National Health Service (Licensing and Pricing) Regulations 2013

Lord Hunt of Kings Heath Excerpts

Wednesday 10th July 2013 Grand Committee

[Baroness Finlay of Llandaff]

I have a short query, which I hope that the Minister can clarify for me. It relates to the cross-border flow between England and Wales, either of providers or patients as users of services where NHS Wales is paying for services provided by NHS England or a provider in England. I would like reassurance that there will be no way that the experience of patients going from Wales into England, or the ability for providers from Wales to provide services to patients along the border, are in any way jeopardised within these arrangements and that they have equality within the provision.

[Lord Hunt of Kings Heath]

My Lords, I declare an interest as chair of an NHS foundation trust, president elect of GS1 UK and a consultant and trainer with Cumberlege Connections. I am grateful to the Minister for his explanation of these regulations. I want to put a few points to him.

I start with Part 2 on licensing, specifically paragraph 3 concerning monetary penalties. Can I ask the Minister about the logic of fining providers, when all that happens is that worse care will be provided for patients as the organisation will have less money? I think that the figure of up to 10% of turnover would virtually bankrupt most providers. While I certainly accept the need for penalties and consequences for failure, I wonder whether they would be better being not financial, as the reality is that they will not happen in many cases because the people who suffer will be those who get services. I just wonder about the logic of that.

It took NHS England months to wake up to the fact that the A&E problems were to do with the failure of systems, but for months it was pressing CCGs in some parts of the country to fine hospitals for poor A&E performance. I think that NHS England has completely lost the plot when it comes to understanding what is happening in the health service. I cannot think of a more hopeless response to the crisis than to come along and say, “We should fine hospitals”. I worry about this whole approach to fining. I say to the Minister that there are very limited signs that systems understand the winter problems and there is a real reluctance to get to grips with what needs to happen. This is a worry for the future which may not have much to do with the regulations, but my seeing the Minister here represents a good opportunity to raise them with him.

Does the Minister think that fines and targets can lead to some perverse incentives? Of course, it is right to issue targets, but I wonder whether the Minister might comment on a very interesting section of the Chief Medical Officer’s Report for 2013, published earlier this year, where she refers to the low number of instances of MRSA and C. diff. I do not think that there is any doubt that the targets that were set for the health service have been responsible for the focus that has led to this very welcome improvement. My understanding is that part of the response to this by the NHS has been to use antibiotics which should have been reserved for hard-to-treat infections. There is now real concern that the antibiotics that go with those hard-to-treat infections have been used rather widely, which is causing great problems in more general infection control. According to the CMO, while the typical, large, 1,000-bed acute NHS hospital has two to three MRSA bacteraemias per year and 50 to 60 C. diff cases, 400 to 500 bacteraemias involving Gram-negative bacteria can occur in a 1,000-bed-type hospital, 10% to 15% of them being due to strains resistance to those antibiotics for hard-to-treat infections. You can reach a point where individual targets become counterproductive because the focus of the NHS is simply on C. diff and MRSA and not on the wider infections which clearly need to be tackled as well.

Will the regulations lead to more specific targeting which can in turn lead to perverse incentives, or is a more sophisticated approach likely to be taken? It is clear that the Chief Medical Officer is concerned about the way in which some MRSA and C. diff targets are leading to perverse behaviours.

On Part 3, the rationale for each of the thresholds described for penalties, prices and licence changes has not been explained in relation to an evidence base. In other words, why are the thresholds where they are? What work has been done to suggest that those are the right thresholds? Of course, now they will only be tested post-implementation, but it would have been good to have seen a clearer review mechanism that enabled a sensible approach.

In respect of the mechanisms to lodge an objection to the pricing methodology, my understanding is that the Foundation Trust Network has stated throughout the development of the policy that the 51% threshold for an objection, together with the denominator comprising all tariff services, is too high a threshold to be met. Is the noble Earl prepared to look at this? That might be a reasonable approach for general objections to the general approach, but it is insufficiently sensitive to address sections of the tariff that may be inadequately compensated—cancer services, for example. The noble Earl will be aware that there were issues around the tariff for children’s services and women’s services. My reading of that is that if you were a specialist adviser your chances of reaching the 51% threshold would be very limited. Could this be looked at?

If my noble friend Lord Warner were here I am sure he would raise this. It is the question of what happens to non-foundation trusts. I know that Monitor is working closely with the NHS Trust Development Authority, but I would welcome clarity about what will happen to trusts outside Monitor’s remit to ensure that there is an even-handed approach across all providers in the sector. No one is more admiring of the work of Sir Peter Carr as chair of the NHS Trust Development Authority. The noble Earl knows that Sir Peter has held chairmanships under both Governments for many years. While he is a marvellous person, there is a fear that he will hold the chairmanship of the NHS Trust Development Authority for many years to come because of the issue about what on earth will happen to those non-foundation trusts that are clearly not going to reach FT status any time soon.

The noble Earl mentioned the Competition Commission.

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[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.

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Next, the noble Lord asked me about the role of the Competition Commission. The commission clearly has wide experience of determining similar questions in a number of other sectors. It is the body best placed to consider these questions for the purpose of the new licensing and pricing regimes. It will not apply a competition-based approach but, rather, a test of public interest in the case of licence modifications and a test of appropriateness in the case of the pricing methodology. However, I am sure that I do not need to remind the noble Lord that the issue of competition in the health service is not by any means new, and it was for that reason that the Co-operation and Competition Panel was set up under the previous Administration. As he knows, that panel has now been absorbed into Monitor.

[Lord Hunt of Kings Heath]

I am of course aware of that but the reality is that the Competition Commission and the OFT did not really start intervening in the NHS. Clearly, they have been interested in areas such as dentistry for some time but they have not intervened in the wider NHS. I think that the problem is that it is now very unclear what is to be done when a reconfiguration of services takes place and, although I do not want to anticipate tomorrow’s debate on funding, it must be in the interest of greater centralisation of services, which, in a Competition Commission/OFT view, might be said to lead to reduced competition.

The problem is that it takes long enough to get change through in the NHS. The costs of delay to the health service if there is a Competition Commission referral and an investigation are very high. I wonder whether we can really afford it, given the imperative to get on with service changes. I know that guidance has been issued by Monitor which has reflected on the various roles, but at the end there is a lot of confusion. The Competition Commission and the OFT have not exactly made themselves available to debate either in Westminster or in the NHS about those issues. All we can read are the slightly acerbic comments by the staff of the Competition Commission and the OFT. I am not aware that they have ever made themselves available for a general discussion about their policy approach, which might be helpful in these circumstances.