The government no longer wants to know every time an NHS bedpan falls. It wishes to get out of direct, day-to-day involvement in running every part of the NHS. This, according to Health Minister Lord (Philip) Hunt at a meeting with Socialist Health Association officers, is the main driver behind the establishment of foundation hospital trusts.

The SHA however is critical of the concept, and this article describes some of those criticisms.

What is a foundation trust?

Foundation trusts are modelled on co-operative societies and mutual organisations. They will be locally owned, but will remain a constituent part of the NHS. They will have a two-tier governance structure – a Management Board and a Board of Governors. Membership of the Board of Governors will be drawn from the local “membership community” – that is, a community of residents, staff and service users who have actively opted to become members of the trust.

The intention is that “NHS foundation trusts will be guaranteed, in law, freedom from Secretary of State powers of direction, removing control from Whitehall and replacing it with greater local public ownership and accountability”. (The Guide to NHS Foundation Trusts)

They will operate on a not-for-profit basis, and will earn most of their income from legally binding agreements with primary care trusts. This income will be based on the new mandatory “national tariff” of standard costings of all health care procedures to ensure that they cannot undercut PCT contracts with other NHS hospitals.

Foundation trusts will be able to borrow from both the public and the private sector, and will retain any operating surplus they may earn. Private sector borrowing will be controlled by a new prudential borrowing code, similar to that being introduced into local government. A proposed cap on existing levels of private work addresses the concern that foundation hospitals would seek to boost their private patient income.

Foundation trusts will be able to offer extra rewards to their staff, although poaching staff from other trusts will not be permitted. They will be required under the terms of their foundation trust licence to deliver their existing range of NHS services to national NHS targets and standards.

Dual regulation

This service delivery will be monitored by an Independent Regulator as well as the new Commission for Healthcare Audit and Inspection. In extreme circumstances, foundation status can be withdrawn.

All current three-star hospitals are potential foundation trusts, and preliminary applications for foundation status must be in by February 2003.

The short list will be announced in March. The first foundation trusts will go live in April 2004, subject to the legislation being in place …… and the government has privately told three-star trust chief executives that it would like at least 50% of all acute care hospitals to become foundation trusts within five years.

This innovation represents the introduction of more structural change. It is questionable whether proposing yet more change at this stage is the right way forward for the NHS, particularly as so many doubts are being expressed about the whole idea.

Back to the internal market

Having got rid of the debilitating effects of the internal market, the government now proposes to re-introduce competition through the foundation trust concept. This in turn will create a two-tier system of acute health care, and ensure that struggling hospital trusts never get the chance to succeed.

The SHA has always believed that public health is the route to improving health and health care, not continual structural change for the sake of structural change. The pursuit of community initiatives that stress a reduction in inequalities, encouraging healthier lifestyles, tackling social and economic exclusion, the importance of preventive work, partnerships particularly with local government and around community safety, and providing more resources for primary care and preventive initiatives should be the government’s priorities, not giving pre-eminence within the NHS to the acute and tertiary sector.

The SHA therefore has grave reservations about the foundation trust proposals, and Central Council resolved the following proposition at its meeting on 16 November 2002:

“The Central Council of the Socialist Health Association believes that the government’s proposals for foundation hospitals as presently set out appear to re-introduce the internal market and competition between NHS hospitals. The SHA is strongly opposed in principle to any measure that does this.”

A democratic illusion

A health service that is democratically accountable at all levels is a priority for the SHA, and the foundation trust concept has been given a superficial attraction through its association with co-operation, mutualism and local democracy. This, however, is sadly illusory.

The proposed system of foundation trust membership and the freedom given to trusts to run their own elections as they see fit, are concessions granted to chief executives who fear the introduction of true democratic accountability into hospital governance. It completely undermines the government rhetoric that the trusts will be community owned and locally accountable.

The perverse nature of the proposal is reflected in the fact that John Redwood MP was the most vigorous proponent of election via the ballot box in the recent parliamentary debate on foundation trusts.

The proposal for “democratic stakeholders” is unworkable in the context of a big hospital because of the lack of a genuine catchment area. The interests of the local population, often a very deprived population in the case of many teaching hospitals, may well conflict with those of patients attending specialist units who come from further away.

Where local people dominate stakeholder boards, they could quite rationally decide to close down expensive regional services and divert resources to meet local needs. In other instances, small single-issue patient or other groups could quite easily capture control of the Board of Governors.

The wrong unit to empower

A hospital is also the wrong unit to empower. It is returning power to the big hospitals when the thrust should be to empower primary care.

If the local population is to have a truly democratic voice, this should be in its Primary Care Trust, which has an interest in local services and relates to a geographical area. Elections to the Board would then be a simple matter, conducted at the same time as local government elections and based on the same constituency of electors.

The Guide to NHS Foundation Trusts says that foundation trusts do not need to set up patients’ forums as they will be held to account through the commissioning process. However, it is up to the Commission for Patient and Public Involvement in Health to establish patients’ forums, and the suggestion that foundation trusts do not need these forums seriously undermines the new system of patient and public involvement in health even before it is introduced.

The role of PCTs in the foundation relationship will be complex and uneasy, especially where several PCTs hold contracts with the same foundation hospital. It is fanciful to believe that foundation trusts can be held to account through the commissioning process. PCTs will be required to sign long term, binding contracts with foundation trusts, and the trusts will be dependent on these contracts to allow them to borrow on the open market.

It is therefore unrealistic to suppose that PCTs can then enter into expensive legal wrangles with the trust whenever they feel that contractual obligations are not being met. Neither would they be able to hold the trust to account by taking their contracts elsewhere. So foundation trusts cannot in reality be held to account by any bodies other than the Regulator and CHAI.

Freedoms for whom?

The government says the demand for foundation trusts came from high performing chief executives who want more freedom in the way they run their hospitals. However, since the publication of The Guide, many are reconsidering their position because so many of the so-called “freedoms” will be swamped in a morass of bureaucratic control.

For example, the cap on private patients is already causing consternation amongst managers – suggesting that some of them would prefer to maximise private patient income rather than treat NHS patients.

For medical directors, greater clinical freedom was originally attractive. However, foundations will not be able to decide their own local clinical priorities, and will remain bound by government imposed national targets. The role of the new Regulator also is controversial, introducing another tier of regulation, although the Department of Health claims that it will operate a “light touch”.

Increased freedom to borrow is cited as another benefit. However, this will mean that borrowing is driven by hospital status rather than clinical need. Furthermore, the foundation trusts’ pot of capital is likely to be greater than that available to other hospitals, undermining the access of more needy hospitals to capital.

Foundation trusts with surplus estate in areas with high property values will have the opportunity for windfalls denied to the rest of the NHS. Profits from asset sales should be shared across the NHS, not retained within one locality. Similarly, the ability of foundations to invest their own surpluses independently will result in small scale, piecemeal returns and deny the NHS the ability to maximise returns on aggregated investment.

Real dangers

The first wave of foundation hospitals in a situation of prolonged staff shortage is likely to boost recruitment at a small number of institutions at the expense of the rest of the NHS, making it even more difficult for other hospitals to succeed. Staff poaching is inevitable. The duty on foundation hospitals to exercise their freedoms in a way that does not undermine or damage the rest of the NHS is a pious and impossible goal.

Competitive local pay will also transfer resources from health care into collective bargaining processes. It will become a recipe for divisiveness, competition and the institutionalisation of a two or multi-tiered health care service. This, at a time when the government should be seeking to increase capacity across the board, not introducing unfair competition for scarce resources.

In its Guide, the government is careful to stress that foundation trusts will remain firmly within the NHS. Time will tell if this status can be sustained. If it can be demonstrated that foundations are not robustly embedded within the NHS, then they could fall within the terms of the GATS agreement.

This General Agreement of Trade in Services, overseen by the World Trade Organisation, reaches far into domestic policy making. If foundation trust ownership is unclear, it could blur the boundary between public and private services. Public services are exempt from the GATS provisions. Private services are not.

If foundation hospitals become free-standing entities, they might be perceived as competing with private hospitals, but not on the same level playing field. If that situation arose, the government would then have to remove all subsidies and NHS benefits from the foundation trusts.

In reality, the foundation trust is at best a theoretical construct that will prove disastrous in practice. It will not protect against future Tory privatisation proposals. Unpopular privatisations have been achieved despite massive opposition in the past.

Any further reform should offer greater local flexibilities for all, reinforced with extra support for struggling hospitals, with the resources, money and capacity going where they will achieve maximum improvements. The government’s target should be tackle the current multi-tier delivery of acute health care.

It should resist further organisational change until there is a single-tier of uniformly excellent health care matching the national standards to which the government is committed. People pay for a National Health Service and have the right to receive consistently high standards of care no matter where they live.

The SHA is preparing a detailed commentary on the government’s proposals in The Guide to Foundation Trusts to submit to the forthcoming Health Select Committee inquiry.

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