Oral evidence: 2014 accountability hearing with Monitor, HC 766Tuesday 2 December 2014

Oral evidence, 2 December 2014.

Witnesses

Baroness Joan Hanham CBE, Chairman, and David Bennett, Chief Executive, Monitor, gave evidence.

Chair

I think we are all set and ready to go. Thank you very much for coming today. For those following this debate on the transcript, could you please introduce yourselves before we start?

Baroness Hanham

I am Joan Hanham, chairman of Monitor. I was appointed in January and my appointment goes through to 2016.

David Bennett

I am David Bennett, chief executive of Monitor.

Chair

Thank you. Thank you for coming today. Could we start with you elaborating on Monitor’s view of yesterday’s announcement and whether that is going to be sufficient, and, particularly given the evidence that you have provided us with about the scale of trust deficits, how you feel that is going to fit in with those deficits? Is it going to make any difference, given that this money, I understand, starts from next year?

David Bennett

First of all, the most basic thing to be said is that we clearly welcome the fact that the Government have agreed to make some additional funding available for next year. As is more than evidenced, even this year is proving very challenging for the NHS, and next year was looking even more challenging, partly because it is just another year of flat real funding—that was the starting point anyway—against the usual rise in demand, but, in addition, there was some money being taken out of the acute sector particularly to be put in the Better Care Fund. Although that is now less than was originally proposed, nevertheless some is coming out. That will further increase the pressure next year. The proposal from the Government that around £2 billion extra is to be put into the NHS budget for next year is clearly very welcome. That, I understand, is recurrent funding; so, as I think the Chancellor said, it will be put in the NHS baseline. It will recur each year and any further increases will be on top of that, which is also encouraging.

Barbara Keeley

You said £2 billion extra. Chair, I don’t think that is correct. Everything that has been published since the weekend said that £1.1 billion to £1.3 billion of it is extra and the rest is from existing Department of Health budgets. We need to be clear about that and not use inflated figures.

Chair

Could you perhaps set out what your understanding is of where that money is coming from?

David Bennett

Yes. My understanding is that there is £1 billion of completely new money from the Treasury; there is £0.25 billion each year for the next four years also from the Treasury. This is the money coming from the bank fines, is it not?

Barbara Keeley

That is not recurring. That is just from a fund of—

David Bennett

It is for four years.

Barbara Keeley

Yes, but it will run out at that point.

David Bennett

Yes, quite.

Barbara Keeley

We need to be clear about that.

David Bennett

I am just explaining how I got to my £2 billion. Just over half a billion—£0.55 billion—is to come from DH savings and contingency.

Barbara Keeley

That is not extra; that is existing money.

David Bennett

That is existing money, but it is a commitment that it will go through to the NHS because at the moment it just sits in the DH budget.

Chair

It is shifting to front‑line funding rather than the DH.

David Bennett

Yes. Then, somewhat similarly, there is a commitment from NHS England that £0.15 billion, also from efficiency savings and contingency, will be passed through to front‑line commissioners and on to providers. That was how I got to the £2 billion.

Barbara Keeley

To be clear, there is only £1 billion of guaranteed recurring funding there because the other £1 billion is from fines, which will run out after four years, and the rest of it is from existing budgets.

David Bennett

That is my understanding.

Barbara Keeley

So it is not £2 billion: it is £1 billion.

David Bennett

But from the NHS’s point of view, in terms of planning for next year, it is £2 billion that they were not expecting to get.

Barbara Keeley

But it is not additional.

David Bennett

Well, it is £2 billion—from the point of view of the NHS front line—

Barbara Keeley

It is not, I am afraid. Let us just leave it at that. It is not additional.

Chair

Your view is that it is additional and the view of some Committee members is that it is different. Can I go back? One of the things that we heard, importantly, was that when trust deficits become so large and it becomes endemic—it becomes the norm to be in deficit—we heard from Anita Charlesworth that people, if you like, give up and it becomes the normal thing to be in deficit. Is that something that concerns Monitor? Do you feel there is a sense in which the system starts to give up, or do you think this money that has been announced will make a difference to that?

David Bennett

First of all, there is undoubtedly an “in principle” issue here. Whether you are talking about financial performance or operating performance—hitting access targets like A and E waiting times, RTT waiting times and so on—there is clearly an “in principle” risk that, if you get too many people missing their targets, then it gets more difficult to persuade them, “This is very bad and you mustn’t do it.” I would not say that we have got to that stage yet. Despite the fact that we do have a lot of trusts in deficit, although not all of them are intending to stay in deficit, at the moment they are seeing—and we are making it very clear to them—that that is not a circumstance that is acceptable and they should be doing everything they can to fix it; and similarly on their access targets.

Chair

In terms of when the money starts—the extra money will start next year—

David Bennett

Yes.

Chair

—do you think there is a danger that we will be playing catch‑up, paying off debts from this year, or do you feel that the financial position at the end of this year is going to be containable?

Baroness Hanham

Presumably this depends on how it is allocated and under what heads—how it works. We would hope it would go into helping future performance.

Chair

Thank you. David is going to ask the next question.

David Tredinnick

I want to ask you a couple of questions about efficiencies and then staffing, and particularly agency staff. You have said that foundation trusts “can and need to deliver greater efficiencies while also planning for more significant change over the next 2 to 5 years.” How realistic is this? In which areas do you consider these savings could be made?

David Bennett

There is no doubt that the NHS has a huge challenge on its hands because it needs to do two things simultaneously over the next few years. First, it has to keep pushing hard. Indeed, in some respects it has to push harder on generating or finding further efficiencies in the way it is delivering care today. There is no doubt that some organisations find that challenging, but there are huge gaps between the best and the not so good. We reckon that, if everybody got up to the top quartile, you could get something like a 5.6 percentage point saving in the total NHS spend. If you just moved the weaker performers up to the better performers, you could save about 5.6%. So there is still plenty in that sense to go at, but I do acknowledge that it will depend on local circumstances and in certain circumstances it can be a very challenging thing to ask trusts to do. That is the first thing they have to do. The second thing they have to do is plan for the longer term. For funding of the NHS over the next Parliament, we made the assumption when we did the Five Year Forward View that we might get slightly better than flat real. We essentially said that if we get flat real but corrected for growth in the population, which is about 1.5% in real terms each year—which is where the £8 billion comes from—at the end of the Parliament that would be equivalent to an extra £8 billion a year. We acknowledged that, given the state of the public finances, it is unlikely that we could expect more than that, but in order to live with that and still provide good quality care the NHS has to make significant changes to the way it delivers care. In a sense, it is sort of good news in that those are changes that people have been talking about for a long while in many cases and that most people agree will be for the better from a patient’s point of view. It is things like providing more care out of hospital, having a stronger focus on prevention and early intervention, and better co‑ordination of the delivery of care. All of these are things that should be better for patients, but they do represent very significant change in many cases to the way the current providers of care operate. The challenge for the sector is that, over the next couple of years, they have both to deliver these efficiency savings in the way they are doing things today and start planning for, and indeed start to make some of, these more fundamental changes so that we can live within a moderate increase in budget over the life of the next Parliament.

David Tredinnick

Do you agree then with Duncan Selbie, the chair of Public Health England, who has argued that we need to reduce demand as well as look at the whole supply side issue? He has argued that risks are what we should be looking at: in order of priority, tobacco, blood pressure, diet, exercise, lifestyle and alcohol. If we address the risk rather than the treatments, would we not reduce demand, and is not the whole focus wrong?

David Bennett

In many ways, yes. This is essentially what we have said in the Five Year Forward View. We said that we need a significant change to the way we allocate our spending. We need more on prevention, which of course is exactly the agenda that Duncan is speaking to, because it is better for the public if they are not suffering from obesity and diabetes as a consequence, and so forth, and it is better for the NHS because it takes the demand away—the stuff that is really expensive. But it does require quite a significant shift in how we allocate our resources.

David Tredinnick

And thinking—philosophy, attitude—from the top right the way through. I know we are short of time, so I will move straight on to staffing. Some of the nurses in my constituency go absolutely ballistic when they look at the money spent on agency staff in the service, with trusts spending £831 million on agency and contract staff in the six months to September, more than twice the planned amount. Is this not a massive waste of money and is not the agency side of this completely out of control?

David Bennett

Is it completely out of control?

David Tredinnick

Almost out of control.

David Bennett

It is certainly not where it needs to be; that is very true.

David Tredinnick

Why is it so when it is a catastrophic waste of money?

David Bennett

There are two aspects to this. It is for a variety of reasons, but in particular it is because of the quality agenda that is being driven by what has happened since Robert Francis reported on the Mid Staffs problems, and reinforced—in my view, fundamentally correctly—by the new CQC regime; that is driving up the need for trusts to provide higher staffing levels. That is something they are trying to do in a hurry. There are not more nurses available, although they are doing their very best to bring nurses in from outside England, where possible. The result is, inevitably, that, where they squeeze on supply, they find themselves having to go to the agency market, and, what is more, the amount the agency nurses or locum doctors, for that matter, can charge goes up. That said, some trusts seem to manage this rather better than others, and the simple fact is that the NHS is effectively a monopsony; it is the only purchaser—user—of these sorts of resources.

David Tredinnick

You used the word “monopoly”.

David Bennett

Monopsony. They are a single purchaser of the services.

David Tredinnick

It is monopolistic pricing. Is that the problem?

David Bennett

No. What I was meaning was this. The NHS buys these services from lots of different agencies, and often individual doctors, but if the NHS were to get its act together and be more strategic in the way it makes that purchasing—

David Tredinnick

Hang on. You are Monitor and you are supposed to monitor what is going on. Surely you should be offering advice to these trusts on how they avoid these problems. What advice have you issued so far and what advice are you intending to issue, please?

David Bennett

We are working on this alongside the Department of Health and the Trust Development Authority because this is just as true for their trusts as it is for ours right now. So we have draft advice that we are starting to talk to the trusts about right now and we are continuing to make that advice as practical and effective as possible.

Baroness Hanham

Can I add that this needs a really hard look at now, but it is not new? When I was chairing a trust 10 years ago, my eyes used to glaze over at the agency costs, and in those days there was a bank that was made up of staff from the hospital itself who came in and did extra time. We have to start looking at why those sorts of arrangements are not working, in that the hospital can draw on its own staff; why it is that it is costing so much—the agencies just have their fees in their hand and they can charge that; and why it is perhaps that people find it more flexible and easy to work on an agency basis and therefore do not go for a permanent job. There are a whole lot of underlying issues here, all of which, as you rightly point out, are very expensive when you end up with them in your budget.

Chair

You are signatories to the Five Year Forward View. Do you support within the Five Year Forward View the proposal to allow foundation trusts to use their accrued assets to help support transformational change? Are you going to be making that possible?

David Bennett

Yes. First of all, we do not need to make it possible. The whole concept of the foundation trust policy is precisely that trusts are allowed to retain surpluses from year to year to build up a pot of money that they can then spend on improving care. This is exactly what they need to do. They do not need our permission whatsoever, and, absolutely, we would strongly encourage them to do that. It is one of the sources of capital that can be spent to make the changes that need to be made.

Chair

What about the situation with property across the NHS estate? Would it apply to that as well?

David Bennett

Yes. There is no doubt that, first of all, the NHS is unusually property heavy. If you look across various health systems around the world, the NHS has a higher intensity of investment in property than most health systems. The trusts themselves will acknowledge that many of them have surplus space. It is not necessarily entirely straightforward to realise it because, if you have a bit of space here and a bit of space there, you have to consolidate into something you can sell. But, working with the Department of Health, we will strongly encourage them, and I know the Department is looking at whether we can create some incentives. There is a bit of an issue here, which is that many trust boards—especially if they are in an area of the country where real estate is very valuable—see their spare estate as a sort of fund to keep for a rainy day. I think perhaps it is raining—we need to spend this money. So we are looking at how we can encourage and incentivise them.

Chair

What presumably you do not want is for them to be using that to support revenue costs. You want to use it for genuine transformational change.

David Bennett

Absolutely.

Chair

Is that something Monitor can have a say over, to make sure that does happen, so that we do not just end up squandering these one‑off injections?

David Bennett

We can. We are coming at it from the other end. We are saying, “You have got to change. You have to show us a five‑year plan that acknowledges that a lot of change is needed and shows us how you are planning to make that change and how you are planning to fund it.” I absolutely say at the moment that many trusts are not in the position we would want them to be, but we keep pushing them to get those plans organised. That is the mechanism for making sure that they are going to spend the resources available to them sensibly to make, as you say, transformational change rather than just supporting any year‑to‑year losses.

Barbara Keeley

There is a point to make on what Baroness Hanham said about the bank staff arrangements that used to exist. I have heard, certainly in parts of the north‑west, that the opposite is now true. Doctors who want or are able to do extra shifts have to work in other hospitals, and the comment from the person I was talking to was that that is probably not the safest arrangement. As you said, the bank arrangements used to work quite well as a way of using people who are already in a hospital. It seems as if some hospitals have set up something to stop that. Is that something that, before I come on to the other question—

Baroness Hanham

The trouble, to some extent, about this is that this is a personal choice of the people who are offering their services. They make the choice themselves as to whether they want to do flexible arrangements—which actually they can now do in hospitals anyway because most trusts offer flexible arrangements for all their staff—or whether they see it as easier to go to an agency to be hired out for two or three hours. This is something that has beset the health service for years and we have never got to grips with it properly. NHS Professionals was set up, after all, to resolve this problem about staff and agency staff. As long as people can choose with their feet how they are going to want employment, it is quite difficult to lay it down. The trusts have to have a maximum amount of money that they are going to spend on agencies and make sure that, as much as they can, they can get in the permanent staff to do that; and recruitment is not easy now.

Barbara Keeley

Who is tackling this? We have raised a couple of points about it.

David Bennett

Do you mean the general issue of how we get down the numbers of agency staff?

Barbara Keeley

Yes.

David Bennett

The Department of Health is taking the lead, and we, the TDA and NHS England are all working with them.

Barbara Keeley

But it sounds as if there is a solution there that would be one to go back to, rather than expensive arrangements and trying to find some kind of banking arrangement.

Baroness Hanham

I am sort of throwing out where I think the problem has come from and these are areas that are going to have to be looked at, but I am bound to say they have to be looked at again because this has gone on for a long time. It has just got much more expensive as time has progressed.

David Bennett

NHS Professionals was before my time but it does seem the obvious answer. One of the things we need to understand is why it did not work last time and try and get something that does work this time.

Barbara Keeley

Moving on to the question I was going to ask, how do you respond to the criticism that the tariff is not creating efficiencies but simply paying providers less for the same work? In reality, has this not contributed to trusts’ financial difficulties?

David Bennett

The most fundamental way in which the tariff promotes efficiency is that, every year, there is an efficiency factor and it sends a signal to the sector that this is the sort of efficiency you are going to have to generate if you are going to keep your finances in good order. We have tried to set an efficiency factor which is a stretch, because we need the sector to deliver as much efficiency as it can, but is nevertheless achievable. One of the things I said very clearly when Monitor took responsibility for price setting—this year was the first year and next year is the second—is that we should set prices on the basis of what we think is achievable, albeit that in today’s circumstances it has to be as big a stretch as we can reasonably ask for, not on the basis of what makes all the numbers add up, not on the basis of affordability.

Barbara Keeley

Clearly it is not working, given the deficit position. The point implicit in my question was that it is not creating efficiencies. If it is paying them less for the same work, and they are now in financial difficulties, and they are not meeting what you say is a stretched target, what is the point? As the Chair asked in a question earlier, it was put to us in another panel that, frankly, people are just going to give up on this and say, “The patient outcomes and the other targets are the most important thing. Everybody is in the same boat. We are all just going to ignore this and go into deficit.” You can create a situation where, if it is difficult to meet some targets, in the end this is the one that will not be met. What is the point in setting stretched targets that are making the problem worse?

David Bennett

It is a difficult balance. In so far as they are in deficit, it is because they are not achieving the efficiency that we hoped they would.

Barbara Keeley

But maybe the efficiency target is not the right one. That is the point I am making to you. Is there any sense at all in you making the problem worse at Monitor by setting targets that are not being met and the financial position is getting worse and causing deficit?

David Bennett

The trouble is there is no point in us setting a target which does not put them under pressure to maximise the efficiency potential. The NHS, collectively, has got to generate as much efficiency as it can.

Barbara Keeley

But if they are not and you are then giving them an additional problem of going into deficit, my question is what is the point of that? You are then giving them a financial problem on top of everything else.

David Bennett

This is my point about balance. Clearly setting a totally unachievable target is no help at all, but setting them a target which would be relatively easy for them to meet is wrong as well. There is a limited amount of science we can bring to bear, but it is as much a judgment as anything else within that spectrum as to what is the right point at which to pitch it—not least to send the right signals in terms of the extreme need to try as hard as people can at the present time.

Barbara Keeley

Indeed, but it has been suggested to us that this is being used as a budget equaliser to make the NHS funding envelope fit the situation. If that is the case, that is not wise, is it?

David Bennett

It is not.

Barbara Keeley

It is not.

David Bennett

My understanding is that it used to be. When we took over responsibility for pricing, I said, “We are not going do it that way. We are going to set a target based on what we think is achievable.” No doubt people will argue with us about whether we have made the right judgment on what is achievable, but that is the way to think about it. It is not about making the numbers all add up. I precisely agree with you that if we finish up saying, “You actually have to do 7% or 8% because that is the way to make the numbers add up,” people will think I am mad and then not even try.

Barbara Keeley

Surely it is different in different parts of the country too. My local hospital has a very good reputation; it is a big hospital—the Salford Royal. There are some parts of the country in which it is really difficult to get staff, difficult to get staff to stay and difficult for them to produce those efficiency savings. Surely all those factors have to be taken into account. As you read about it, some hospitals have a real struggle on their hands with the population they have, where they are geographically and the difficulty of getting staff to work there. That is not the same as a metropolitan area, an area like Greater Manchester and places like Salford where it is easier, though they would not thank me for saying that.

David Bennett

I have made this point many times. Some people simplistically say a trust that is not in deficit must have good management and one that is in deficit must have bad management. That is wrong—completely wrong.

Barbara Keeley

It is because they have different tasks.

David Bennett

They have very different sorts of challenges. Nevertheless, we want them all to do the best they can. When we get a trust that is in some financial difficulty, we will understand what it is that is causing that; sometimes we absolutely acknowledge that management are doing the best they possibly can but there is still a problem that has to be fixed. One of the things we are finding, I think unsurprisingly, is that in those situations where typically a trust has some sort of structural problem—for example, it might be on multiple sites, with old estate, and maybe if they are smaller sites in particular—no matter how well run it is, in today’s climate it will never be able to survive as it is. Then we have to look at more fundamental change: are there ways of consolidating on to fewer sites? We can also agree an uplift to their prices if we believe that, even with them doing all the right things, they still could not manage without a deficit. That is an option too.

Barbara Keeley

Thank you.

David Tredinnick

I want to go back to the redundant buildings issue and the huge costs of maintaining obsolete buildings. I remember going round George Eliot hospital some years ago, just across the boarder in Warwickshire from my Leicestershire constituency, and the chief executives there were very concerned about the oversupply of buildings. It seems to me from your earlier answer that there is not a very fast way of managing redundant buildings. A business would normally treat this as an absolutely top priority because of the enormous costs associated with empty buildings.

David Bennett

I mentioned the point about them seeing it as a bit of a fund for a rainy day.

David Tredinnick

But that is not correct; that cannot be. It is very bad management on their part to think that they can translate a capital sum in that way at some point in the future because they have all the current costs on the current account.

David Bennett

No, I agree.

David Tredinnick

It is very poor management; so there should be advice out there, surely. I don’t know what to say, but it reminds me—

David Bennett

In all honesty, part of the problem here is they worry that, if they sell the estate, they will have the money taken off them and the trust loses out. That is why we are working with the Department of Health to see if we can find a way of getting them to do the right thing and reassure them that they will be able to invest appropriately.

David Tredinnick

I do not want to make political points in this Committee, but in 1979, when the Conservatives came to power, nobody knew how many buildings the health service owned. You remember that. It was an absolutely hopeless situation. We did not even know what we had. This is a sort of corollary to that, is it not?

David Bennett

It is.

David Tredinnick

We have buildings here, buildings there and maintenance costs.

Chair

Is one of the problems that, when you put in place transformational change, it might not be seen to benefit the trust itself—it might be going into community services? Is that something that is driving the reluctance?

Baroness Hanham

This is something that should drive it, and should drive it very quickly, because the whole idea of the Five Year Forward View is, as you say, this change in the way that the services need to be run, doing far more bringing in the community and local people, with the services directly local and shared between the community and the national health service. Once it stops being just the national health service that holds this land and people get a glint in their eye as to what that might be used for in running a different service, I hope—and you cannot guarantee it—that that will begin to generate much more looking as well at what they have in facilities, because they might want to use the facilities or they might want to sell them and get the revenue to support this. With the forward view, quite a lot can come out of this that will be helpful in the end, particularly towards the areas you are talking about.

Chair

Your role is to support foundation trusts, is it not? Therefore, do they have concerns that, if they are putting that money outside the trust into community services, that might make their position more difficult with you? That is why I was asking whether it was something you are going to be supporting people to do.

David Bennett

Absolutely. We need to change mindsets. Monitor has two responsibilities in a sense. We are particularly overseeing foundation trusts, but we have a broader sector responsibility and that is the most fundamental thing. After all, our primary duty is to protect and promote the interests of patients, not the interests of foundation trusts. We have to get existing provider organisations—frankly, whether they are foundation trusts or any other sort of provider organisation—to be focused not just on what they look like and what they do today, but how they are going to contribute to the whole health system that they are sitting in, making the necessary change. Even over the last 12 months I have seen people beginning to think differently about that.

Chair

Thank you.

Valerie Vaz

I was going to follow up on that point because, clearly, this was bought with public money and so it does belong to the taxpayers—the general public. This one‑off sale is quite worrying to me because there are lots of things that people can do with the estate. Two of the richest people in this country are the Duchy of Cornwall and the Duke of Westminster and they do not sell their land. I am wondering why the national health service should be selling their land. Could we not come up with some other options—for example, leasing the land to other people? You are then going to be looking at very high rates in London compared with other parts of the country. There is a danger that people will think Charing Cross and Hammersmith hospitals can be sold off easily and they can move to the outskirts, which is what appears to be happening. It is prime London land, so you look at that, and then the services suffer. Who is in overall control of that and what do you think about some alternative to selling off, keeping it in public hands and just leasing it off as the Duke of Westminster and the Duchy of Cornwall do?

David Bennett

They hang on to the family silver.

Valerie Vaz

Absolutely. So why shouldn’t we?

David Bennett

In some cases that may be right. The first thing we have to do is to make sure that the assets that are there are used to the benefit of the NHS overall. We know there are some situations where you may even have neighbouring trusts where one is short of land and another one has surplus. We need to find ways of getting that sorted out.

Valerie Vaz

Can you do that while they are in competition with each other?

David Bennett

Absolutely, yes. We just need to get the incentives right.

Valerie Vaz

You, as Monitor, can look at the whole estate, as it were.

David Bennett

This is the thing we are doing with the Department of Health. How can we incentivise the individual trusts to do what is in the best interests of the NHS overall?

Valerie Vaz

Can I go on to the staffing point? Two of my colleagues asked you about agency staff and you kept using the phrase, “We are working with this.” What do you have on your Gantt chart as to the end point?

David Bennett

In terms of—

Valerie Vaz

When are you going to produce a report about it?

David Bennett

The objective is not to produce a report. The objective is to have practical help.

Valerie Vaz

When are you going do either? You have to do a report before you get practical help.

David Bennett

We are putting a team together right now. We have already started to have some conversations with trusts that have serious financial problems. We are putting a team together right now, and as soon as we have something which we think is usable we will start to share it with all of the foundation trusts, and I am sure the TDA will be doing it with their trusts. I would hope that we will be doing that within a month.

Valerie Vaz

Within?

David Bennett

Yes, and I hope the month after that we will be doing it a bit better.

Valerie Vaz

I do not know what you mean. You need to be more specific. There is a huge problem about agency staff and everyone has highlighted it. You know there is a problem.

David Bennett

Yes.

Valerie Vaz

Within a month—what? You are getting the team together within a month or are you actually going to —

David Bennett

No. Within a month I hope we will be starting to offer specific advice to trusts about the sorts of things they could do.

Valerie Vaz

Right, okay. By the time the next accountability hearing comes up, will we have tackled the problem?

David Bennett

I certainly hope we will have made some progress, yes.

Valerie Vaz

I still do not know what that means.

David Bennett

If you are asking me—

Valerie Vaz

Do you want to see the numbers coming down?

David Bennett

Yes, absolutely.

Valerie Vaz

What sort of figure do you have in mind?

David Bennett

I do not. I am not at a point yet where I have a specific figure in mind because the work is ongoing, but I certainly want to see it coming down.

Valerie Vaz

I was looking at the document that you produced—the supplementary briefing—and you mention that you have patient interests at heart. This is, after all, an accountability hearing. At the last one you had not even appointed a patient and clinical engagement person. You have done that now.

David Bennett

Yes.

Valerie Vaz

There is a little figure of 1 there, but for legal services you have 25, organisational transformation 2 and sector development 153. Is there a misbalance there? Are you going to get any more in that little team?

David Bennett

We are. The person we appointed to that role was Professor Hugo Mascie‑Taylor, who unfortunately was not available as soon as we had hoped, but he is now with us full time. We are actively recruiting other people. We are recruiting a senior nurse and a deputy medical director; there is active recruitment. But it would be a mistake to think that those are the only people in Monitor with a clinical background. In fact there are 16 people around Monitor today with some sort of clinical background. There are over 100 now—126, actually—with some sort of NHS background. So we are working on it.

Valerie Vaz

“Working on it.” There is that phrase again. That is fine—they would have that—but it is just that, as to patient and clinical engagement, there is still a paucity of people in that little team, is there not?

David Bennett

It does need more, but what I am trying to say is that that picture rather understates it. There is a specific organisation which at the point that picture was drawn only had one person in it, but there will be more, and there are already more dotted around Monitor.

Valerie Vaz

Can I now turn to the marginal rate rule and could you clarify something for us—for me perhaps? You set out a consultation in August. Was that for 2015‑16?

David Bennett

Yes.

Valerie Vaz

You have now released a paper, presumably this press release—“2015/16 National Tariff Payment System.”

David Bennett

This is from last week, yes.

Valerie Vaz

Is that as a result of the initial consultation in August?

David Bennett

Yes. We are legally required to consult on our proposals and that is what we have just launched. That is effectively our last opportunity to get input from the sector. So what we did—

Valerie Vaz

Why is that?

David Bennett

That is just the legal requirement. Once we have decided what we want to do, we then have to formally consult. Unless there is a formal objection, that is it, more or less. In order to try and get more involvement from the sector, we said we would do a prior consultation and that is the one that was launched in the summer.

Baroness Hanham

That was subsequent to other discussions which have been taking place all year on the way the tariff is going to be formed. The tariff for 2015‑16 and the way for setting it are slightly different from the previous one. I want to back up and say that this is not the first and the last bit of consultation. Stakeholders have been involved all the way through and have had some quite serious discussions on changes to the tariff, so they have not been excluded.

Valerie Vaz

That is fine. I am just trying to clarify something. It is good that you have these two sets because I was a bit concerned that you set it out on 26 November and you want them to reply by Christmas eve, which does not give them very long, does it?

David Bennett

No. That is exactly why, first, we did a prior consultation and, secondly, as Joan says, we have done lots of informal consultation as we go along.

Valerie Vaz

And you might well give them beyond Christmas, I suppose, if some are straggling.

David Bennett

The thing is that we do need to make sure that we have the new tariff in place.

Valerie Vaz

You are not going to be working over Christmas, are you?

David Bennett

No.

Valerie Vaz

So you can have a late submission, I am sure.

David Bennett

We will do our best to take everybody’s submissions into account.

Valerie Vaz

Excellent. With this 2015‑16, is this the 50%:50%?

David Bennett

Yes.

Valerie Vaz

Is that still based on the 2009 levels?

David Bennett

Yes, except that we have made very clear that, if there is a legitimate reason, those levels can be changed. The sort of legitimate reason that people may use is if, for example, there has been a change. Say one local A and E service has been downgraded, which means more is coming to another trust; then that trust should have its level rebased.

Valerie Vaz

Could I put it to you that it has changed over the five years—that 2014 is remarkably different in A and E compared with 2009?

David Bennett

Across the board.

Valerie Vaz

Across the board, bearing in mind that walk‑in centres have been closed.

David Bennett

That is one of the things that would be a legitimate argument for why there needs to be a rebase. But you are right that, even where there is no discrete change like that, still the whole system is seeing more demand. The whole purpose of the split tariff, which was introduced long before Monitor was responsible, was to try and reduce the level of emergency admissions. We have analysed this and it looks to us as though it has. They have still been going up, but it looks to us as if they would have gone up even more had the split tariff not been introduced. In recognition of the fact that it is adding to the financial pressures on those acute hospitals that have A and E services, this year we have done two things. First, we have said that, instead of a 70:30 split, there should be a 50:50 split, so that does the emergency admissions. The second thing we have done is lifted the price of what hospitals get paid for the A and E attendances relative to all other prices. It depends on the particular type of activity, but it is something like an average 5% increase.

Valerie Vaz

Who is happy with this new tariff?

David Bennett

Who is happy with it?

Valerie Vaz

Yes. You mention that you have had some good response to it.

David Bennett

Well, I had a pretty positive e‑mail from Clifford Mann, who is the president of the College of Emergency Medicine.

Valerie Vaz

Really!

David Bennett

I have, yes.

Valerie Vaz

When was that? Could you share it with us all at some stage?

David Bennett

I would need to make sure that it is not—

Valerie Vaz

Maybe he is not very happy about the next stage, which we will come on to, which is the block contract. Do you have any plans for that?

David Bennett

The block contract is not really in the A and E area.

Valerie Vaz

Have you checked with Clifford Mann about that?

David Bennett

It is true that when we published our first consultation he was not happy with what we proposed, but that did not have the 50:50 split. That did not have this extra uplift for emergency attendances, so we have changed it precisely as a result of the responses we got to that first consultation that we did in the summer.

Valerie Vaz

So he is happy with the 50:50 then.

David Bennett

He is definitely happier.

Valerie Vaz

Happier—right. So he is not happy with the 50:50; he is happier than he was with the 30:70. Of course—who wouldn’t be? That leads to my next point. Will you be scrapping the marginal rate rule in future?

David Bennett

We are redesigning the approach. One of the things we have said for 2015‑16 is that we are happy if individual health systems want to adopt a different payment approach. We have proposed an alternative payment approach, which we have been discussing with the college, among others—

Valerie Vaz

Is this the block contract?

David Bennett

No.

Valerie Vaz

Is it something else?

David Bennett

Yes. It is a three‑part system. First, there is a fixed payment for everybody in the urgent and emergency care network to cover their fixed costs, and then there is an activity‑based payment, which is pooled across the network. One of the problems at the moment, as I am sure you know, is that all the focus of the incentive of the 70:30 split—or 50:50 from next year—is predominantly what goes on in the hospital, whereas what we really need is the whole urgent and emergency care system to work together as an effective network. The new approach is that there is a payment for activity that is pooled across everybody so that you can get the incentives right and not just focus on the hospitals. Then we are also saying we would expect a third element, which would be some sort of quality‑based payment as well, just to try and make sure we have high‑quality services.

Valerie Vaz

So for 2016‑17 that will all change again. When do you think you would be able to put out a new consultation for 2016‑17?

David Bennett

What I have just described reflects where we think the payment system needs to go in the longer term. We put out a very detailed set of suggestions on this back in the spring, and this is based on those suggestions and the feedback we got from them. Our expectation is that next year, hopefully, a number of systems at least will take us up so that they can pilot this, and then 2016‑17 should basically see more of it. But it is absolutely going in the same direction; it will not be a change of direction in 2016‑17.

Valerie Vaz

Thank you very much. Thank you, Chair.

Mr Sharma

Last year, we concluded that the pace of reform of the national payment system continued to be too slow, and written submissions we have received so far are also saying the same thing a year on. Suggestions for reforming the system include a move to an outcome‑based system, a capitation‑based systems and a multi‑annual tariff.

David Bennett

Yes.

Mr Sharma

Yesterday you published your plans for broader reforms to the payment system, but why has progress continued to be so slow in this area? What can be done to speed it up?

David Bennett

I have seen people’s submissions. They are misrepresenting what has happened. Capitation payments are allowed this year and for next year, but we have only had three health systems take up the idea of putting capitation payments in place for this year—or at least three of them have. We recognise that that is not enough. So for next year we are not only saying, “You can do it,” but we are publishing a lot of advice, examples and a toolkit for how to apply it. It is not straightforward. What is more, it has to be locally designed because a capitation payment is for a particular population—and different health systems may choose different populations—for a particular bundle of services; different health systems may choose different bundles. So you cannot just mandate it centrally. You have to design it locally. We have developed a tool to help people work out how to do it and we are also making Monitor people available to help more health systems work out how to do it. So far, we have somewhere between an additional five and 10 health systems expressing an interest to take it up next year. We would strongly encourage as many as possible to take this up. They could be doing it this year; they can do it next year, and we are trying to help them work out how to make use of it. That change has happened. So there is that. You mentioned outcome‑based payments. In mental health, for example, which is another area where we need to improve anyway, for 2015‑16 we are saying that at the very least we now need all mental health providers to state against specific definitions what it is they are doing. At the moment they do not. They just have a block of money and then they do whatever they do. We are saying, “No. You have to describe what it is you are doing and how much of what it is. Here are the categories of things that you need to use as you describe what you are doing.” Secondly, we have said to commissioners, “If you want to pay for what they are doing on an outcomes basis, you can do that. Here are examples of what people have been doing this year.” We already have people this year making payments on an outcomes basis but we want more to do it in 2015‑16. Again, as it happens, we have a number of pilots that we are setting up so that more people are doing it next year. We have also said that, if people want to use an outcome‑based approach on things like elective care, that is fine too. Again, we are publishing more examples of this being done so that other health systems can see what some have done and hopefully will pick it up themselves. There has been a lot of progress. I do wonder whether part of the reason people say it’s not moving is because a lot of this needs either to be done at a local level or needs a process of piloting and working out what works and then modifying it, which inevitably takes a number of years to work through. Therefore, there is a limited amount which we can now—and even in the future will be able to—mandate. A lot of this is about giving local commissioners much more freedom to decide how they want to pay for services, but it is not mandatory and that is possibly why some of them are saying, “It has not changed.” It has, but it has not changed in the sense of us mandating things.

Chair

We heard yesterday in the statement from the Secretary of State about facilitating multi‑annual budgets. Do you feel that that goes far enough? Are you satisfied with the arrangements? Is that something you have advised as a positive?

David Bennett

We need to go further. I was very encouraged that the Secretary of State specifically mentioned this. We have said several times that we think a three‑to-five‑year settlement for the NHS, which allows commissioners to have a reasonable degree of certainty about their funding, combined with a tariff that is set for something like a three‑to-five‑year period, would be a much better environment for both commissioners and providers to do their planning. If the Government are moving in that direction in terms of funding, that is very encouraging.

Chair

Could you clear up one query that I have about the way all these different systems for payment interact with each other? If you have a health system where there is a year‑of‑care‑type approach or a capitation‑based approach and that patient then goes to an emergency department, would there then be no payment at all under the marginal rate rule because in fact it would all be bundled into that original payment?

David Bennett

It could be.

Chair

Or do they get two bites at the cherry in that they also get the separate admission?

David Bennett

We certainly do not want people being paid twice for just doing something—

Chair

Which takes precedence?

David Bennett

It is whatever the local commissioners want. We have said we will suspend payment by results if, for certain activities, commissioners prefer to pay for those services for at least some patients on the basis of, let’s say, a capitation payment or a year‑of‑care payment or something like that.

Chair

Is it not going to get very complicated if people move from one area to the other?

David Bennett

It might be—

Chair

Are we building in a lot of complexity and would we not be best to have a system that looks nationally at having a year of care, that you have the same kind of cost whether you are somebody with diabetes and heart disease in one part of the country or another? Are we going to end up with big variations?

David Bennett

This is a very fundamental issue of policy, is it not? To what extent do you want an NHS that looks exactly the same everywhere across the country? It certainly does not at the moment. If that is what we were aiming for, we would have to make an awful lot of change. For the moment, in the Five Year Forward View, we have taken the approach of saying, “We want to limit the set of options that we expect local health systems to look at.”

Chair

So we are not going to have a thousand flowers blooming.

David Bennett

No.

Chair

There is going to be a picking list from—

David Bennett

Equally, we do not want to mandate everything from the centre. It is trying to be sensible about compromising.

Chair

Right. So we will see different payment systems locally planned but with the flexibility to deliver multi‑annual budgets. That is how you see it working.

David Bennett

Yes. Where I think we will finish up, as I say, is not with huge amounts of mandated stuff but menus of choices and limited menus, where, “If you want to deliver your care in this way, here is the payment system for you to use,” and your options for how you deliver your care will be limited. You cannot do anything you want. We are going to try and put some boundaries around it precisely to avoid it getting excessively complex.

Chair

Thank you very much. We come on to Barbara.

Barbara Keeley

According to NHS Clinical Commissioners, “financial incentives and payment ‘levers’ often don’t align with what commissioners may want to achieve and may not support commissioning intentions to move more services out of hospitals, shorten lengths of stay or prevent patients from entering hospitals in the first place”. Monitor has also cited the payment system as a barrier to integrated care. Can you tell us how you are specifically planning to help integrated care pioneers implement new payment models and what you think the main obstacles to doing this are?

David Bennett

This is what I was touching on just now. One of the things I hear a lot from commissioners—and I do absolutely understand—is that the problem with payment by results, which is really payment by activity, is that it incentivises the hospitals to do activity, which is not exactly what you want if you want to move activity out of the hospital. This is exactly where we get to in encouraging and helping commissioners adopt different payment systems, like capitation‑based payments or year‑of‑care payments, which are much better suited to providing integrated‑type care. As I say, they can be done alongside suspending some of the payment‑by‑results approaches, and over time that will have to happen. I absolutely understand their point and this is what we are trying to help them fix.

Barbara Keeley

Can you say any more about the mechanics of what you have been doing? We had some evidence about it, but is there anything you want to add? It is a question of understanding what the obstacles are beyond the payment system. We understand that, but what other things are important with this? This is one of the big things we need to start changing, is it not?

David Bennett

Absolutely. I have a list here of seven things we are trying to do to try and enable integrated care, which is what our duty requires us to do. One thing stated in the licence for all foundation trusts providers—or, indeed, for that matter independent sector providers—is that they must in no way obstruct the integration of care. In our assessment of applicants for foundation trust status we have been very clear—although I fully acknowledge it is a message that still others are not hearing—that we are open to any model. For example, we had a community care provider who, when they came to us as an applicant to be a foundation trust, said they were thinking that, in advance of that, they wanted to do a deal with their two local authorities also to be providing social care. What did we think about that? We said, “Absolutely. We will just work out how to look at it.” The second thing we are doing is making sure that the process of trying to become an FT does not get in the way of changing the models. Then there is the payment stuff, which we have talked about. We are also helping the sector get better data. One of the big challenges around integrating care is having consistent information about all the different interactions an individual has with the health and—ideally—the social care system. If you do not understand that, it is very difficult to make sure you are wrapping the care properly around them. We are publishing either this month or next a guide to how to pull together better‑linked data for individuals and we are also working with eight health economies to show them how to do it. The fifth thing is that, where we have trusts in serious difficulty with the sorts of structural problems we were talking about earlier on, we have said we need to work with the whole health economy to sort out how to fix these structural problems because you cannot fix them just within the individual organisation. We are doing that in a number of parts of the country, and, as we do that, we are actively encouraging the people doing the work to look at these sorts of integrated care models. One example is at Tameside in Greater Manchester, which is a trust that is in a lot of trouble. We are now helping them, their commissioners and other providers in the area to try to finalise how Tameside can turn itself into an integrated care organisation, which I hope will not only be providing better care for the people in the area but also will address its financial problems. That is another thing we are doing. I have two more.

Barbara Keeley

Integrated care has always been difficult; at the start of this Parliament there were only three parts of the country judged to have made any success of it whatsoever. Is it not a bit of a tall order to ask a trust that, as you say, already has a lot of difficulties to do that as well?

David Bennett

Absolutely. That is why we are helping them. We have sent a team in to work with them and their commissioners to help them do it, absolutely. We know—

Barbara Keeley

That is seeing integrated care as a panacea for other problems then, is it not?

David Bennett

No; it is the specifics of Tameside in its local health economy. Its own commissioners had already come up with a hypothesis that the right answer was to turn itself into an integrated care organisation, but they were not able to go from an idea to something with a very sound business case and that is what we are helping them with.

Barbara Keeley

It would be nice if it happens, but it just sounds a bit unlikely to me.

David Bennett

It has to happen. If we cannot get organisations like Tameside—and there are others—to work effectively as integrated care organisations, then I do not know how we are going to deliver integrated care, which we all agree we need to do.

Barbara Keeley

But if they are lagging and not leading, if they have problems, it seems unlikely that they are going to make a success of this when leading organisations have not always made a success of it.

David Bennett

I can see your point, but—

Barbara Keeley

As I say, it would be nice if they could, but I think it unlikely.

David Bennett

That is why we are helping them. I completely accept that they are not able to do it on their own. The one benefit of them being in serious difficulty is that they and their commissioners know they have to change.

Baroness Hanham

It would also be fair to add that we are not just sitting on this. We have already set up pilots on how integrated care should work, which will feed back and provide a base for other people, and they are doing it from all different aspects of integrated care and bringing community care together. As David has said, the problem in some health economies is for them to know how to get started, because, as you say, this is not just the provider; this has to stretch right out into the local authorities, local communities and the voluntary sector—people all coming together. We are seeing those pilots beginning to work and we will be able to pull back the information from that. We are also starting to see community foundation trusts being set up; we approved two last week at the board. Community foundation trusts ought to be able to work with foundation trusts, again, on this whole programme. It has not been implemented, has it, over years, but there is now a very great determination that this has to be made to work, with the recognition that it will not be the same in every single local area?

Chair

Can I just ask this? Do you feel there is sufficient management staff within foundation trusts to carry forward some of the transformational change? We were hearing that in some places they are just trying to keep their heads above water.

David Bennett

Absolutely.

Chair

They have to try and divide their teams so that they have a separate team working on transformation. Do you think this is an issue? There is a myth that somehow management is flooding the NHS, when in fact we are quite efficient on management. Is that your view, or do we need more managers?

David Bennett

Is management flooding the NHS? I certainly have not seen it if it is—absolutely not.

Chair

That is what I am saying. There is sometimes a mantra you hear out there that somehow we are overrun with managers, whereas what we hear in this Committee is that, if anything, it is the other way round: you do not have enough managers to lead the transformational change. Is that your concern?

David Bennett

It is one of my biggest concerns. There is not enough management bandwidth in these organisations to deal with the day‑to‑day needs, such as driving their efficiency agenda, hitting their A and E targets and all the other things they have to do, and at the same time planning and starting to make this more transformational change. It is a nonsense to imagine that there is a great hoard of excellent managers out there who are just waiting to come in and run the NHS for us. Not only do they not exist but I doubt if they would be doing a better job even if they did arrive. We have a huge challenge, first, to support the people who are already in those roles. They are not all fantastic, but a lot of them are very good and they are all working extremely hard. I think we have to find more ways of making their jobs doable. Secondly, we have to make the job sufficiently attractive so that people at the levels below the senior leadership want to step up into the senior roles. I worry that we are a little bit too fond sometimes of attacking and criticising these people, which just makes the job very unappealing.

Chair

Thank you.

Rosie Cooper

I was interested to hear that you have just approved two community trusts to be FTs. What did you measure?

David Bennett

In terms of what?

Rosie Cooper

If you remember conversations we have had about Liverpool community trust and community trusts in general, it is very difficult for you to have things to measure. Liverpool community trust was being fast‑tracked to be an FT until I got involved and then we know the debacle that there was. How can you assure me that you do not have any more surprises you are not aware of?

David Bennett

At the heart of it there is what we do with any applicant for foundation trust status, which is to examine in a lot of detail how their governance processes are working—particularly quality governance. Secondly, the CQC is now doing an in‑depth inspection, so both of these trusts that we authorised had been subject to in‑depth CQC inspections before we authorised them. That is at the heart of what we are doing. Obviously, we also want to look at their current performance. But you are right in the sense that, say, unlike an acute hospital, we do not have lots of metrics—the equivalent of A and E waiting time targets and so on—for community care. Of course, that is also true in mental health. We do not have those measures that tell us how well the organisations are doing. This is one of the reasons why I am very pleased that we now have this much more in‑depth CQC regime because I think that is more likely to reveal underlying issues.

Rosie Cooper

If I may say so, you are relying there on governance. It is at the heart of a democratic health service and it is absolutely essential to protect the people who pay for it, the people who work for it and the people who are treated by it. Do you agree that it is unacceptable for non‑exec directors to act in contravention of the standing financial instructions, especially when they stand to make personal financial gain? You know what I am talking about.

David Bennett

I do.

Rosie Cooper

Do you not believe that that weakens the system of governance and undermines trust? Although it is an aspirant FT, where NEDs have acted in an ultra vires fashion, what, if any, disciplinary action should be taken, because the financial standing instructions say that there should be disciplinary action? It is not good enough, as in the case of the Royal Liverpool, to tell those non‑exec directors that they have to pay the money back; that is not enough of a sanction. How do we find out what is happening? Do you think that is okay? Do you think they should be disciplined? Do you think they would pass the fit and proper person test, and how do you know it is not happening in other places in the country, given that both internal and external audit did not pick this up until I asked about it?

David Bennett

There are a lot of questions there. Let me see if I can—

Rosie Cooper

I know, but they are really important.

David Bennett

No, I understand. I think it is important to say, just to make sure the whole Committee is clear, that the trust you are talking about—the Royal Liverpool and Broadgreen—is not a foundation trust. We took a look at it a while ago, said it was not ready and deferred it. It is not under our oversight at all. You asked whether, in principle, if non‑execs are acting ultra vires, if they are acting in contravention of their own financial governance requirements and, above all, if they are doing all of that for their personal gain, is that acceptable? Of course it is not—if that is true. I do not know the details of what has been going on at the Royal Liverpool, but, as you know, the TDA, which does oversee the trust, has agreed to have a review of what is going on there. Hopefully, that will reveal the specifics. As to whether that should result in disciplinary action, in part it will depend on the rules of the trust itself, but that is a decision fundamentally for the TDA.

Rosie Cooper

Absolutely, but my question to you is, if an aspirant FT had those people on the board, would you consider that they would pass the fit and proper person test, i.e. would pass your governance benchmark—I will use that word?

David Bennett

If a trust came to us where the current board—the current non‑executives—had presided over what an objective review had revealed to be serious failings, we would not authorise them as an FT.

Rosie Cooper

But the situation here as to the chairman and some of the non‑execs is this. When nurses are not getting a 1% pay rise, the chairman got an extra £20,000; other NEDs got £5,000. The only person who approved it was the past chief exec. The new chief exec has authorised another £2,500 to another NED. Do you think that is good governance?

David Bennett

It does not sound like it, but—

Rosie Cooper

They have all been asked to pay it back.

David Bennett

I cannot really comment on any specific situation where we have not had a proper and fair review of what has gone on.

Rosie Cooper

Okay, well I—

Chair

We are not here to judge that.

Rosie Cooper

Okay; I will make it apply. How does that affect the current—

Chair

Rosie, we are currently running late and have a lot of questions to get through. Rosie, I am sorry, we need to move on.

Rosie Cooper

But it is really important because we are all doing the semantics here. How does this affect its application to be an FT?

David Bennett

It is going to have to be resolved before it could become an FT.

Rosie Cooper

That is great.

Chair

I am sorry to rush, Rosie, but we have a lot to get through today and a lot of members have to leave. We are coming on to Grahame next.

Grahame M. Morris

Could I ask a question about mental health? Mr Bennett, in some of the earlier questions, you did touch on looking at an outcome‑based payment system. I am sure you are aware that the Health Committee has looked at—well, done an inquiry on—child and adolescent mental health. There are major deficiencies in the service. The Care Minister, Norman Lamb, announced some additional resource—I think £150 million. In terms of the specifics about the impact of the tariff deflator, can you explain how the proposed new approach to payment mechanisms for mental health is going to contribute towards what we all want—the chief medical officer, the Health Minister and the Committee—translating that into parity of esteem and improved performance?

David Bennett

Part of the parity of esteem issue is making sure that mental health gets a fair allocation of the total NHS budget, which is an NHS England issue but clearly important. One of the things the payment system can do, by getting trusts to be transparent about what it is they are doing, and even more so getting commissioners to pay for what is done on the basis of the outcomes produced, is hopefully to drive up the performance, and that is what we need.

Grahame M. Morris

Has the tariff deflator had an adverse impact on mental health services, and is it correct that the differential tariff deflator is not going to be applied again?

David Bennett

It is correct.

Chair

Which is—

David Bennett

It is true that there will be no differential tariff deflator applied between physical and mental health.

Grahame M. Morris

Is that based on analysis of the impact of the tariff deflator in 2014‑15?

David Bennett

The tariff only applies to acute services at the moment.

Grahame M. Morris

Okay.

David Bennett

It was not the tariff deflator that was the problem before. But, in addition to the tariff, there can be what are called service development payments to different providers to reflect specific changes to their costs. NHS England said last year that, for the acute sector, there would be some correction made for the fact of the increase in staffing costs that we have already been talking about. People interpreted that to mean that there would, therefore, be a bigger efficiency ask of the mental health sector. It was not meant to say that but that is the way it was interpreted. We are making it very sure that that is not the way it is interpreted this time.

Chair

So did it happen or did it not happen?

David Bennett

NHS England tell us that, if you look at the totality spend on mental health, it went up with respect to physical health last year—no, it is going up this year if you look at commissioner plans. In very simple terms, no, it did not happen the way people feared it would.

Chair

Thank you.

Mr Sharma

Concerns have been expressed about your proposals to create a new marginal rate for specialised services. The FTN has described them as “essentially a second efficiency factor for all providers of specialised services” which “will greatly affect their ability to maintain and improve these services.” What is your response to this?

David Bennett

The proposal, for members of the Committee, is that for activity in specialised services over and above, basically, the planned levels for this year would only be paid on a 50:50 split. The underlying reason for that is that NHS England is massively overspent on its specialised commissioning budget, and of course every pound spent or overspent in one area is a pound less to spend in another area. We cannot just ignore that. That is a problem and we agreed that, because the pricing arrangements are a joint agreement between us and NHS England, we would jointly see what we could come up with as a way of trying to manage that overspend. We have proposed that for any extra activity next year providers only get half of the normal payment. Our purpose is to create an incentive for providers to think very carefully about whether or not those specialist services are really needed. It is the case that they do have some influence over this, of course. Quite often these specialised services are as a result, effectively, of internal referrals within particular providers. So we get one consultant saying, “I think a further specialised type of treatment is necessary.” We want to get the providers really focused on, “Is it really necessary?” It is only going to apply to a very small proportion of their total volume because it is only any extra volume that they want to do next year. That is the reasoning behind it.

Mr Sharma

The BMA have raised two specific concerns related to consultation on the tariff: first, that the time scale is too short for stakeholders to respond; and, secondly, that Monitor should report fully and transparently to the concerns raised by providers and commissioners during the statutory consultation process. What is your view on this?

David Bennett

As I was explaining earlier, in order to try and give people much more opportunity to comment on the proposals, in addition to the statutory consultation, which is 28 days—that is what the law says—we had a prior consultation and, as Joan was saying, lots of informal discussions as well. I think the BMA complaint was not in relation to statutory consultation, which has only just started, but in relation to our voluntary earlier consultations when we were trying to get people more involved. I asked my people to go back, when I saw their evidence, to try and understand what their concern was. Part of it was that last year they said that prior consultation, when we tried to help people, was too complicated. This year we have tried to simplify it and apparently they think we have made some progress in doing that. I hope we have made some progress in addressing their concerns, but we absolutely want all stakeholders—the BMA and everybody else—to have ample opportunity to comment and not just the statutory 28 days, because that is very short. As to us taking note of what they and others have said, the fundamental problem is that we have finite resources and we have to push the providers to do as much on the efficiency front as possible so that those resources go—the money goes—as far as possible. I know this is tough for providers, and I understand that the BMA do not like it and the FTN do not like it, but, in the interests of getting the best for NHS patients out of the amount of money the NHS has been given, that is what we need to do.

Chair

Can we move on to the area of competition and system regulation? As you will remember, last year there was considerable concern expressed about the then Competition Commission blocking the merger between Poole and Bournemouth, and since that time we understand you have been working closely with what is now the Competition and Markets Authority—the CMA—and issued further guidance for organisations wanting to embark on this. That was a long preamble, but the question is, are you satisfied that those processes are now working more smoothly and are we going to see a repeat of Bournemouth and Poole and all of this?

David Bennett

I do hope not. We have done a lot. We have tried very hard to get alongside the CMA and make sure that they understand the distinctive characteristics of the health sector. We have made a lot of progress on that. I also wrote to the whole sector at the beginning of this year and said that, from now on, I want us to handle mergers or acquisitions that might go to the CMA differently and in particular that I want trusts that are thinking of making a merger or acquisition to come to us at an early stage so that we can help them to make sure that what they are proposing to do makes sense from the patients’ point of view and help them navigate the process. Since the new regime came into place, the CMA have looked at five proper mergers in the NHS. There were two in the independent sector, which I do not imagine you are concerned about, and there were two they were asked to look at which did not count as proper mergers and they just said, “You don’t need to talk to us.” But there were five that they did look at. Four of those five have been cleared. It is only Poole and Bournemouth so far which has not been cleared. This is evidence, at least in part, that this new process is working better and that we are aligned better with the CMA. We have run workshops and issued two lots of guidance—one jointly with the CMA and one on our own—about, in general, how to approach transactions; we are hoping that we have dealt with a lot of these issues. But we still have a number of new mergers coming down the pipeline and we still need to work hard with the trusts that want to make the mergers to make sure that they have really thought through that this is in the patients’ best interests. If we can get that right, which obviously is the key test irrespective of any competition issues, we should be able to deal with any competition issues as well.

Chair

Last year you were undertaking a review of how your processes fitted in with competition law. When do you anticipate that will be completed?

David Bennett

It is all done. We did it at the end of last year. That is what my letter at the beginning of this year was saying: this is how it is all going to work.

Chair

Right, okay. There was a query raised by the Royal College of Nursing in their submission to us. They were asking, “What is the cost of legal advice sought through the NHS in preparing for mergers?” Have you made an appraisal about what this costs?

David Bennett

No, I have not, but I do recognise this is money being spent on lawyers, not on doctors and nurses, which—

Chair

It is a serious concern.

David Bennett

Absolutely. It is not what we want.

Chair

You have no estimate at all of what has been spent. Presumably you are looking at trust finances and they must tell you what they are spending on these kinds of things.

David Bennett

The truth of the matter is that, although every penny not spent on care to patients is unfortunate, these numbers are certainly not big enough to figure in a typical trust’s annual reports or annual plan. But I know in some trusts significant amounts of money are being spent. We have said, as part of this new process, “Come to us at an early stage so that we can tell you what sort of advice you need.” One of the concerns both I and Catherine Davies, who looks after this area in Monitor, had was that we were not sure they were always getting the best advice. We are trying to be very specific about the type of advice they need, including sometimes saying, “We think this is straightforward. You don’t need advice.”

Chair

Do you charge them for the advice you give them?

David Bennett

No.

Chair

It is a free service and they should be using you more rather than going to outside organisations for legal advice.

David Bennett

Yes.

Chair

Do you think there would be a case for asking trusts that are coming to you with a view to a merger to set out clearly what their legal costs are so that we can have some transparency around that?

David Bennett

Transparency is a good thing. Why not? Yes.

Chair

You think that would be a reasonable thing to ask.

David Bennett

Yes.

Chair

Finally, before I hand over, the Foundation Trust Network suggests that, for NHS providers to have confidence in seeking informal advice from Monitor, they should have a kind of Chinese wall between their provider function and their competition function—

David Bennett

Yes, I—

Chair

That Monitor, rather, should ensure there is a wall between the advice you are giving around competition and—

David Bennett

I saw that. I was not completely clear what they were concerned about. If we have an FT that is thinking about a merger, we care about that for two reasons. First and foremost, we care because they are an FT and we want to make sure that what they are proposing to do makes sense for them and the patients they serve. We also care about it from a competition point of view, in that sense, as a secondary concern. I could not see why we would want to put a Chinese wall between those two.

Chair

You would not think that was necessary.

David Bennett

Unless I have not understood what it was that they were wanting.

Rosie Cooper

May I come in? I want to explore that a little. We have Aintree hospital, an FT on the outskirts and close to my constituency, and the Royal, an aspiring FT but it has not got there. The chief executive just announced her retirement and, in so doing, said that a merger with the Royal, so that there is one hospital, is inevitable. That, of course, sends terror through the system when you look at the competition rules, in this sense. Would that be a merger, or, if this is the real answer, do they have to go out to competition so that people can pick off the services? They do not.

David Bennett

No. There would be a competition issue in relation to it as a merger, but there is no issue of having to compete the services, no.

Rosie Cooper

If they go to merge, what are you saying would happen? Where does competition come in?

David Bennett

It is a perfect illustration. As an FT they would come to us and say, “We are thinking of doing this.” Our primary question would be, “Explain to us how this is going to help you provide better services on a sustainable basis to your patients and the patients of the Royal Liverpool?” It could be that they have very strong arguments. These may be the sorts of structural changes that need to be made in order to drive the efficiencies which we have been talking about a lot. That is our starting point. A merger like that almost certainly would fall within the jurisdiction of the Competition and Markets Authority, so at some point they would want to look at it. We would start by saying, “Let’s be clear how this is to the benefit of patients. If we get that clear, then that is your case as well for taking it to the CMA when it gets to the time to ask them to look at it,” which is why I am saying I do not really see why you would want to have a Chinese wall between these two things.

Rosie Cooper

It is really frightening that it is you almost driving tariff and with that tariff, as you have described it, you can incentivise the system. What I heard was that you can fashion the system to get to the solution, which probably means reconfiguration, which is almost the merger of those two hospitals, and yet no assurance can be given that that would not be subject to competition and could be picked off. How does that encourage people to get behind getting the best services?

Baroness Hanham

I am sorry to intervene—and I am leaving the technical stuff, as you can understand—but my understanding too, of part of this, and David will shout at me if I am wrong, is that, when you are looking for a merger, one of the other things you have to look at is ensuring that patients still have a choice round about so that they are not just left with one unit, one service, that they have no choice about. You need to look at how close other facilities are. That is one of the things that is taken into account, but picking off services, like somebody buying—

Rosie Cooper

No, I accept that, but now we are talking about the two going into one. In reality, there is one hospital in Liverpool—the Royal.

Baroness Hanham

And there is another one round about.

Rosie Cooper

“Round about” would mean having to go to Warrington. These are huge distances. Even to go to Aintree that services my constituency, you can be talking 20—

Baroness Hanham

That would need to be taken into account, I think.