Monitor: regulating NHS foundation trusts

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. Sometimes the underlying cause is internal, such as poor leadership, and sometimes 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. 6

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, 7 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. 9 1 Monitor’s regulation of NHS foundation trusts

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.11 9 Qq 24, 26, 52–54; C&AG’s Report, paras 18, 3.28 10 Qq 62, 70, 105; C&AG’s Report, paras 3.30–3.31, Figure 16 11 Qq 101–102, 138; C&AG’s Report, para 12 12 2 Monitor’s resources and capability

Monitor’s spending trebled between 2010–11 and 2013–14, as the job of regulating NHS foundation trusts became more challenging and it prepared to take on new responsibilities. In 2013–14, its budget for core running costs was £48 million. Approaching a third of this amount (over £15 million) was earmarked for central services, compared with £9 million for regulating NHS foundation trusts and £5 million for assessing NHS trusts applying for foundation trust status.12 Following our hearing, Monitor advised us that most of the 78 central services staff worked in strategic communications (30 people) or knowledge and information management (23 people).13

The number of staff Monitor employs has also increased significantly in recent years. At 31 December 2013, it had 337 staff, 75% of the 450 staff it expects to need to carry out all its functions. Monitor told us that it made extensive use of consultants to plug gaps in its expertise and to deal with peaks and troughs in its workload. It acknowledged that using consultants was both costly, accounting for £9 million of its £48 million budget in 2013–14, and did not help it to develop its own knowledge and expertise. It was seeking to reduce its dependence on external consultants and was looking into whether it could build in-house capability, which it could then share with the NHS Trust Development Authority and NHS England.14

The National Audit Office reported that Monitor’s staff were high calibre, particularly in terms of their financial and business expertise. However, some had insufficient operational experience or understanding of clinical issues, which damaged their credibility and effectiveness. Monitor confirmed that just 21 of its 337 staff had an NHS operational background, and only seven had a clinical background. It told us that it was working to increase these numbers, but was finding it difficult to attract senior people, who could potentially earn more in the NHS. Monitor also confirmed, however, that nearly 30 of its staff were paid more than £100,000 a year.15

Monitor reported that recruiting staff from the NHS was made more difficult by issues relating to the terms and conditions of different organisations. As Monitor employs staff on civil service terms and conditions, people joining from the NHS could not transfer their accrued pension rights, and their service would not classed as continuous. This meant that, in the event of staff being made redundant by Monitor, the years of service they had accrued under the NHS pension scheme would not be taken into account in calculating the amount of compensation to which they would be entitled. The Department indicated that similar issues had arisen in relation to the transfer of NHS staff to local government.16

Monitor’s Chief Executive, David Bennett, had also acted as its Chair for nearly three years between March 2011 and January 2014. Corporate governance good practice, and Monitor’s own guidance to NHS foundation trusts, is that the same person should not be both Chair and 12 Q 10; C&AG’s Report Figure 2 13 Written submission from Monitor 14 Qq 10, 37–39, 51, 105; C&AG’s Report para 8, 1.8, Figure 2 15 Qq 32, 36, 41; C&AG’s Report, para 1.18 16 Qq 41, 46–47 13 Chief Executive. Monitor accepted that the roles should be split to provide a check and balance on the executive.17

The Department told us that it had considered recruiting a new Chief Executive in March 2011, when David Bennett took up the role of Chair. However, it had decided to wait until the Health and Social Care Bill had been passed and there was certainty about Monitor’s role in the reformed health system. In the meantime, it had intended that David Bennett would carry out both roles. In 2013, the Department and David Bennett agreed that he should remain as Chief Executive and a new Chair should be recruited. However, in October 2013, the candidate proposed by the Secretary of State for Health was not endorsed by the House of Commons Health Committee. In January 2014, the Secretary of State appointed Baroness Hanham as the interim Chair. Baroness Hanham agreed to serve until the end of 2014, and the Department is planning to make a permanent appointment through a competitive process.18 17 Qq 88–90; C&AG’s Report, paras 10, 1.14 18 Qq 90–91 14 3 Monitor’s new responsibilities

Under the Health and Social Care Act 2012, Monitor has taken on a broader role as the sector regulator for health services. It has a statutory duty to protect and promote the interests of people using these services, and a role in ensuring the continuity of essential health services. Its remit has expanded to include significant new responsibilities relating to pricing and preventing anti-competitive behaviour by healthcare commissioners and providers.19

Since April 2014, Monitor has been jointly responsible with NHS England for pricing NHS-funded care. The level at which prices are set affects how health services are organised and the financial viability of individual organisations, including NHS foundation trusts. We asked Monitor how it would manage the conflict between protecting trusts from failure and encouraging the provision of care in the community rather than in hospitals— which could undermine trusts’ viability. Monitor told us that its duty was now to protect and promote the interests of patients and not to protect trusts. In addition, it had to agree prices with NHS England and be open about the assumptions underpinning its pricing decisions, leaving the way open for challenge.20

Monitor’s new responsibilities for preventing anti-competitive behaviour include advising the competition authorities (now the Competition and Markets Authority) about proposed mergers of trusts. Monitor explained that its role involved advising on what was in the best interests of patients—while mergers might bring benefits in terms of scale, there might also be a loss of competitive pressure on the trusts involved to improve their performance. The Department acknowledged that there had been misinterpretation and misunderstanding over the question of competition, resulting in understandable concern. It said that the policy intent was that competition should serve patients’ interests.21

In relation to the specific case of Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust, and Poole Hospital NHS Foundation Trust, whose proposed merger was rejected, Monitor acknowledged that what had happened had been unsatisfactory. It recognised that it should have worked with the two trusts at an earlier stage to reach a faster, and possibly different, outcome. In the light of this, Monitor intended to work earlier and more closely with organisations that wanted to merge, to make sure that the case to do so was robust. It would also work with the competition authorities to seek to ensure that they considered both the benefits to patients of allowing a merger to proceed, and the disadvantages to patients of rejecting it.22 19 Q 52; C&AG Report, paras 1.3, 1.6 20 Qq 124–125, 130; C&AG’s Report, para 1.6 21 Qq 77–78, 81, 83 22 Qq 84–85 15