National Health Service (Licensing and Pricing) Regulations 2013
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The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
The Health and Social Care Act 2012 gave Monitor a new role in regulating provision of NHS services and an overarching duty to protect and promote the interests of patients by promoting NHS provision that is economic, efficient and effective. These regulations provide key details that enable Monitor to carry out its new functions of licensing providers of NHS services and regulating the prices payable by commissioners for NHS services, in order to protect and promote patients’ interests.
The licence is a key tool by which Monitor will regulate providers of healthcare services for the NHS. Monitor has now taken on its new licensing powers in relation to foundation trusts and we expect this to extend to other providers of NHS services from April 2014.
A provider’s licence is made up of licence conditions that set out the requirements providers must meet if they wish to provide NHS services. In future, all providers of NHS services must hold a licence unless they are exempt under separate regulations, which were laid before the House on 4 July.
Monitor published its first set of standard licence conditions in February this year, after approval by the Secretary of State for Health. They include standard conditions such as requiring licensees to provide information to Monitor, which will apply to all licence holders, or to particular types of licence holder, such as conditions applying to providers whose services are designated as a commissioner-requested service. There are also special conditions that will apply to an individual provider, such as conditions for NHS foundation trusts. The Act sets out a process that Monitor must follow in order to either modify a standard licence condition or include a new standard licence condition that applies to all licences, or licences of a particular description.
These regulations allow the Secretary of State to determine the extent to which licence holders should be able to influence Monitor on any changes to the standard licence conditions, to ensure a balance between allowing real concerns to be addressed and not imposing unnecessary delays to the licence modification process. Monitor intends to engage potentially affected licence holders on the scope and scale of any changes to the standard licence conditions before reaching the statutory process, much as it did when engaging on the first set of standard licence conditions.
The statutory process then ensures that there will be proper engagement with affected licence holders and other relevant bodies about any change to the standard licence conditions, and includes a statutory check on Monitor’s ability to change the standard licence conditions. This check comes in the form of an ability for licence holders who would be affected to object to the change.
The regulations set the two objection thresholds at 20% of licence holders or 20% of market share of NHS provision. If either threshold is met, Monitor will be unable to make the change. However, Monitor may refer the issue to the Competition Commission. Monitor could make the changes only if the Competition Commission judged that the changes were in the public interest.
I turn to the second aspect of these regulations. Monitor has powers to take action where a person—which may be a licence holder, an exempt provider, NHS England or a clinical commissioning group—has not complied with a request for information documents, records or other documents that it considers necessary for Monitor to carry out its regulatory functions. Monitor also has powers to take action where a provider is in breach of the requirement to hold a licence or a condition of the licence.
The Act sets out Monitor’s powers to impose three different types of discretionary requirements, and I remind the Committee of them as a refresher. The first is a variable monetary penalty of such amount as Monitor may determine, up to 10% of the organisation’s turnover in England. The second is a compliance requirement, or, in other words, action to stop the breach in question or to ensure that it does not happen again—for example, a requirement that a provider ceases plans to dispose of an asset needed for the provision of a specified service. The third is a restoration requirement, an action to revert to the position before the breach occurred. For example, Monitor could require that a provider reopen a service that it had closed in breach of a licence condition.
Monitor’s guidance sets out how it will determine the use of its enforcement powers, including fines, and these regulations set the definition of turnover that Monitor will use when determining the level of fines. Simply put, providers’ turnover is defined as their turnover from NHS income. The turnover of clinical commissioning groups and NHS England is defined in terms of administrative spend; total spend would be vastly disproportionate.
I turn to the final aspect of the regulations. The Government want to ensure that the health system delivers better health, better care and better value for money. Better value for money and more accurate pricing will be a key part in delivering enhanced services to patients and in equipping the NHS to improve standards. The new system will drive improvement through providing mechanisms to ensure that prices better reflect costs of supply, incentivise better data recording and collection and make available better incentives and stronger compliance mechanisms. Monitor will have the specific duty of promoting healthcare services that represent value for money and maintain or improve quality. Monitor will achieve this by working with NHS England to regulate prices and set rules for determining prices for local pricing and flexibilities.
Lord Hunt of Kings Heath
My Lords, I was just going to refer the Minister to his remarks about the Competition Commission, because it is relevant to the regulation. There is great confusion in the health service about the commission’s role. The Minister will know that there have been interventions in Dorset and Bristol on what seem to be entirely sensible proposals. In Dorset it was the merger of two small acute trusts, while in Bristol it was the “divvying up”, I suppose the phrase is, of services between two trusts in order to allow for more patients to be treated and all the benefits that you get from that, with one trust focusing on some services and the other focusing on others. In anyone’s terms, those are both examples of the kind of configuration of services that is entirely sensible and that the Government in other guises are supporting.
It is quite clear that the OFT has been trying to get into the health service for some years. I will not get into Section 75 now but the OFT now feels that it can get into the health service, although it is very difficult to see what the point of that would be. The OFT is independent, I understand that, but Ministers have been silent about this. There is utter confusion in the health service and, I believe, among the regulators about how to run these two issues—on the one hand, the Competition Commission and OFT approach, and on the other the need for us to be aggressive in terms of the reconfiguration, and in many cases the centralisation, of services. This matter needs to be teased out.
The regulations ought to be considered in relation to more general policy on pricing as part of the national tariff. The Minister will know that in October last year, when the House of Commons Health Committee had its annual accountability hearing with Monitor, David Bennett, the leader of Monitor, talked about perverse incentives with regard to the tariff. He said that he was not sure that they were fundamental to the pricing system but he agreed that the way it is working can create perverse incentives. One example he used was that if we want to move activity out of hospitals and into a community setting, one thing we have to think about is that there some real transition costs which will have to be paid one way or another. The question is: is the tariff being adjusted to allow for that?
The Health Select Committee published its subsequent report in March of this year and concluded:
“The setting of the tariff is of great significance to the NHS because of its implications … for short term cash flows in the system, and for longer term incentives for”,
service changes. It recommended that,
“Monitor and the NHS Commissioning Board … attach a high priority to this process … because NHS parties need to know the likely tariff in 2014–15 as soon as possible, but also because the long term framework of the tariff will have an immediate effect on service design and the integration of service provision”.
I would be interested to know whether it is the noble Earl’s view that progress is in fact being made, so that the regulations and the tariff to which they relate are much more sensitive to the need for change and reconfiguration in the health service. We must reorganise our services to get higher quality, and the work that Bruce Keogh is doing is surely driving us towards this. However, it sometimes seems as though some of our regulatory apparatus is now at risk of getting in the way of what, on anyone’s evidence base, would be a sensible move. I would be interested if the noble Earl is able to respond to any of those points.
Earl Howe
My Lords, I am grateful to both noble Lords who have spoken. First, I hope that I can reassure the noble Baroness, Lady Finlay, on the question she posed about the cross-border aspects of patient flows and the tariffs that apply. The tariff will apply only to services commissioned by commissioners in England: that is to say, CCGs and NHS England. Any provider who provides healthcare services for the purposes of the NHS which are covered by the proposed tariff will be able to object to Monitor’s proposed methodology, so I do not see that patients in Wales or on the border need to be anxious about this.
The noble Lord, Lord Hunt, asked a series of questions. First, he questioned the wisdom of allowing Monitor to fine providers. It is worth saying that the discretionary requirements which Monitor can impose, as laid down in these regulations, are based on those used for other regulatory offences. In fact, they are based on Part 3 of the Regulatory Enforcement and Sanctions Act 2008. That menu of options has been picked up and put into the 2012 Act.
As regards fines, we need to be clear—and it is certainly my understanding—that Monitor regards fines as a last resort. It will need to consider each case carefully and has a responsibility to ensure that its regulatory actions are reasonable, while deterring poor conduct in the future. It must also consider whether its other powers would be more appropriate. I understand the point that the noble Lord has raised but it is unlikely that we will see Monitor exercising this power with any frequency. We must bear in mind that 10% of turnover is of course a maximum figure.
The noble Lord asked about the thresholds as laid down in the regulations. The 20% threshold relating to licensing is based on a similar process which was in place for modifying licences in the energy sector. We considered that the situation here in the health service was comparable, and it is a threshold that commanded general acceptance.
Earl Howe
I take the noble Lord’s point about uncertainty and confusion that I know exists in certain parts of the health service as to what all this means. I can tell him that officials in the department have had some very productive discussions with both the OFT and the Competition Commission to ensure that their approach need not set unnecessary hares running as regards apprehensions that a purist competition-based approach will be taken by these bodies. I am satisfied that that will not happen. My advice is that the Competition Commission, in particular, has welcomed the input of departmental officials in terms of the factors that need to be brought into play when making a judgment on what is in the best interests of the health service and patients.
At the same time I am aware that a number of useful events and conversations took place within the health service itself when we clarified with providers the considerations that the OFT and the Competition Commission will look at in proposed mergers. We are ensuring that when proposals are made the benefits of mergers are clearly defined in terms that will resonate with the competition authorities. The noble Lord is right that we are in new territory in many senses, but I am optimistic that the system will work in the way that it should. It is certainly about looking at competition aspects but, more pertinently, looking at the criteria that I mentioned earlier, such as the public interest in the case of licence modifications, the test of appropriateness in pricing methodology, and in the case of mergers, the interests of patients in the health service. The OFT and the Competition Commission must take into account the benefits of a proposed reconfiguration if they consider it under the Enterprise Act 2002. I remind noble Lords that that is the governing Act, so in theory at least, we have been in this situation for more than 10 years. In doing so the competition authorities must consider whether those benefits would outweigh any substantial lessening of competition that they find.
The noble Lord asked about the tariff, and in particular, primary care. We agree that payment mechanisms need to be aligned to drive better outcomes and better value for patients. They also need to be responsive and flexible, for example to enable services to be provided in an integrated way. Monitor and NHS England will work together to move the tariff in this direction. They are best placed to do that given their different roles.
The noble Lord asked me what would happen if the tariff proved to be inadequate. We expect the tariff in future more closely to relate to the costs of providing particular services. If the price payable for a service would make it uneconomic for a provider to provide a service, Sections 124 and 125 of the 2012 Act provide for a process for local modifications of the price payable.
My advice is that NHS England and Monitor are working very well together in this regard. Guiding principles have been defined and six shared principles for pricing have been agreed: that the pricing mechanism should enable and promote improvements in care for patients and taxpayers; that it should enable efficient providers to earn appropriate reimbursement for their services; that it should have regard to sustain the NHS offer in the long run; that it should not preclude the delivery of the Secretary of State’s mandate for NHS England; that it should have regard to the principles of better regulation; and that it should support movement towards a fairer playing field for providers.
I hope that I have answered most if not all the questions, but I undertake to write to noble Lords if I have failed to do that.
Baroness Finlay of Llandaff
I seek a small point of clarification. I take the example of a Welsh provider that is providing services for Welsh patients and that is also licensed to provide for patients coming across from England. In the event of them being deemed not to meet the conditions and therefore a fine potentially being levied at 10%, would that be only 10% of the contract issued on behalf of the English patients? Two very different healthcare systems will be operating.
I realise that this is complex, but the two healthcare systems are becoming more divergent yet the population on the border has to access both sides, I am concerned that these are some of the things that need to be clarified. It is a detail, I know.