Alan Milburn – 2002 Speech on NHS Foundation Hospitals

Below is the text of the speech made by Alan Milburn, the then Secretary of State for Health, on 22 May 2002.

Thank you for coming – and particularly to our guests from Denmark, Spain and Sweden. This is a unique event. A gathering of existing “Foundation” hospitals from other European countries and of prospective Foundation hospitals from this country. We have brought you together to learn from the successes that have been achieved elsewhere in Europe. To understand how the autonomy that hospitals enjoy there and that have brought improvements in care for patients could work here. Today’s event takes place against the backdrop of the recent Budget that has put funding for healthcare in Britain on a sustainable footing for the long term. Today the NHS is the fastest growing health care system of any major European country. There is of course a huge amount of catching up to do. After decades when under-investment put Britain behind the rest of Europe now we can have the ambition as country to be up with the best. In Europe and across the developed world, every country faces similar challenges in health care – growing public expectations, advances in treatments, changes in populations. Everywhere reform is on the agenda. There is a wide ranging debate taking place about the future of health care. In essence this debate revolves around two central questions. First how health care is funded. Second how it is organised. On the first the Government’s decision to double health service spending in real terms by 2008 from the position we inherited in 1997 is a declaration of faith in the NHS. With the right level of funding we believe it can be the best insurance policy in the world. No health care system comes for free. Improvements in health care have to be paid for. Through general taxation, social insurance, private insurance, charges or a mix of approaches. We believe that the benefit of a tax-funded well funded NHS is that it is an insurance policy that comes with no ifs and no buts: whatever your illness, however long it lasts you get cover as long as you need it. In a world where healthcare can do more but costs more than ever before, the NHS precisely because it provides care that is free, according to need not ability to pay, should in our view be supported with our heads as well as our hearts. So while others say we should adopt the system of funding from elsewhere in Europe we say those countries have not enjoyed a superior system of funding but a superior level of funding. The lessons to be learned from the rest of Europe are less about how health care is funded but more about what level of funding and what form of organisation is needed to translate resources into results for patients. For what is patently clear is that elsewhere in Europe health care systems have not only benefited from more resources but from a different way of being run. The NHS has great strengths in how it is organised. Its ethos and its staff express the values of our nation.

1. Thank you for coming – and particularly to our guests from Denmark, Spain and Sweden. This is a unique event. A gathering of existing “Foundation” hospitals from other European countries and of prospective Foundation hospitals from this country. We have brought you together to learn from the successes that have been achieved elsewhere in Europe. To understand how the autonomy that hospitals enjoy there and that have brought improvements in care for patients could work here.

2. Today’s event takes place against the backdrop of the recent Budget that has put funding for healthcare in Britain on a sustainable footing for the long term. Today the NHS is the fastest growing health care system of any major European country. There is of course a huge amount of catching up to do. After decades when under-investment put Britain behind the rest of Europe now we can have the ambition as country to be up with the best.

3. In Europe and across the developed world, every country faces similar challenges in health care – growing public expectations, advances in treatments, changes in populations. Everywhere reform is on the agenda. There is a wide ranging debate taking place about the future of health care. In essence this debate revolves around two central questions. First how health care is funded. Second how it is organised.

4. On the first the Government’s decision to double health service spending in real terms by 2008 from the position we inherited in 1997 is a declaration of faith in the NHS. With the right level of funding we believe it can be the best insurance policy in the world.

5. No health care system comes for free. Improvements in health care have to be paid for. Through general taxation, social insurance, private insurance, charges or a mix of approaches. We believe that the benefit of a tax-funded well funded NHS is that it is an insurance policy that comes with no ifs and no buts: whatever your illness, however long it lasts you get cover as long as you need it. In a world where healthcare can do more but costs more than ever before, the NHS precisely because it provides care that is free, according to need not ability to pay, should in our view be supported with our heads as well as our hearts. So while others say we should adopt the system of funding from elsewhere in Europe we say those countries have not enjoyed a superior system of funding but a superior level of funding.

6. The lessons to be learned from the rest of Europe are less about how health care is funded but more about what level of funding and what form of organisation is needed to translate resources into results for patients. For what is patently clear is that elsewhere in Europe health care systems have not only benefited from more resources but from a different way of being run.

7. The NHS has great strengths in how it is organised. Its ethos and its staff express the values of our nation. Its unitary structure gives it great advantages both in overall levels of efficiency and in its focus on public health for example. Its primary care services, led by Britain’s family doctors, are the envy of many other countries. However, in addition to its long standing capacity problems, the NHS has great structural weaknesses too – not least its top down centralised system that tends to inhibit local innovation and its monolithic structure that denies patients choice. These weaknesses are a product of the health service’s history. At the time the NHS was being formed as a nationalised industry in the UK elsewhere in Europe many socialist or social democrat governments were creating institutions which favoured greater community ownership over state ownership. Whereas in the UK’s health care system there is uniformity of ownership, in many other European countries there are many not-for profit, voluntary, church or charity-run hospitals all providing care to the public health care system. There are private sector organisations doing the same. As other European nations testify there is no automatic correlation that tax-funded health care has to mean health care supply run purely by central government. Tax funded health care can sit side by side with decentralisation, diversity and choice.

8. There are important lessons to be learned in this country from the more diverse European model of provision. When I visited the Alcorcon hospital in Madrid last year for example I was struck by the fact that the greater independence it enjoyed from the rest of the state run health system had given patients there faster waiting times and improved outcomes despite dealing with a more severe case mix than comparable state run hospitals. As we will hear from our international colleagues today greater independence has improved performance in hospitals across Europe. Why? Because whatever the profession or walk of life, people perform best when they have control. Giving local organisations greater freedom helps promote innovation and encourages enterprise. In the NHS that is particularly important because of the high level of skills and knowledge that clinicians and managers have. Releasing their talents – and those of other staff – is the key to better health care.

9. Our reform programme for the NHS in this country needs to absorb some of these lessons. As the NHS Plan indicated a million strong service cannot be run from Whitehall. For patient choice to thrive it needs a different environment. One in which there is greater plurality in local services which have the freedom to innovate and respond to patient needs. It is an explicit objective of our reforms therefore to encourage greater diversity in provision and more choice for patients. Hence new providers from overseas being brought into this country – alongside greater use of existing private sector providers – to expand capacity for NHS patients. Primary care trusts having the explicit freedom to purchase care from the most appropriate provider – be they public, private or voluntary. Hospitals to be paid by results with resources following the choices that patients make so that hospitals who do more get more; those who do not, will not.

10. These reforms are about redefining what we mean by the National Health Service. Changing it from a monolithic centrally run monopoly provider to a system where different health care providers – public, private, voluntary and not for profit – work to a common ethos, common standards and a common system of inspection. In such a system wherever patients are treated they remain NHS patients because they get care according to NHS principles – treatment that is free and available according to need not their ability to pay. This is the modern definition of the NHS.

11. It is also a fundamental change. Not in how the NHS is funded or the values on which it is founded, but in how it is organised. NHS healthcare no longer needs to always be delivered exclusively by line managed NHS organisations. The task of managing the NHS becomes one of overseeing a system not running an organisation. Responsibility for day to day management can be devolved to local services. None of this means the abandonment of national standards. Far from it. It is precisely because over these last five years we have put in place such a rigorous framework of standards nationally that the centre of gravity can now shift to how improvements can be delivered locally. So while some advocate a false choice between national standards and local autonomy, the experience from elsewhere in Europe in the health sector and from across the developed world in other economic sectors, is that securing improvements in performance actually requires both.

12. As both the NHS Plan and our recent follow up command paper Delivering the NHS Plan make clear, it is right that standards are set nationally but it is wrong to try to run the NHS nationally. It is only frontline clinicians and managers in day to day contact with patients who can transform local services. That is why Primary Care Trusts are being given control over 75% of NHS resources. Why we look to PCTs in turn to devolve to their constituent practices. It is the reason for star rating the performance of local health services so that those who are doing less well get more help and those doing best get more freedom. And it is why we want to set up NHS Foundation Trusts with the local flexibility and freedom to improve services for patients without day to day interference from Whitehall.

13. In January this year I announced that we were developing plans to enable the best performing NHS organisations to become NHS Foundation Trusts. Since January my officials have been working with the chief executives of three star trusts and others to develop these ideas. They have also been looking at how services are organised in other countries and the lessons we can learn from them.

14. I can set out today how we now plan to proceed to establish NHS Foundation Trusts. First of all in the summer we will set out how NHS trusts can apply for foundation status and the criteria that will be used to assess applications. Decisions on the first NHS Foundation Trusts will be made in the autumn. The first wave will be selected from those that achieve three star ratings this July. They will need to demonstrate that they have the management capability and clinical support to make a success of NHS Foundation Trust status, and that they have the support of the local PCTs who commission services from them. They will need to show how they will use their freedoms to demonstrate rapid progress in delivering the NHS Plan.

15. A number of existing three star Trusts have given firm expressions of interest in joining the first wave of NHS Foundation Trusts. They are Northumbria Healthcare NHS Trust, Peterborough Hospitals NHS Trust, Norfolk and Norwich University Hospital NHS Trust and Addenbrooke’s NHS Trust.

16. If these Trusts are successful in meeting the criteria they and others who come forward will start operating as shadow NHS Foundation Trusts in April next year. I can also say that we intend to legislate to enshrine in statute the freedoms and responsibilities that NHS Foundation Trusts will have. Subject to legislation I expect the first of them to become fully operational before the end of next year. As performance across the NHS improves so more autonomy will be earned by more local NHS organisations.

17. NHS Foundation Trusts will operate in a quite different way from existing NHS Trusts. NHS Trusts were supposed to guarantee self governing status. In fact they were at best a half way house and at worst a sham. Trust status promised independence but in practice didn’t guarantee it. In reality their legal status – with direct accountability to Ministers – meant that Whitehall continued to hold on to the purse strings, maintained the powers of direction and continued to run the NHS as it had been since 1948. The challenge now must be to genuinely free the very best NHS hospitals from direct Whitehall control.

18. We plan to do this firstly by removing the Secretary of State’s powers of direction over NHS Foundation Trusts. Instead of being line managed by the Department of Health, they will be held to account through agreements and cash for performance contracts they negotiate with PCTs and other commissioners as well as through independent inspection. These contracts will reflect national priorities around reduced waiting times and improved clinical outcomes. The expectation must be that the greater freedoms that NHS Foundation Trusts will enjoy will help them exceed national performance targets but that will be a matter for local not national negotiation. Those that perform well will benefit from the system of payment by results and patient choice that we announced in Delivering the NHS Plan.

19. There will of course need to be appropriate safeguards in place. NHS Foundation Trusts will operate according to NHS principles. They are there to serve NHS patients by providing high quality care that is free and delivered according to need not ability to pay. They will be subject to inspection by the new Commission for Healthcare Audit and Inspection (CHAI). The Commission will play a key role in assessing performance and in reassuring patients and the public that national standards of service and quality have been met wherever care is provided. Strengthening arrangements for audit and inspection through CHAI are an essential complement to increased provider plurality, including the setting up of NHS Foundation Trusts.

20. CHAI – rather than the Department of Health – will therefore take on the function of regulating NHS Foundation Trusts and stepping in to take necessary action to protect patients and the public.

21. Secondly, we intend to establish NHS Foundation Trusts as free-standing legal entities which are indeed free from direction by the Secretary of State. We are currently exploring a number of options about how best to establish NHS Foundation Trusts in law. In particular there has been growing interest in recent years in developing the concept of the public interest company – a middle ground within public services between state-run public and shareholder-led private structures. Organisations as diverse as the Co-operative Movement and the Institute of Directors have made the case for such organisations on the basis that they have a clear public service ethos and are not for profit. These organisations are based firmly within the public service with their assets remaining within public ownership and being protected against takeover by the private sector. They are toughly regulated but not externally controlled. They open up more potential for both staff and public involvement.

22. We are continuing to actively explore the best option here based on a firm principle that should guide us. As national control over day to day management of these NHS hospitals ceases so local community input will need to be strengthened. NHS Foundation Trusts will have the ability to develop governance arrangements that enable patients and the public to play a more effective part in the running of the NHS at a local level. The NHS is a national service but it is delivered locally. The relationships that count most are those between the local patient and the local clinician, the local community and the local hospital. 1948 silenced the voice of the local community in the NHS. It is time it was heard again.

23. We are exploring how best this could be done. One potential model would involve local members of the community sitting alongside other key stakeholders such as hospital staff, local businesses, local authorities and, where appropriate, universities as lay governors. In this model day to day management of the NHS Foundation Trust would rest in a separate board including the chief executive and other senior staff such as clinical leaders. However they are constituted NHS Foundation Trusts will remain part of the NHS family but with local freedom from national control.

24. Thirdly, then, NHS Foundation Trusts will be freed up from having to respond to an excessive number of prescriptive central demands, guidance and reporting arrangements. As free-standing organisations they will be held to account through the commissioning process rather than through day to day line management from Whitehall. They will have the freedom to retain proceeds from land sales to invest in new services for patients. We are exploring how we can increase their freedom to access finance for capital investment under a prudential borrowing regime modelled on similar principles to that being developed for local government. The intention is that they will have greater freedom to decide what they can afford to borrow and they will be able to make their own decisions about future capital investment. They will be able to use the flexibilities of the new pay system we are currently negotiating to modernise the workforce including developing additional rewards for those staff who are contributing most. Exercising these freedoms will give NHS Foundation Trusts precisely the sort of autonomy that is commonplace for hospitals elsewhere in Europe.

25. Some say this is a form of backdoor privatisation. That is utter nonsense. There will be a lock on the assets of NHS Foundation Trusts so that they work for NHS patients. Their purpose will be to provide NHS services to NHS patients according to NHS principles. They will be governed by people from the local community instead of by the state or by shareholders. They will be part of the wider NHS family. They are all about unleashing the spirit of public service enterprise that exists within the NHS but for too long has been stifled.

26. NHS Foundation Trusts will help create a radically different health service. One that is true to its values but is changed in its structures. One that learns the lessons from what has worked elsewhere in Europe. I want to thank our international speakers who are here today to share their experience and their insights with us. I know that there is more we can learn from them as we develop our approach. I would also like to thank people from the NHS who have been working with us to develop our thinking on NHS Foundation Trusts. The development of policy in this area I believe exemplifies a new way of doing business between the Department and the NHS. It is one that I hope we can build on for the future.