Foundation Hospitals: a new direction for NHS reform

Kieran Walshe PhD

Journal of the Royal Society of Medicine 2003:96:106-110 March 2003 (with minor amendments)

The Government’s proposals to create new ‘foundation hospitals’ are moving forward rapidly, despite considerable political opposition not least within the Labour Party itself, and deep scepticism about the ideas in many quarters of the National Health Service and the professions. Advocates claim they will lead the way to a new understanding of public services and public ownership, ‘set the NHS free’ from the iron grip of Whitehall control, and make health services more accountable to and responsive to patients and local communities. Critics argue that the ideas are, at best, a half-baked, reheated version of NHS trusts launched in the early 1990s, At worst, they assert, foundation hospitals are the start of the break-up of the NHS, a creeping form of privatization that will undermine the fundamental values of social solidarity, care according to clinical need rather than ability to pay, and equity in healthcare provision on which the NHS was founded. Although the necessary legislation has yet to be passed, the Government has already issued a prospectus for potential applicants for foundation status, and set out a timetable that would see the first foundation hospital identified this year and coming into being in April 2004.

This paper examines the case for foundation hospitals, and tries to set it in the wider context of health policy development and NHS reform over the past two decades. It argues that there is a need for a fundamental change in the systems for governance and accountability in the NHS and examines how the creation of foundation hospitals might help to meet that need.


The NHS has been in a state of almost continuous reform and restructuring for two decades or longer. There has been some kind of organizational upheaval in some part of the NHS almost every year for the past twenty years, and the pace of change seems to grow ever faster. (See chronology below)

The adverse effects of this perpetual process of reform are almost self-evident. First and perhaps most obviously, the theoretical benefits of each set of changes are usually not realized in practice. The advocates of every new reform argue that it will make the NHS more efficient or effective, save money, or produce more or better patient care. But they have little appetite for proper, rigorous evaluation-and with good reason, because their bright ideas often do not work very well. By the time that the researchers have painstakingly documented and measured progress and assessed the impact of one set of reforms , the next wave of organizational change is already upon us and the attention of policymakers is always firmly fixed on the future.

Secondly, all this reform is costly, since managers and other NHS professionals invest a huge amount of time and effort in each reorganization, and there are always new offices to rent and furnish, new letterheads to print and new signs to put up everywhere. It is also costly because most reorganizations leave some NHS managers displaced and their redundancy or early retirement is expensive and entails the loss of their talents, knowledge and experience. The NHS managers who survive and prosper in this turbulent and rather introspective environment are those who are good at negotiating their way through each organizational change and using it to push forward their own career. The system does not necessarily reward or promote the good leaders and managers. Organizational restructuring tends to divert time and effort from the challenges of improving healthcare delivery, and the impact on frontline clinical staff or patients is often negligible.

Thirdly, the process of reform is commonly circular, so we end up back where we started. For example, between 1985 and 2000 the Department of Health first split off responsibility for managing the NHS at a national level into the NHS Executive, then reorganized that function several times, and finally reintegrated it back into the Department of Health. To take another example, the primary care trusts created in 2002 look remarkably similar in function and boundaries to the district health authorities created in the 1982 reorganization of the NHS and subsequently merged and reorganized repeatedly. And, of course, the current proposals for foundation hospitals and ‘payment by results’ for NHS trusts are seen by many as a repackaging of the 1990 NHS reforms and the internal market. There are no new ideas, it seems, just new names for old ideas.

Finally, it is worth considering the unhealthy cumulative effects of all this reform on the NHS and its culture. I believe it engenders a deeply cynical and dismissive attitude to any innovation and change-‘we’ve seen it all before, nothing works, just ignore it and keep your head down because it won’t last very long’ -which makes the advancement of real changes in health services much more difficult. The NHS has become highly change-resistant precisely because it has been exposed to so much organizational restructuring. The constant process of reform also leads NHS managers to take a short-term view of everything–after all, they are unlikely to be in the same jobs or the same organizations in two or three years’ time. There is little point in investing in the long-term development of NHS organizations because they do not usually have a long term-and so the NHS more and more resembles an organizational shantytown in which structures and systems are cobbled together or thrown up hastily in the knowledge that they will be torn down again in due course.

Paradoxically, the more things change, the more they stay the same. None of this bewildering succession of health service reforms has changed the fundamental governance and accountability arrangements of the NHS. The service remains, just as it was when it was founded in 1948, a vertically integrated public bureaucracy run from Whitehall. despite repeated changes in the labels on the boxes on the organizational chart-regional, district, area and strategic health authorities, family practitioner committees, family health services authorities, NHS trusts, primary care groups, primary care trusts, and so on – the lines of accountability still run in one direction only, upwards, to the Department of Health and the Secretary of State for Health. The ceaseless reorganization of the NHS can perhaps best be understood as a fruitless search for a way to manage the unmanageable. No organization with a turnover of over £70 billion a year can be run from its central office by administrative diktat, yet that is how generations of politicians have tried to run the NHS.


Ever since the NHS was founded, the Secretary of State for Health has been held accountable to Parliament for every dropped bedpan, trolley wait, cancelled operation or long waiting list. It is a managerial nonsense, but a political reality, that the Secretary of State can be asked to account for almost anything that happens in so large and complex an organisation. The result is that, almost inevitably, health ministers and the Department of Health are driven to centralize and control the NHS, in order to exert some power over those things for which they will be held responsible. They issue floods of directives, establish endless central plans, appoint national ‘czars’ to direct the service, and exhibit a hyperinterventionist style of micromanagement that simply cannot work. And the more the Department of Health creates the appearance that ministers are in control, the more they are held to account for the details of local health service performance, and so the more they then try to tighten their grip on the NHS even further.

The perpetual process of NHS reform that was described earlier results in part from the somewhat fruitless search for a better way to manage the NHS directly from Whitehall, but also from the dynamics of political control. Each new government, and even each new Secretary of State or health minister, is keen to make a mark on the NHS. Doing so by bringing about real service changes or improvement is slow and laborious, and is likely to take more time than most ministers or governments have at their disposal. However, structural reform offers the appearance of immediate and substantial change. Ministers are seen to be doing something-even if what they are doing has little actual value and may be harmful in the long term.

If we step back from the NHS, the unique nature of its governance becomes apparent. No other national public service in the UK is so directly managed from Whitehall (except, perhaps, the armed forces), and none is subject to such detailed and continuous political intervention. No other comparable European country has a health service run by central government, even in countries where the state plays just as large a role in funding healthcare through taxation.


The current proposals for foundation hospitals are radical and exciting because, for the first time, they promise not further organizational restructuring within the NHS but a real change in the relationships between NHS organizations and Central Government, and reform of the arrangements for governance and accountability. In brief, foundation hospitals will be independent not-for-profit entities, part of the NHS but outside the control of the Department of Health and the Secretary of State for Health. A new term – the ‘public interest company’- has been coined to describe these bodies, but in fact they have much in common with long-established forms of non-profitmaking institutions that serve the public good such as charities, housing associations, universities and mutual or cooperative associations. Foundation hospitals will still derive the bulk of their income from government (as, indeed, do many universities, housing associations and charities) and they will function within a framework of nationally set NHS standards, regulation and inspection. But they will be run by boards of governors elected and appointed locally. Crucially, the Secretary of State will no longer have catch-all ‘powers of direction’ over these NHS organizations that enable him or her to intervene at any time on any issue and tell them what to do.

These reforms could bring about four important changes in the governance and accountability of the NHS. First, they could help to decouple or insulate NHS provider organizations from the political process and political control, stopping national politicians interfering constantly in how local NHS services are delivered and saving these individuals from being held to account for everything in the NHS. This does not mean a reduction in accountability but a move away from a totemic belief that the Secretary of State controls everything to a more realistic focus on management and accountability at a local level. Secondly, they could promote the decentralization of health policy and health service management in the NHS. The unhealthy monopoly of power and influence currently held by the Department of Health could be broken up, and a plural and more multilateral style of health policy-making could develop, in which other stakeholders such as professionals, patients and community groups could wield much greater influence. Thirdly, the reforms could introduce much greater community involvement in and governance of NHS organizations. NHS trusts currently have boards of executives and non-executive directors chosen by the NHS Appointments Commission, and they report upwards – to strategic health authorities and the Department of Health – rather than to their local communities. Foundation hospitals will be unambiguously accountable to the populations they serve, which will appoint and remove their boards of governors, and they could gain an organizational legitimacy and sense of local ownership that NHS trusts have never achieved. Fourthly, the NHS desperately needs stable and robust organizational forms whose life will be measured not in months or even years but in decades. Foundation hospitals could make it much more difficult for future Secretaries of State for Health to reorganize the NHS every two or three years, and could promote the kind of organizational stability that is needed for real leadership to develop and for meaningful service improvements to take place.

The establishment of foundation hospitals could also have some adverse or unintended consequences. It might reinforce the traditional power of acute hospitals, make collaboration and integration between primary and secondary care more difficult, and hamper necessary acute services reforms. One way to deal with this might be to allow primary care trusts to have foundation status, or even to create integrated foundation organizations running both primary and secondary care. Some fear that foundation hospitals will use their freedoms to poach staff and other resources from traditional NHS organisations and so increase inequalities in healthcare provision. This might only be a temporary effect, growing less as more and more NHS trusts achieved foundation status. More fundamentally, it is clear from the experience of the charities and not for profit sector that institutional independence from the Department of Health, while it is very welcome, is no guarantee of good management and governance. Locally selected hospital boards of governors could exhibit a parochial, short-term, reactive style of governance, and end up replacing one set of dysfunctional behaviours with another.


The proposals for foundation hospitals offer a tantalizing vision of a different way of running the NHS-less as a monolithic bureaucracy, more as a network of smaller, more autonomous healthcare provider organizations that could be flexible, responsive and innovative. But there are several reasons to be cautious about how these ideas might translate into a political and organizational reality.

First, many commentators believe that the NHS is too politically important for any Government (and especially the present one) to hand over control of large parts of it. Whatever fine words about autonomy and independence are used, they argue that, when a crisis occurs or an election looms, the reflex political response will be to grab the wheel and resume control. Secondly, even if the present Government does stick to its brave intentions, it is hard to see what there will be to prevent a future Government reversing these changes and renationalizing foundation hospitals for all sorts of reasons, not least to get a quick electoral fillip. Thirdly, as the initial guidance on foundation hospitals already makes clear, the constitutional, financial, and contractual structures for foundation hospitals will be complex, and need to be worked through very carefully lest unforeseen difficulties should undermine the whole enterprise. Fourthly, just like many past reforms, foundation hospitals are being oversold by their advocates to overcome opposition: the reality is that they could have both advantages and disadvantages. Fifthly, as so often before, these reforms are being rushed by impatient politicians with one eye on their next high office and the other on the next election. A more considered and measured approach would mean that the first foundation hospitals could test out and evaluate different models of governance and organization, and their experiences could shape the development of the concept. This strategy might also mollify some of the doubters, whose distrust of the scheme is amplified by its precipitate pace.

Nevertheless, the proposals for foundation hospitals in the NHS deserve a qualified welcome, because they make explicit what is fast becoming a matter of cross- party consensus – that the attempt to run the NHS from Richmond House makes no political, financial or organizational sense and that new structures for governance are needed that will make NHS organisations much more accountable to the communities they serve.

A chronology of NHS reorganisation, 1980-2003

  • 1982 Reorganization of health authority tier-abolition of area health authorities and restructuring of district health authorities
  • 1983-1985 Introduction of general management function throughout the NHS, with appointment of general managers in all NHS health authorities and units, and establishment of separate NHS board within the Department of Health
  • 1989-1993 Establishment of NHS trusts to manage health service provision, previously directly managed by health authorities but now accountable directly to the Department of Health while contracting with health authorities and GP fundholders as healthcare purchasers
  • 1989-1995 Establishment of GP fundholding (and other models of GP commissioning), giving general practices direct control over an increasing proportion of healthcare services purchased from NHS trusts
  • 1989-1995 Creation of the NHS Executive (first called the NHS Management Executive) as a separate entity from the Department of Health, and the separation of responsibility for policy development and implementation/ service delivery
  • 1990 Abolition of family practitioner committees accountable to health authorities and establishment of family health services authorities (FHSAS) as separate organizations from health authorities to manage primary care services
  • 1991-1997 Reconfiguration of district health authorities as health authorities, and then continuing reduction in number of health authorities (from around 200 to around 100) through mergers and consolidation
  • 1991 Restructuring of the boards of NHS organizations to create executive and non-executive membership (replacing the distinction between members and officers)
  • 1994 Reorganization of regional health authorities to reduce numbers from 14 to 8 regions
  • 1994 Abolition of FHSAs and incorporation of their responsibilities into those of health authorities
  • 1995-2000 Reconfiguration of acute services involving extensive reorganization of acute trusts and many mergers
  • 1996 Abolition of regional health authorities and their incorporation into the NHS Executive as its regional offices
  • 1997-2000 Abolition of GP fundholding and its replacement initially with primary care groups (PCGS) and subsequently by primary care trusts (PCTS)
  • 2000 Abolition of the NHS Executive and the incorporation of its functions into the Department of Health
  • 2002 Abolition of the NHS Executive regional offices, devolution of some functions to new strategic health authorities, and the creation of four new regional directorates of health and social care in the Department of Health
  • 2002 Reorganization of health authorities, going from around 100 to 28 strategic health authorities in England, and the devolution of many responsibilities of health authorities to PCTs
  • 2002 Creation of PCTs in all areas, replacing PCGS, including some mergers and restructuring, and transfer of responsibilities from health authorities
  • 2003 Creation of first wave of foundation NHS trusts, based on existing NHS acute hospital trusts with proven good performance records