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In addition, for a transitional period until at least 2016, Monitor would retain express powers to fire or suspend foundation trust directors and governors directly. As now, this power could be used only where a foundation trust had failed to comply with a notice from Monitor to remove or suspend individuals itself. These powers are for use when a foundation trust is at risk of breaching its licence conditions to provide NHS services because of a failure of governance. This is more likely in the early years of a trust's existence, when its governors are all new to the role and are building up their capability to hold its directors to account. That is why the powers consist of those to fire or suspend directors and governors.
I understand the concerns of noble Lords to ensure that this additional power remains available for as long as Parliament considers necessary, while we work with Monitor, the Foundation Trust Network and others to support governors to develop their capability in holding their boards to account. Therefore, I have tabled five amendments-Amendments 198A, 198B, 199A, 199B and 200A-which provide for Monitor to retain this power unless and until the Secretary of State makes an order to withdraw it, either for all foundation trusts or individual trusts. I beg to move.
Lord Clement-Jones: My Lords, I want to speak to my amendments, to express my thanks to the Minister for the amendments that he has tabled, and to give a little rationale for why we were concerned but are now satisfied by the Minister's amendments. On these Benches we were very concerned about the deregulation of foundation trusts in 2016. We believed that putting foundation trusts on the same footing as all other provider licensees was not only dangerous because of the risk of wider application of competition principles, but undesirable since district general hospitals-essentially foundation trusts-are the core of public provision in the health service. They are public assets, funded either conventionally by the Government or by PFI. Sadly, many of us argued at the time that PFI would be an expensive and inflexible method of financing healthcare infrastructure. Nevertheless, district general hospitals are an essential part of the NHS.
Therefore, we proposed amendments that removed Clauses 111 to 114 and retained Monitor's special powers over foundation trusts unless terminated by the Secretary of State with the authority of an affirmative resolution of both Houses of Parliament. We were not saying "never" but the Secretary of State, after some years of the new structure, clearly needs to satisfy Parliament as to why particular foundation trusts no
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To that end, we very much welcome the amendments tabled by the Minister to meet our concerns. Our amendments talk of an order passed by the affirmative process and the Government's by the negative process but I do not want that to stand between us. The Minister has gone a very long way to meet our concerns, for which I am extremely grateful, as are all my colleagues on these Benches.
197B: Clause 111, page 119, line 39, leave out from "has" to end of line 43 and insert "failed or is failing to comply with a notice under subsection (4), Monitor may do one or more of the things which it may require the trust to do under that subsection."
197C: Clause 111, page 120, line 1, leave out from "exercising" to end of line 3 and insert "in relation to a condition included in a licence under subsection (1) the powers conferred by sections 105 and 106 (breach of licence condition etc: enforcement powers which apply during and after period in which this section and sections 112 to 114 have effect)."
(a) in the case of an NHS foundation trust authorised on or before 1 April 2014, be before 1 April 2016;
(b) in the case of an NHS foundation trust authorised after 1 April 2014, be before the end of the period of two years beginning with the day on which the trust was authorised."
Baroness Thornton: My Lords, we now move on to pricing. We believe that setting the national tariff is a matter of policy and that it should be set by a Secretary of State, not Monitor. That is the main thrust of these amendments. Amendment 201A is about setting the national tariff as a matter of policy. Amendment 201B proposes that regulations to the national tariff must state how the prices and methods were determined, that any proposed change to the national tariff will be subject to proper evaluation and testing, and that there must be evidence of consultation between the
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At present, the national tariff is set by the Department of Health, often in ways that are mysterious, probably less than optimal and without sufficient consideration of unintended consequences, and often without enough testing. Nevertheless, we remain firmly of the view that price setting is such a fundamental part of the system that it has to remain the responsibility of the Secretary of State and the Department of Health. We do not have an answer as to why you would give such a potentially potent policy lever to the regulator. I should be grateful if the noble Earl could explain that. Why keep price control with Monitor? I should be interested to hear what he has to say. I am sure that we would all agree that the key point is that we get tariffs right. We therefore seek to insert the need for proper consultation and transparency in the tariff-setting process. I beg to move.
Lord Davies of Stamford: My Lords, I shall speak to Amendment 201D in my name. I tentatively proposed this in Committee as a probing amendment. I bring it forward now much more seriously because I have been reinforced in my belief that this is a necessary amendment by everything that has been said. My belief has also been reinforced by the support of a number of colleagues, including explicitly by my noble friend Lord Warner, to whom I am grateful.
It has been clear from our debates that the Government's intention is that there should be two price regimes in the NHS-one for services for which there is no national tariff and one constituted by the national tariff itself. Services that are outside the national tariff will be contracted for on the basis of a tender offer and good value for the taxpayer or customer. I have no quarrel with that, and the Government have clearly stated that they intend to achieve contracts on the basis of the right reconciliation of quality and price. I argued in Committee-and I am sure that I was right -that that constitutes price competition. The Government do not like the phrase "price competition", but I am not interested in semantics or the party-political reasons that may lie behind their semantic choices; I am interested in the reality, which is that commissioning services on that basis is entirely rational, and I have no quarrel with it.
In other words, the tariff could not be varied either upwards or downwards; it would be an immutable price. I regard this as extraordinarily irrational and perverse, and I hope that I can persuade the Government to think again. It has at least four problems.
First, if there is an immutable price, you may not be able to pay for certain services that are required and are of the quality necessary for patient outcomes. The Government have recognised that point at least. Indeed, Clauses 124 and 125 appear to address that because they make it clear that there is scope for an agreement between a commissioner and a provider to be approved by Monitor at a price above the tariff. The wording in Clause 124(5) and Clause 125(3) is identical, except for the words "approve an agreement" and "may grant an application", and states:
That makes it clear that it is possible for the commissioner to pay more than the tariff in those exceptional circumstances, with the consent of Monitor, and of course I approve of that, but it is not possible for the commissioner to approve less. That is an extraordinary state of affairs.
I can quite understand why the Government do not want to write into the Bill that it will not be possible for a commissioner to accept a lower price. That would not make the slightest sense. It would be all over the tabloids in headlines. Instead, it is disguised in the language of parliamentary drafting as being a power that would exist only if it was uneconomic for the provider to provide the service for the purposes of the NHS. You can never argue that it is uneconomic to provide a service at a higher price. The amendments provide only for the circumstance in which the commissioner finds it necessary to pay a higher price than the tariff to secure the patient services which the commissioner is procuring.
That is the only one of the four problems raised by that approach to a national tariff which the Government appear to have addressed. The second is that in many cases, it may be possible to provide the same quality of service at a lower price, but the Government are excluding, a priori, from the beginning, outright, in principle, any possibility of that happening. That makes no sense. We and the Government surely agree that the NHS budget will always be under great pressure, that there must be financial discipline in the NHS, and that when there are opportunities to secure the same quality at a lower price it should be the obligation of commissioners to achieve that. My amendment does not go so far as to create an obligation-I was more hesitant than that-but at least there must be the possibility for commissioners, if they see an opportunity, to procure that service at a lower price and save money for the benefit of patients and the National Health Service as a whole.
The third and fourth problems created by government policy in this area are perhaps a little more subtle. The third, which I mentioned in debate in Committee, is
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The fourth problem created by the Government's approach to this up until now- I live in hope that they may change it in the light of this debate-is that it dampens or may even be fatal to innovation in this area of the National Health Service. I think we are all agreed in principle that we should encourage innovation, but there is no point in any prospective provider spending time and money on developing a better approach to solving a problem or a new technique for diagnostics, therapy or what have you, which has the same quality and outcomes, or even better, which could be delivered at a lower price, because the price is fixed. You can only come up with the same price because you are not allowed to be given a contract if you tender at a lower price. That makes no sense, so I must press the amendment again.
I emphasise, as I did in Committee, that the amendment is in no sense prescriptive. It does not force commissioners to take the lowest price. There might be an argument for forcing commissioners to take the lowest price where quality remains the same, but I have come up with a much weaker amendment. It is purely permissive. It provides for commissioners, where they wish to and where Monitor approves-so there is a double check, a double brake on the mechanism-to accept a lower price. It is extraordinary that they are not allowed to do something which all of us in every other field of economic activity would feel to be the rational thing to do.
My noble friends on the Front Bench have made the point several times that there are many situations in which it would not be sensible to take the lowest price in an NHS context. One of them I described in some detail in Committee, so I do not need to go over it too much tonight. There is no doubt that in any field of economic activity where overheads or fixed costs are a high proportion of the total costs there is a temptation or opportunity for predatory pricing. If the fixed costs are a very high proportion of the total costs, then anyone who has the capacity to make a one-off offer can come in with an offer which may be at a substantial premium to variable costs and therefore very attractive to him if he has spare capacity. It would be much lower than the full cost and therefore very tempting but it might be very dangerous for the customer-the commissioner in this case-to accept because it might undercut and perhaps destroy the capacity on which he relies on a long-term basis. Clearly, no one is going to provide services at below full cost on a long-term basis. Therefore, there is always a danger of predatory pricing in healthcare and we must be alert to it. There is no question about that.
I also accept the argument about networks. Networks have been a splendid innovation in the National Health Service, covering patient pathways a long way or all the way along the pathway. It may be absolutely essential to get a network together to assure the various providers in that network that they will have a monopoly up to a particular number of patients or over a particular region, and that they will not be subject to being picked off by price competition once they have agreed to take part in that network. I fully understand that. However, my amendment poses no threat to any of those things; nor is there any other good reason why commissioners might decline to seek a lower price and accept an offer below the tariff. It purely enables them to do so where they think, and where Monitor has specified, that a lower price can be accepted. I say Monitor and not the commissioner, who may be thought to have some economic or financial interest in saving money. Under my amendment, Monitor will have to satisfy itself that a lower price can be accepted without damage to the structure and capacity of the NHS and without any lesser quality being provided for the patient. Those are two vital provisions at the heart of my amendment, and I hope that the Government will be prepared to think again about this very important matter.
Lord Warner: My Lords, I support my noble friend's Amendment 201D and I do so for a few simple reasons. I am afraid that I am a bit of a heretic on price competition. It has always seemed to me that, if you want to have competition, simply excluding all aspects of price will not necessarily be in the best interests of any public service, health or otherwise. Therefore, I do not start from the position where I think that a blanket refusal to have any competition on price is a sensible way forward. However, that is not what my noble friend's amendment does. It is, if I may say so, uncharacteristically modest in its approach.
Although I shall not name the person or the circumstances, I should like to share with the House a recent discussion that I had with an innovative GP running a big group practice in something which looks remarkably like an Ara Darzi polyclinic. This practice is innovating the way that it responds to its patients' needs and it is doing so by providing services without reference to an acute hospital. However, it is caught in a bind. It is making substantial surpluses, about which it is almost embarrassed, simply because it is required by its commissioners to accept the tariff payments. That is a nonsense in the circumstances in which the NHS finds itself, and I am certainly prepared to talk to the Minister privately about some of those circumstances. I am not fabricating this; it is a real case happening day in and day out. I suspect that, on the basis of what I was told, it is not alone in the country in being in that position.
If one thinks about it, this is bound to happen. If we are really serious about driving services outside hospitals and providing them in a facility where a lot of the things that would be done in hospitals can be done on a more out-patient basis but without reference to any in-patient costs, it is likely that we will get ourselves into difficulty with a tariff which at the moment is very hospital-driven. It is a tariff which is
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Perhaps I could also say a few words about the Secretary of State setting prices. I do so from my experience as the Minister who was involved in the first sets of price setting, when we introduced them across the country back in 2005 and 2006. In those circumstances, one of the places where we looked for experience was Germany. Germany has a separate organisation which sets the prices and collects and analyses the data. That happened because it was thought that there was a lack of trust in Ministers setting the prices. We got a fair amount of criticism in the beginning from the NHS about the price setting not being transparent. At that point, once we had established the tariff system-the payment-by-result system-we were inclined to move the setting of the price away from the Department of Health so that there would be more confidence in the process of setting prices.
In so far as there is a case for the Secretary of State to be involved, it seems to me that the case is stronger, not in relation to Monitor's pricing, but in terms of the Secretary of State driving the change in the definition of currencies, which is the function that has been given to the national Commissioning Board. Making changes in the currencies is probably the most significant way in which we can improve the way that the tariff operates. I do not have any particular problem with that being with the national Commissioning Board now, but it is certainly an area where I think the Secretary of State will need to keep a close eye on the national Commissioning Board to see that it addresses the need to move away from episodes of care to patient pathways in the way in which the tariff is set.
I am not so sure that I agree with my noble friend on the Front Bench that we want the Secretary of State to set a price, but I think that the Secretary of State should take a healthy interest in the way in which the currencies are set with the tariff.
Baroness Murphy: My Lords, the noble Lord, Lord Warner, has said more or less what I was going to say. It seems to me that if you remove price setting from the regulator of healthcare, you do not have an economic regulator. From my experience of watching prices and types of funding formula go up and down over the past 20 or 30 years, it is crucial and admirable to remove it into a system that can be independent and transparent.
As the noble Lord, Lord Warner, says, after the Future Forum amendments, we have a system now whereby the shape of the tariff and the bundling systems, if you like, which will enable the sort of integration and co-ordinated care to be effective, will be firmly with the national Commissioning Board,
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I will briefly say that I am quite attracted to the amendment of the noble Lord, Lord Davies. One cannot not be if one wants value for money. I remember seeing the noble Lord's face when he first realised that there was going to be no competition on price, and having a good deal of sympathy for where he was coming from. However, the matter is one of transition, and of when the public will feel confident that the way that the Bill intends to introduce competition on the basis of competitive tender will improve quality.
I worry about the response that the media could make to a significant change of this kind, even though I agree with the noble Lord that some services-as the noble Lord, Lord Warner, said-are overpriced and that there are opportunities for driving down these prices. That may come through the way that the national Commissioning Board and the regulator together set prices. After all, the price of a tariff will be a moving thing; it will be negotiated; it will change over time; and we will be able to address areas where there is obvious overpricing. I am attracted to the amendment of the noble Lord, Lord Davies, and it may be that eventually we will need to introduce something of the sort. However, I would be nervous of doing it at the moment in this form, even though it seems quite sensible.
Earl Howe: My Lords, the case for regulating prices for NHS services is strong. Many academics agree that competition should be on quality and not price and that this will increase the standard and quality of healthcare services and protect patients' and taxpayers' interests. This requires prices to be fixed. Therefore, it is vital that there is an effective system of price regulation that can deliver these improvements and help sustain a universal and comprehensive NHS, free at the point of use. However, a number of problems with the current system have been identified, including by the previous Administration, which mean that it is not as effective as it could be.
In particular, I will mention two things. First, prices are subject to potential political interference. This means that providers are more risk averse. That inhibits investment and innovation in the sector. As the noble Lord, Lord Warner, said, the methodology for setting prices is not transparent. This makes the system unpredictable-again, inhibiting investment and innovation. Secondly, prices can be inaccurate and may not always reflect best practice models of clinical service delivery. This may result in cherry picking and may hinder providers from expanding and improving quality. Therefore, the case for change is clear and compelling. The Government's vision is for an independent, fair and transparent system of NHS price regulation that reflects best practice and extends the scope of the tariff when it is in the interests of patients; that ensures that competition is based on quality and choice, and not on price; and that addresses the problems of cherry picking. To deliver this vision, prices will continue to be regulated through a national
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Perhaps it would be helpful for me to explain in a bit more detail how the Bill will support this vision. In other healthcare systems around the world-for example, in the Netherlands-Governments have delegated price setting to independent organisations. The noble Lord, Lord Warner, cited another example: that of Germany. Such bodies create a transparent and stable environment for pricing.
Lord Davies of Stamford: Before we get on to the important matter raised by my noble friend of who is going to fix the tariff, if there is a tariff, and the issues raised by my amendment, will the Minister agree to meet privately me and, I hope, my noble friend Lord Warner-there has been no collusion between us but I hope he will come to that meeting-to discuss in greater detail the technical but important matter of the circumstances in which it is right to accept a lower price bid in the National Health Service?
I was talking about the example of the Netherlands and Germany and was about to make the point that bodies of that kind can create a transparent and stable environment for pricing outside the influence of politics so that providers have confidence to invest and regulators can develop strong technical skills in setting prices at efficient levels. The Bill proposes that independent statutory bodies-Monitor and the NHS Commissioning Board-would collaborate to regulate prices. This will give commissioners a key role in price setting, whereas the opposition amendments would prevent this and would return control to Whitehall.
Monitor would publish national tariff prices based on a methodology subject to consultation where providers and commissioners could trigger an independent adjudication to ensure transparency and fairness. I am clear that we must have, as I said earlier, a process for adjudicating on Monitor's methodology. Otherwise Monitor could just go ahead with its proposals, even if there were a whole lot of people affected by the proposals who objected and the only way that they could see those objections through to a conclusion would be through judicial review. The government amendments in this group ensure that the appropriate providers could trigger independent adjudication.
I am also clear that the Competition Commission should undertake this role. As I said earlier, it would be free from political intervention in making these judgments and is well respected as an organisation across the economy for the role it performs. The opposition amendments would prevent any of these benefits being realised. A key priority for improving the system is to expand its coverage so that more and more services are brought within scope. The previous Government failed to do this in line with their own published timetables, for example, regarding mental health services. The Bill would place duties on Monitor and the NHS Commissioning Board to secure the
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To put matters beyond doubt, the national tariff would be a fixed price, with any competition based on quality and choice, not price. We listened to representations made to us about this, and we amended the Bill to make clear that the tariff would not be based on a maximum price. Of course I understand the points made very ably, if I may say so, by the noble Lord, Lord Davies, and the noble Baroness, Lady Murphy. We all want to see best value for money for taxpayers in the way that services are provided, but our judgment was that, for reasons that I will elaborate on, that is not the right way to go. Where services were not covered under the national tariff, there would be rules to govern those prices locally. Prices and rules within the national tariff would be legally binding and independently enforceable by Monitor to eradicate any abuses. Tariff prices could not be varied for different providers according to their ownership status. That would prevent future Governments paying inflated high prices to private providers.
I shall elaborate a little on what I said in answer to the noble Lord, Lord Davies. The purpose of the tariff is to ensure that providers are reimbursed fairly for the services they provide and to allow competition to be based on quality and not price, as I mentioned. When a maximum price was suggested, the fear was that there would be a drive to the bottom on prices, thus jeopardising the quality of care. The evidence from the UK and internationally suggests that quality-based competition with fixed prices can be very beneficial in producing higher quality care-that evidence is reported by the Office of Health Economics-whereas evidence from the USA sounds a note of caution that the wrong kind of competition based on price can lead to a race to the bottom on quality. Our judgment was that we should stick with our position that the tariff will not be a maximum price.
Finally, the Bill addresses the problem of cherry picking, which I am afraid was a problem that the previous Government did not grip. It places a duty on Monitor and the NHS Commissioning Board when setting prices to consider the range of services provided by different providers and the differing needs of the patients treated. As the Royal College of Psychiatrists noted:
To conclude, the status quo is not an option. The Bill strengthens the current system and meets the concerns raised by clinicians and others. I ask noble Lords not to press their amendments which would fail to address the current fundamental problems and would deny patients and taxpayers the benefits of an independent, fair and transparent system. Finally,
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Baroness Thornton: My Lords, the Minister has explained this very clearly. We part company about the transparency, clarity and accountability. I resist the temptation at this time of night to start asking questions of the Minister about this matter, but I fear that it is going to take a very long time to sort this one out. One of the reasons why my own Government had not completed this task is that it is fiendishly difficult and fiendishly complex. I fear that this Bill is not going to make it any less fiendishly difficult and fiendishly complex, but it also might make the whole process a lot less accountable.
This was in fact the final group of amendments that we had put down in our suite of amendments to reform the whole of Part 3 in Committee. The noble Baroness, Lady Murphy, is quite right. If you give the responsibility and accountability for the tariff to the Secretary of State, you undermine the role of the economic regulator. Yes, that was the point of this amendment in the very first place. She got it in one-well done.
"(5A) Where the Commissioner of a health service receives an offer from a service provider licensed under section 80 at a price below the price that is payable by virtue of this Chapter, the commissioner shall seek the agreement of Monitor before placing any order for this service.
(a) the quality of the service to be provided will not be inferior to the same service provided by another supplier at the price payable by virtue of this Chapter, and
(b) there will be no consequent unacceptable impact on the structure or capabilities of the NHS.
Baroness Anelay of St Johns: My Lords, I think the noble Lord on the Woolsack is trying to assist the noble Lord, Lord Davies of Stamford, to realise that the rules as they pertain in this House are that if the noble Lord, Lord Davies, wishes now to speak further to his amendment, he must go through the process of moving it, speaking to it-and I am sure the Minister would hope he might then withdraw it. Having spoken to it already, it is not up to him simply to make an extempore statement; he has to go through a procedure to achieve that.
Lord Davies of Stamford: My Lords, I am very grateful for that guidance. In accordance with it, I have moved my amendment. I think that the Minister and I are still some distance apart. Once again, I put it to the noble Earl that a price that is not based on competition is not an economic price. A price that is negotiated with one vendor and based on the costs of that vendor, even if they are very transparent, is not an economic price. You cannot rest content that you have done an honest job if you accept that price. A fixed price that may be even remotely correct one day will not be correct in six months' time or 12 months' time. You need to continue to put that price to some sort of competition discipline. These points are fundamental. The noble Baroness, Lady Murphy, came nearer to the mark when she suggested that the reasons for the Government's position had more to do with PR, politics or the media than with the economics of the health service. I was grateful to the noble Earl for the offer to discuss this matter in greater detail. Given that offer, I shall not detain the House further on this matter and will not put my amendment to a vote.
(a) a licence holder, or
(b) such other person, of such description as may be prescribed, as provides health care services for the purposes of the NHS."
(a) receives an application under section 125, and
(b) is satisfied that the continued provision for the purposes of the NHS of health care services to which a condition in the applicant's licence under section 98(1)(i), (j) or (k) applies is being put at significant risk by the configuration of certain health care services provided for those purposes.
(a) of its receipt of the application, and
(b) of its reasons for being satisfied as mentioned in subsection (1)(b).
(4) Monitor must publish for each financial year a list of the notifications under this section that it has given during that year; and the list must include for each notification a summary of Monitor's reasons for being satisfied as mentioned in subsection (1)(b).
(5) The Board and clinical commissioning groups, having received a notification under this section, must have regard to it in arranging for the provision of healthcare services for the purposes of the NHS."
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