Healthcare - March 2010
Remaining compliant
As we know, NHS Foundation Trusts (“FTs”) are
authorised and monitored by Monitor, as opposed to the Department
of Health. However, whilst it may be true that FTs have a
greater degree of freedom than other NHS Trusts, they could also be
said to have a higher degree of accountability as well. The
Boards of FTs must be satisfied that they are meeting their ongoing
financial and governance obligations and that they are operating at
all times within the terms of the FTs’ authorisation.
The Compliance Framework, first published by
Monitor in March 2005 and updated annually thereafter, provides
necessary guidance by way of a regulatory framework within which
Boards of FTs can operate in a bid to ensure such
compliance.
Updates being proposed to the Compliance
Framework this year are more significant than in previous years and
include both matters that require clarification and those which may
result in changes to the way in which Monitor undertakes regulation
of FTs going forward. The consultation on the proposed
amendments was published by Monitor on 17 December 2009 and the
deadline for responses was 26 February 2010; the results of the
consultation have not been published at the date of this article
but should soon be made available given that the amended Compliance
Framework for 2010/11 is expected to be published by 1 April
2010.
The proposals set out in the consultation fall
into two main categories: (i) Governance and risk ratings
(including, amongst other things, the introduction from 1 April
2010 of the Care Quality Commission’s (“CQC”) enhanced registration
requirements); and (ii) Finance and risk ratings, some of the key
provisions of which are discussed further below.
Governance and risk ratings
It is proposed that the structure for rating
governance risk be redesigned. According to Monitor, the
intention behind the proposed redesign is to more closely monitor
and flag up more efficiently any escalation of risk that is heading
towards being a potentially significant breach of the terms of
authorisation of a FT.
In order to do that, Monitor proposes to
increase the number of governance risk ratings from 3 to 4
categories, splitting the existing amber category into amber/red
and amber/green, to give greater clarity and to enable emerging
risks to be assessed more effectively.
The proposed Compliance Framework requires
full and ongoing registration of all FTs with the CQC from 1 April
2010; failure to do so will be classed as a significant breach by
the FT of its authorisation. Monitor is also proposing to
include the maintenance of CQC registration within the governance
risk rating, as well as including the self certification of
mandatory services within overall governance risk ratings (instead
of the separate rating as at present).
Although in light of recent events there may
be a need for Monitor to carefully consider its compliance
requirements, there may also be some valid concerns that the
adjustments may increase the risk of FTs being rated red for
governance, even possibly due to underperformance in just a couple
of areas; one such potential concern being that, for any target
that is missed in consecutive quarters, its weighting will be
doubled meaning that consistent under-performance in just one area
could potentially result in a red rating from that one area of
failure alone.
There is also a very strong emphasis in the
consultation on the Accident & Emergency four hour waiting time
target (“A&E Target”), which includes suggested revised scoring
for breaches of the A&E Target. The revised scoring for
breaches of the A&E Target could result in a requirement to
attend a formal regulatory meeting with Monitor and potentially to
the FT being rated red for governance risk.
Other regulatory matters
Major joint ventures:In 2009/10,
Monitor published specific requirements for those FTs wishing to
participate in Academic Health Science Centres and Monitor is now
proposing to extend that to major joint ventures that the FT may
wish to enter into and to incorporate that into the Compliance
Framework. Further, FTs will require formal written approval from
Monitor that the requirements of the Compliance Framework have been
met prior to entering into any legally binding contract that
relates to a material investment. There will be ‘triggers’
and ‘financial conditions’ attached to these requirements which
will be detailed in the Compliance Framework should this approach
be adopted.
Major investments: it is
proposed that it will become an explicit requirement for Monitor to
confirm that an FT has complied with the requirements of the
Compliance Framework before it enters into any ‘major’ investments
(being those deemed both ‘significant’ and ‘material’ as set out in
the Compliance Framework).
Specific legal
requirements:Although the authorisation of all FTs
contains a requirement that the FT is compliant with all relevant
laws, Monitor now wishes to formalise that by including two
self-certifications in respect of specific legal obligations in the
amended Compliance Framework. Specifically, an FT will have
to self certify as part of its annual plan that it has in place
processes and procedures that will enable it to comply with the
medical practitioner licensing and revalidation obligations, and
also that it will have regard to the NHS Constitution.
Finance risk ratings
(“FRR”)
Monitor is proposing a new set of financial
alert indicators that will trigger an informal meeting with Monitor
in the hope that this will identify potential future risks earlier.
Monitor will also expect to receive certification from each FT that
it expects to deliver an FRR of at least 3 over the next twelve
months. If the FT then fails to do so, Monitor will require reasons
for the failure and a plan to rectify the situation.
There is also a new requirement for FTs to
provide an updated forecast during the year so as to refresh the
annual plan with the objective of improved planning and earlier
identification of risks. Additionally, the calculation of FRRs to
be derived from consolidated financial information, including for
instance the accounts of charities and other investments and
subsidiaries where these meet the tests to be consolidated under
International Financial Reporting Standards (namely where the FT
has control or influence). There is a particular concern about how
this may adversely impact the operation of such charities, however
it is possible that, where there are material cash balances in the
consolidated financial position which are not freely available to a
FT for its own purposes, these can be adjusted for the purposes of
the liquidity metric within the calculation of FRRs.
Clarifications
Monitor has set out certain points for
clarification to the existing Compliance Framework, although they
do not form part of the consultation, including clarification of
the calculations of thresholds for “material” and “significant”
transactions and additional quarterly reporting requirements of the
breakdown of planned and actual capital expenditure between
maintenance, replacement and new build.
Monitor may also need to make further changes
where such changes are required as a result of the outcome of the
judicial review on the private patient cap and the potential impact
of the implementation of the Health Act 2009.
Conclusion
The core principles behind the Compliance
Framework remain the same but there are some significant changes
and additions that FTs will have to take note of and abide by
should they be implemented by Monitor in due course.
Monitor appears to be strengthening its
monitoring of clinical and financial risk due to the harsh economic
times in which FTs are currently operating which, of course, means
that there will be certain more stringent obligations to be met by
FTs, as well as some new restrictions to which they will have to
adapt going forward.
On a more positive note, Boards of Governors
and Directors of FTs may in fact benefit from such additional
guidance when striving to satisfy the often arduous governance
obligations owed by them to the FT.
Lynne Rathbone,
Associate
Weightmans LLP