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Feature: foundation trusts

The messy failure regime for foundation trusts raises questions about the government’s entire reform agenda, says Rob Horsey

Not for the first time, the coalition stands accused of breaking a key promise on the NHS. In October 2007, then-opposition leader David Cameron pledged to scrap plans to downgrade services at North London's Chase Farm Hospital. "What I would say to Gordon Brown is if you call an election on 1 November," he said firmly, "we'll stop the closure of services at this hospital on 2 November."

Well, 2 November 2007 is a long time ago. On 12 September, Health Secretary Andrew Lansley finally announced that he would back the Independent Reconfiguration Panel's (IRP) proposals to downgrade the hospital's A&E and maternity units. Campaigners are up in arms and local MP Nick de Bois – a Tory – has said bluntly "the secretary of state is wrong to endorse the IRP's decision".

The closure looks set to go ahead all the same, but this isn't the last time the government will face this particular PR crisis.
It's almost a truism in healthcare circles that parts of the country – London, in particular – are 'over-hospitaled'. Moving more care into community settings would strip out some of those excess costs and would also, counter-intuitively, be safer.

One of the myriad purposes of Andrew Lansley's sprawling health reforms was meant to be to make such reconfiguration easier, by making it 'bottom up' rather than top down. GPs, the theory went, are closest to patients; they know best what services people want. Giving them control of the purse strings would ensure that limited cash was spent where it was most needed. This was meant to provide a handy lever by which expensive hospital services could be replaced by cheaper and more popular community ones. They'd also, as a handy side effect, depoliticise the NHS. Hospital facing closure? Don't blame Westminster. That's the fault of your friendly local GP.

But markets are a little like democracies: the discipline they bring comes as much from their ability to chuck old things out as to bring new ones in and, for an NHS market to have real force, there needs to be a mechanism to ensure that hospitals can't simply go on failing indefinitely.

That means that one of the key aspects to creating the NHS market Lansley wants will be a properly functioning failure regime: a set of protocols that explain whether failing hospitals should be rescued and, if not, how they should be closed. The current draft of that regime is worryingly vague on both counts. And it raises questions about the entire philosophical basis of the Lansley reforms.

The key to the government's original proposals was a two-tier system, which distinguished between those organisations providing 'designated' services and the rest. Designated services were those that would be given special dispensation by economic regulator Monitor to, effectively, run at a loss. If your hospital provides the only A&E in a rural area, then it's likely your service is vital, even if it's not economically viable. You're thus worthy of subsidy, and if you got into trouble, Monitor would apply to the courts to appoint a 'health special administrator', who would have access to a bail out fund and work out how to keep you in business.

If your foundation trust didn't provide such designated services, though, the new regime would allow you go bust, leaving you at the mercy of insolvency law. At the time Capsticks lawyer Sharon Lamb pointed out in a briefing note that such a system "will mean that NHS and private providers will be treated in the same way if they fail": both could be 'designated'; both could go bust.

Critics argued the plans potentially meant a free pass for designated providers to never quite balance their books. And, in its response to the NHS listening exercise, the DH was forced to admit that trying to identify which services to protect in advance may not be entirely practical.

This led the Department of Health (DH) publishing revised proposals in September, in which it unveiled its 'continuity of services' regime.

Instead of designating protected services in advance, the briefing note tells us, Monitor will "proactively intervene" to manage the risk of hospitals failing. That's likely to mean some kind of 'insurance-type' risk pooling system: the more risky your hospital is deemed to be, the more you pay into the pool. It is hoped this will encourage hospitals to drive down their risk of financial failure in order to cut their premiums.

The document assures us that it is "unlikely" such interventions will be unsuccessful. However, just in case, it also outlines Monitor's powers to appoint a 'trust special administrator' (TSA) for hospitals that actually go under. The TSA will talk to commissioning groups about the best way to keep services open, prepare a report, consult everyone you can think of (patients, staff, Health and Wellbeing Boards, the IRP, the Care Quality Commission, local healthwatch organisations and so on), and finally present their findings for Monitor's approval.

Given that we're meant to be moving into a brave new 'bottom up' NHS, you'll notice that all this puts rather a lot of power into the hands of Monitor. The regulator not only gets to decide which hospitals are most at risk, it also plays a major role in what happens to them once they fail. It is also empowered to work with the NHS Commissioning Board to agree an increase in the national tariff, to "recover any unavoidable additional costs of delivering services that need to be continued, where this would otherwise be uneconomic" (in effect, a subsidy).

That sounds a lot like telling the GP commissioning groups that they're paying more for services, like it or lump it.

The revised plans seem to leave rather a lot of influence with the health secretary, too. True, the September draft of the plans revoke the minister's powers to de-authorise foundation trusts, effectively bringing them under central control again. But he or she does get a veto over whatever plans Monitor eventually comes up with. We're assured this would be used only in 'exceptional circumstances' – but the DH defines those circumstances as "where there was a failure to comply with due process or the proposals", or where plans "fail to secure access to services, or services of sufficient safety or quality or to provide value for money". That seems broad enough to encompass pretty much anything.

So when all is said and done, the power to decide which services should be rescued from failure seems to be largely in the hands of Whitehall and Westminster. So much for empowering commissioners.

The revised plans also seem to have quietly dropped the commitment to treat private providers and foundation trusts on equal terms. No longer will trusts be subject to insolvency law. Private hospitals, meanwhile, will be subject to a similar but separate failure regime ('health special administrators', rather than 'trust special administrators', fact fans).

All this smacks of a failure of nerve. The reforms are meant to move the health service from a political hot potato, micro-managed from Whitehall, to a depoliticised system where those at the front line drive change. Giving super-regulator Monitor the power to intervene to protect services, over the heads of commissioners, suggests a reinforcement of the command-and-control health economy Lansley was so keen to move away from.

This failure of nerve is likely to be expensive. DH documents, leaked last July to the Financial Times, put the cost of keeping non-viable hospitals open – the "inefficient hospital fund" – at around £500 million a year. The pro-market think tank Reform puts it even higher, and predicted in a recent report that, if the government doesn't grasp the nettle, that fund could add up to £8bn by 2013. That's money that could be spent on patient care.

On Chase Farm at least, Lansley is holding his nerve and doing what he thinks is right, rather than what is popular. But with that veto, he looks to effectively have left himself a way of fighting to keep failing services open, in the event that the political cost gets too high. That may be a loophole big enough to get a district general through.


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