Health Bill [HL]

I will spend a bit of time going through this group, Amendments 72 and 76, tabled by the noble Earl, Lord Howe, and the noble Baroness, Lady Cumberlege, and the question of whether Clause 14 should stand part. However, before I address these issues in detail, I shall set out some of the wider context behind these proposals, which will help frame this debate. The majority of hospitals and trusts are performing well, providing high-quality services to patients and managing resources effectively. In the few cases where they are not, however, action must be taken. The first step to improve performance should be at a local level through the commissioners, the strategic health authority or, in the case of foundation trusts, through Monitor. In the rare cases where these interventions are unsuccessful, patients and staff rightly look to the Government to take action. It is therefore essential that we have a transparent process in place to resolve failures. The regime for unsustainable NHS providers, set out in Clause 13 and in the subsequent three clauses, is, in practice, the very last step for a provider which has been subject to these previous actions aimed at recovery. The amendments would have the specific effect of disapplying the whole regime to foundation trusts. Let me be clear at the outset, as I have been saying throughout the Committee’s proceedings, that the process outlined in the Bill upholds the independence of foundation trusts and of Monitor. Indeed, the lack of a completed regime to tackle failure undermines the terms of authorisation that all foundation trusts have, as there is ambiguity about how any instance of failure would be dealt with. The Bill completes the final stage and demonstrates that the foundation trust regime is serious and enforceable. As a Government, we are committed to the concept of foundation trusts. This is demonstrated by the fact that we have laid down an explicit timetable for strategic health authorities to support eligible trusts to become foundation trusts. Acute and mental health trusts that are capable of achieving NHS foundation trust status are expected to have applied to the Secretary of State by 31 December 2010 to go forward to Monitor to be considered for authorisation. The process set out in the Bill does not remove any of Monitor’s powers. The same test is used to apply this regime as exists in the current legislation governing the dissolution of foundation trusts. Only Monitor can trigger the regime and request that a foundation trust is de-authorised, and that will remain the case. This would only happen if and when it was satisfied that a trust had failed to comply with a notice under Section 52 of the NHS Act and that a further notice would be unlikely to secure the provision of those services it is required to provide by its foundation trust authorisation. It is Monitor that will trigger the process and say, "We have done everything". I will now move to the specific points on insolvency. The Health and Social Care (Community Health and Standards) Act 2003, now consolidated into the National Health Service Act 2006, envisaged an insolvency procedure for NHS foundation trusts, drawing on aspects of the Insolvency Act 1986, but we have never found an appropriate way to take these plans forward. After careful consideration, we have concluded that it is not appropriate to apply an insolvency process to NHS foundation trusts. Fundamentally, insolvency would place financial failure above other considerations such as quality and patients’ interests when the cause of the organisational failure may well relate to a broader clinical issue. We are concerned that an insolvency-based approach, even in a modified form, would not be in the best interests of patients and would not meet the public’s expectation that the Government should step in and assist a failing NHS organisation. The regime that we have outlined in the Bill allows consideration to be given to the most appropriate long-term outcome for the organisation. This is unlike the existing insolvency arrangements; they present dissolution of the organisation as the only option, which may not be the best outcome for patients and the public locally. The regime also gives clarity to staff and patients about the process that will be followed, when decisions will be made, and how they can input into the process. Unlike in the insolvency provisions, staff and patient involvement in this process is guaranteed in the legislation. In addition, the process ensures that the Secretary of State’s final decision on the future of services is informed by an independent process involving evidence-based judgments, underpinned by accountability to the public and patients. I believe that this is a better approach. The majority of respondents to our recent consultation on this approach agreed that it would not be appropriate to apply an insolvency regime to a state-owned healthcare service. For example, the Audit Commission commented: ""An insolvency regime is unlikely to protect the interests of either taxpayer or patient, but we do consider it right that there is a clearly identified regime for unsustainable NHS organisations"." Finally on these amendments I turn to the issues raised on the incentives and risks. It is worth reiterating that the measures outlined in the Bill would apply extremely rarely and only in cases that Monitor could not solve using its existing interventional powers. We are in a different position from that which applied when the Health and Social Care (Community Health and Standards) Act was passed in 2003. We are now in a position where we can see the positive effect that Monitor’s compliance framework has had and the financial rigour that it has introduced into the system. The measures that Monitor has in place are widely recognised as being successful in identifying risks at an early stage, and its interventions give foundation trust boards a strong incentive to address poor performance. Even though there are now 115 foundation trusts, Monitor has needed to use its formal intervention only on three occasions since foundation trusts were first authorised in 2004. I do not agree that the measures in the Bill diminish the incentives for foundation trust boards. In the same way that board members would not want to be responsible for an organisation becoming insolvent, they are unlikely to want to be responsible for a foundation trust having its licence revoked or being de-authorised and having its independence removed. There will continue to be regulation of borrowing. As required in the NHS Act 2006, Monitor sets a prudential borrowing limit in each foundation trust’s terms of authorisation. This limits a foundation trust’s cumulative long-term borrowing and is designed to keep it at an affordable level with an acceptable risk. Monitor’s compliance regime assigns a financial risk rating to every financial trust. The financial risk rating is intended to reflect the likelihood of a financial breach of the terms of authorisation and is reviewed regularly. There is a strong incentive for foundation trust boards to maintain their trust rating at an acceptable level, as a poor rating is likely to result in Monitor using its interventional powers, which include dismissal of the board. Given these safeguards, we do not expect that the regime will change the incentives on NHS foundation trusts’ behaviours in their investments and borrowing decisions. But this is uncharted territory and so, if and when the regime is implemented, we will work with Monitor to observe the effects on foundation trusts’ incentives and behaviour, particularly with regard to borrowing. I hope that I have been able to reassure the noble Earl that Monitor’s independence in regulating foundation trusts will be maintained. We are addressing what the process, if Monitor decides that an organisation is no longer viable for any reason, should be to deal with that challenge. It is the Government’s view that an insolvency regime is not the appropriate way to deal with such failure. I hope that I have reassured noble Lords and given some clarity to these provisions.