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Lord Turnberg moved Amendment No. 3:

"and, in deciding how to exercise its functions under this subsection in a case where any of the corporation's hospitals includes a medical or dental school provided by a university, the regulator is to have regard to the need to establish and maintain appropriate arrangements with the university."

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The noble Lord said: My Lords, I suspect that this amendment will have a slightly easier ride than the first two. Your Lordships may recognise that, although the words of this amendment have been changed to protect innocent Back-Benchers, they give the same basic message as my two previous amendments, which were moved in Committee and on Report. However, this time I am somewhat more optimistic about their acceptability.

I shall not repeat my speeches from the previous two occasions, save to say that the need to ensure that medical research is fostered and supported in the NHS was well recognised and debated by many who spoke on the previous occasion, including my noble friend the Minister. I am extremely grateful to him for listening so carefully to what was said and for being so actively engaged in the subject of the amendment. I know that it is close to his heart. I believe I am in order in anticipating that the Minister will, indeed, show that his heart is in the right place on this matter. I beg to move.

Lord Clement-Jones: My Lords, I support this amendment. I believe that throughout the country universities and teaching hospitals will be erecting statues of the noble Lord, Lord Turnberg, in years to come, and deservedly so. His persuasive powers are clearly enormous. The subsection itself is so finely crafted that one could not detect the workmanship.

Lord Walton of Detchant: My Lords, I give enthusiastic support to this amendment.

Earl Howe: My Lords, at the risk of adding excessive endorsement—I am told that the word is "cloying"—to the contributions already made, I very warmly support this amendment, which seems to cover exactly the concerns that were raised by so many noble Lords both in Committee and at Report.

Lord Warner: My Lords, noble Lords will be astonished to learn that the Government are minded to accept this amendment. I am extremely grateful to my noble friend for his kind remarks. I compliment him in particular on his persistence in this area. I shall certainly enter into the public subscription for his statue if the noble Lord, Lord Clement-Jones, is to start a fund.

On Question, amendment agreed to.

Clause 15 [Private health care]:

Earl Howe moved Amendment No. 4:

    Page 7, line 40, leave out subsections (2) and (3).

The noble Earl said: My Lords, in Committee and at Report, I tabled amendments to remove Clause 15, which we on these Benches view as the single most unnecessary piece of political interference in the Bill. Although our views on the matter have not changed one iota, I have reflected on what it would be best to do at this stage of the Bill bearing in mind that there is a clear divergence of opinion between us and the Minister which we are unlikely to bridge.

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I have concluded that the sensible course would be for me to give way to the Government on the main premise of this clause, namely, that the regulator should be allowed to impose a cap on the private patient income of foundation trusts. I do so of course without prejudice to the views which I have just expressed on the over-arching principle.

If the Government are allowed to have their way on the main premise of the clause then they should accept the force of the two points that I have previously tried to put to them. The first is that the clause as it stands is too prescriptive. It proposes that the amount of private patient income permitted to a foundation trust should be calculated by reference to the percentage of its income earned from such sources in 2002–03 and that this base year should apply to every single foundation trust without exception, no matter what its individual circumstances.

That is unreasonable. If the regulator is empowered to impose a cap, let him by all means do so by reference to a base year, if that is what he chooses to do, or by reference to some other benchmark. But the face of the Bill should not dictate to him exactly how the cap is to be calculated. I am sure that I am not the only noble Lord who has been approached by NHS trusts which have expressed grave anxiety about 2002–03 being the base year without any flexibility.

The Nuffield Orthopaedic Centre in Oxford, for example, has told me that in a normal year private patient work accounts for about 10 per cent of its overall income. But in 2002–03 it put in place a building programme specifically designed to enhance its private capacity and at the same time it took a conscious decision to use some of its private beds to treat NHS patients. In other words, 2002–03 was an untypical year for the centre.

I am not in a position to judge whether some other base year would be fairer for the orthopaedic centre or whether it could be allowed to defer the imposition of the cap for a period of time to accommodate its particular circumstances. But I believe that the regulator should be given this discretion. He may decide that hospitals in this sort of predicament will just have to make the best of the cap they are given. He may decide that the interests of the hospital and of the NHS are best served by permitting some measure of flexibility. Either way, it should be his decision. But if he has to apply the provisions of the clause as they stand, which are very strict, then there is no doubt in my mind that perverse and unfair consequences will ensue, which do not benefit anyone.

The second kind of situation which may merit a degree of flexibility is where a hospital wishes to invest in a piece of capital equipment. We need to get away from the mindset of thinking that private work equals private beds. I am not suggesting that foundation trusts should be allowed huge latitude by the regulator to expand their elective bed capacity for private patients. I accept that the term of the licence would need to be clear about that. But I believe that there may be circumstances from time to time where the interests of the NHS would be served by allowing a foundation trust to expand its private patient

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income beyond the percentage generated in 2002–03, if it could demonstrate a sound business case for doing so, and if the primary aim was to benefit its NHS patients.

The example I gave before was a proposal to invest in a new MRI scanner. It could well be that an investment of that kind could only make sense if a certain level of private patient income was assumed. What often happens as regards scanners is that NHS patients are given exclusive use during normal working hours and private patients are allowed access outside those times. The number of private patients per year need not be very many in comparison to the number of NHS patients, but they will often be enough to ensure that there is an income stream to the hospital which justifies the purchase of the machine. Here again, it should be for the regulator to decide what is or what is not a good business case and whether the NHS would benefit sufficiently from the investment. Each case would have to be judged on its merits. But to say that such special cases could never and should never be considered seems to me to fly in the face of all that is reasonable.

This is where the Liberal Democrat amendment, to which I have added my name, comes in. There is a clear and incontestable case for transparency in reporting if the private patient cap is applied and if it is to be monitored properly. I am also fully in sympathy with the wish of the Liberal Democrats to ensure that costings for private patient work are soundly based and that, where a hospital claims that private work contributes to its bottom line, there really is such a contribution after taking into account all costs that can appropriately be allocated or apportioned to the work in question.

Therefore, I hope that the Minister will feel able to give some ground on this matter. It is possible for us to disagree on the fundamental principle of a clause, but if, for a moment, we can put that matter aside, I hope that we can reach a consensus on how exactly the intention behind the clause can best be made to work for the benefit of the NHS. I beg to move.

Lord Clement-Jones: My Lords, I support Amendment No. 4 and speak to Amendment No. 5. The noble Earl, Lord Howe, spoke extremely cogently about the way in which Amendment No. 5 affects Clause 15. To eliminate the whole clause was a bridge too far, but on these Benches we believe that a cap is necessary. I entirely accept his arguments on the base year and the inflexibility built into the current clause.

I thank the noble Earl for his support for Amendment No. 5. It is designed to achieve transparency about such income. In regard to how trusts derive income from private patients, we see some straws in the wind as currently that is not transparent and the NAO review of UCLH shows that. That may be merely one example of trusts—in many cases through faulty accounting and perhaps even without malice aforethought—not really understanding the true costs attached to providing private care.

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On Report, the Minister's main argument against Amendment No. 5 was to the effect that it would require a separate annual report—a kind of anti-bureaucratic argument. It would be perfectly possible to include the figures in the annual accounts of a foundation trust and it would then be treated as complying with this new subsection of Clause 15. Nowhere did the Minister address the point of whether there is a mandatory requirement for the profits and the income attached to private patients to be reported properly. For that reason the amendment is important.

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