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Lord Hunt of Kings Heath: Surely the point is that if a patient is able to be discharged but cannot do so and occupies an acute hospital bed inappropriately while awaiting discharge, the hospital will be unable to treat other patients. It will thus be unable to reduce waiting times for other patients as much as is desired and possible. Therefore, the acute trust is directly affected.

The point about perverse incentives is very important. If a hospital engaged in practices which led to pressure to discharge patients either because it wanted to obtain the penalty payment or because of the necessary pressure on throughput of patients, what would happen? As Members of the Committee have remarked, it is likely that some of those patients would be readmitted. If they were readmitted, again there would be a knock-on effect on the hospital's efforts to reduce waiting times overall for patients because clearly a bed would be being used when it should not be.

Secondly—I suspect that we shall come later to the question of future funding flows—when the funding flow system is fully up and running, an acute trust will receive a payment depending on the condition and care category of a particular patient, and there will be a national tariff for that. We intend to introduce a system whereby, if a patient is readmitted within a certain number of days, the trust will not be paid any extra resource.

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As to the question raised by the noble Baroness, Lady Noakes, concerning Amendment No. 92, the intention behind Clause 4(10) is to allow for payments to be made to providers when they bear the financial cost of a delayed discharge. It is not intended to deal with the circumstances we discussed yesterday concerning the scheme to treat people in other countries, pursuant to NHS arrangements set out in Clause 1. Clause 4(10) is not meant to deal with those issues.

As to the question of paying money to foreign hospitals, the primary care trust would receive that resource because the trust would pay for the care. Again, as will be seen from Clause 1, the primary care trust, as much as a National Health Service trust, is defined as an "NHS body".

Baroness Noakes: I thank the Minister for giving way. I understand that the primary care trust would levy the fine. But Clause 4 (10) states:

    "If the case is of a description prescribed in regulations the payment shall be made to the person prescribed in relation to cases of that description".

I merely ask the Minister to confirm that the Government would never permit a regulation made under that subsection to be used to require fines to be paid to a foreign hospital.

Lord Hunt of Kings Heath: I thought that I had answered that point. That is not the intention of Clause 4(10).

Baroness Barker: This has been one of our less satisfactory discussions. I do not believe that the issue of the funding flow has been adequately addressed. I was particularly taken by the Minister's argument about loss of income to acute trusts. In response to that, I ask: why have the figures for the per diem rate been set on such an arbitrary basis? When asked about the funding basis for this scheme, the Minister in another place was far from convincing. I consider that to be one of the least satisfactory elements of the whole Bill. I believe that we shall have to return to the issue.

The noble Baroness, Lady Noakes, is right to raise the issue of the inclusion of foreign hospitals. I am not sure that logically she is right to say that it is possible to separate payments to them in that they provide services contracted by the NHS and just happen to be abroad. But she highlighted the fact that the matter needs to be given a great deal more thought, not least because of the implications for social services.

I shall withdraw the amendment for the moment but, in doing so, I flag up to the Government that we shall return to the matter and there will need to be a great deal more clarity when we reach later stages of the Bill.

Amendment, by leave, withdrawn.

[Amendments Nos. 90 to 93 not moved.]

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Baroness Noakes moved Amendment No. 94:

    Page 5, line 15, at end insert—

"( ) This section shall not come into force until 30 days after the Secretary of State has determined that the system of incentives within relevant NHS bodies operates to discourage NHS bodies from discharging patients prematurely."

The noble Baroness said: Amendment No. 94 seeks to add a new subsection at the end of Clause 4. This new subsection is important because potentially it defers the implementation of the imposition of fines, although, I stress, not other aspects of the Bill, which concern the giving of notices and the duties that arise thereon, or Part 2 of the Bill. It concerns only the imposition of fines. The amendment seeks to defer such implementation until there is a system of incentives within the NHS to discourage NHS bodies from discharging prematurely.

We believe that the Bill contains a massive incentive for the NHS to discharge a patient as rapidly as possible. We saw what happened in other parts of the NHS when the Government introduced targets, such as waiting list targets: clinical priorities become distorted. This system of fines is another version of government targets. It will distort normal behaviour in hospitals. Managers will see the opportunities inherent in the fines and act accordingly. That is what incentive systems do.

At the whole system level of the NHS there is a theoretical incentive to discharge patients as quickly as possible to maximise activity overall. But I do not believe that anyone can seriously think that that theoretical incentive operates at the level of the individual hospital.

The Government, when they came to power, made great play of pretending to abolish the internal market and replacing contracts with service level agreements. However, that set back the process of making contracts a relevant part of the incentive framework for hospital providers. So, rather soft and general service level agreements have blunted any incentives that might have existed before.

The Government have belatedly recognised that, with their new scheme of financial flows which will start to have a small impact next year. But even when fully implemented, the contracts will be quite big and quite broad, even though they will have case mix elements to them. It will be difficult for those broad and general contracts to bear down on the kind of geriatric episodes that cause the most concern with delayed discharges.

In a Written Answer to me the Minister stated that in 2005–06 the Government intend to:

    "introduce the rule that a readmission within a specified time period will count as part of the same hospital episode and will not attract additional funding".—[Official Report, 4/2/03; col. WA 24.]

So we can at least deduce that it would not be until 2005–06 at the earliest that the NHS would have any kind of system of incentives to discourage NHS bodies from discharging patients prematurely.

We find that proposed new rule to be introduced in 2005–06 intriguing. Can the Minister say a little more about that? Can he say how many days will be used to

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trigger the charging arrangement? Will there be any need to link the episode of care that preceded the discharge with a reason for readmission? Can he say what happens if the readmission is to another hospital? Can he say what was the result of consultation on this point?

Consultation was referred to in a document entitled Reforming NHS Financial Flows—for those who managed to read the appendices—which was published last year. However, I believe that the results of that particular consultation have not been made public. The answers to these questions are important. However, more importantly we should not proceed with fining local authorities until corresponding incentives are in place in the NHS. I beg to move.

5.45 p.m.

Lord Hunt of Kings Heath: It is intriguing to debate the internal market with the noble Baroness, Lady Noakes. I have always understood her to be the architect; indeed, it has been said that she is the only person who ever understood the system. It is tempting to debate the internal market, but we do not have that much time.

The essential difference is that when the internal market was introduced in the early nineties, apart from the intrinsic unfairness of GP fundholding, the problem was that it was introduced without a background of national standards and inspectorates. The approach of this Government has been to start with establishing national standards and a national inspectorate in the belief that having done so we are then in a much healthier position to decentralise as much as possible to local level and to introduce the funding flow system, which unashamedly aims to incentivise those hospitals and health care services which have the ability to do best by patients. That is what we aim to do.

I shall turn in a moment to how we are to introduce the new system. The noble Baroness is right to suggest that the full system will not be up and running until the financial year 2005–06. The question is whether in the mean time there are enough incentives in place to ensure that we do not have the perverse consequences suggested by noble Lords.

I have discussed this issue on a number of occasions, and shall repeat the point. First, as regards trusts we have a strong performance management system in the health service. Secondly, the evidence I have seen is that in a significant number of parts of the country low readmission rates go with low delayed discharge rates. I do not think the case has been proved that to be effective on delayed discharges necessarily means high readmission rates. However, I am happy to write to noble Lords with the statistics I have for readmission rates in that regard as clearly it is a matter of interest. In addition, we have the Commission for Health Improvement. I have said that readmission rates are a specific performance indicator used to determine a trust's star rating. I do not believe that in this interim

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period it would be in the interests of a trust to discharge its patients too early and risk them being readmitted.

As regards the financial flow system, I note with interest the comments of the noble Baroness, Lady Noakes, regarding the degree to which the tariff is sensitive to the particular circumstances of a patient being treated. She will know that systems have been tried in a number of countries. We are introducing the new system on a gradual basis. In 2003–04 and 2004–05 it will cover only a relatively small proportion of hospital activity: less than 1 per cent in the first year and round about 8 per cent in the second year. We shall be able to reflect on experience as we introduce the scheme.

By 2005–06 over 90 per cent of hospital activity will be covered by the new system. In theory, and indeed in practice, there would be less of a disincentive upon the trust not to discharge patients too early because the trust would know that it would get extra funding for them in any case if they were readmitted. That is why we have to set a period of time after discharge within which if the patient is readmitted to hospital the trust will not receive any further funding. I note the important and valuable point raised by the noble Baroness regarding the question of whether a patient had been admitted to another hospital. Certainly, we shall need to take account of that.

We shall consult on the appropriate number of days that would have to elapse before a readmission is counted as a new episode. I urge the Committee not to go down this path. The Committee has already voted to delay the introduction of the Bill by a very long time—12 months. If we were to accept the amendment tabled by the noble Baroness, the delay would be longer. I do not believe that that would be justified.

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