in health sector quality and productivity. In Monitor’s view, choice and the implied competition that goes with it should also be key components of creating a patient-centred and patient-led NHS. Competition between providers alongside patient choice can drive up quality, innovation and patient outcomes while reducing costs, simply, for example, because better quality hospitals attract more patients, forcing those which underperform to improve. This is especially important in the context of NHS productivity having fallen every year for the past decade [2] .

1.4 The Health and Social Care Bill is very clear that Monitor’s primary role will be to protect and promote the interests of service users, either by promoting competition where appropriate or regulating where necessary. It will be this principle that guides our approach as a regulator.

1.5 Monitor also welcomes the intention outlined in the Bill that all NHS Trusts will become foundation trusts and that they will be given more freedoms. We believe that the process of achieving foundation trust status improves the quality of governance and financial management at a trust, to the benefit of patients and tax payers. We also believe that operational d ecisions are better made locally - close to the patient and by the people who actually deliver the services - rather than in Whitehall. We will continue to set high standards which trusts will need to meet in order to achieve foundation trust status.

1.6 Monitor is delighted that, on many aspects of the proposals, the Government has listened to our earlier concerns and has addressed these .


2.0 Accountability

2.1 Monitor’s accountability is clearly set out in the Bill in schedule 7. It outlines that:

2.2 Monitor is and will remain an independent non-departmental public body. What we can and cannot do will be set out by Parliament in legislation.

2.3 We will continue to be accountable to Parliament and subject to parliamentary scrutiny: as Accounting Officer, Monitor’s Chief Executive can be called to account in Parliament for the stewardship of the resources within the organisation’s control; Select Committees can call us in and hold us to account; we will still be required to account to central Government for our use of resources, to lay our annual accounts and annual report before Parliament; and MPs and Peers can table questions about us.

2.4 The Secretary of State will appoint (and can remove ) the Chair and non- executive members of Monitor’s B oard.

2.5 Monitor will be under a specific duty to ensure that its regulatory activities are transparent, proportionate, consistent, targeted only at cases where action is needed and not in conflict with our remaining role over foundation trusts.

2.6 We will also be accountable to those we will regulate, who will be able to appeal , for example, to the Competition Commission or to go to the courts if they feel that we are not operating fairly.

Foundation trusts

3.0 The foundation trust pipeline (Part 4 of the Bill)

3.1 In Monitor’s view, it is helpful to have the deadline for all trusts to become foundation trusts set in legislation, as it sends a signal to the system that an all foundation trust sector is definitely the goal. The requirement for becoming a foundation trust is that the organisation must be able to demonstrate that it is financially robust and that it has strong governance. All providers of NHS care should be able to meet these tests.

3.2 There are currently 136 foundation trusts (as at March 1 2011). There are c.97 NHS trusts, ambulance trusts and community trusts still to become foundation trusts.

3.3 The Government is finalising its plans for the remaining trusts to come through the pipeline and has established a Provider Development Agency (PDA) to support NHS trusts that will struggle to achieve foundation trust status. This is something Monitor supports and has been calling for for some time.

3.4 There are some organisations that are either in difficulty at the moment or that have longer term structural problems which are making it difficult for them to produce viable business plans. Those organisations will have to be dealt with by the PDA on a case by case basis and the Department of Health has plans in place to support them.

3.5 Monitor carries out a robust and challenging process to assess trusts applying for NHS foundation trust status and we will continue to set high standards in our assessment process as we play our part in meeting the April 2014 deadline for all remaining trusts to become foundation trusts. The Government has said that it has no intention of asking Monitor to lower its assessment bar and this is something we are equally clear about. It is not in the interests of patients and the public for trusts that are not well run and financially strong to be granted the independence and autonomy that comes with foundation trust status.

3.6 April 2014 is a challenging deadline. However, providing there is a steady flow of applicants, which are well prepared by the time they enter Monitor’s assessment process, we believe that the deadline is achievable.

4.0 Changes following the failings at Mid Staffordshire NHS Foundation Trust

4.1 Following the failings at Mid Staffordshire, Monitor commissioned an independent review to consider how the way we operate and work with others could be improved. We have made changes to the way we work as a result. For example:

· We have enhanced the way we assess quality governance in applica nts to ensure that boards have robust arrangements in place to identify and manage risks to quality. This is particularly important in an environment of tighter public finances. These arrangements are tested by Monitor during the assessment process.

· We work very closely with the Care Quality Commission ( CQC ) and we won’t authorise a trust where the CQC has major concerns or is carrying out an investigation. We also share information about concerns in existing foundation trusts and coordinate any necessary action. 

· We have strengthened our assessment process. We now take a broader view of performance and seek a wider range of information and intelligence on the quality of care, with the CQC’s judgements being the key element.

· We have worked with the CQC and the Department of Health to define a "quality bar" for authorisation. The bar incorporates CQC registration standards, the Secretary of State gateway threshold and Monitor’s governance risk rating [3] .

· We now take full account of ‘soft intelligence’ such as trends in patient complaints, which feed into Monitor’s assessment and compliance work.

· Monitor is now contacted regularly by other stakeholders, such as voluntary organisations, patient groups, individual patients, coroners and clinicians who have concerns about a foundation trust. Stakeholders are encouraged to contact Monitor if they have concerns that a foundation trust is breaching its terms of Authorisation.

· Monitor seeks to work in partnership with SHAs and PCTs. Commissioners are encouraged to contact us if they have significant concerns about the performance of a foundation trust that they have not been able to resolve locally.

4.2 Monitor believes that these actions, specifically the greater focus on quality and closer working with the CQQ, have strengthened our assessment process. The Bill explicitly requires (Clause 264) Monitor and the CQC to co-operate in operating their separate regimes, so this robust relationship will continue in the future.

4.3 Patients and their relations were failed at Mid Staffordshire NHS Foundation Trust by the T rust and by the system as a whole . Absolutely every effort must be made to ensure this never happens again. As a result of the failings at Mid Staffordshire, we have both refined our assessment process and improved the way we work with other parts of the healthcare system to ensure that information is shared effectively and concerns are identified and acted upon. The system as a whole has also moved to place a much greater focus on quality and quality indicators/outcomes.

4.4 Monitor is very clear in its message to both foundation trusts and applicant trusts that while financial stability gives a platform for improvements in all aspects of performance, efficiency must not be achieved at the expense of quality. 

4.5 Monitor is participating fully in the Public Inquiry into events at Mid Staffordshire NHS Foundation Trust. We have submitted a statement that will be published in due course and a number of past and present Monitor employees are in the process of providing further statements and will also be called as witnesses. We welcome the Public Inquiry and the additional focus it is giving to what went wrong at this Trust. We will study the Inquiry report and any recommendations carefully once they are published, and where there are new lessons to learn we will work closely with all the relevant parties, including the Trust and the CQC, to act on these.

5.0 Protecting taxpayers’ interests

5.1 A t the moment, £24bn of taxpayer s money is invested in foundation trusts in the form of public dividend capital and loans. Overseeing this investment is an important role which Monitor has carri ed out for foundation trusts to date. This has ensured that foundation trusts have genuine freedom from central government control, with a rules-based approach to oversight of taxpayers’ investment which has been free from the risk, or even the perception of a risk, of political interference.

5.2 The Department of Health Command Paper outlined that the Department of Health will establish an operationally independent banking function which will take over the management of taxpayers’ investment stake in foundation trusts. (This will be enabled by clause 148 of the Bill.) This means that:

· In future, the public dividend capital foundation trusts currently receive (via the Department of Health’s Foundation Trust Financing Facility and finance directorate) will be replaced by loans from the new operationally independent banking function;

· The banking function will monitor the public investment in foundation trusts and exert control over foundation trusts through the use of regulations similar to bank covenants in relation to debt.

5.3 Monitor is pleased that the government has recognised that the important job of protecting taxpayers’ interests should be undertaken through an operationally independent banking function. Transferring financial oversight of foundation trusts to the Department of Health without ensuring the operational independence of the function would have been contrary to the overall vision of a devolved healthcare system with less top-down control. It is important that the Secretary of State is not able to direct the operation of the banking function in order to ensure that foundation trusts are free from political influence in the future.

5.4 In the long term, Monitor believes that a separate, statutorily independent body should be established to carry out the ongoing role of protecting taxpayers’ investments in order to ensure there can be no question of political influence.


6.0 Ensuring a level playing field

6.1 In protecting patients’ interests Monitor will need to determine if the ‘playing field’ amongst alternative providers is level. A level playing field is important to ensure that all providers are incentivised to improve and to innovate, and that markets are efficient. A lack of a level playing field between providers of healthcare could result in resources not being allocated to the most efficient provider. This in turn could result in higher costs and/or poorer choice and service quality to the detriment of patients and tax payers.

6.2 Ensuring a level playing field is not straightforward. While there are some quantifiable distortions which work in favour of NHS organisations, for example in the areas of tax, the cost of capital and pensions, there are others which work in favour of the private sector, such as the fact that NHS organisations tend to treat more complex cases and NHS organisations have responsibility for professional training of clinical staff.

6.3 It will be important for the economic regulator to gain a complete picture before reaching any conclusions as to whether the playing field is distorted, and if so what remedial action it should seek. The first step will be to build on the Department of Health’s Impact Assessment by carrying out a thorough and complete analysis of the current situation. This analysis will be conducted transparently and consulted upon before any decisions are taken in this area.

6.4 In the event that there are distortions that need to be addressed we would need to consider all of the potential options available. We would again consult broadly on the most appropriate mechanism to address these issues. Examples of potential solutions include introducing more differential pricing to take account of the complexity of cases. Until the analysis and options appraisal is complete, we will not be able to reach any conclusions.

7.0 ‘Cherry picking’

7.1 There is some concern that the Health and Social Care Bill will enable private providers to ‘cherry pick’ routine and less complex healthcare services and interventions that are cheaper to provide and more profitable. The concern is that this would leave the NHS to deal with the higher-cost, more complex and long-term conditions with insufficient funds, causing the destabilisation of local hospitals.

7.2 This is an area the economic regulator will have to look at very carefully. However, the Bill does provide for good checks and balances. For example, especially in rural areas, it is likely that many key services will be protected by designation. This means that if the cost of running the services were to outweigh the income, an application could be made to Monitor for extra funds to pay for the additional costs.

7.3 Furthermore, Monitor’s view is that the current system needs to change so that the complexity of the service should be reflected in the price charged, with all providers being rewarded on a cost-reflective basis. Cherry-picking should not be an issue if NHS prices are designed to reflect complexity of treatment so that appropriate payments are made for both simple and complex services.

8.0 Competition vs. co-operation

8.1 Monitor will have in due course to work out detailed policy in this area, but our starting point is that competition and co-operation are not mutually exclusive – increased competition does not and should not have to come at the expense of beneficial collaboration and integration of services. We believe that the two can co-exist as they do elsewhere and that the aim should be to increase co-operation where this will increase the efficiency or quality of healthcare, whilst not allowing behaviours that are clearly not to the benefit of patients, such as arrangements that might exclude a service provider purely on the basis of its ownership.

8.2 Similarly, too much integration (such as one player buying up many other players in a particular geographical area ) runs the risk that patients do not have access to the best care. It will be critical, therefore, that while partnerships fostering innovation and clinical integration must be facilitated, the patient’s ability to choose must also be protected wherever this is appropriate.

8.3 In our view, Monitor must seek to achieve a healthy combination of competition and collaboration through its approach. Allowing patients to choose the best care package for themselves, in consultation with their doctor, will also no doubt drive some further integration. We see nothing in the Health and Social Care Bill that will stop this. GPs should be able to work with clinicians from hospitals, and hospitals should be able to work with other hospitals, to plan ways in which patient care can be improved provided this is done in ways that do not seek to exclude other qualified providers from participating in the provision of care to service users as well.

9.0 EU Competition Law and the NHS

9.1 It is Monitor’s understanding that the Health and Social Care Bill does not change the way in which UK competition law (and, therefore, EU competition law, since this is reflected in UK competition law) applies to healthcare providers. What it does is to give Monitor the same powers as the OFT already has in relation to publicly and privately funded health care. This means that Monitor will be able to investigate infringements of UK and EU competition law in the healthcare sector in the same way as the OFT can investigate such infringements.

9.2 Commissioners will remain subject to Department of Health specified competition and procurement rules (which follow European procurement law) as they are today. Also as today, but for all providers not just foundation trusts, Monitor will police adherence to these rules. It is noteworthy in this regard that the ‘Any Willing Provider’ policy is helpful in that it provides a way for commissioners to satisfy UK and therefore EU public procurement requirements without the costs that would be associated with a competitive tendering process.

10.0 Comparing the NHS to privatised industries such as water, gas or electricity

10.1 Monitor does not believe that the NHS can or should be run in the same way as privatised industries such as water, gas or electricity. Healthcare is a distinct system with a number of particularities which the economic regulator will need to take into full consideration.

10.2 However, this is not to say that there will be no lessons from the experience of applying the principles of economic regulation to other sectors that may have some relevance to health. For example, ensuring the continuity of supply of essential services is something common to health and other sectors. We know that markets can fail and even without competitiv e markets, providers can fail. We believe it is valuable that the sector regulator oversees providers and any market mechanisms to ensure that the interests of patients and taxpayers are protected based on a set of transparent and objective rules which ensure, amongst other things, that in the event of some sort of failure, essential services are protected. The experience of other regulators may contribute to us working out how to do this.

Continuity of s ervice

11.0 Designating essential services

11.1 The Health and Social Care Bill (clauses 114 to 119) provides for a continuity of service regime to be developed. While commissioners will remain primarily responsible for ensuring the continuity of service provision, Monitor will be given powers to protect ‘essential’ services designated for additional regulation.

11.2 Where providers find themselves in difficulty, there should be robust measures to ensure that, above all else, the interests of patients are protected and the continuity of essential services is maintained

11.3 Monitor has for some time been concerned that the existing failure arrangements in health are not satisfactory. Failure cannot always be avoided. Indeed, it can be important that if a provider fails, for example as a result of mis-management, it is possible for it to exit the market whilst ensuring that essential services are maintained. Without failure, poor management or poor clinical care can continue unaddressed. It is very important that inadequate or inefficient management teams can be removed from the system if a provider fails. However, it is also important to recognise that failure and the exit of a provider does not have to mean the physical disappearance of facilities or the redundancy of staff, especially where they are designated services.

11.4 In Monitor’s view, the proposed arrangements for special administration and the creation of a risk pool are important features of the proposed failure regime which ensure that certain designated services will continue to be delivered to patients in the event of failure. Under clause 69, GP consortia, the NHS Commissioning Board and the Secretary of State for Health will all be able to request that a service is accorded designated status. Local commissioners, providers, MPs and other locally elected representatives of the public, and members of the public themselves will be able to engage in discussions about local service delivery and participate in the decision about which services to designate for additional regulation. Monitor will offer guidance and support throughout this process and will make the final decision based on the local recommendation .

11.5 Designation will be available to NHS-funded services, whether they are provided by NHS bodies, private providers or those in the voluntary sector.

11.6 In the event that there is a financial failure of a provider of designated services a health special administrator will be appointed. This builds on the practice that has been established in other sectors to ensure that services that are essential to a community can be delivered at the same time as financial restructuring and recovery. Services will be designated for a regulatory period defined by Monitor. During that period the provider will not be able to reduce, significantly reconfigure or cease provision of those services without the prior approval of both local commissioners and Monitor.

11.7 The Bill sets out that providers and commissioners of designated services will be required to take part in risk-pooling arrangements to ensure that Monitor can step in and keep essential services running if a provider becomes financially unsustainable. The purpose of the risk pool will be both to ensure the continuity of services in the short term and to provide funds to restructure an organisation to ensure the provision of those essential services in the long term.

11.8 In line with best practice seen in similar continuity of service schemes operated in other sectors, Monitor will have power to ensure that the providers which represent the greatest risk bear a greater share of the costs.

11.9 However, risk pool funding will only be accessible once a provider has been put into special administration by Monitor and management control has passed to the special administrator. This is to ensure that funding is not used to subsidise under-performing providers. We support the move to a clear and effective failure regime and a continuity of service regime for designated services.

March 2011

[1] For example:

[1] Cooper, Z. N., Gibbons, S., Jones, S. & McGuire, A. (2010). Does hospital competition save lives? Evidence from the NHS patient choice reforms.

[1] Gaynor, Moreno ‐ Serra and Propper (2010) Death by Market Power; Reform, Competition and Patient Outcomes in the National Health Service

[1] Cooper, Gibbons, Jones and McGuire (2010). Does Hospital Competition Improve Efficiency? An Analysis of the Recent Market-Based Reforms to the English NHS

[2] National Audit Office (2010) Management of NHS hospital productivity