The NHS must refind its bearings on regulation

Being appointed as a non-executive director of a foundation trust last April marked my return to active NHS service. I assumed that foundation trusts, building upon their local governance structures and collective lobby group, would have become truly autonomous institutions; establishing their own strategic agendas, agreeing their own priorities and setting their own performance measures. Behaving, in fact, very much like the university where I have spent the last five years as an executive director.   

What do I find? A trust board that spends too much of its time examining the reasons for, and worrying about the potential organisational consequences of, narrowly missing financial or quality targets set by government or regulators.

Frequently, these near-misses relate to a very small number of patients, perhaps a few hundred out of tens of thousands over a three-month period in which overall activity has accelerated upwards. The focus of discussion is almost inevitably more on addressing the operational symptoms than dealing with the systemic causes.

Climate change

At the same time, HSJ continues to feature stories describing the “climate of fear” among executives across the NHS. This climate seems to be generated much more by executives’ concerns over the responses of the Department of Health, Monitor, the Care Quality Commission et al to local performance than by the perspectives of their non-executive directors.

It appears that executives struggle to find the space and support to exercise leadership, and the effectiveness of non-executive directors, as critical friends to executive colleagues, is undermined.

The Francis report continues this orientation, with a raft of recommendations focusing on external regulation and relatively few relating to boards and non-executive directors, mostly stressing that the latter must be fit and proper persons in the view of these external agencies.      

An education in foundation trusts

On paper, the governance and financial arrangements of foundation trusts and universities are very similar. Both are independent legal entities with formal mechanisms for conveying the views of staff and service users to boards with a majority of lay members. Both are free from direct government control. Both can raise capital from the public and private sectors and retain financial surpluses to reinvest. Both receive most of their income from government passed through a range of third parties, which exercise their influence by considering on what and where to commit this resource.

‘Focusing too regularly and too exclusively on organisational performance drives conservatism rather than innovation’

In practice, however, the contrasts between the two sectors are stark. Typically, university councils are valued and defended as the ultimate decision-making fora in higher education institutions. When the Higher Education Funding Council for England (HEFCE) recently tried to give itself the power to intervene in local consideration of the future of a vice chancellor leading a financially troubled university, it was successfully resisted by the sector acting together.

Of course, universities are not without external regulation; peer reviews of teaching and research take place every five years or so. Universities are also required to observe student number quotas set by, and to make an annual financial return to, HEFCE. They must also deliver on access targets agreed with the Office for Fair Access. Nonetheless, executives do not have much cause to fear the disapproval of HEFCE or the office unless it becomes shared by members of their own council.

Many would argue that it is because of this autonomy that UK higher education is respected around the world, and remains one of the UK’s few remaining successful international exports.             

The key difference is the close, not to say intrusive, external oversight of foundation trusts, in particular by Monitor. Its role in relation to foundation trusts, as described on its website, “is to ensure that foundation trusts are well-led, that their leaders are focused on the quality of care patients get and that they are financially strong”.

This seems perfectly reasonable, except that Monitor typically works on a quarterly cycle, publishing two risk ratings for each foundation trust on governance (rated red, amber-red, amber-green or green) and finance (rated 1-5) every three months.

In comparison to universities, and most other public and private organisations, this is not regulation but shadow management. It ignores the fact that metrics of organisational performance always lag the achievement of organisational change. Focusing too regularly and too exclusively on such metrics drives conservatism rather than innovation.     

The right sort of regulation

Arguably, Monitor is merely the latest manifestation of a culture of external control that has increasingly characterised the NHS since 1948. Nor am I necessarily in a position to be pious on this matter; as a member of a performance management team in a regional health authority in the mid-1990s I initiated my fair share of overly prescriptive and locally resented interventions.

‘The NHS has much to learn from higher education on the balance between autonomy and regulation’

However, it seems to me that the NHS has lost it bearings on what level and manner of regulation are constructive. Even the Foundation Trust Network seems to be comfortable with current arrangements, with its CEO recently arguing that new licensing proposals might mean “foundation trust freedoms given by a reformed NHS, taken away by the other hand of narrow regulation”, as if to a significant extent they have not been already.

Nor is it obvious that the current regulatory regime even works on its own terms, as the Francis report showed dramatically, and where non-executive directors appeared as marginal as they did ineffective.  

I would argue that the NHS has much to learn from higher education on the balance between autonomy and regulation. Crucially, the NHS needs to empower foundation trust boards to become the custodians of quality, safety and efficiency. External regulators may provide the data, but it must be for boards to interpret and intervene, and for non-executives to exercise the appropriate authority over executives who have the mandate to lead change over the long term.

Delivering this new settlement will be essential to ensuring a strategic focus for board discussions, enabling non-executives to become the main source of challenge around performance, and ensuring that executives have the confidence to pursue what matters and not just what is measured.

Professor Edward Peck is pro-vice chancellor, social sciences, at the University of Birmingham and a non-executive director at Heart of England Foundation Trust