Foundation Trusts

A return to failed ideas?

Foundation hospitals are part of a market driven solution that the government hopes will reduce NHS waiting lists and raise standards of care. Reminiscent of the Conservatives' failed internal market, we believe these plans will undermine a central principle of the NHS - that everyone should have fair access to high quality healthcare. Inequality between hospitals will not simply increase, it will become part of the design.

New market, new values

Foundation trusts are the keystone of the new market in healthcare, which will attempt to make all providers compete for patients. Unlike previous reform this will not be limited to competition within the NHS. Any international company will be able to bid for NHS work, form partnerships with, or even manage foundation hospitals.

These new trusts will be the first to earn income according to how many people they treat. This change alone will introduce incentives that will divert hospitals from providing the best care for patients.

In this new environment with its new rules, competition will disrupt the co-operation which has been a key strength of the NHS to this point. Hospitals will not want to share information or resources that could provide rivals with a competitive advantage.

What are foundation hospitals?

These are high performing, 3 star trusts that will be rewarded with new freedoms. They will be able to set their own clinical and financial priorities, with far greater independence. They will undergo less inspection, will be able to borrow money from the private market and to sell surplus hospital property and keep the proceeds.

They will be able to pay staff bonuses outside of the national pay structure. Partnerships with for-profit private sector companies will be unrestricted and foundation trusts can go into new business areas, by creating their own private companies.

What is the point of this policy?

The government has talked of making hospitals entrepreneurial, giving staff more freedom and passing control back to local people. In reality this will break up the co-operative network of the NHS into independently managed competing franchises, no longer bound by all the common goals and ethos of the NHS. A regulator will be appointed to administer Foundation status under licence. But these safeguards will be little match for the augmented power of the management of each foundation trust which will be free to set its own financial and operational directions.

What will be the impact?

1. New market based solution

  • Clinical priorities and health planning will be undermined.
    Hospitals are likely to focus on care that offers the best financial return which may not correspond with local health needs. More patients will have to travel out of their area for treatment. Some patients may even find that there are costs that hinder their access to appropriate care.
  • Competition will divert money from patient care.
    Expenditure on marketing, contracts and legal disputes will all rise under this new system. The NHS still spends less on administration than nearly all other OECD countries. These costs doubled from 6% to 12% during the last attempt to introduce market-based reform.
  • No limit on the role of the private providers.
    Private providers will be able to bid for any part of NHS work, but will have less commitment to its values and ethos. Private providers will not be competing on a level playing field, and will be free to charge prices outside the NHS tariff and contributing little or nothing to teaching or training staff.
  • Compulsory contracting out of all NHS services could result under WTO rules, that open up all aspects of non public services to international competition.

2. Foundation trust

  • Giving additional advantages to hospitals that are already doing well will create even wider disparities in standards and make it harder for others to catch up.
  • Foundation hospitals will not be obliged or have any incentive to follow local strategic health plans. All NHS providers should be committed to looking at the wider goal of meeting health needs in their area.
  • Staff will be poached with bonuses and better working conditions, making it even harder for struggling hospitals to improve.
  • Foundation hospitals will have an incentive to opt out of more costly treatments, disadvantaging those with chronic and complicated conditions.
  • Primary care trusts will be undermined. Primary Care Trusts were created by the present government to control hospital income and make it responsive to local health needs. Independent foundation trusts will frustrate this aim. Their newly created Strategic Health Authorities will also have limited powers to oversee and influence the direction of local foundation trusts.

Answering the government's case

Mr Blair says that their reforms will "encourage local innovation by giving hospitals more freedom to manage their own affairs".

Innovation occurs in the NHS all the time. Advances in treatment and in ways of working are constantly being made. The advantage of the NHS is that new ideas are shared throughout the service. In the competitive atmosphere of foundation hospitals there will be little incentive to share information that may help competitors.

At the recent BMA conference, which voted to oppose foundation trusts, Kent consultant general surgeon Andrew McIrvine said: "I fully understand the frustration people have with the existing micro-management from Whitehall. Private corporations will set yet more targets, will watch us even more closely". Local people would have little input and hospitals would be controlled by private companies. He added that the focus would be on profitable operations and that expensive or risky operations would be discouraged.

"This is a policy for all and not just for some. It is not about elitism or two tierism. It is about levelling up, not levelling down." Alan Milburn, ex-health secretary

In fact, a two-tier service is likely to result. The additional resources and freedoms of foundation trusts will widen the disparities between hospitals that already exist, making it unlikely that others could ever catch up. In an attempt to stave off Parliamentary rebellion the government introduced a ?200 million fund to help out the hospitals with zero or one star ratings. This approach instead of foundation trusts makes much more sense inimproving NHS hospital standards across the board.

"The NHS improvement programme will helpeach and every NHS hospital that wishes tobecome an NHS foundation trust over the courseof the next four to five years" ex-Health Secretary Alan Milburn.

Without 3 star status a hospital cannot currently apply for foundation status. The government's target of all hospitals to reach this standard in four to five years is unrealistic. The performance of almost 70% of trusts in the star-ratings system either remained the same or fell between 2001-2002.

Mr Blair said that the "one-size-fits all" system for public services has to change.

Mr Blair supposes that the quality of NHS care will be improved by competition with private providers. There is no evidence base for this and good reason to suppose it will be as ineffective and wasteful as the discredited internal market of the Conservative government. The principal motivation of private providers is profit, not meeting the healthcare needs of the public. This inevitably means that cost considerations play a leading role in influencing decisions over patient care. The government feels that contracts with independent providers will offer sufficient protection but it is highly questionable whether NHS managers will have the resources or inclination to enter into a legal dispute, when a provider fails to meet his side of the agreement.

"NHS Foundation Trusts will be firmly part of the NHS but will be locally accountable, free from Whitehall control and as a result better able to deliver responsive services to the communities they serve." John Hutton, health minister

Efforts to sell the policy as giving hospitals back to the people are not reflected in the actual arrangements. Stakeholders'  committees will not fairly represent their communities. Power will rest with the board of directors who will only be accountable to a national regulator, who will be appointed. Foundation hospitals will also not be obliged to follow the government's new framework for complaints, or locally agreed NHS strategies for meeting the health needs of local people.

Foundation Trusts, the extent of freedom
Foundation status comes with freedoms to borrow funds. But these debts will count against the total pot of public money that is available to invest in the NHS as a whole. If one gets more, others will get less. Borrowing is not subject to Treasury approval, but if a foundation trust goes bankrupt the government will be expected to make good the debt.

Unlike ordinary NHS hospitals, land and assets can be sold and the proceeds retained, providing foundation trusts with a significant source of additional income. Each new foundation trust must first agree on a minimum range and volume of services that they it will maintain. These can only be altered with the permission of the Regulator and are known as the mandatory or protected services. It can then decide what additional services it will provide. The Regulator licenses each foundation trust setting conditions and monitoring its performance. The Regulator is not directly accountable to the public and there is little to tell us the basis on which his decisions will be made. He will effectively determine the extent to which foundation trusts are subject to external control.

Viewpoint: Freedom to mind their own business
The environment and incentives provided for foundation trusts makes it almost inevitable that they will not always act in the best interests of the community. By using their ability to provide salary bonuses foundation trusts will draw staff away from other NHS hospitals. Recruitment is a major problem for most hospitals, and will threaten services and raise expenditure on agency staff. Low morale and high workload will drive further staff to foundation trusts. Alongside the market-based changes, there is a risk that foundation trusts will develop a business strategy that does not focus adequately on meeting local health needs. Their licence states that they should co-operate with all local NHS bodies but there are no guidelines. Local health planning will be difficult if foundation trusts are not entirely committed to the local health improvement plan. The Regulator is empowered to monitor and step in, but he too will be under pressure not to be too restrictive and deter other applicants for foundation status. It remains to be seen whether the Regulator is an effective safeguard. There are strong incentives for foundation trusts to follow commercial rather then social interests.
Questions to ask
  1. Has your local foundation trust got any plans to reduce services that are not sufficiently profitable?
  2. Has your foundation trust agreed levels of services that are high enough to meet local needs?
  3. What plans are there to sell assets/land?
  4. Will your foundation ust stop providing care in areas where the national tariff (price) is too low?
  5. What level is your Trust’s private income capped at. Will they try to raise it?
  6. Will the Regulator make sure your hospital still provides a full range of treatment and that all patients have equal access?
  7. What will profits/surpluses be used for?

Foundation trusts - giving hospitals back to the people?

Foundation trusts have been launched as a way of giving the community greater control over their hospital. Every foundation trust will have a membership, drawn from the local community who will elect a Board of Governors. They will not be responsible for any of the day to day decision-making, but will monitor performance. The governors will appoint non-executive Directors and the Chair of the Trust, which provides some sphere for influencing the decisions of the Board of Directors. Early reports show that trusts are having difficulty in attracting members of the public to become members and governors of their local foundation trusts.

Governors have little direct power, only a loosely defined involvement in decisions. It is unlikely that they will develop enough power to advance beyond an advisory role and are likely to have little decisive influence on issues even where the public view is strong. There are few resources and little structure to support their activities, making it vital for them to link with Patients Forums and the local government Health Scrutiny Committees.
It is important that members joining foundation trusts come from right across their community, so that they accurately reflect health needs. Some commentators have raised fears that vocal pressure groups or political extremists will take over the membership for their own purposes. The Regulator has promised to step in if this happens, but should ensure that trusts are committed towards making their membership truly representative.
The effectiveness of this structure will be tested when trust management proposes a course of action that makes commercial sense but is not considered to be in the interests of the local community.

Questions to ask
  1. How is your trust ensuring that its membership will be representative?
  2. How will governors be accountable to the members and the local community?
  3. Will the governors link with their local Patients Forum and Oversight and Scrutiny Committee (OSC)?
  4. When will the first elections take place?
  5. How many members has your local foundation trust?
  6. Are board meetings open to the public?
Where to find out more about foundation trusts

NHS Foundation Trusts were created under Part 1 and Schedules 1-5 of the Health and Social Care (Community Health and Standards) Act 2003. The text of the Act can be found on the Internet at:
Background information is available on the Department of Health website:
Useful publications from this source include:
  • A Guide to NHS Foundation Trusts (December 2002)
  • A Short Guide to NHS Foundation Trusts (August 2003)
  • NHS Foundation Trusts: A guide to developing governance arrangements (January 2004) [205 pages]
The first group of 10 foundation trusts was authorised from 1st April 2004. The second group will be considered for authorisation from 1st July 2004. The Public Register of existing NHS Foundation Trusts can be found on the Regulator’s website :
Each existing foundation trust’s Terms of Authorisation and Constitution can be downloaded from the website. Trusts hoping to be authorised from 1st July 2004 should be able to provide enquirers with copies of their Application to the Regulator.

How can the public be involved?
NHS organisations have a statutory duty to involve and consult patients and the public. Aspirant Trusts are required to consult widely on the detail of their application though not on the principle of whether or not they should apply for foundation trust. All trusts should, therefore, respond readily to reasonable requests for information. Meetings of the Boards of Governors are to be held in public and should offer an opportunity to raise questions. The Chair of the Trust chairs the Board of Governors. In addition, it is good practice for members of the public to be allowed to speak at meetings of the Board of Directors of NHS Trusts. The Healthcare Commission is to conduct a review of the first wave of foundation trusts, commencing in Autumn 2004.

Where to direct your questions
  • Ask your MP and local politicians. They are well placed to help you answer questions and get detailed responses from NHS bodies. It will also help to direct their attention on to issues which are of importance to the direction of local health services.
  • Approach the hospital directly. Board meetings are generally open to the public. If the hospital has recently announced its intention to apply then there will be public meetings as part of the consultation.
  • Find your local Patient Forum whose job it is to reflect and represent local views. Find out which councillors are on your local Health Scrutiny Committee (OSC). Their meetings should be open and they should take an overview on the development of local health services.


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