NHS reforms: starting the treatment

28 Mar 13
From April 1, the health service embarks on an uncertain journey as the biggest structural reforms for decades get under way. Richard Lewis considers the risks and opportunities ahead

By Richard Lewis | 1 April 2013

From April 1, the health service embarks on an uncertain journey as the biggest structural reforms for decades get under way. So what are the risks and opportunities ahead?

Hospital, Photo: Getty

Major changes to the NHS as we know it come into effect in England this April under the 2012 Health & Social Care Act. Despite the pledge of the incoming coalition government to end ‘top-down reorganisations’ of the health service, the Act significantly alters both the structure of the NHS and the policy framework that determines how it operates.

When the reforms were first ­proposed, ministers placed great store on ending what they saw as overburdening bureau­cracy, asserting that power must be devolved from central government in general and from politicians in particular. Indeed, the white paper that preceded the Act was subtitled Liberating the NHS.

This end to ‘political interference’ was epitomised by the decision to separate the government and the headquarters of the NHS. In October last year, the new NHS Commissioning Board was formally established as an organisation at arm’s length from the Department of Health and the secretary of state, and with its own powers conferred by ­Parliament. Formally, the board – to be renamed NHS England from April 1 – is an ‘executive non-departmental public body’. It has its own non-executive chair, Malcolm Grant, and non-executive directors. While the health secretary retains ultimate accountability for the NHS, and has powers to intervene where there is local failure, the Act includes a duty to promote local autonomy.

Under this new governance approach, the health secretary’s ability to direct the day-to-day actions of NHS organisations is limited. Instead, the government sets out the strategic outcomes it wants in an ‘NHS mandate’. Responsibility for achieving these results falls to the NHS Commissioning Board. It fulfils this role by developing local commissioners, allocating them resources and holding them to account for their performance. It also directly commissions primary care, and some specialist hospital and mental health services, itself.

The mandate, which is for two years, focuses on ‘what’ should be achieved rather than ‘how’ the NHS should operate. Once set, it cannot be changed except in exceptional circumstances. This is intended to offer stability and the ability to plan on a longer-term basis.

The first mandate, published last ­November, covers the two years from April 2013 to March 2015. It identifies clinical priorities, such as the diagnosis and treatment of people with dementia, and standards of care for older people and those at the end of their lives.

The changes to the national ­commissioning structures have been matched with significant changes at the local level. In the largest (and, some might say, most disruptive) organisational change brought by the Act, primary care trusts and strategic health authorities will formally be abolished on April 1. They will be replaced by the 211 Clinical Commissioning Groups that have been developing in shadow form for the past year, and by local offices of the Commissioning Board respectively.

CCGs will control some £60bn of NHS resources and are intended to put clinicians in control of commissioning decisions. They will decide how their budgets are to be spent and have responsibility for designing locally appropriate services – in particular, ensuring that they are integrated and focused on the needs of patients. The chairs and board members of these new organisations are drawn from the ranks of practising clinicians (largely in primary care). The intention is that these commissioners will be ‘clinically led’ and have an authority among the wider NHS that most would agree eluded their PCT predecessors.

More technical commissioning skills, and ‘back-office’ services such as finance and human resources, hitherto provided by PCTs, are now housed within Commissioning Support Units. From April, they will be hosted by the NHS Commissioning Board and will operate as semi-independent businesses. These units are expected to provide economies of scale in commissioning and are free to compete with one another to provide services to CCGs. In the longer term, there is the prospect that they might be floated off as fully independent organisations.

Local authorities have been given ­responsibilities for local public health. Together with CCGs and public representatives – the latter in the shape of new local organisations called Healthwatch – they will form Health and Wellbeing Boards. The role of the boards is to agree local strategies for health improvement and integrated health and social care. Through the involvement of elected local councillors, this is intended to provide a degree of local democratic involvement in local health planning.

NHS providers face fewer changes than commissioners, at least as a direct consequence of the Act. However, many have been struggling to cope with on­going requirements. These include ­improving efficiency through annual cost saving targets, commissioners’ plans to reduce reliance on hospital care and increasingly stringent quality standards.

The financial squeeze has been the result of NHS chief ­executive Sir David Nicholson’s ‘£20bn challenge’ – a requirement on commissioners and providers to make efficiency savings to offset expected growth in spending due to an ageing population and the rise in costly medical technologies. However, the impact of this has been heightened by new quality requirements, set by royal medical colleges and commissioners, for greater on-site senior medical cover for services such as ­maternity and accident and emergency.

Consequently, many providers and their local commissioners are concluding that long-term clinical and financial sustainability is achievable only through significant reconfiguration of local services, with a consequential impact on provider trusts. These reconfiguration plans, often involving controversial proposals to rationalise the number of local A&E and maternity departments, are proving highly controversial with public and elected politicians alike.

One outcome of the Act is that this reconfiguration might be accelerated. Successive governments have stated that ultimately all NHS trusts will become freestanding foundation trusts, which requires them to demonstrate that they are financially sustainable and capable of being autonomously run by their boards.

However, the 2012 Act stipulates that the NHS trust status will itself be abolished, adding urgency to this transition. A new body, the NHS Trust Development Agency, has been created to oversee this evolution to foundation trust status, responsible for the performance management, governance and clinical quality of NHS trusts for as long as they survive.

However, it is also clear that not all of the remaining 112 NHS trusts will be able to meet the stringent requirements for foundation trust status. Indeed, the pipeline of foundation trusts has been stalling. At the end of last year, the Department of Health used its powers under an earlier 2006 Act to appoint a trust special administrator for the first time. The TSA was sent in to deal with the South London Healthcare NHS Trust, which the department deemed to be ­fundamentally financially unsustainable.

Under this powerful regime, the TSA is bound to develop rapidly plans to restructure local health services, carry out a ­public consultation and make recommendations to the secretary of state – all within 100 working days. The health ­secretary has a further 20 working days to decide on action. In south London, these recommendations include the break-up of the trust and, very controversially, changes to services provided by the neighbouring Lewisham Healthcare NHS Trust, itself not in immediate financial distress.

Here, Health Secretary Jeremy Hunt has proposed that the hospital’s current obstetrician-led maternity unit be replaced with a stand-alone midwifery-led unit. At the same time, the current A&E department is to offer a reduced service for less complex treatments, dealing with around 75% of the current case load.

The 2012 Act has given similar powers to foundation trust regulator Monitor for unsustainable foundation trusts. Monitor has agreed in principle to use this for the first time in relation to the troubled Mid Staffordshire Foundation Trust. According to Monitor, there has been a rise in the number of foundation trusts in financial difficulties over the past two years, with 14 in significant breach of their financial performance regulatory requirements in the second quarter of this financial year. Therefore, it seems likely that there will be greater use of the unsustainable provider regime and the appointment of TSAs for foundation and NHS trusts.

Under the Act, Monitor is being ­converted into a sector regulator (the Care Quality Commission remains the regulator of service quality). Monitor’s current role is restricted to the licensing and oversight of the trusts. From April this year, its remit will be extended to encompass responsibilities for all ­providers of NHS-funded services.

To this end, Monitor has four key functions: setting NHS prices, enabling integrated care, preventing anti-competitive behaviour and ensuring continuity of services (for example, where providers fail or are reorganised). These new functions are largely to be carried out though its power to license all providers, imposing conditions as part of the licence. Monitor will continue to ensure that foundation trusts are financially viable and well governed, and to assess NHS trusts applying for this status.

Probably the most politically ­controversial element of the Act is the requirement to prevent anti-competitive behaviour. A duty on Monitor to ‘promote competition’ in the original Bill was amended following opposition in Parliament to a duty to ensure that competition is ‘fair and in the interests of patients’. Nevertheless, it is already clear that potentially profound changes to NHS competition policy are under way.

The Office of Fair Trading defines ­foundation trusts, by virtue of their autonomy from central control, as ‘enterprises’ and therefore subject to the 2002 Enterprise Act. This means that any merger of NHS foundation trusts is subject to assessment by the OFT to determine whether it should be referred to the Competition Commission for adjudication. This adjudication considers whether there might be a substantial lessening of competition and, where this is not outweighed by additional customer benefits, could block the merger.  

Under the 2012 Act, Monitor provides advice on health mergers to the Office of Fair Trading, and has already done so in the case of the proposed merger of Poole and Bournemouth foundation trusts. This has now been referred to the ­Competition Commission.

The role of Monitor to ensure ‘fair competition’ will be undertaken by incorporating and enforcing the existing Principles and Rules for Co-operation and Competition and by incorporating the Co-operation and Competition Panel that currently assesses competition within the NHS. Competition principles include ­ensuring that commissioners procure services from the best-placed provider and that commissioners and providers promote choice of services for patients.

With all these changes, the 2012 Act might herald a significant evolution of the NHS – although many of its stipulations, not least those relating to competition, were evident in the policies of the previous Labour government. But there are also some significant risks.

From April, the NHS will be subject to an array of new national and local bodies, some with only months of shadow preparation behind them. One question must be whether CCGs will truly be able to engage rank-and-file clinicians in their work as the government hopes. In particular, will groups of CCGs, smaller on average than PCTs, be able to co-operate effectively to deliver potentially unpopular reconfigurations of health care systems that will frequently extend across their individual CCG boundaries?

The Act brought forth a vocal ­opposition, convinced that it represented the end of the NHS as we know it. ­Specifically, the charge was that it presaged the privatisation of a cherished, and hitherto, publicly owned, national institution. This opposition has not disappeared.

Campaigns against the ‘privatisation’ of the NHS abound, with one electronic ­petition claiming 600,000 ­signatures. But it is not just among the public and ­Opposition ­politicians that dissent can be found.

Only recently, many GPs, including longstanding champion of reform Dr Michael Dixon, as well as the Academy of Royal Medical Colleges, opposed secondary regulations published in February. The regulations, made under Section 75 of the 2012 Act, would have imposed the ‘fair competition’ requirements on commissioners and given Monitor formal powers to enforce them. In the face of this opposition, the regulations were withdrawn in short order, with an a­dmission by health minister Norman Lamb that they had ‘created uncertainty’.

Even now the regulations have been ­redrafted to give commissioners more flexibility about when competition should apply, rather than to have it foisted on them, it seems likely that the extent of ­competition will increase in the NHS.

The extent of political accountability and the way in which it is to be exercised has also become a key battleground between government and opponents of the Act. Debate in the House of Lords brought forth an amendment to ensure that the secretary of state remained responsible for the provision of NHS services and not just their commission. Nevertheless, Lord David Owen has introduced a Bill to the Lords seeking to repeal key elements and, in particular, to reinstate direct and ­‘democratic’ control of the NHS by the ­secretary of state.

However, despite the controversy brought about by the 2012 Act, the most perceptible changes to the NHS might ultimately be as a result of service reconfigurations that change the local health landscape significantly in many areas.

In this case, it might be argued, such changes are the result of the ongoing financial squeeze together with ever tightening quality standards, rather than because of any specific policy changes brought forth by the Act.

Richard Lewis is a partner at Ernst & Young and leads its health advisory business.
This article first appeared in the April issue of Public Finance


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