Annual accountability hearings: responses and further issues - Health Committee Contents

Appendix 8: Monitor's Response


This memorandum is Monitor's response to the Health Select Committee's tenth report,[29] following its annual accountability hearing with Monitor.

Monitor welcomes the Health Select Committee's annual accountability hearing and subsequent report into Monitor. The Committee has identified a number of key areas where Monitor is performing well, including maintaining its rigorous assessment process for prospective foundation trusts and increasing its monitoring of financial risk.

The Committee has also made helpful suggestions for example in relation to the proposals outlined in the Health and Social Care Bill which will inform Monitor's thinking as it takes forward its proposed new role.

Our response to each of the conclusions and recommendations set out in the Health Select Committee's report is given below

Responses to the Committee's conclusions and recommendations (the points in bold are the recommendations made by the Committee)

Monitor's operations over the past year have taken place in an extremely challenging context—not only in terms of its own changing role under the Health and Social Care Bill and the arm's-length bodies review, but also in terms of the wider pressures and change in the healthcare landscape. Although the proposed revisions to the Health and Social Care Bill have helped to define Monitor's future role more clearly, and some uncertainty will be removed as the Bill progresses through Parliament, Monitor will continue to operate in an extremely challenging context in the years to come. (Paragraph 10)

Monitor's response

As the Committee acknowledges, Monitor has faced a number of challenges over the past year, and we look forward to greater clarity on our proposed new role once the Health and Social Care Bill has completed its passage through Parliament.

In terms of the challenges to our workload, there have been five key reasons for this increase:

first, the increase in risk-assessing transactions, in particular resulting from the Department of Health's Transforming Community Services (TCS) initiative;

second, our ongoing assistance with the Mid Staffordshire Public Inquiry;

third, more assessments for foundation trust status have been carried out;

fourth, more problems have been identified within foundation trusts;

finally, supporting the Department of Health in the development of proposals for Monitor's new role.

In order to address this increased workload, we have reviewed the capacity and capability of these teams and increased staff levels as a result. We are likely to see a further increase in staff numbers over the next year. We will need to plan and manage that resource around specific areas of need. This includes the Government's target to authorise all remaining NHS trusts as foundation trusts by 2014. On compliance, an increase in inspections by the Care Quality Commission and the effect on trusts of the increasingly difficult financial environment are expected to present the main challenges to our capacity. To ensure that we remain a tightly-resourced and focused organisation which is as cost-effective as possible, we will continue to rely on buying-in expertise during times of peak activity and for work on specialised subjects/projects. This includes additional IT and legal support as necessary, as well as additional capacity around our Annual Planning Round, specific projects and other busy periods.

25.  Monitor faces a significant challenge in assessing and authorising for foundation trust status the remaining NHS trusts. We welcome the Government's decision to change April 2014 from a legal deadline for the completion of this process to a less rigid target, albeit one the Government expects to be met. Nevertheless, sheer numbers alone make the assessment task formidable, and the Government must be prepared to be even more flexible if circumstances demand it. (Paragraph 13)

Monitor's response

Monitor welcomes the Government's commitment to an all foundation trust sector. We believe that the process of preparing for, applying and achieving foundation trust status improves the quality of governance and financial management at a trust, to the benefit of patients and taxpayers, and there is analytical evidence to support this view.

To become a foundation trust, the organisation must be able to demonstrate that it has strong governance, is providing quality care, and has sound finances. In Monitor's view, these are standards that all providers of NHS care should be expected to meet, and we remain supportive of all trusts achieving the standards necessary to become foundation trusts, including ambulance and community trusts.

However, 2010/11 saw only 11 trusts referred to Monitor by the Department of Health. Out of these, seven were authorised. Approximately[30] 115 NHS trusts (70 acute trusts; 19 community trusts; 15 mental health trusts; nine ambulance trusts; and two care/ learning disability trusts) are yet to become foundation trusts or find an alternative solution.

This situation will have to improve significantly in 2011/12 if we are to assess and authorise all trusts (including ambulance and community trusts) by the Department of Health's April 2014 target date. This could mean starting up to five assessments a month.

We agree with the view of the National Audit Office (NAO) that the Department of Health has made a concerted effort to identify the challenges faced by the remaining NHS trusts seeking foundation status.[31] All trusts have now signed tripartite agreements setting out how they intend to move forward and we will continue to work closely with the Department of Health to support the process as much as we can.

26.  Monitor needs to be in a position to respond to the demands of applicant trusts, rather than trusts' programmes being artificially accelerated or delayed in line with Monitor's capacity. Monitor will, however, only be able to function effectively if the flow of applications through the pipeline is phased and not back-loaded. The Department of Health therefore needs to manage the progress of applications as far as possible to ensure Monitor is able to work effectively. Where this is not possible, the Department must either provide Monitor with the necessary resources to temporarily increase its assessment capacity, or should relax deadlines for a particular trust to enable assessment to be undertaken with due care and consideration. (Paragraph 17)

Monitor's response

Monitor welcomes this recommendation. We have been clear that, providing we have a steady flow of applicants which are well prepared by the time they enter our assessment process, it is possible that the majority of NHS trusts will be able to be considered by Monitor for foundation trust status by the 2014 deadline. However, it will not be possible to carry out the thorough assessment that Monitor's process requires if the majority of the remaining NHS trusts enter the Monitor pipeline at the same time.

It is difficult to increase capacity rapidly in our assessment teams and maintain the rigorous standards of the process. We are taking steps to address this problem by working closely with the Department and we will batch trusts into groups based on an initial assessment of their application. With careful planning we believe it will be possible to increase capacity on a temporary basis to meet this challenge, but it would not be possible to deal with the majority of the remaining trusts simultaneously.

27.  The Department must resist the temptation to artificially accelerate the process by referring trusts to Monitor before they have reached an appropriate level - to do so would only hinder Monitor's capacity to handle more realistic applications. (Paragraph 18)

Monitor's response

We agree that referring trusts to us too early could unnecessarily overburden our assessment team.

Monitor's main priority is to ensure that our assessment standards remain rigorous and consistent throughout the drive to ensure all eligible trusts reach foundation trust status. The rigour of our assessment process is widely acknowledged and we will continue to maintain our high standards and to obtain assurance from the CQC to ensure that only those organisations that are providing quality care and are financially and clinically viable, well-governed and legally constituted are authorised. It is not in the interests of patients and the public for trusts that are not well run or financially strong to be granted the independence and autonomy that comes with foundation trust status, and we therefore do not and will not approve trusts for foundation trust status unless they can demonstrate this. Our experience of working with the Department shows that it is taking its role of referring trusts when they are ready to enter our assessment process very seriously. If they were not, there would be an increased number of deferred applications and inefficient use of Monitor's assessment capacity. The Government has stated that it has no intention of asking Monitor to lower its assessment standards, and Monitor welcomes this commitment.

28.  The Committee strongly supports the view that the standards for authorising foundation trusts must not fall as a result of the Government's desire to see all remaining NHS trusts become foundation trusts. We welcome the assurances on this point from both Monitor and the Government. We note that Monitor intends to review its approach to assessment in order to accommodate the extra demands on its capacity. It is imperative that any change in process does not alter the standards expected of aspiring foundation trusts, either directly or as a result of the space created by a less comprehensive process. (Paragraph 25)

Monitor's response

As stated above, it is our priority to maintain the rigorous standards of our assessment process. There is no question of Monitor lowering its assessment bar or relaxing standards for authorisation as an NHS Foundation Trust.

29.  Monitor's assessments of Foundation Trust performance show that although many foundation trusts are performing well, a significant proportion are still struggling to meet financial and governance standards. (Paragraph 27)

Monitor's response

The most recent review of foundation trust performance was for the first quarter of 2011/12.[32] On finances, the results for the first three months indicate that overall the foundation trust sector is performing slightly ahead of plan. This is encouraging in the context of the financial pressure on the NHS. However, there is an increase in the number of foundation trusts facing significant financial challenges. We are looking closely at these and taking regulatory action in several cases to make sure that the issues are addressed. We will be working closely with the most financially challenged trusts to ensure they focus on long term solutions bringing to bear our growing experience of doing this.

The NHS as a whole, and the foundation trust sector within it, faces the challenge of improving value - increasing the quality and quantity of care provided for every pound spent. Foundation trusts are planning to deliver the most challenging Cost Improvement Plans to date. While they are slightly behind their plan in delivering these, they are ahead of where they were this time last year. We are clear that proper planning should make the plans achievable and we are equally clear that efficiencies must never be made at the expense of the quality of care patients receive.

There is also a higher number of foundation trusts with outstanding compliance actions with the Care Quality Commission (CQC) than was anticipated in their annual plans. This is due to an increase since quarter four 2010/11 in the number of trusts where the CQC has moderate concerns. We have reflected this in our risk ratings, resulting in a higher number of trusts assigned an amber-red risk rating to indicate that there could be some concerns about the overall governance of these trusts. We will take action if we establish that is the case.

30.  It is clear that some of the improvement in the numbers of foundation trusts in significant breach is accounted for by changes in targets which have been introduced by the Government. We agree that Monitor's compliance criteria should reflect the performance measurements used by NHS Commissioners, the CQC and the Government. (Paragraph 29)

Monitor's response

Monitor welcomes the fact that the Committee supports our use of national standards and targets as proxy indicators for effective governance. However, we will continue to review the appropriateness of this approach.

31.  The Committee believes that the parallel existence of Monitor and the CQC creates a significant risk of cost and process duplication between the two bodies. It is essential that the scope and function of each body is clearly defined and that both bodies observe the limits of their responsibilities, while retaining a holistic view of the regulated organisations. (Paragraph 31)

And 17. The Health and Social Care Bill further increases the level of cooperation required between Monitor and the Care Quality Commission, with the joint licensing scheme requiring particularly close interaction. In consequence, we discussed with Monitor the potential for merging the two organisations. We note that there are strong arguments in favour of retaining a separate regulator for quality issues: a single regulator would require substantial safeguards to ensure that quality and safety did not come second to financial concerns. We are also concerned about the scale of the challenges facing Monitor and the CQC, both of which are going through complicated transition periods, coupled with continuing uncertainty and financial risk in the healthcare landscape. Given these factors, and despite the obvious risk of overlap, we do not think it would be appropriate to consider merging the two organisations at this time. (Paragraph 69)

Monitor's response

We welcome the fact that the Committee recognises the important arguments in favour of retaining the current regulatory system. We believe it is important that patients know that one regulator is directly responsible for looking after what they care about most - safety and quality. This is the CQC's role. To be able to do this important job properly, it is desirable that there is no risk of the CQC being influenced or distracted by financial considerations, especially given the complex nature of quality measurement in healthcare. Of course, there is a need to look at quality and financial performance together. This is first and foremost the job of trust boards. Monitor's job is to make sure that trust boards are undertaking this critical role effectively, and to take action if they are not.

Monitor set out its full views on this issue in its supplementary evidence to the Committee. We agree that it is important that the scope and function of Monitor and the CQC are clearly defined and that there is no duplication. Monitor and the CQC work closely together and have distinct but complementary roles. Both organisations are committed to working together to identify where improvement is needed, and to ensuring that our approach is co-ordinated in order to deliver real benefits for patients.

32.  It is right that Monitor adapts its regulatory approach and its use of formal intervention powers to reflect the circumstances of individual cases and we accept Monitor's reasons for not using its formal powers in 2010-11. Nevertheless, we encourage Monitor not to be reticent to use its formal powers when necessary, and to regularly review the progress of trusts in significant breach. (Paragraph 33)

Monitor's response

Monitor welcomes the Committee's finding that Monitor is right to consider its regulatory approach and use of formal intervention powers on a case by case basis.

Where we feel that we need to use our powers to make improvements at foundation trusts that are in difficulty, we will not hesitate to do so. Indeed, since the Committee met with Monitor we have used our powers to intervene at University Hospitals Morecambe Bay NHS Foundation Trust, requiring the Trust to take actions to address our governance concerns.

33.  Over the next year, Monitor's foundation trust compliance role will become harder and more important. It must be prepared and resourced to meet this challenge. There will be more foundation trusts, many of them newly authorised, struggling to make demanding efficiency gains and to manage upheaval in the health landscape. Existing foundation trusts will also be affected. In this light, we welcome the fact that Monitor is increasing its monitoring of financial risk. We encourage Monitor to remain vigilant for further areas where closer scrutiny is needed. (Paragraph 36)

Monitor's response

Monitor agrees with the Committee that its compliance role will become increasingly important as the economic environment becomes more challenging. Our approach is designed to focus foundation trust boards on identifying emerging challenges and future risks and we will seek to continue to ensure that they prepare effectively for the tough financial challenges they face.

For example, we have developed our approach on quality governance to place extra scrutiny on boards' understanding of potential risks to patient services. Quality governance looks at how boards identify and manage risks to quality, act against poor performance, and implement plans to drive continuous improvement in patient care. We also work closely with the CQC in this respect, using their judgements on standards of care to inform our own decisions about the effectiveness of trust boards' focus on quality governance

We also anticipate an increase in the number of mergers and acquisitions involving NHS foundation trusts and other providers that will require risk assessment by Monitor's compliance teams.

We will consider any necessary changes to our regulatory approach to ensure it remains fit for purpose as circumstances evolve. For example, we have included in our Compliance Framework measures to scrutinise the performance of community services provided by foundation trusts.

34.  We are concerned about the proposals in the Health and Social Care Bill to reduce the financial oversight role of Monitor and increase the responsibilities of foundation trust governors in this area. We draw the attention of the House to the fact that Monitor reported in March 2011 that failures of governance within existing foundation trusts were a significant contributory cause to cases of significant breach during 2010 and we see little or no evidence that this position has changed sufficiently to justify the additional responsibility being placed on foundation trust governors. (Paragraph 41)

And 13. We welcome the extension of Monitor's oversight powers for foundation trusts to 2016, and the fact that the powers will then be reviewed. (Paragraph 46)

Monitor's response

We welcome the amendments to the Health and Social Care Bill which outline that Monitor's compliance regime will now continue until 2016. This should give time to develop appropriate governance arrangements for foundation trusts, and will give governors the time to learn how to use their powers effectively, which is in the best interest of patients.

As the Committee highlights, it is not yet clear what will happen post-2016. However the proposed new responsibilities for governors mean that a step-change is needed in the capability of governors. This is a major development challenge where an early start is needed if it is to be effectively addressed.

35.  Development will be necessary if foundation trust governors are to have the skills required to successfully take on their new responsibilities and operate effectively in the new landscape. We note that Monitor's ability to provide development at the required level may be limited by spending controls on arm's-length bodies. When we next meet with Monitor, we expect to see clear evidence of their programme to support development for foundation trust governors. In the meantime the Government should provide additional resources to Monitor if required, or consider delaying the devolution of responsibilities until there is evidence that the effectiveness of foundation trust governors has been enhanced. (Paragraph 45)

Monitor's response

The Department of Health is leading on the development of governors to take on their new responsibilities. We are contributing to this work, along with others including the FTN and FTGA.

36.  The Government's reforms and the financial context have placed Monitor in a position where its foundation trust duties have escalated, albeit on a temporary basis, and where its activities in both authorisation and compliance are likely to increase. Maintaining standards at this time will be vital. Monitor will need to adapt if it is to take on this additional workload without lowering its standards. The Government must ensure that Monitor has the resources necessary to maintain standards across foundation trusts while it retains responsibilities in this area. The next five years will be critical in ensuring that foundation trusts are in a fit state to survive and thrive in the new health landscape. (Paragraph 47)

Monitor's response

Monitor welcomes this recommendation. We are determined to ensure that high standards are maintained. To achieve this, our approach is centred on trying to identify problems as early as we can. We have an effective process to identify foundation trusts that are at risk of getting into difficulty in their financial or quality governance and to intervene if necessary. If we find that we are at any time resource constrained our first priority will be to focus on ensuring the ongoing quality of governance at existing foundation trusts.

37.  We welcome the fact that Monitor's new role, as set out in the Health and Social Care Bill, has been more clearly defined following the Future Forum process. The change in 'signal' from 'economic regulator' to 'sector regulator' is also welcome, and will address some of the concerns raised following the introduction of the Bill. It is unclear whether the change will result in challenges under competition law being handled in the way the Government hopes. It is also the case, as has been acknowledged by Monitor, that competition law in this area is largely untested. This is another area where Monitor's future workload is somewhat unpredictable. Monitor will need to plan for a range of contingencies, and the Government will need to adapt its support as appropriate. (Paragraph 55)

Monitor's response

Monitor also welcomes the clearer definition of its role following the Future Forum process. The changes provide helpful clarity and constraints on Monitor's role and how Monitor acts. They make it clear that our role would be to put patients first and to protect and promote their interests. In our view, this is absolutely right.

In terms of the Committee's point on Monitor's workload, we agree there is a need to plan for a range of contingencies and will ensure that this recommendation in reflected in our planning.

38.  The scale of change in Monitor's operations is significant, and many parts of Monitor's future role remain uncertain or unclear. This continuing uncertainty further complicates an already complex and challenging process of adapting to a substantial new role while maintaining residual foundation trust responsibilities. It is vital that the transition period is carefully managed, with each of Monitor's responsibilities, both old and new, being executed to a high standard. We are confident that Monitor is aware of the scale of this challenge, and we note that Monitor has begun to plan for the transition to its new role, as far as this is possible. When we revisit this topic next year we will evaluate how well Monitor has undertaken this transition. (Paragraph 61)

Monitor's response

Monitor agrees it is vital that the transition period is carefully managed. As we outlined in our oral evidence, and as the Committee acknowledges, Monitor has begun to plan for the transition to the new role. Once the Parliamentary process has been completed, Monitor's priority will be to ensure that arrangements are put in place as quickly as possible to manage the transition effectively. We are keen to move into the detailed implementation phase.

29   Health Committee - Tenth Report Annual accountability hearing with Monitor, September 2011 Back

30   There is no exact figure as some trusts may merge Back

31   Amyas Morse, head of the National Audit Office (13 October, 2011)


32   NHS foundation trusts: review of three months to 30 June 2011 Back

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Prepared 7 March 2012