Examination of Witnesses (Question Numbers
Ian Dalton and Sir David Nicholson
19 October 2011
Sir David, welcome to yet another session, and welcome to Ian
When I read the reportdespite the very
good evidence that we have just hadthe thing that really
shocked me was the massive size of the problem that you face and
the highly risky nature of the endeavour on which you are engaged.
Nearly half the trusts are not yet foundation trusts. You are
going to end up running about half of thoseabout 60and
you will set up this NHS trust development agency. Twenty trusts
have also self-admitted to having difficulty in achieving foundation
trust status. Is it realistic to think that you will get there
Sir David Nicholson: You are absolutely
right to point out the massive challenge that faces the NHS over
the next few years. Irrespective of foundation trust status, the
challenge, as you know, is great. We have never existed on small
amounts of real-terms growth for an extended period. We have had
the odd year of it, but it has never been over an extended period,
so the challenge is absolutely great, irrespective of the foundation
We believe that we can get the bulk of foundation
trusts in place by 2014. You will have seen the programme, and
you will have seen the work that we are doing on all of that.
Originally, when the White Paper was produced, we said that that
was the date by which everybody would be a foundation trust and
that we would abolish the status of NHS trust at that stage. I
think we listened to the conversations that we had through the
NHS Future Forum, and we looked at and amended the position to
allow a bit more time for a certain number of trusts for which
the challenge is so great. We talked about the possibility of
2016 for a small number.
Sir David Nicholson: 2016.
Do you think the figure of 20 self-identified trusts will grow?
We are thinking of South London Healthcare NHS Trust or Imperial
College Healthcare NHS Trust, which is in a mess. Quite a lot
of them are still in a mess. There are others that are not in
that list that could well have been included, such as Portsmouth
Hospitals NHS Trust or St George's Healthcare NHS Trust. I am
just thinking of a few.
Sir David Nicholson: There may
be trusts that come into that list, but there may also be trusts
that go out.
Will the list grow?
Sir David Nicholson: We do not
believe that the total number will grow. We think some will come
in and some will come out, but it very much depends on the detailed
work that is being done now. As you knowsome of the organisations
around PFI or the issue around South London Healthcareall
of those issues are being tackled at the moment. As we go forward,
we will refine the list, but the point of doing the list is not
to have a list; the point of the list is to focus our attention,
support and action to support those organisations going forward.
I have great respect for you, but I looked at figure 7 on page
21of the NAO Report, and you made an assessmentyou and
Mr Dalton no doubtin November 2010 of the problems in the
Department of Health assessment. Yet now, when we have theseI
cannot bear this term. Can I call them TFAs? I do not know who
Ian Dalton: That is mine.
Chair: God almighty. Okay, TFAs. Once
they were out, it was so ruddy wrong, and that was not after even
a year. On financial, you are up 63%. On quality and performance,
you have more than doubled120%. On governance and leadership,
the increase is nearly 120%, and we will come back to that, because
no doubt Jackie will want to pursue it. On strategic issues, it
is 32%. That is a huge difference. How could you get it so wrong?
And I do respect you.
Sir David Nicholson: We are getting
better at it, and we are getting more realistic.
But it is awful. When I think about the risk, I look at that and
think, "Blimey, that is what they thought they had a year
ago." And, a year in, it is far worse than even they imagined.
Ian Dalton: A couple of different
things are going on. The November 2010 exercise was in response
to my letter asking chief executives of NHS trusts and SHAs for
an informal view of the issues they faced at that stage. Since
then we have had a year's worth of activity with those organisations,
and they have spent a further year examining their position and
understanding the realities of what foundation trust status means.
We are, to a degree, comparing apples and pears. Figure 7 reflects
a year's activity, and a lot of thinking in a lot of organisations,
that has led them to that position. That is a positive in the
sense that it identifies the issues that the organisations know
they now need to deal with.
Chair: You might have known before.
Johnson: The Chair has explained that the list is self-identifying.
The trusts have to say whether they think they will meet foundation
trust status by 2014. Is that good enough? I am puzzled as to
why South London Healthcare Trust is not on the list. It appears
to have the largest annual operating deficit of any trust in the
system. Surely that should be qualification enough.
Ian Dalton: Fundamentally, the
whole exercise is about boards of NHS organisations, supported
by the SHA and the Department of Health, leading the process of
determining whether they are able to become a foundation trust
and taking responsibility for that. Being a successful foundation
trust is, in large measure, about having a board that is appropriately
set up and appropriately run to govern its organisation. We start
from a position in which the board has to take responsibility.
Clearly, the SHA in its oversight roleand we in our oversight
of SHAshas to assure itself that the appropriate support
is in place.
Johnson: South London Healthcare Trust doesn't even have a
Ian Dalton: In its process, South
London Healthcare Trust has identified a decision point at the
end of December and a second point at the end of March 2012, at
which it will be clear whether the trust has a way through to
foundation status. The trust has put that point to us in its TFA.
We have signed up, and we and NHS Londonparticularly NHS
Londonwill be working with the trust between now and 31
December to ensure that the assessment is sustainable and credible.
We will see where that takes us. The range of options that come
from that will then be determined.
Johnson: In your view, what are the key elements as to whether
South London Healthcare Trust can achieve foundation trust status?
Ian Dalton: The key elements for
foundation status are fairly general and apply not only to South
London Healthcare Trust but to trusts generally. Those elements
include a credible financial position; a credible position on
quality and performance; an established board that has the skills
to govern the organisation and manage the extra level of autonomy
that foundation status brings; and, importantly, a forward-looking
clinical strategy that gives confidence to the regulator, as well
as to local people, that services will be in place and will be
financially and qualitatively sound for the next few years. So
they are the normal set of things that you would expect. Those
are the assessments that we expect boards to address and to form
a view upon.
Johnson: I want to address two of those four metrics. On having
a credible financial position, South London Healthcare Trust has
the largest, and from my understanding it has consistently had
the largest, operating deficit in the system. On the point about
the board and governance, it presently has a good chief executive
in Dr Chris Streather, but it doesn't have a chairman at the moment.
The trust has an acting chairman. Over the past few years, the
trust has suffered an incredible turnover in chief executives
and chairmen, so I don't think we can really give it a tick in
the governance box. I have no comment on qualitythe clinical
strategies seem to be adequate, but I am not an expert, so I cannot
say. But on at least two of the four metrics, the trust is not
up to scratch.
Ian Dalton: South London Healthcare
Trust has to address some significant issues of the sort you are
talking about. It is not yet in a position to reach a conclusion
on its deliberations and discussions with NHS London. What we
wanted to seeand what it put in the TFAis that there
will be a decision point, where it will take account of all those
things in discussion with NHS London, and will determine whether
there is a route to move through in its current form to foundation
status. That is the nature of the process. The plans are not locked
down, in the sense that you have written your plan, there is a
timetable there, that's the end of it, go away and tell us when
you have become a foundation trust. They are describing a journey
that the organisations have to go on.
Morse: That last remark is helpful. I wanted to be clear.
My understanding is that there might be this and one other trust
where you could say that they are still deciding, that it is still
very much in question whether they are going to be able to be
foundation trusts, and you have given them more time to consider
Ian Dalton: That particular one
put in its document a point at which that decision is reached.
There are other organisations that have other issues to deal with
before they can determine whether they can become a foundation
status organisation. There will be other organisations, as they
go through this journey, that have to keep those things under
consideration. That seems an appropriate way to describe it.
Morse: I was not trying to suggest that it wasn't. I was just
trying to understand what proportion you would say would fall
into the same category as that one at the moment.
Ian Dalton: The vast bulk of organisations
in that category have already taken that decision by putting themselves
on the list of 20. They have already considered the issues that
we have heard about from the three chief executives, and therefore
have put themselves in that place. But there are other organisations,
including the one raised by Mr Johnson, that have to go through
that process and reach a conclusion.
Johnson: I have two quick follow-up questions. On or before
31 December, you will come to a view collectively with SLHT as
to whether it will get to foundation trust status. If you decide
it is not going to get there under the current plan and it goes
on this list, then what? Do you then sit in a room and devise
a new strategy?
Ian Dalton: Fundamentally, I think
the responsibility still stays with the trust board, clearly with
the support of the system if it is struggling to find an answer.
As we have heard in these three casesand you will see in
at least 17 of the 20 cases on the list already engaged in thisit
is the board's responsibility to find a way forward, not just
to achieve the badge of FT, but to provide a credible clinical
strategy to give the sustainability the patients need. As we have
heard from the three chief executives, this is fundamentally about
the sustainability of clinical services; far less about the acquisition
of a badge.
Johnson: Thank you. The last question is on PFI. Like many
other trusts, the SLHT is particularly burdened by PFI on two
of its hospitals. It is awaiting news on the status of the PFI
debt. What is your thinking at the moment about what to do with
the PFI debt, which is lumbering so many hospitals in our system
with a very difficult cost base?
Sir David Nicholson: We are going
through a process that we have not yet completedusing outside
support and advice to enable us to do it, as we do not have the
skills within the Departmentto identify each of the organisations
that identified PFIs as being a potential issue in relation to
their foundation trust status. South London is one of them. We
will get to a position relatively soon to identify the list of
organisations that we think that by their own methods will not
be able to deal with the scale of the issue. Then we will have
to talk to the Treasury or whoever about what we do about that.
We expect that to be a relatively small group.
Johnson: How are you analysing that? Are you saying that,
if PFI interest costs are more than x% of income, we will shift
it back to the Treasury? How are you looking at that?
Sir David Nicholson: No. It isn't
as simple as looking at the amount or proportion of turnover going
to PFI, because some organisations work well with relatively high
numbers, higher even than South London Healthcare. We look at
the potential for efficiency or productivity gains, so we look
forward on how they can do that. We look at the clinical strategy:
is it possible to bring more services into the building to utilise
it? Finally, we look at whether there is a possibility of some
other support to be given to them. We look at those things.
Johnson: Lastly, when will we have an announcement?
Sir David Nicholson: It is quite
difficult to tell at the moment, but hopefully, as soon as possible.
We want it by the end of the year, in the sense of it linking
with decisions about the future of South London Healthcare. Some
of it is out of our control.
I am conscious that Anne wants to come in on PFI, but I will bring
her in later, because I think there are a whole lot of questions
on that. I have James, Ian, Austin, and Anne, but one thing arises
from what Jo said; you push it all to the trust, but at what point
will the Department intervene, and what action will you take?
Sir David Nicholson: In a sense,
that is the whole point. They have identified that, on their own,
these organisations do not feel that they can support it.
When will you intervene? West Middlesexwhen will you say,
"You cannot reach foundation trust status"? Like South
Ian Dalton: It is not at a set
point in time. What the SHAs will dothey are ultimately
the first line of oversight hereis keep a monthly engagement
with these organisations. At the stage that they, in discussion
with usif it were to happenfelt that things were
going off-track, a local intervention would take place. We are
not simply saying, "The plans are here. Go away and come
up with the answer."
The SHA, as the DH regional body, will decide whether a hospital
can achieve foundation trust status, and if your judgment is,
"No" you will intervene.
Ian Dalton: We and the SHAs will
keep that under continual review and we will not let organisations
pursue strategies that are not viable.
So, you will intervene.
Ian Dalton: Yes.
What will your intervention be?
Ian Dalton: It will be that which
is required. It depends on the nature of the problem, does it
not? The aim fundamentally is to help boards be successful and
my intent would be that intervention is not needed because we
support boards to make the right decisions. That, I think, is
why you have 17 of the organisations
That's obviously where you want to be, but let's assume that there
are some. I might think of mine, which we will come back to later.
It appears to have hit every criteria of non-sustainability. There
must be a point at which you intervene and take action. I then
want to know, in particular, what you will do to safeguard local
services. Will you safeguard them? Who will be responsible? For
all sorts of issues it does not work at the local level, so where
does the buck stop?
Sir David Nicholson: The responsibility
for safeguarding local service in those circumstances is the commissioner,
and the buck stops here for commissioning.
Right. So, you will have to intervene, and you will have a menu
of optionsmerger, takeover, or privatisation.
Sir David Nicholson: We will have
a menu of options: we will have development support; we can put
people in with expertise; we can bring in clinicians and clinical
leaders from other organisations to support and help; we can replace
the leadership of the organisation if we think that is necessary.
Sir David Nicholson: Yes, of course.
McGuire: If they're independent?
Chair: No, this is pre-foundation trust.
Sir David Nicholson: We can replace
the leadership if we think that is necessary.
Wharton: To satisfy my curiosity, following your answers to
Mr Johnson's questions, could you tell us which trust pays the
highest percentage proportion of its income to PFI and what percentage
Ian Dalton: From memory, I think
it might be Dartford and Gravesham at over 18%.
Q118 Mr Bacon:
The report says that 20.1% of turnover is the highest, in paragraph
2.14. Which one is that?
Mark Davies: It is Dartford and
Wharton: We have this list of 20 which are not viable. What
assessment have you made of how high that number would get before
the pipeline process itself becomes unmanageable? Have you made
any assessment, or any contingency planning on that? If you found
it were 40, because something had gone very wrong, or 60, at which
point would you need to seriously revisit the whole plan?
Ian Dalton: The aim is that the
number remains relatively small, and the advantages of the process
we are going through are that as trusts go into the sort of arrangements
that 17 of the 20 are currently already talking about, that number
should fall away as those arrangements, whether it is through
acquisition merger or whatever, take hold. The aim is to get the
number below that if at all possible.
Q120 James Wharton:
I accept that, Mr Dalton, but if it increases, have you made any
assessment of the level at which the whole process will not be
manageable by the Department? I appreciate that the aim is to
bring the number down, but what happens if it goes wrong?
Ian Dalton: It is not a question
of oversight by the Department; it is a question of organisations
doing the things that they need to do to become a foundation trust
because they need to do them anyway to be viable clinically in
the current arrangement. I do not think it is a question of the
FT pipeline; the FT pipeline is a reflection of the activities
that they have to undertake. They have to do those things because
they are working in an environment that is characterised by less
growth than they have previously had. I do not think that there
is a number at which the pipeline gets drawn into question.
Wharton: And your consultants have identified six for which
the PFI scheme was a major obstacle, is that right?
Ian Dalton: That is correct.
Wharton: Are those six in the list that we have got of the
20 trusts that are not viable?
Ian Dalton: Some of them are.
Wharton: So they may be added later, but it may be that although
it is a major obstacle it is not significant enough to put them
into that 20?
Ian Dalton: There are some in
the category that are going through to consider their futureI
refer to the question raised by Mr Johnson, for instance.
Wharton: Are you concernedare they concernedbecause
when PFI schemes are signed off, both the Department and the trust
would have said that they were affordable? Obviously, if we are
in a position where six are being identified as being a major
obstacle, the affordability of those schemes is clearly being
brought into question. Are you concerned that something went wrong
when they were signed off, and have you any idea why they were
signed off if they are now a major obstacle to the transition
that the trusts need to make?
Sir David Nicholson: That part
of the process that we are going through at the moment is to identify
what assumptions were made at the time they were signed off and
what has changed about those assumptions. The most obvious assumption
that was made at the time with many of them was that growth in
health expenditure would continue into the future for a long time,
and of course that is not the case.
Q125 Mr Bacon:
You say "obviously", but is that rightthe basis
of most of the PFI negotiations was that at financial close they
had x, but they were expecting in the years ahead continued, steady
growth in health expenditure?
Sir David Nicholson: No, what
I am talking about isthere are a lot of PFIs that we have
done, but we are talking about six.
Wharton: Twenty two is a lot.
Sir David Nicholson: No, we believe
it will be fewer than sixless than a handful, I think I
have saidso we are looking at those six in particular.
What it meant was they assumed larger increases in activity, and
the income associated with that, than they will probably get in
practice. That is probably the major reason, but we are examining
each one individually to look at what the assumptions were, because
it is important for us to do that before we make a judgment about
whether any support or help might be needed by these organisations.
Wharton: One of the things that the report indicates that
the Department is looking at is loans to some of the trusts, or
helping them to reorganise their loans, and it references discussions
with the Treasury about thatI think the figure was £375
Sir David Nicholson: This is for
Wharton: If you identify more problems, what contingency is
there for that figure going up, and how flexible do you think
the Treasury will be if you say that you want to extend that even
further? Additionally, when you answer thatI am conscious
to make this my final questionis there a danger that in
sorting out such restructuring problems you actually cover up
long-term organisational problems, which will just resurface when
they have gone through the period of grace that you have bought
them with Treasury money?
Sir David Nicholson: Yes, can
I say that the purpose of the Treasury money is this whole issueI
am sure Ian will be able to explain it better than meabout
liquidity. They have to have in their bank balances 15 days' operating
money, and of course NHS trusts do not necessarily need to have
that because they have the whole of the NHS behind them. Each
individual organisation needs that money; it will not count against
our revenue expenditure, but it is cash that they will need. It
will be counted against the totality of the Government's cash
position. We are hopeful that we can get a solution with the Treasury.
I think the figure in here is £370 millionit might
be slightly more than that when we do it, but we think it is worth
doing. If you are saying that there is another issue about the
costs of change, some organisations will need some resource to
make the clinical change that they need. If we are going to invest
in organisations to help them and support them to change we need
to be pretty hard-nosed about what we get in return for that.
Is the Treasury going to help?
Marius Gallaher: We are going
to listen to what the NHS and the Department of Health come up
with and we won't make decisions
And what is your final bid? It is up from £376 million. You
have put that in, but £376 million ain't enough, I heard.
What is it now?
Sir David Nicholson: I don't think
Well, you just said that it would be a bit more. So I thought
that this was about that.
Sir David Nicholson: It might
be. But at the end of the day it is implementing Government policy
so I assume the Treasury will be helpful.
So it could be £500 million or £600 million?
Ian Dalton: It will also depend
on the time of authorisation of each of the trusts. So this is
what we have done on one occasion so far. Southampton, which is
mentioned in the report, is a trust that is ready to be an FT.
It is making a recurrent surplus. It is meeting all the objectives,
but its balance sheet is at the time of application not strong
enough to meet the monitor teststhe 15 days' liquidity
and the 10 days' cash. A one-off injection of resource into the
balance sheet to help them do that is payable at the day they
become authorised, not in advance, for the purposes of strengthening
a balance sheet. So it depends on the process as we go forward.
We are at a stage of having to have those conversations with HMT.
McGuire: Sometimes in this Committee we talk figures but we
do not paint pictures. So I would quite like to give you an opportunity
to paint a picture and to tell me what Dartford NHS trust's facilities
were like before the PFI project and what they are like now.
Sir David Nicholson: I couldn't
tell you that.
McGuire: I assume that they are better.
Ian Dalton: I would imagine that
they would be.
McGuire: I think for that amount of money
Ian Dalton: The purpose of a PFI
hospital is normally to replace out-dated buildings that are no
longer suitable for modern health care. I do not know that particular
scheme, but I am aware that through the PFI programme a large
number of state-of-the-art new hospitals have been built and often
they replaced facilities that dated back many, many decades. I
just do not happen to know that particular scheme.
McGuire: So it is a fair assumption that what we had was part
of the Victorian estate prior to PFI in Dartford and some of the
other areas where PFI was used as a financial tool to renovate
or rebuild the estate. Is that a fair comment? I do not ask you
to be specific.
Ian Dalton: Whether it is Victorian
or Edwardian, a lot of the buildings were extremely old. Some
of them dated from before the NHS was created.
McGuire: Downton Abbey would probably have recognised most
of our hospitals. Let us put it that way. Right, we have spent
a great deal of time talking about PFI and the numbers. Sir David,
I think it was lost at one point in your answer: how many trusts
are in difficulties with PFI being part of the problem?
Sir David Nicholson: When we asked
all NHS trusts, "Do you believe that PFI is contributing
to your inability to become a foundation trust?"is
Ian Dalton: It is 23 individual
organisations, which are likely to become 22 trusts because two
of them are coming together.
McGuire: And that figure came down to six and you suspect
it may be even fewer.
Sir David Nicholson: And our analysis,
based on looking at productivity benefits, service change and
all the rest, is that we are down to about six. It may be smaller
by the time we end.
McGuire: And the NAO report said that there were up to six.
It may be fewer or it may be slightly more. It said that PFI payments
sat alongside a variety of other financial problems. That indicates
to me that it was not just a PFI problem in some of those trusts
but that there were other financial issues. Would that be fair?
Ian Dalton: That would be fair.
It varies from organisation to organisation, but the purpose of
the PFI work is to understand whether those trusts have excess
costs specifically related to the PFI. They may have other financial
problems as well, which would need to be fixed to allow them to
become foundations trusts.
McGuire: So you can extract PFI, but again it would be fair
to say that the PFI difficulties sit alongside other financial
difficulties in those up to six trusts, give or take
Ian Dalton: It varies from organisation
to organisation. The purpose of the work we are going through
now, looking at the opportunities for efficiency improvements
in these organisations and the costs of the buildings and the
way they pay for them, aims to split out the excess costs, if
any, from the PFI exercise. If there are other financial problems
that other hospitals without PFIs are having and these also have,
they would necessarily need also to be fixed by the organisation
as part of the journey towards foundation trust status.
McGuire: We have heard a wee bit this afternoon about being
able to support financially some of the trusts that might be in
difficulties, but I notice that paragraph 20 on page 9 of the
NAO report states: "Interventions using public money to increase
aspirants' apparent viability would also risk distorting competition
and undermining the policy objective to increase hospitals' financial
sustainability." Can you explain what the implications of
that sentence might be for some of the trusts that might find
themselves in financial difficulties?
Ian Dalton: I would have used
slightly different language, but the issue is that we are looking
at different things. There are three different categories of potential
problems that we could be talking about, which need to be treated
differently. Briefly, at one end, we could be talking about trusts
that are currently not in an acceptable financial position, because
they are not in recurrent balance at the moment. There are some
there. Where that is a local performance issue, that needs to
be dealt with locally.
There are other organisations that have liquidity
problems but are fundamentally sound financially and performing
well on a day-to-day basis, and then, as I have mentioned earlier,
we would be looking at how we would need to help them become foundation
trusts. Then there is a third categorya small number of
organisations that have issues around the PFI costs. We need to
dissect those different things, because they are different. The
aim is to look relatively sympathetically at issues of liquidity
and the trusts that genuinely have a PFI problem.
McGuire: Right. I want to park PFI. My question was about
interventions that would distort competition. What would happen
if you assessed that a public support interventiona financial
interventionwould distort competition? What would be the
outcome for the NHS trust involved? Would it just be allowed to
collapse? Would it disappear?
Ian Dalton: I don't recognise
McGuire: Do you recognise the concept?
Ian Dalton: If there are a small
number of trusts that have real problems in being financially
sustainable because of PFI, that is the conversation that we want
to have with them. It is about levelling the playing field.
McGuire: In that case, I will have to ask Mark Davies to explain
his language, because I understand the language. It is at the
foot of page 9, paragraph 20.
Mark Davies: What we are saying,
in a nutshell, is that you cannot continue to inject finance into
organisations in a way that makes them overly competitive in the
marketplace. You have to inject sufficient money in ways that
would not distort competition in the marketplace going forward.
Amyas Morse: Let me add a bit.
The point we are making is that it is a stated intention that
there will be competition to supply services. That's right, isn't
Sir David Nicholson: Yes.
Amyas Morse: If you are going
to have various hospitals competing to provide services, and some
of them have been given additional financial support to be viable,
and they are winning competitions to provide services, it is at
least something to be considered, because it might be seen as
distortive of competition. We are not saying it is unavoidable
or cannot be managed. We are simply saying that it is something
to be borne in mind. For example, if you had one trust with a
large PFI liability that was viable bearing the whole of that,
and another had had some sort of assistance, you can see that
there might be an argument about whether it was fair for the two
to be fighting it out in competition terms as to who was delivering
services. We are simply saying that it is something that needs
to be considered. We think there is time to consider that, so
we are not regarding it as a killer argument, but it is worth
bearing in mind. That is why it is in the Report.
McGuire: Let me be clear. Even if there is a social and clinical
need for a trust to exist in that area, and if there is an influx
of public sector finance, it could be said that that is distorting
competition. Is that a fair analysis?
Sir David Nicholson: All that
could be said. It is absolutely true, but we are only talking
about a relatively tiny number of organisations. This is not a
big thing, but in the new, post-Bill world, subject to Parliament
and all the rest of it, it is perfectly possible to give organisations
subsidies. Commissioners and the economic regulator could agree
that a subsidy was needed. It might be for a variety of reasons:
because the particular services are geographically isolated and
so cost more; it could be an arrangement that we did around the
PFI to keep the service going because our responsibility is to
make sure that the services are continuous. You can do it, but
you have to do it openly and transparently so that everyone can
see what you are doing.
Q146 Mr Bacon:
On this point, Sir David, can I just check one thing? Let
us imagine a situation where a contractor was unable to meet its
contractual obligations, and you said, "You can't meet your
contractual obligations. We have looked at this hard and there
is no way you are ever going to meet your contractual obligations.
But if we give you enough of a subsidy, you may be able to develop
a product that you could go out and sell in the market and compete
with others who develop their products without that subsidy."
Would you regard that as unfair, distorting competition?
Mrs McGuire: Do you have an EU competition
lawyer with you somewhere?
Q147 Mr Bacon:
It is not a hypothetical example.
Sir David Nicholson: I know that
is not hypothetical.
Q148 Mr Bacon:
You know what I am talking about. I am talking about CSC, aren't
Sir David Nicholson: I know exactly
what you are talking about.
Q149 Mr Bacon:
And that is exactly what you have just done, isn't it? That is
exactly what you have just done.
Sir David Nicholson: I am saying
that, in the NHS perspective, as long as the subsidy is there
to protect services and to give us something that we need for
future patients and communities and it is done transparently
Q150 Mr Bacon:
You could justify it
Sir David Nicholson: It is possible
to do it.
Q151 Mr Bacon:
But if it were in a situation where it is not to protect services
and not particularly transparent, and the only aim was to give
the contractor which failed to meet its contractual obligations
the possibility one day of producing a product that it could then
use to compete with others who have managed to produce successful
products without subsidy, it would be unfair, wouldn't it?
Sir David Nicholson: But
Q152 Mr Bacon:
Sorry, what is the answer? That would be unfair, wouldn't it?
Sir David Nicholson: The answer
is that you pay when you get the product.
Q153 Mr Bacon:
All evidence to the contrary in the past eight or nine years of
Sir David Nicholson: That is subject
to a whole different set of arguments.
Swales: One of the features of the NHS at the moment is that
we are playing against a moving target. In fact, it is worse
than that. You can imagine all sorts of analogies. I would like
to pick up one issue, which is the future of the PCT estate, particularly
things like district hospitals and community health centres.
My understanding is that the default position is that those assets
will go to the local acute trust. Is that true?
Sir David Nicholson: The arrangements
for the estate are that the first port of call is whoever is currently
providing the majority of the service. If a community health
service were providing the service, it goes to the community health
service. If an acute hospital has taken over those services as
part of an integrated organisation, it will go to the integrated
organisation. It will go to who currently provides the service.
Swales: I need to come back to that when I think about my
local scene, but my question relates to the Report in the sense
that we are looking at the ability to achieve foundation trust
status at various hospitals, but the target is moving because
around those hospitals there will be other services like district
hospitals. To what extent do you see that complicating this in
the post-PCT world?
Sir David Nicholson: What do you
mean by "district hospital"?
Swales: The difference between an acute hospital and a hospital
that provides local, secondary-type services. It might have an
A and E; it might have clinics and so on.
Ian Dalton: To be a successful
applicant for foundation status, a hospital needs to be able to
set out in some detail and subject to considerable challenge by
the SHA, then by ourselves and ultimately by Monitor, how it will
operate its clinical model, how that will deliver high-quality
care and how it will be financially sound over the next few years.
As we heard from the chief execs, things are
changing clinically in the NHS at a very fast rate. Ownership
of the estate is a relatively minor part of those changes, but
it is going on at the same time. It seems that, when a hospital
is engaged in turning itself into an organisation that also provides
community services, as a number of acutes are, its strategy must
set that out. Within that strategy, it must be clear about things
like the ownership of buildings and the assets necessary to deliver
that service. So, yes, there are some changes, but that is the
sort of thing that the management team and the board of that organisation
must be able to explain and understand, otherwise the hospital
will struggle to become a foundation trust.
Swales: Are you saying that all the hospitals that we are
talking about are making applications that cover the entire clinical
delivery in their whole area?
Ian Dalton: When a hospital makes
an application, it covers the delivery within its organisational
boundaries. Increasing numbers of those have become providers
of both hospital and community services. As David said, if they
provide both in relation to the critical clinical infrastructure,
as it is called, certainly the areas of the estate owned by PCTs
that directly provide care to patients will have the first opportunity
to acquire those assets.
Swales: But what if they are not providers of both? If people
are applying to become foundation trusts and there are community
assets in their area that they currently do not control, what
is the future of those community assets?
Sir David Nicholson: They would
normally go to the organisation that is providing the community
Swales: This is very important, because I have been told the
opposite by a Ministerno pressure. Are you saying, therefore,
that assets such as community hospitals and community health centres
could be the subject of community trusts, of the new organisations?
I am talking about after the PCT goescommunity foundations.
Ian Dalton: We are not anticipating
new community organisations coming forward. From memory, I think
around 16 organisations are already progressing towards community
foundation trust status.
Swales: But what happens to the parts of the country in which
there are community assets that are falling between the stools?
What about those that are not an acute trust? They are not going
to be picked upI understand from your answersby
the process of becoming foundation trusts. What happens to them?
Ian Dalton: My understanding is
that the first port of call for acquiring ownership of assets
is with the organisation, as David says, that is providing the
service from them. If
they do not decide to take them on to their balance sheets, I
believe they will be managed as part of a national arrangement
so that they can still be used by local health services.
Swales: But with the assets I am talking about, the services
are provided and commissioned through the PCTs. That is the pointthe
organisations that run them will not be there any more.
Sir David Nicholson: But their
community services will be there and will be provided by someone.
Community services have not been provided by PCTs in most parts
of the country for some months; they have transferred to new provider
Swales: That comes to the nub of it, because I know that has
happened since April.
Sir David, you said that one of the ways to
get out of the PFI and financial binds was to bring more services
into the building. How will you prevent the big acute trusts,
essentially, closing down community operations in order to bring
more services into the building to help deal with a financial
Sir David Nicholson: First, that
must be dealt with locally. The people who are particularly responsible
for making sure that services are provided in the best way for
patients are the commissioners. So it is the PCT's responsibility.
Chair: It's you.
Swales: But we are not going to have a PCTthat's the
Sir David Nicholson: It is the
commissioner's responsibility to ensure that services are provided
and that there is a range in location of services. But of course
there will be local discussions, because people will make trade-offs
around all that.
Ian Swales: I have probably asked enough
questions, but I am trying to flag something up. You made the
point that only a handful of trusts are in this position and so
on, but if you live in a particular area and it is one of your
trusts, you don't care if it is a handful; it is your trust. I
have a particular problem with a PFI new hospital in the town
that I represent, which the acute trust, effectively, manages
now. It does not want to put sufficient services in for the design
of the new hospital. It is already happeningthere is a
Mitchell: I want to recap, because all the earlier talk about
perfect competition left me a little lost. Are you going to help
out the trustsyou have said that there are about half a
dozenthat, because of the costs of PFI, cannot meet foundation
status financially in any way?
Sir David Nicholson: If we are
convinced that there is absolutely nothing they can do about it
in terms of efficiency, moving services, service configuration
and all of that, we will consider the possibility of providing
a subsidy for them, but we will have to talk to the Treasury and
everybody else about all that.
What we do not want to do is to set people up
to fail. If we think that a particular organisation has so many
problems because of the scale of the PFI that they have to deal
with, and we know that is the case, the wrong thing for us to
do is to pretend that that is okay and to watch them fail.
Mitchell: So you are going to let them twist in the wind,
but you will probably in the end give them theourmoney.
Ian Dalton: Potentially, we have
to look at levelling the playing field, not so that they make
a profit from it, but so that they have no disadvantage they cannot
deal with, because if they carry that into an FT application,
they will be financially unsound and they will not be successful.
In that case, why, in relation to the Barking, Havering and Redbridge
University Hospitals NHS Trustor whatever it now calls
itselfdid you refuse to give David Varney, when he was
chair for a brief six monthsthe only time I thought something
might sort itself outthe money he requested to provide
him with a clean sheet of paper so that he could run a viable,
sustainable service for my constituents and for six or so other
MPs in the area?
Sir David Nicholson: We do not
give out subsidies of this level because a chairman says that
he wants them.
Obviously not. It was a perfectly rational plan to get rid of
a long-term problem, which is what you have been talking about,
that might have given the hospital a chance to be sustainable.
You turned him down; he resigned as chairman. He is probably the
only good chairman we have had.
Sir David Nicholson: I cannot
comment on David Varney's plan, which I did not see, but if you
think about what we are doing now, that is exactly what we are
Why didn't you do it then? What has changed that you are doing
it now? That was two or three years agoI cannot remember
when he was there.
Sir David Nicholson: Because we
are doing the analysis now, not then.
Ian Dalton: We are looking at
this in the light of the changing financial circumstances of the
NHS, the changing clinical practice and the need to have organisations
that are sustainable in that environment for the next five years.
We are looking right across the whole of the FT pipeline and we
are trying to deal with the problems that we have to face
You set him up to fail. He then walked awayI do not blame
himand he was our only hope of sorting out a decent bit
of health infrastructure in north-east London.
Sir David Nicholson: Irrespective
of that, we have the opportunity now to put it right.
Mitchell: I take it that so far we have a definite maybe that
you will help them financially?
Sir David Nicholson: A
Mitchell: Right. Just let me move on, because I do not want
to get bogged down in London. Why is it that the proportion of
hospitals that have already gone to foundation trust is so much
higher in the north than it is in, say, London? Are there any
peculiar difficulties in London or those areas, like the west
Midlands and east Midlands, that have a low proportion of hospitals
that already have foundation statushave been foundationised,
or whatever you call itwhich are going to make it more
difficult to carry the programme through in those areas? Is the
north just naturally more compliant, nicer and ready to fall in
line with Government policy?
Sir David Nicholson: It is difficult.
If I generalise, I know I will upset somebody. The point I would
make about particularly the north of England is that it has had
more growth than the south of England over the past few years,
and it has also tackled many of the big reconfiguration issues
that have not, for a whole variety of reasons, been tackled in
the south, so in that sense it has a more sustainable, established
hospital system. When you get down to London and the south-east,
many of the kinds of reconfiguration decisions that have been
taken in the rest of the country, for a whole variety of reasons
have not been taken in London and the south-east. Hence you have
got these issues, and the delay in moving people to foundation
Ian Dalton: I just want to give
an illustrationand I declare an interest as a former north-east
trust chief executive and as substantive chief executive of NHS
North East. The north-east is the region that has probably got
most of its trusts throughjust the ambulance trust is currently
with Monitor, but it has got all its mental health and acutes
through. If you look back over the last 10 to 15-year period
there have been significant organisational changes, organisations
coming together, hospital trusts now providing services from more
than one site, and clinical changes. Those things, combined with
the factors that David is talking about, make it perhaps easier
for those organisations to get through. That is one of the reasons
we are having a look, on the list of 20, at whether some of the
organisations need to come together. They then create a viable
What do you mean by viable? Viable in whose terms? Financially?
Ian Dalton: Ultimately, finance
is invariably a product of clinical viability.
Chair: And what about patients? Anne
said something earlier about how the whole argument is driven.
I can see there are financial issues that you have got to confront,
but at least be open about that; is it finance, is it clinicians,
and where are patients?
Ian Dalton: I think patients want
sustainable, high-quality services.
No, patients also want a service that is accessible. Particularly
in the London context, where we have got the biggest problemsI
am sorry I am the only one here; Jo is now goneif you allow
all the outer London hospitals to close or be forced into merger,
you create inaccessible services. I am telling you there will
be inequality in health, and more people will die in poor areas
than elsewhere, because they just will not go to their hospital
appointments, because they are too far and too expensive to get
to on public transport. That is what you are creating.
Sir David Nicholson: Yes
Austin Mitchell: I agree with the Chair,
as usual; I was going to move on to another question now.
Can I just get an answer to that ?
Sir David Nicholson: I do not
really understand what the question was.
Q176 Mr Bacon:
You said, "Yeah". Were you agreeing with what the Chairman
Sir David Nicholson: No, I was
just trying to work out how I was going to respond to it, because
there were such a lot of things in all of that.
It is perfectly possible to change services
and to change with the consent and support of patients. I was
thinking as you were talking about Grimsby and Scunthorpe and
the work that was done between those two hospitals. People said
the population would not accept those things, but they did. In
London I think we have got some really difficult decisions to
I will come back later, because I have stopped Austin, but I do
not accept what you just said. It is not accepting. The whole
point is if you are poor, you have not got a car and you are being
forced into the centre of London for a hospital appointment, you
will not go, and you will then die earlier, whereas if you have
a decent service close to where you are you are far more likely
to go to the early appointments.
Sir David Nicholson:
Absolutely right; it very much depends on the services doesn't
it? People were saying that about stroke services only four or
five years ago in London. There are some services that you need
to concentrate and centralise but there are lots and lots of services
that you need to make absolutely accessible locallyout-patients,
diagnostics, all those sorts of things. That is what people are
trying to do in the different parts of London at the momentto
configure their services to provide exactly what you described.
In none of the tripartite agreements, and the work that I have
seen there, has anyone suggested the closure of any sites.
Chair: That is most interesting, because
despite having asked my trust three times for a copy of the tripartite
agreement, it has been refused to me.
Q178 Mr Bacon:
Will you send it to the Chair?
Sir David Nicholson: I am very
Ian Dalton: It will be in the
public domain, on their website.
Chair: It's not.
Mr Bacon: It will be after this hearing.
Mitchell: To follow up the example of Grimsby and Scunthorpe,
there has not been 100% acceptance of contraction of services,
but let us move on.
We are now in a situation where it is no longer
going to be the primary care trusts but the GP commissionersthis
is the great constitutional innovation in this country: we introduce
the situation before the legislation is actually passed. Are
not the GP commissioners going to take a rather meaner attitude
towards providing services and money for the hospital, and want
to do more themselves, which is going to make it more difficult
for hospitals to move on to foundation status?
Sir David Nicholson: I would not
say it quite like that, but there is no doubt that we know that,
with better long-term condition care and with better support in
the community, quite a lot of people who are currently sitting
in our hospital beds would not need to be admitted. That is true,
and clinical commissioners will do quite a lot in relation to
all of that.
In terms of this process here, the commissionersin
the terms we are talking aboutwho are signing up are the
PCTs. What we are saying to them is that they must talk to their
clinical commissioners to get their views on all that and, in
time, get them signed up to the outcomes that we want here, because
it is in all of their interests to get these organisations
Mitchell: You mean that they will tie it up in advance.
Sir David Nicholson: I would not
say tie it up. We want to ensure that, when commissioners sign
this, there is consistency among the commissioning community about
what the strategy is and what they want to happen. You could describe
it as tying it up in advance, but I would not say it like that,
because there is a consistency between what the PCTs and the clinical
commissioners want in terms of these organisations.
Mitchell: Okay. I have one final question. We have 20 trusts
that have described themselves as unable to reach foundation status.
Will that number not grow as we feel the effects of the present
wave of cuts and economies, particularly on management? Is there
not a danger that you will have far more who cannot reach foundation
Sir David Nicholson: These are
20 that have said that they are unviable and that they need support
and help from outside. Undoubtedly, as we go through the process,
all NHS organisations, including existing foundation trusts, will
be under financial pressure to deliver the improvement in services
that we want for the money that they have. That is absolutely
Mitchell: It might make people less optimistic about the chances
of delivering these services if they know that there will be cuts
and if they have to endure management cuts at the same time.
Sir David Nicholson: From a national
perspective, we are reducing the management costs of the commissioning
system. We have said nothing about the provider system at all.
It is entirely a matter for each individual hospital or trust
to decide what it invests in its management. We do not identify
that from the centre.
Doyle-Price: I am very concerned about accountability and
governance generally across the board in the NHS. I think it contributes
to the postcode lottery, because clearly in some areas of the
country it is easier to recruit good-quality non-executive directors
than in others.
What are you doing generally to improve standards
of governance across the board? We see in this report that 39%
of these aspirant trusts are reporting weaknesses in governance
and in board composition, and that is still consistent with existing
foundation trusts as well, where a number are reporting serious
weaknesses. Frankly, less than a third of them have governance
that could be judged as satisfactory.
Ian Dalton: There are two things
to say. First, I think that reference talks about boards in the
roundboth executives and non-executivesand that
has been a consistent theme from Monitor in those organisations
that have failed at the point of assessment. The assessment was
that their boards were not sufficiently well-developed to take
the extra responsibility to the level of confidence that Monitor
One thing that we are doing is that we are working
up for deployment in the new calendar year a support package for
trusts going through the foundation trust process, which will
aim to identify the strengths and weaknesses of their boards and
do that in a structured way. We have been working with Monitor
and with six of the leading foundation trusts that have already
been through the process. We have put a lot effort into governance
to define what good looks like, and we are going to ask that,
from January, all organisations go through that process before
they apply for approval to go forward as foundation trusts. It
is obviously worth ensuring that people are in a good position
before they come through us at the Department of Health, rather
than finding out that they are not in a good position at the time
they go in front of Monitor, which has been an issue in some parts
in the past. So there is a process of developing whole boards.
There is a separate issue, however, which you
have discussed, about governor development, which is also important
in this and which applies to existing foundation trusts as well
as future ones. We are in discussion with the relevant agencies,
including the Foundation Trust Network and the Foundation Trust
Governors' Association, about what actions might be useful in
Doyle-Price: You need to look at the issue of governors and
NEDs. In practice we will have to rely on NEDs to hold trusts
Ian Dalton: The NEDs are really
important to the whole concept of accountability that is necessary
to form an effective foundation trust and take sometimes difficult
decisions at a meeting round a table. That is why our process
wants to look at the way the board functions.
Doyle-Price: On a scale between being a light-touch regulator
and being very interventionist, how active do you expect Monitor
to be to ensure that governance is of the right calibre?
Sir David Nicholson: It is obviously
responsible and not at all light touch when identifying the success
of a foundation trust and giving it a licence and so on. We expect
Monitor to be heavily involved and engaged in looking at a trust's
complete governancethe people and all the rest of itbefore
it becomes a foundation trust. That is at the heavy end. If a
foundation trust gets into difficulty, we would expect Monitor
to be interventionist, but we would expect it to be light touch
for the vast majority of foundation trusts that continue to provide
good services to the satisfaction of their patients and commissioners.
In a sense we expect Monitor to be differential in the way it
deals with foundation trusts.
Doyle-Price: Ultimately, Monitor relies on the NEDs as well,
doesn't it? You mentioned in response to an earlier question that
you can go in and replace an entire leadership team if that was
Sir David Nicholson: Not for FTs.
Doyle-Price: But Monitor reserves that right.
Sir David Nicholson: Monitor can
replace the chair.
Ian Dalton: Monitor is keeping
that power for all organisations until at least 2016, and for
the first two years of operation for trusts that are late in the
pipeline. It will keep a transitional oversight role with a view
to ensuring, particularly for relatively new and inexperienced
trusts, an oversight of governance during the first couple of
Doyle-Price: My concern is that if you look at Monitor's reports
for existing foundation trusts, there are some serious causes
for concern, but those trusts are obviously in a better state
than those that are aspirant. I am looking for some satisfaction
that perhaps Monitor might be more active. I say that in reference
to my own foundation trust in Basildon, which was the subject
of a parliamentary statement two years ago and is still judged
as red in terms of governance. Monitor has worked actively with
that trust, but from my perspective as a user of the service and
the representative of my constituents, I am impatient. Those problems
will only get worse when you look at this list of hospitals.
Sir David Nicholson: Monitor is
an independent regulator and we expect it to intervene when things
go wrongI realise that they went wrong in your trustand
we expect it to be light-touch in relation to most other trusts.
But it is very scary that we have had an appointments commission,
yet in nearly 40% of cases, you have concerns. Once you have moved
to foundation trust status, the foundation trust appoints its
own board. That is really scaryaren't you scared by that?
Sir David Nicholson: It is part
of the Government's policy of autonomy and liberating the NHS.
It is the implication of what you do
And what happens if it goes wrong? We haven't had your accountability
statement, Sir David.
Sir David Nicholson: There are
two aspects to that. One is the safeguards that we are putting
on Monitor by keeping its existing powers for longer and for the
first two years for any foundation trust that is given a licence
towards the end of that period. It gives us the opportunity to
do exactly what you say and strengthen the foundation trust governor
system and the people who do it. In this process, they are the
people responsible for their organisation through the non-executives.
In terms of service, that is a commissioning responsibility. The
sustainability of services for patients is the responsibility
of the local commissioners, the commissioning board and, ultimately,
the Secretary of State. That continues.
Jackie Doyle-Price: There is a cultural
issue. GenerallyMonitor is not the only regulator that
suffers from thisregulators tend to be risk averse in using
their powers. It tends to be more of a collaborative relationship,
which is helpful until you get serious failure. To make another
point on behalf of my constituents, which supports the Chair's
point, my constituents are served by Basildon and Thurrock. Because
of the reputation of that trust, they elect to go to Havering
and to Darent Valley, and they are both on this list as being
potentially non-viable. So I come back to the point that unless
we get the regulatory system right, we will exacerbate the postcode
Chair: It is interesting. Around the
table, we are probably a representative group. We have so many
with problems in their own trust. It is a further issue. We have
had four of us with problems. Ian was the other one. You are very
confident about the majority, Sir David.
McGuire: I, of course, come at it objectively, representing
a Scottish constituency. I want to ask a couple of questions about
the financial plans. The NHS is in a state of change. One of the
elements of the triple alliancesomeone needs to come up
with a better name for these TFAsis due to disappear. That
is the PCTs. The NAO Report commented on the robustness of the
future financial planning if you are changing the commissioning
agent, which means there is no security. What analysis have you
done on the impact of those changes on the trusts?
Ian Dalton: I do not think it
is a question of simply accepting, if this were the premise, that,
because of the change in commissioning, trusts will not be able
to have commitments from their commissioners that help them plan
for their future. The issue is that the commissioning role is
transitioning across the journey that some trusts have to make.
Some trusts will be a foundation trust before those changes; others
will have a journey that takes them longer.
The expectation we have is that PCTs, the aspirant
foundation trusts and, increasingly, the clinical commissioners
themselves will be having those conversations while the PCTs are
still on the patch, so that the trust can have those conversations
direct with the new commissioners while the old ones are still
involved as well, so that there is a seamless transition. A key
issue in putting forward a successful foundation bid is that there
is a coming together of the plans of commissioners with that of
the provider. It is no good making income assumptions that are
not based on the clinical aspirations of commissioners. That role
is changing. Those clinical commissioners need to be involved
in that conversation from the relatively early stages of their
development onwards, so that there is not a sudden change.
McGuire: Is that making an assumption that the aspirant commissioners
as you call them will have the same objectives as the current
Ian Dalton: My assumption is that
commissioners will be interested in having accessible, high-quality
hospital services and will therefore want to have that conversation.
McGuire: Are the aspirant commissioners going to be locked
into decisions of commissioners who are no longer going to be
Ian Dalton: I do not think it
is a question of locking people in. I do not think that PCTs are
locked in. This is about a broad convergence of strategy. That
is what we are looking for. Clearly a lot of this will be determined
by individual patients making choices. We are not going to oblige
patients to use individual hospitals. It is about people conversing
and there being a coming together of strategy.
Q194 Mr Bacon:
A what of strategy?
Ian Dalton: A coming together
of strategy. A detailed, line-by-line lock-in.
There are two final issues, one of which is a bit about London.
You have a heck of a lot of hospitals113that you
want to get to foundation trust status. Will Monitor be able to
cope, particularly with the peaks?
Sir David Nicholson:
When we originally did the work, Monitor was concerned that there
was bunching up in particular parts of the period where there
seemed to be lots coming together. It was concerned whether it
had the capacity. We have done some more work on that and it is
a much smoother transition now. Monitor is more comfortable with
its ability to deliver that, if we deliver them in the order that
Ian Dalton: That is an issue.
The other issue that Monitor has been concerned about is that
it has wanted to see a clear profile of when it can expect to
have trusts in front of it. They will speak for themselves, but
my assumption is now that we are starting to set out some forward
dates, and it will be able to plan on that basis in scaling capacity.
Why, given the Government commitment, did we have only seven trusts
agreed in 2011?
Ian Dalton: That is in the first
Only in the first six months. Are you meeting your target of the
number of applications in October?
Ian Dalton: I am trying to remember.
It was one of your peaks in the graph.
Ian Dalton: Yes, we have had some
trusts that have not been able to submit, for a range of reasons,
and we are following those up.
Chair: So you are behind.
Mr Bacon: Too busy looking after patients
Can I ask about London? London is where you have the biggest problems.
You have made heroic assumptions about half the trusts in London
making it to foundation trust status. The reason I say heroic
is that you assume that they achieve productivity savings in the
top quartile of their peers or better. Am I right in saying that
is your assumption? How realistic are your projections?
Ian Dalton: Those are the assumptions
that the organisations themselves are making.
You in the end have said that you will intervene, so presumably
you are monitoring it. That is just shoving it off on somebody
else. Are you confident that half of the 38 or whatever it is
Mark Davies: This is the modelling
that is being done at the moment, which does require productivity
savings. We are referring to paragraph 3.10 of the Report. Productivity
savings in the top quartile of their peers are required to achieve,
in respect of the 18 non-specialist acute
Thank you. Are you confident about that, if we have you back in
a year's time, which we will?
Ian Dalton: I think the evidence
will be if they can deliver it. That is what the analysis suggests
they need to do. There is a need to create efficiency.
Are you confident that they will perform?
Ian Dalton: I think it's too early
to say. We will have to see as it happens. If not, we will have
to keep close and intervene where necessary. That is the challenge
that those organisations face.
I take that as you are not confident.
Sir David Nicholson: I think it
is clear that the biggest challenge is around London, for all
the sorts of reasons that have been well-rehearsed before: the
difficulty of getting change in London; getting agreement among
people about what needs to be done; and about the kind of decisions
that need to be made in the order. All of those things still apply.
Underpinning that is some service change.
Based on the fact that half of the trusts that still do not have
foundation trust status have to be super-efficient at finding
their savings, you are not confident. You are either confident
Sir David Nicholson: I am moderately
confident. I am in the middle of that. Changing health care in
London is a very difficult thing to do. Two of the chief executives
you heard earlier have been wrestling with the issue. You know
as well as I do that anything you try to do with the health service
in London suddenly becomes a massive issue. We have some really
difficult decisions to make about the future of London's health
care. We know, because we did the analysis, that in London we
have a relatively unproductive secondary care system; we have
an underdeveloped community system, with far more people going
to hospital than parts of the country. Slowly but surely the London
health system is trying to get itself together, hence the improvements
in stroke, cancer and trauma. Change in London is like change
nowhere else in the NHS. That is why I am moderately hopeful.
I can see how they can do it but I can also see the obstacles
that will be in place. To give the sort of people you described
earlier who live in inner London the best health care we possibly
can, we must make those decisions.
But you might make the decisions not by concentrating on health
care in the centre of London.
Sir David Nicholson: I agree.
Or you might think about relocating one of the teaching hospitals.
I would offer you the Queen's hospital site to relocate the Royal
Free. That would give you a jolly lucrative site in Hampstead
which you could flog.
May I say something else? It seems that your
strategy of viability depends on mergingthat is what you're
doingacross London in particular. I'm looking again at
my area of London. There is a massive and completely unsustainable
PFI at BartsI accept that it was agreed by the previous
Governmentfor £1.2 billion. It seems that the only
reason you're merging two failing hospitalsNewham and Whipps
Crossis to sustain the PFI at Barts. Rather than the stronger
supporting the weak, the weak is being sacrificed to the PFI.
Sir David Nicholson: These organisations
themselves have come to that conclusion.
Sir David, you can't get away with that. I know the role that
the regional structure has played in forcing that against everyone's
desires. It seems to me that, again, what is being sacrificed
is accessibility to NHS services in poor areas of the capital.
Sir David Nicholson: On the contrary.
They will publish their business case, which will set out what
the benefits are for patients. I can say absolutely that it's
not being driven by the PFI. What it's being driven by is making
sure that everyone in that part of London gets the best quality
health care possible.
Every MP across the spectrum believes that. What foundation trust
that is viable at the moment and in its right mind will take on
a hospital that is in financial difficulties? What on earth would
impel them to do that?
Sir David Nicholson: Sorry?
What foundation trust in its right mind in London would take on
one of the failing hospitals in financial difficulties? Where
on earth is there any incentive in the system of competition and
financial sustainability to make that happen?
Sir David Nicholson: First, most
of the mergers are not driven in that way. Across the country
as a whole, they're not driven by failing organisations being
taken over by others. They're organisations coming together across
the whole country. You were talking about mergers. There are many
examples of successful mergers across the NHS, but in London we
undoubtedly have some issues to tackle. Why would a successful
NHS trust in London take on an organisation? They might do so
because clinical interests are involved. They might see benefits
for patients by bringing those two services together, which might
improve the quality for both sets of organisations and patients.
They might see a financial advantage, or a mechanism by which
to rationalise services to deliver better across the piece. Some
organisations want to do that because they want to do the best
for their local community, and they have an interest in being
engaged in that across the system as a whole.
You have a very sceptical view on thatI just don't believe
that, and I cannot see in some of the worst ones how on earth
you'll resolve it to get foundation trust status, except by closing.
Sir David Nicholson: None of the
plans that we have around here involve closing hospitals.
Well they do in the medium term
Sir David Nicholson: They don't.
The TFAs don't involve closing hospitals.
Chair: I'd bet many bottles of champagne
that in five years
Mr Bacon: And you're a champagne drinker.
A champagne socialist.
Q212 Mr Bacon:
I'm someone who drinks Adnams ale from Suffolk, or occasionally
ale from one of the more local microbreweries in south Norfolk.
May I ask you a more 100,000-foot question about
the nature of health care provision, and the number of mergers
going on? If you look at a range of different commercial sectors
over the past 50 yearswhether metal processing, trades
unions, international organisations and so onthere have
been many mergers of all kinds for perfectly good reasons, but
perhaps some of them for less good reasons. It is something that
you often see in different settings. Has the Department done any
work to determine the optimum number of acute hospitals? If you
had a blank piece of paper, as we know you don't, what numbers
might you come up with if you could ask, "What would be the
optimum number of acute hospitals, and what would be the optimum
number of other kinds of provision in this country?" Would
those numbers be quite different from what we have now? That is
I hear the scepticism, not to say cynicism,
in the Chair's voice, and we have all seen things that appear
to be happening for the worst possible reasons, but I take at
face value what you say about local hospitals wanting to offer
the best they can for their communities. It is perfectly possible
to imagine a world in which the configuration of provision is
quite different, yet significantly better in many ways, on a variety
of metrics, than what we have now.
Have you done any work on that at aI
hate to say itblue-sky level? If you look at it from a
long way off and think about how things could be improved so that
the available resources are optimised, absent what I know can
be hideous political considerations, what conclusions do you come
Sir David Nicholson: No, we haven't
done such blue-sky thinking.
Q213 Mr Bacon:
Just too dangerous, is it?
Sir David Nicholson: No, for good
reason. Health is not like the examples that you gave. The patient'sthe
community'srelationship with their local hospital is not
like their relationship with other organisations. The NHS is not
a group of autonomous organisations all operating together in
a market. It is owned by the population as a whole andyou
know this better than methe population strongly feels part
of it. Whatever arrangements you put in place, local accountability,
and how you exercise that accountability through foundation trust
status, is critical.
Great big plans from the sky that identify a
blueprint simply will not work in our environment, but, as we
look at specialty service by service, we can say that there are
better ways of delivering. We know that in London there were 30-odd
different organisations delivering acute stroke services, and
now there are seven or eight. You can see in terms of both clinical
and financial viability that that is a more efficient way of delivering
a better-quality service for patients. If you start to look at
that on a service-by-service basis, you are much more likely to
get a result for patients than by simply looking at the number
of buildings or organisations that we have.
Chair: Okay. Thank you very much indeed.
1 If the provider of community services is an NHS Trust
(as a prelude to becoming a Community Foundation Trust), or NHS
Foundation Trust then the assets would transfer to the provider.
The current policy is that community assets would not transfer
to non-NHS providers, i.e. private providers, charities, or social
enterprises (including Right to Request social enterprises). Such
non-NHS providers would be able to lease those community assets
they need to deliver contracted community services from the relevant
PCT and from whatever future national arrangements is agreed. Back