Managing the legal impact of NHS reforms

Managing the legal impact of NHS reforms 12 step guide for Foundation Trusts to the Health and Social Care Act 2012 LONDON MANCHESTER HARROGATE NEWCASTLE

12 step guide for Foundation Trusts to the Health and Social Care Act 2012 Introduction by Peter Griffiths of the Foundation Trust Network (We have) used other lawyers in the past but I can honestly say that the support provided by Hempsons has been first class, delivered with clarity in a cost-effective, timely and concise fashion that is mercifully free from the legal jargon that sometimes afflicts their profession Northern Lincolnshire & Goole Hospitals NHS Foundation Trust Summary Welcome The Health and Social Care Act 2012 (the HSCA) puts in place a new regulatory and commissioning structure for the NHS. As well as creating a range of new organisations from the NHS Commissioning Board to Clinical Commissioning Groups to Health and Wellbeing Boards the HSCA will have profound effects on provider organisations, including Foundation Trusts (FTs). The HSCA introduces new legal requirements both in its own right and by amending the National Health Service Act 2006 (the NHSA). The NHSA is the existing legislation which sets out FT functions and governance structures, and the changes made by the 2012 Act will need to be addressed by all FTs. The HSCA is coming into force in stages, but many changes will need to be made by April 2013 when the new regulatory and commissioning structure will be in place. Specialist healthcare lawyers...always at the top of its game Chambers 2011 To help FTs to prepare for this new environment, the 12-Step guide outlines specific areas on which the HSCA will impact when it is in force: 1 The new regulatory regime 2 Clinical governance 3 Developing your Constitution 4 The role of Members 5 The role of Governors 6 The role of Directors 7 Public engagement 8 Workforce development 9 Asset management 10 Service reconfiguration 11 Special administration 12 Thriving in a competitive environment Hempsons expert lawyers can help you to complete these steps so that your FT is ready to succeed in the new environment.

Step One The new regulatory regime Step Two Clinical governance The HSCA changes the way in which All mandatory services under FTs The HSCA puts on a statutory footing operational management of NHS FTs will be regulated by giving Monitor existing terms of authorisation will Government policy to improve the foundation trusts, governors should be new duties and powers. Monitor automatically be designated quality of care in the NHS. The NHS particularly interested in scrutinising will become both a regulator for the Commissioner Requested Services Commissioning Board, CCGs and information about the quality of care in health sector generally and a regulator initially, but it is anticipated that some Monitor will all be under statutory their organisation - acting as a sounding of FTs. In regulating FTs, Monitor s services will have this designation duties to improve the quality of board and providing constructive current regime will change. removed over time. services. This will be managed through challenge in holding the board to account A licence condition is proposed a range of different mechanisms for the quality of its care. Key features of the new regime will be: which will impose an obligation on which will all affect FTs, including: FTs to provide health services at To ensure compliance, FTs will need Abolition of terms of authorisation for tariff prices, except with Monitor Monitor s regulatory regime, including to ensure: all FTs and the consequent withdrawal approval. a proposed licence condition that of the Compliance Framework. governance systems ensure effective Board agendas and discussions reflect Introduction of provider licences, FTs will not need to apply for a licence. oversight of quality of care, including the importance of quality. which will set the licensing criteria and Instead they will automatically be issued through sufficient quality expertise at Governors are equipped with the skills conditions by which FTs and other (but not all) providers must operate. with a licence when the HSCA comes into force. Board level. The National Quality Board (NQB) and and knowledge they require to scrutinise the quality of care. A new Risk Assessment Framework Quality Surveillance Groups. The right systems and processes are in that designates different categories of However, FTs will need a good Commissioner contracts. place to support staff in driving quality. risk, and different assessment criteria, understanding of their licence The NHS Outcomes Framework and to the current risk rating framework. conditions to ensure compliance Quality Standards. FTs will also need to be confident in The mandatory services regime will from implementation. In particular, their: be discontinued and replaced by the FTs will need to: The impact of the report into the failings concepts of Commissioner at Mid Staffordshire NHS Foundation Trust patient-facing functions for handling Requested Services (services that Consider what systems, processes is also likely to have profound effects. complaints, inquests, other inquiries will be subject to Monitor s continuity and personnel will need to be in and claims, and that lessons are learnt of service licence conditions) and place to ensure compliance. As the NQB s report Quality in the new and fed back into quality systems. Protected Services (services that Working with commissioners, which health system Maintaining and improving back and middle office functions which must be identified and kept in services will be Commissioner quality from April 2013 suggests, are relevant to quality, including operation in the event of an FT failing). Requested Services and Protected governors must operate with the interests information governance and health Services. of local communities and patients at and safety. The effect on finances and contracts the fore. Although they do not undertake of not being able to charge above tariff without Monitor s approval.

Step Three Developing your Constitution Step Four The role of Members FTs will need to update their Actual membership of any public The HSCA has a number of provisions Membership represents community Constitutions to reflect the changes constituency and (if there is one) that FTs will need to consider in ownership of FTs. They will implemented by the HSCA. As patients constituency will need to relation to their governance structures. continue to elect governors but will approval for Constitution changes is be representative of those to whom the In particular, Monitor s proposed have additional roles: required from Monitor up to 1 April Trust provides services, which will licence conditions will require FTs to 2013, Monitor is issuing guidance to need to be considered if an FT starts have effective board and committee There is a new requirement on FTs to FTs about when to submit applications delivering services outside its structures, reporting lines and hold an annual meeting of members for these changes as well as existing constituencies. performance and risk management which is open to the public and suggested wording. From 1 April 2013 There will be updated requirements systems. This will affect members, attended by at least one member of FTs will be able to make changes to for inclusion in the annual reports governors and directors, the three the Board. their Constitutions without sent to Monitor, including information constituent parts of the FT Members will have opportunity to Monitor s approval. on occasions when the Council of governance model. consider the FT s annual report and governors required a director to accounts at the annual meeting. Key changes that will be required to attend a meeting; information on the These changes will be of less impact and If the FT has amended its constitution the Constitution include: FT s policies on pay, remuneration concern if you already have governors to change the governors role, then of directors and expenses of and directors with the right skills and the members must ratify the One of the most significant changes governors and directors; and the capabilities. The role of the Chair is also amendment at the next annual meeting. will be the new powers of governors, impact of non-nhs income on NHS increasingly important as link between as well as the statutory duties imposed service provision. the Governors and Directors. FTs should on directors. More detail on this is Certain accounting requirements consider if their governance structures set out in Step 4 of our guide. A partnership organisation will be able to appoint more than one member to the Council of Governors. There will be no requirement for at least one member of the Council of Governors to be appointed by a health commissioner (i.e. a CCG or the NHS Commissioning Board). Board meetings must be open to the public, but the Constitution can provide for the exclusion of the public for special reasons. will change. Total income from NHS services must be greater than from non-nhs purposes, so that an FT s income generated from non-nhs sources cannot exceed 49% of its total income. FTs in future will be able to be Care Trusts. Changes would be required to an FT s constitution if it chose to be one. and processes are fit for purpose in light of these changes. Hempsons position at the front of the pack is due to its back-to-front and insideout knowledge of the regulations and law. This seasoned firm s attention to detail and its knowledge of the healthcare field are second to none. Best in UK - Chambers

Step Five The role of Governors Step Six The role of Directors Governors are an integral part of the The Council of Governors must Directors will have a new express In relation to conflicts of interest and FT governance model, being determine whether it is satisfied that duty to act with a view to promoting accepting benefits, the NHSA now specifies representative of the members and the carrying on of non-nhs activities the success of the FT so as to the directors duties and (as an exception local community interests. will not to any significant extent maximise the benefits for the members to general administrative law principles) interfere with the FT s provision of and public. when a conflict of interest may be permitted Key features of the new role of NHS services and notify the Board if sanctioned in accordance with the governors are: of its determination. The new express duty is additional to the FT s constitution. More than half of the Council of existing, implied duties that reflect FTs will be required to take steps to Governors voting must approve: administrative law principles, which include Meetings of the board must be held in secure that the governors are duties to act within their legal powers; public, though the public and press equipped with the skills and knowledge 1. The implementation of proposals to exercise reasonable care, skill and can be excluded from meetings for they need. to increase by 5% or more the diligence; and to comply with the special reasons, which would include The Council of Governors will have proportion of total income in any FT s constitution. commercial confidentiality. new general duties to hold the financial year derived from non-executive directors individually non-nhs activities. So that the governors can perform their and collectively to account for the 2. Entering into a significant functions effectively, the directors must performance of the Board of Directors. transaction (which the FT can send to them the agenda and minutes The Council of Governors will be able to require one or more of the directors to attend a meeting for the purpose of obtaining information about the FT s performance of its functions or the directors performance of their duties and to vote on issues concerning their performance. Governors will have the right to receive an advance copy of the agenda of a meeting of the Board of Directors and to receive a copy of the minutes after a meeting. Where the FT is or may not be 3. 4. 5. choose whether or not to define in the Constitution). An application to Monitor for merger with or acquisition of another FT or NHS Trust. An application to Monitor dissolution of the FT. Amendments to the Constitution. A key issue will be to ensure that governors and directors understand how to differentiate and strike the correct balance between their roles. Fundamentally it remains the case that it is the Directors The Hempsons team excelled in their support and enabled the transactions to complete in the timescales required by the Department of Health, and within budget. I would have no hesitation in recommending, or using, Hempsons on any similar types of transactions or more generally on complex corporate matters of their meetings. Directors will need to consider how to deal with Part 2 (ie confidential) business, but note that there is no requirement to send to the governors any papers that may accompany the agenda and minutes. Amendments may be made to an FT s constitution if more than half of the members of the Council of Governors voting approve the amendments and more than half of the members of the Board of Directors voting approve the amendments. Monitor must be informed compliant with its Constitution or the NHSA, governors will be able to refer who manage the FT and exercise its powers. Pennine Care NHS Foundation Trust of amendments but does not have to approve them. the issue in question to a Monitorappointed panel which will be able to launch an investigation.

Step Seven Public engagement Step Eight Workforce development The Nicholson challenge, changing Local Health Watch bodies will replace FTs have a challenging agenda FTs will need to: demographics, and the renewed focus on quality are likely to combine to force service reconfigurations throughout the NHS, in some cases resulting in changes to or withdrawal of services and even hospitals. Where this affects an FT it must consider its engagement and consultation obligations. Public involvement duties under section 242 of the NHSA are unchanged save that they will no longer apply to commissioners who instead will have their own specific but equivalent duties. Technically in the future commissioners would no longer lead s.242 public involvement, but in practice they are likely to do so when exercising their parallel duties. There are some technical changes to the duty under s.244 of the NHSA to consult, in particular the duty is now to consult the local authority, rather than its Overview and Scrutiny Committee (OSC), but the local authority can appoint an OSC to perform its functions. Local Involvement Networks (LINks). A national body Health Watch England has already been established as an arms-length committee of the Care Quality Commission. Separately the Department of Health has already consulted about whether health service reconfiguration and referrals should also include a: Requirement for local authorities and the NHS to agree and publish clear timescales for making a decision on whether a proposal should be referred. New intermediate referral stage to the NHS Commissioning Board for some service reconfigurations. Requirement for local authorities to take account of the financial sustainability of services when considering a referral, in addition to issues of safety, effectiveness and the patient experience. Requirement for health scrutiny to obtain the agreement of the full council before a referral can be made. It is expected that new regulations which includes: Managing ever tightening budgets. Keeping up with the NHS reform agenda. Maintaining and improving the quality of services. Retaining the capacity to innovate and bring about service transformation. All of this has to be achieved in a challenging pay and pensions context which impacts on staff morale. Hempsons managed the process superbly excelled in their support and enabled the transactions to complete in the timescales required by the DoH and within budget. I would have no hesitation in recommending, or using Hempsons again. Pennine Care NHS Foundation Trust Consider whether arrangements under AfC are sustainable in the current economic climate. Consider whether national negotiations on pay deliver sufficient or the right sort of flexibilities. Explore the introduction of pay flexibilities perhaps in conjunction with other NHS employers outside the national pay framework. Introduce and implement clear performance standards so they are the provider of choice in a competitive market. Make use of existing levers, such as in the consultant contract, to drive performance and change. Negotiate with staff side and implement service transformation in a way which does not disrupt service provision. Tackle dysfunctional teams which are not delivering. Have a clear plan for maintaining staff engagement. will come into effect from April 2013.

Step Nine Asset management Monitor s licence conditions will include a requirement to include an up to date register of all relevant assets used in Commissioner Requested Services, which cannot be disposed of or control relinquished over without Monitor s consent. This will replace the existing protected assets regime. Monitor proposes that FTs will be responsible for determining which assets are deemed relevant for this purpose and included on the register, but expects that land, buildings and high value equipment would normally be included on the register. This highly professional and responsive team has particular strength in advising NHS clients on the full range of transactions and leasing arrangements Chambers UK 2012 Regarding the real estate team Key concerns for all FTs will be as follows: Primary Care Trusts are to be abolished. They hold a significant estate, parts of which are occupied by FTs for the provision of community services or acute services as the case may be. The PCT estate is to be transferred to NHS Property Services Limited (Propco), a limited liability company owned by the Department of Health. It is expected that they will be run on far more commercial terms. Quite often FTs occupy PCT property without any formal documentation or at best documentation which forms little more than a licence arrangement. FTs may take a view that it would be better to ensure that their occupation of PCT properties is properly documented before the transfer to Propco, given the change and nature and likely approach of Propco in the future. Many FTs took over the provision of community services under the Transforming Community Services agenda. As a consequence Trusts took over occupation of some PCT properties often at worst pursuant to clauses contained in business transfer agreements or at best, pursuant to licence arrangements. As mentioned above, these need to be properly documented. In addition, the government has said that Trusts can have the option of acquiring book value to those properties of which it has a majority occupation. Detailed guidance on this has been issued and Trusts need to be aware of that guidance and how it applies to them, taking appropriate legal advice when necessary. Trusts should be giving detailed consideration to which of those properties they wish to take but need to bear in mind funding issues and the liabilities which they will be inheriting if they do so. This is particularly the case with leasehold properties. Estate Management The Trust need to be continually examining their estate with a view to both rationalisation where possible and with a view to examining ways of generating income from that estate. Service - Trusts will have service agreements with commissioners for the provision of healthcare services. Trusts will either need to occupy their own properties or to occupy other properties in order to provide these services. If subsequently the contract is lost, then the Trust need to ensure that their interest in premises occupied or owned by other parties is determinable at that time to ensure that there are no continuing liabilities and also that they need to ascertain whether they are required to transfer their own properties to the new service provider. Guidance contains detailed provisions for such transfers in the future. Joint Ventures with the private sector Government funding for new investment is restricted. Trusts may therefore wish to look to the private sector for assistance in developing their estate either through the provision of expertise and/or through the provision of funding. Trusts may wish to examine the opportunities that working with the private sector can afford and quite often these structures involve the setting up of joint venture arrangements whereby Trusts contribute land and estate whereas the private sector contributes money and expertise with mutual profit sharing arrangements and leases back to the Trust from the joint venture vehicle.

Step Ten Service reconfiguration Significant transactions, including mergers and acquisitions There is an emerging consensus that the NHS requires system redesign, which may include mergers and acquisitions or partnerships with other organisation. Many such transactions will be significant ones within the terms of FT constitutions following amendment that will be necessary when new s.51a of the NHSA comes into force. It provides that an FT may enter into a significant transaction only if more than half of its governors voting approve entering into the transaction. The NHSA does not define a significant transaction beyond saying that it means a transaction or series of transactions of such a description as may be specified in the FT s constitution. If an FT does not wish to specify any descriptions of transactions or arrangements that would be a significant transaction then its constitution must say so. Either way all FTs will have to amend their constitutions, and we expect that governors are more likely than not to want a say in significant transactions. Hempsons worked very closely with us throughout the process to make sure the aquisitions completed successfully, and on time, mitigating as far as possible the transfer of risks. Their experience and commitment were pivotal to the good outcome we achieved South West Yorkshire NHS Foundation Trust Monitor s current Compliance Framework and Risk Evaluation for Investment Decisions will be helpful starting points for defining a significant transaction by reference to the FT s assets, income or consideration to its total capital. In addition, there may be circumstances where the governors would consider any transaction to be significant because of their assessment of the FT s risk status at the time. FTs will need to design systems for how and when they will report significant transactions to the governors. For example, in the same way that Monitor now does so if any significant transaction is being undertaken, in the future governors may require the Board of Directors, where appropriate, to prepare a post-transaction integration plan, a working capital board memorandum and appoint independent accountants to report on these. They re really good at meeting our preferences, they keep us informed and they re brilliant at getting back to you. Their client relations are outstanding Further, the governors may require the Board of Directors to prepare a financial reporting procedures board memorandum and appoint independent accountants to report jointly to the governors and directors on this. In addition to the above, the governors may also require the Board of Directors to: 1. Prepare plans for applying appropriate quality governance arrangements across the new organisation; and 2. Receive external assurance, in the form of an independent opinion, on the trust s post-transaction quality governance arrangements. In addition to their new role in significant transactions, governors will also have new roles in mergers, acquisitions, separations and dissolutions. An FT be able to apply to Monitor to take any such step only if a majority of all the governors approved it. Chambers UK 2012

Step Eleven Trust Special Administration Step Twelve Thriving in a competitive environment The HSCA repeals the last Government s failure regime (deauthorisation the ignominy of return to NHS Trust status) and replaces it with a new one, being Trust Special Administration (TSA). There will be (the Government intends) no return for a Foundation Trust to the Government s apron strings. TSA will occur if Monitor is satisfied that a Foundation Trust is, or is likely to become, unable to pay its debts. If so, Monitor may appoint an administrator (who must be an insolvency practitioner) to exercise the functions of the governors, chairman and directors who are suspended from office. The objective of TSA is to secure the continued provision of services that the commissioners will commission. Here the commissioners have the critical role of determining if the continued provision of services is required. They may determine that continued service provision is required only if they are satisfied that ceasing it would, in the absence of alternative arrangements, be likely to have a significant adverse impact on the health of persons in need of the service or significantly increase health inequalities, or cause a failure to prevent or ameliorate either a significant impact on the health of such persons or a significant increase in health inequalities. The timetable from commencement of TSA to final outcome is potentially a tight one: 45 working days to propose a course of action. 30 working days for consultation. 15 working days to revise the report after consultation. 20 days for Monitor to decide whether to approve it. 30 working days for the Secretary of State to agree with or reject it. In practice we expect that the timetable may be extended. During administration Monitor may provide interim financial assistance to the distressed FT to maintain services, to be financed by a levy on providers and commissioners. Subject to following due process of administration, Monitor will make a final recommendation to the Secretary of State, which may include action up to and including dissolution of the Trust. Government policies, and developments in procurement law, are already promoting increased competition between providers. Although the HSCA does not itself extend the current application of competition law to the NHS, it does create a new statutory framework which will govern competition in the NHS. For example, NHS commissioners will not be able to have preferred providers simply because of their private or public sector status. Monitor will regulate the developing competitive market and enforce the new statutory framework. The challenge for FTs will be to maintain and build market share in the face of competition from other FTs (who may not necessarily be local) and from private providers and social enterprises run by ex-nhs staff. There will be a number of options for FTs: Winning new healthcare business and, possibly, social care business. Acquisitions of, and mergers with, NHS Trusts who fail to achieve FT status. Developing structures with other organisations for integrated care, including for example Care Trusts and Academic Health Science Networks. Strategic alliances and joint ventures with other organisations. In considering these options, FTs will need to understand the legal implications of Monitor s licence conditions, the statutory framework in which commissioners will be required to commission services and competition law itself. This has recently been emphasised by the recent OFT investigation into NHS hospitals sharing private patient price data which commented on a low level of competition law awareness. In particular, FTs will need to: Ensure they protect the rights of patients to make choices. Enable integrated care with other health and social care providers. Avoid entering into or maintaining agreements or engaging in conduct that is anti-competitive. Inform the Office of Fair Trading (OFT) of mergers with other healthcare businesses.

Why Choose Hempsons? Hempsons are a leading national health and social care law firm. Our clients are public/ private healthcare organisations, charities and social enterprises who plan, commission, regulate or provide health and social care services, or operate within the supply chain. Our strong NHS client base includes Foundation Trusts, NHS Trusts, the Department of Health, SHAs, special health authorities, PCTs and other new commissioning organisations. We have over 150 lawyers working from our offices in London, Harrogate, Manchester and Newcastle. For further information about how Hempsons can help you manage the impact of the reforms please contact Christian Dingwall by email c.dingwall@hempsons.co.uk or phone 020 7484 7525 or you can contact another of our expert team. Property Constitutional, Corporate Governance and Commercial Christian Dingwall Partner Janice Barber Managing Partner Ross Clark Partner Jamie Foster Partner Jane Donnison Partner Ann Draper Partner Carol Bailey Partner Nathan East Partner t: 020 7484 7525 e: c.dingwall@hempsons.co.uk t: 020 7484 7607 e: j.barber@hempsons.co.uk t: 01423 724012 e: r.clark@hempsons.co.uk t: 020 7484 7594 e: j.foster@hempsons.co.uk t: 0161 234 2433 e: j.donnison@hempsons.co.uk t: 0161 234 2472 e: a.draper@hempsons.co.uk t: 01423 724035 / 0191 2300669 e: c.bailey@hempsons.co.uk t: 020 7484 7541 e: n.east@hempsons.co.uk Carol Mosedale Solicitor Jennifer Mellani Solicitor Simon Massey Partner Graham Lea t: 01423 724007 e: c.mosedale@hempsons.co.uk t: 020 7484 7627 e: j.mellani@hempsons.co.uk t: 01423 724031 e: s.massey@hempsons.co.uk t: 020 7484 7531 e: g.lea@hempsons.co.uk Procurement, Contracting and Commercial Clinical Governance, Public Law and Judicial Review Adrian Parker Partner Richard Nolan Partner Andrew Daly Associate Wai-Cheung Pang Associate Racquelle Morris Partner Nadya Wolferstan Partner Stephen Evans Partner Adam Hartrick Partner t: 01423 724029 e: a.parker@hempsons.co.uk t: 01423 724108 e: r.nolan@hempsons.co.uk t: 01423 724015 e: a.daly@hempsons.co.uk t: 01423 724107 e: w.pang@hempsons.co.uk t: 0161 234 2413 e: r.morris@hempsons.co.uk t: 020 7484 7523 e: n.wolferstan@hempsons.co.uk t: 01423 724010 e: s.evans@hempsons.co.uk t: 01423 724014 e: a.hartrick@hempsons.co.uk Workforce Information Governance Janice Barber Managing Partner Jean Sapeta Partner Paul Spencer Partner Martin Cheyne - Partner Chris Alderson Partner t: 020 7484 7607 e: j.barber@hempsons.co.uk t: 020 7484 7552 e: j.sapeta@hempsons.co.uk t: 0161 234 2474 e: p.spencer@hempsons.co.uk t: 01423 724121 e: m.cheyne@hempsons.co.uk t: 0161 234 2448 e: c.alderson@hempsons.co.uk

To sign up for our information service for Foundation Trusts please contact Christian Dingwall by email c.dingwall@ hempsons.co.uk or phone 020 7484 7525 and/or visit our website at www.hempsons.co.uk LONDON MANCHESTER HARROGATE NEWCASTLE