COMMONS

Monitor: regulating NHS foundation trusts

04 July 2014

The Public Accounts Committee's Sixth Report of Session 2014-15 is published as HC 407.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"These are tough times for the NHS. The number of NHS foundation trusts in difficulty is growing, and this casts doubt on Monitor’s effectiveness as their regulator. 

Over a quarter of foundation trusts, 39 out of 147, were predicted to be  in deficit at the end of 2013-14, evidence of the increasing financial challenges they are facing.

By December 2013, 25 trusts – one in six – were in breach of the conditions set when they were awarded foundation trust status.

These trusts are suffering from serious financial pressures, poor leadership or both, and some have been allowed to go on struggling for more than four years.

Monitor has got to get much better at identifying and taking radical action in trusts at risk of failure. However, its effectiveness is undermined by a lack of frontline NHS experience.

Only 7 of Monitor’s 337 staff have a clinical background and only 21 have experience of running or working in a hospital trust, which damages Monitor’s credibility and ability to diagnose problems and develop solutions.

It is currently spending £9 million a year out of its £48 million budget on consultants to fill gaps in expertise.

At the same time Monitor’s remit is expanding beyond protecting NHS foundation trusts from failure. It now has a wider duty to protect and promote the interests of patients and a role in ensuring the continuity of essential health services.

This creates a risk of actual or perceived conflicts of interest. For example, in setting prices for NHS-funded care, Monitor will need to balance its responsibility to support the financial viability of NHS foundation trusts with the objective of promoting more care outside hospitals in the community in the interests of patients.

Monitor must demonstrate how it will prioritise the protection of patients’ interests above those of NHS foundation trusts, to allay concerns that its new responsibilities are conflicting.

It must also demonstrate how it will build up the skills and capacity internally and within trusts to provide the quality of staff and leadership needed to take the NHS forward in these difficult times."

Margaret Hodge was speaking as the Committee published its 6th Report of this Session which, on the basis of evidence from Dr David Bennett, Chief Executive, Monitor and Una O’Brien, Permanent Secretary, Department of Health, examined the subject of Monitor: regulating NHS foundation trusts.

The number of NHS foundation trusts in difficulty is growing, casting doubt on Monitor’s effectiveness as their regulator. At the time of our hearing Monitor estimated that 39 of 147 foundation trusts would be in deficit by the end of 2013–14. At 31 December 2013, 25 trusts (one in six) were in breach of the conditions set when they were awarded foundation trust status. These trusts were in financial difficulty, or had inadequate governance arrangements, or both, and Monitor expects the problems to grow. Some had been in breach of their regulatory conditions for over four years. Furthermore there are potential conflicts between Monitor’s traditional role of regulating NHS foundation trusts and the new responsibilities it has been given in the health sector. At present Monitor relies heavily on consultants and it is not clear whether the organisation can build the capacity to carry out effectively its expanded remit. Responsibility for overseeing the provision of healthcare is fragmented, and there is a strong risk of regulatory overlaps and gaps between Monitor’s role and those of other bodies, including the Care Quality Commission, the NHS Trust Development Authority, NHS England and the Department of Health.

Conclusions and recommendations

Monitor was created in 2004 as the independent regulator for NHS foundation trusts. It determines whether NHS trusts are ready to become foundation trusts and operates a regulatory regime designed to ensure that the 147 trusts that have achieved foundation status continue to be financially sustainable, well-led and locally accountable. It intervenes where there is evidence that an NHS foundation trust is in breach of its regulatory conditions. Monitor’s remit is expanding, with significant new responsibilities, including setting prices for NHS-funded care jointly with NHS England, and preventing anti-competitive behaviour by healthcare commissioners and providers. Monitor is independent of Government in terms of its regulatory decisions, but is accountable to Parliament and the Department of Health (the Department) for its performance and value for money.

Some NHS foundation trusts have been allowed to struggle for far too long in breach of their regulatory conditions. It has taken Monitor too long to help trusts in difficulty to improve, with three trusts having been in breach of their regulatory conditions since 2009. Trusts may get into difficulty for a number of reasons. The underlying cause can be internal, such as poor leadership, or the difficulties relate to wider problems in the local health economy, such as when local commissioners are in financial difficulty. Monitor has taken too long to identify clearly the reasons for trusts being in difficulty, and to take decisive action. It has adopted an incremental approach to intervention, in the hope that trusts will recover, rather than taking radical action at an early stage.

Recommendation: Monitor should investigate quickly, to diagnose the underlying causes of the problems which each trust in difficulty faces, and then take faster, more decisive action to address them, to turn around failing trusts sooner.

Monitor's job is becoming harder as more foundation trusts get into difficulty.  In an environment where there is a shortage of good leaders, increased financial pressures and greater emphasis on the quality of care; the demands on Monitor will increase. We expect Monitor to make better use of its resources to drive improvement. At the time of our hearing, over 26% of trusts were predicted to be in deficit by the end of 2013–14. At 31 December 2013, 17% of the 147 NHS foundation trusts were in breach of their regulatory conditions, up from 11% two years previously. Intervening in these trusts is resource intensive for Monitor. It does not at present enjoy the appropriate capacity and skills and relies heavily on consultants. It is unlikely therefore that it will have the capacity to maintain its current regulatory approach should the number of trusts in difficulty continue to rise. It may need to adopt different approaches to dealing with trusts in difficulty, to cope with the increasing demands on its resources.

Recommendation: Monitor should evaluate the cost-effectiveness of different regulatory interventions, and use this information to direct its work and make the best use of its resources.

Monitor’s effectiveness is hampered by a lack of clinical expertise and frontline NHS experience. While Monitor employs people with financial and business expertise, it lacks sufficient numbers of staff with experience of running or working in a hospital trust. Only 21 of Monitor’s 337 staff have an NHS operational background and only 7 have a clinical background, which damages Monitor’s credibility in dealing with trusts and its effectiveness in diagnosing problems and developing solutions. Monitor also makes extensive use of external consultants to fill gaps in its capacity and expertise. However, its use of consultants has been costly, accounting for some £9 million of Monitor’s £48 million budget in 2013–14. The use of consultants has also restricted Monitor’s ability to build in-house expertise and knowledge. Both Monitor and NHS foundation trusts face a real challenge in recruiting the excellent leadership they need to take the NHS forward in these financially challenging times.

Recommendation: Monitor should set out how it will: fill gaps in its capacity and expertise; exploit the skills and knowledge from the consultants it employs; and develop a staffing model which sets out the balance of clinical, financial and other expertise it requires.

The movement of staff between the NHS, local government and the civil service is hindered by the differing terms and conditions of service, limiting the transfer of skills and knowledge and inhibiting integration. Monitor presently spend almost one-third of its budget on central services with 30 individuals employed to work on strategic communications. Nearly 30 of Monitor’s staff are paid over £100,000 a year. Monitor has struggled to recruit staff with a background in the NHS, particularly for senior roles. NHS staff cannot transfer their accrued pension rights and they lose continuity of service if they join Monitor, as it employs staff on different terms and conditions based on those in the Civil Service. As a result, the years of service such staff accrue under the NHS pension scheme would not be taken into account in calculating the amount of compensation due if they were to be made redundant by Monitor. Similar barriers affect staff transfers between the civil service, the NHS and local authorities, which impedes the transfer of knowledge and skills between different parts of the health and social care system.

Recommendation: The Department, in conjunction with the Cabinet Office and HM Treasury, should set out what steps they are taking to remove disincentives, such as the inability to transfer accrued rights, to the flow of staff between different parts of the health and social care system, and to facilitate and encourage the free flow of staff.

There is a risk of actual or perceived conflicts between Monitor’s role of regulating NHS foundation trusts and its new responsibilities. Monitor now has a duty to protect and promote the interests of patients and a role in ensuring the continuity of essential health services. This significantly widens its remit into new sensitive areas, taking it beyond protecting individual NHS foundation trusts from failure. For example, potential conflicts arise from Monitor’s new role in setting prices for NHS-funded care, and it will need to reconcile tensions between supporting the financial viability of trusts and the wider objective of providing more care outside hospitals in the community in the interests of patients. Similarly, conflicts could arise from Monitor’s new responsibility for preventing anti-competitive behaviour by healthcare commissioners and providers, particularly when considering proposals for trusts to merge. It is not clear how Monitor will assess the impact of proposed mergers on patients, including weighing up the benefits of potential improvements in care quality against possible disadvantages, such as longer journeys or reduced competitive pressure between providers.

Recommendation: Monitor should explain how it prioritises the protection of patients’ interests above those of NHS foundation trusts, and demonstrate how it does so in practice, to allay concerns that its new responsibilities are conflicting.

There is potential for overlap between all the bodies responsible for regulating the NHS, including Monitor, as well as for gaps in oversight. Monitor is increasingly involved, working with the NHS Trust Development Authority and NHS England, in health economies facing tough challenges. It is also engaged with commissioners who are struggling to find an answer to problems in the local health economy in difficult financial times. There are therefore at least three national bodies working closely with the Care Quality Commission and the Department and with commissioning groups and individual trusts on the same problems.

Recommendation: The Department should review its regulatory, oversight and monitoring arrangements to ensure it eliminates duplication and fills any potential gaps.

The Department confirmed that it was still the Government’s policy intention that all trusts should become foundation trusts, but it had not set a target date for this to be achieved. However, just two NHS trusts gained foundation trust status in 2012-13 and, as at 31 December 2013, 98 NHS trusts remained.

Recommendation: The Department should set out how it intends to meet the objective of all NHS trusts achieving foundation trust status.

It is wholly inappropriate that the same person acted as both Chair and Chief Executive of Monitor between March 2011 and January 2014. This was contrary to corporate governance good practice and Monitor’s own guidance to NHS foundation trusts. A non-executive Chair provides an independent check on the executive by scrutinising performance and holding management to account. Monitor lacked this important governance mechanism for nearly three years up to January 2014, when the Secretary of State for Health appointed an interim Chair who will serve for up to a year.

Recommendation: The Department should appoint a permanent non-executive Chair of Monitor through an open, competitive process by the end of 2014 at the latest.

Further information

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