QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen on the application of Unison
|- and -
|The Secretary of State for Health
Foundation Trust Network
Michael Fordham QC and David Pievsky (instructed by Denton Wilde Sapte) for the Defendant
Javan Herberg and Mark Vinall (instructed by DWP/DH Legal Services) for the First Interested Party
Robert Jay QC (instructed by Capsticks) for the Second Interested Party
Hearing dates: 2, 3 November 2009
Crown Copyright ©
Mr Justice Cranston:
NHS foundation trusts and the cap
The dispute in outline
"3.62 Private patient income is defined as patient related income arising from charges imposed by the NHS foundation trust in respect of goods and services provided by the NHS foundation trust directly to patients other than for the purposes of the National Health Service. For the avoidance of doubt, income receivable in relation to the NHS patients but not receivable from NHS bodies (e.g. Road Traffic Act income) and income for EEA, other overseas patients treated under reciprocal healthcare agreements and treatment given in an accident and emergency department are not private patient income. Further guidance in this area is set out in the National Health Service (Charges to Overseas Visitors) Regulations 1989, as amended located on the Department of Health's website.
3.63 Patient related income includes the following:
- income received from PCTs [Primary Care Trusts] and specialist commissioners for contracted patient care services;
- income received from other NHS trusts for contracted patient care services;
- income received from the Department of Health for patient care services;
- non NHS private patient income;
- other income for patient care services (including Road Traffic Act income, the Ministry of Defence, local authorities, the prison service etc); and
- any amounts received from SHAs [Strategic Health Authorities] for patient care services, including income for overseas patients treated under reciprocal agreements.
3.64 Where an NHS foundation trust prepares group accounts, patient related income and private patient income receivable by the NHS foundation trust, and the relevant proportion from its subsidiaries (as defined by [Financial Reporting Standards] 2), should be included in the calculation of private patient income and patient related income for the purposes of the Private Patient Cap. Income from joint arrangements that are not entities also falls within the scope of the definition of private patient income and patient related income. Income from associate relationships, joint ventures and investments (as defined by UK GAAP [Generally Accepted Accounting Principles]) falls outside the scope of the definition of private patient income and patient related income.
3.65 Any income receivable from NHS bodies that is not related to the provision of healthcare and falls outside the scope of contracts for patient care should not be included in the calculation of patient related income."
"4.49 Private patient income is defined as:
- patient related income arising from charges imposed by the NHS foundation trust in respect of goods and services provided by the NHS foundation trust directly to patients other than for the purposes of the National Health Service;
- the relevant proportion of any income from subsidiaries (as defined by IAS [International Accounting Standards] 27) joint ventures or associates (as defined by IAS 31 and 28) arising from charges in respect of goods and services provided directly to patients other than for the purposes of the National Health Service. The relevant proportion is in relation to the interest held over the period in which the income arose. Income from Joint Arrangements that are Not Entities (JANEs) also falls within the scope of the definition of private patient income.
4.50 For the avoidance of doubt, income receivable in relation to NHS patients but not receivable from NHS bodies (e.g. NHS Injury Scheme income), income from the provision of care services to other public bodies (e.g for the Ministry of Defence) and income for EEA [European Economic Area], other overseas patients treated under reciprocal healthcare agreements and treatment given in an accident and emergency department are not private patient income. Further guidance on overseas patients is set out in the National Health Service (Charges to Overseas Visitors) Regulations 1989, as amended, located on the Department of Health's website.
4.51 Patient related income includes the following:
- income received from PCTs [Primary Care Trusts] and specialist commissioners for contracted patient care services;
- income received from other NHS trusts for contracted patients care services;
- income received from the Department of Health for patient care services;
- other income for patient care services (including NHS Injury Scheme income, income from the Ministry of Defence, local authorities, the prison service etc);
- any amounts received from SHAs [Strategic Health Authorities] for patient care services, including income for overseas patients treated under reciprocal agreements;
- the relevant proportion of income received by subsidiaries, JANEs, joint ventures and associates arsing from the provision of goods and services to NHS patients; and
- non-NHS private patient income as defined above."
"If an investor holds, directly or indirectly (e.g. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly (e.g. through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated."
There is no separate IAS for joint arrangements that are not entities ("JANEs"), but there is a discussion of their characteristics in the Generally Accepted Accounting Principles (the GAAP). Similarly, there is no definition of "investments" contained in IAS. In the Generally Accepted Accounting Principles the most common types of investments, and their purposes, are discussed.
Monitor's consultation on the cap
"Under its broadest interpretation, the phrase "derived from private charges" (in section 44(2) of the 2006 Act) could be taken to include any transaction where the economic value is ultimately derived from a charge to a private patient. Under such an interpretation whether the NHS foundation trust or another body entirely levies the charge is not relevant. Adopting such an approach would significantly change the operation of the [cap] and bring a wide range of other financial arrangements within its scope."
The consultation document summarised in a table the sources of income for NHS foundation trusts which could be interpreted as falling within the cap. The provision of clinical goods and services to providers of private health services could include laboratory services, the provision of nursing staff, the provision of laboratory time and pharmaceuticals. The provision of facilities management goods and services to providers of private health services could include dental agreements and laundry services. Thirdly, there was charitable income arising from charities funded through the provision of services to private patients. The consultation document commented that incorporating these sources of income might introduce a number of technical challenges in accounting for private patient income. NHS foundation trusts would need to be able to allocate the use of their goods and services to individual patients treated by the entity to which they provided the service, or make a reasonable estimate of the proportion of the goods and services they provided which were used to support the treatment of private patients. Putting such systems in place was likely to be complicated, bureaucratic and expensive.
"NHS foundation trusts would have to introduce systems to identify whether the services they provide to other entities are used to support the treatment of private patients. As many providers (not least NHS organisations) provide care for both private and NHS patients this could be both complex and bureaucratic. NHS foundation trusts would need to be able to allocate the use of their goods and services to individual patients treated by the entity to whom they provide the service, or make a reasonable estimate of the proportion of the goods and services they provide that are used to support the treatment of private patients."
Possible wording for the manual under option 3 was set out.
The consultation responses
The decision: option 2 adopted; option 3 rejected
"The adoption of option 3 would have more widespread implications for NHS foundation trusts than the adoption of option 2. However, and on the basis of the consultation responses, the scale of the existing services that would be affected still appears relatively small.
A number of NHS foundation trusts expressed the view that, even if possible, it would be disproportionately expensive to collect the information required to deliver option 3, for example, tracing the end users of pharmaceuticals.
We have also considered whether it would be possible to modify option 3 to address some or all of these concerns. We concluded, however, that there were no accounting or other clear principles on which we could base financial rules under such an option and, as such, those rules would be somewhat arbitrary in nature."
Legal and regulatory framework
(a) NHS foundation trusts
"(1) An authorisation must authorise the NHS foundation trust to provide goods and services for purposes related to the provision of healthcare."
Section 65(2) provides that any references to goods and services include, in particular, facilities, education and training. "Goods" are defined in the interpretation provision, section 275(1), as including accommodation. Thus the provision of "goods and services" would include matters such as hospital accommodation, drugs and medical treatment and care. The meaning of the final clause of section 43(1) – "related to the provision of health care" – is spelt out in section 24.
"(8) "Healthcare" means –
(a) services provided to individuals for or in connection with the prevention, diagnosis or treatment of illness, and
(b) the promotion and protection of public health."
"(2) But the authorisation must secure that the principal purpose of the NHS foundation trust is the provision of goods and services for the purposes of the health service in England."
"[T]he health service in England" is the NHS: ss. 1(1), 275. Under section 43(3) NHS foundation trusts may in certain circumstances also carry on activities other than providing goods and services for NHS purposes.
"(3) The NHS foundation trust may also carry on activities other than those mentioned in subsection (1), subject to any restrictions in the authorisation, for the purpose of making additional income available in order better to carry out its principal purpose."
Sub-section (4) enables the authorisation to require the provision for NHS purposes of goods and services by an NHS foundation trust. That requirement can be framed in the various ways described in sub-section (7) by reference, among other things, to goods or services in general or of a particular description, goods or services required to meet the needs of NHS bodies or particular persons, or the volume of, place where or period within which goods and services are provided.
"(1) An authorisation may restrict the provision, for purposes other than those of the health service in England, of goods and services by an NHS foundation trust."
It is in sub-section (2) that the methodology of restriction is identified – a cap on the income of any NHS foundation trust "derived from private charges".
"(2) The power must be exercised, in particular, with a view to securing that the proportion of the total income of an NHS foundation trust which was an NHS trust in any financial year derived from private charges is not greater than the proportion of the total income of the NHS trust derived from such charges in the base financial year."
Private charges means charges imposed in respect of goods and services provided "to patients other than patients being provided with goods and services for the purposes of the health service", in other words, private patients: s 44(4). The base financial year is the first financial year throughout which the body was an NHS trust or the year ending the 31st March 2003 if it was an NHS trust throughout that year.
"only to the extent that its exercise does not to any significant extent interfere with the performance by the NHS foundation trust of its functions": s.44(7).
An NHS foundation trust can receive financial assistance from the Secretary of State or can give its own financial assistance: ss 40(1), 46(6). It can do what appears necessary or expedient for the purpose of or in connection with its functions, including acquiring or disposing of property and accepting gifts of property: s.47(2)(a)(c). It can borrow money: ss.41, 46(1). It can invest money, including by forming corporate entities. Section 46 provides:
"(4) An NHS foundation trust may invest money (other than money held by it as trustee) for the purpose of or in connection with its functions.
(5) The investment may include investment by –
(a) forming, or participating in forming, bodies corporate,
(b) otherwise acquiring membership of bodies corporate."
(b) NHS trusts
The legislative history
"(a) charges imposed in respect of goods and services provided to patients other than patients being provided with goods and services for the purposes of the health service; and (b) other income from private practice received by an NHS foundation trust whether directly or from bodies or persons undertaking or managing private practice in conjunction with that NHS foundation trust or from premises owned by that NHS foundation trust".
"That brings us to amendments Nos 414 and 415, which were tabled by the Hon. Member for Cheadle (Mrs Calton). We have a simple choice in this part of the Bill between the list-based approach – under which particular activities are identified as being in or outside the cap – and the approach that we have taken, which is to create a general capping power in relation to income that is derived from the treatment of private patients, and to give the regulator the job of deciding, on a case-by-case basis where necessary, whether the activity comes within the cap or not. Generally, my experience as a Minister of trying to legislate is that it is better to do so in the latter way, rather than the former."
"I assume that Amendments Nos 414 and 415 are intended to ensure that foundation trust income from private patient activity that is carried out by a subsidiary or joint venture is captured by the private patient cap. I certainly sympathise with the spirit of the amendments and I can understand that the hon. Member for Cheadle wants to ensure that there are no loopholes in the legislation that allow NHS foundation trusts to circumvent the private patient cap. I, too, believe that the cap should not be circumvented, but the amendments are unnecessary. The intention of the legislation is clear on this point. Clause 15(2) refers simply to NHS foundation trust income 'derived'—that is the crucial word—'from private charges'. It does not specify whether the activity is carried out by the NHS foundation trust or another body, such as a subsidiary. We shall come later to the power in clause 17(5) for NHS foundation trusts to set up subsidiaries or engage in joint ventures, which clearly relates to the power to invest. An investment is, of course, undertaken with a view to making a monetary return. Any such return from investments will be counted in the total income of the trust. It will therefore be included, I believe, in the private patient cap as defined in clause 15(2). Therefore, NHS foundation trust income from private patient activity in relation to joint ventures and subsidiaries is, I believe, already covered by the cap. It would be reasonable to expect the regulator also to impose restrictions on the leasing of facilities to other organisations for the provision of services to private patients under the terms of the authorisation. That would be consistent with the spirit of clause 15, but he would also have to ensure that NHS foundation trust activities and income were consistent with their primary purpose of providing NHS services. The NHS foundation trust could not act in a way that undermined its ability to provide NHS services, for example, by leasing facilities to a private provider if that resulted in competition for a limited pool of local staff. That would not be acceptable. For the same reasons that I gave in relation to income from joint ventures and subsidiaries, the issue that the hon. Lady raises in Amendment No 415 would equally be covered" (emphasis added).
On the basis of this reassurance, Mrs Calton withdrew the amendments.
The case law on "derived from"
"[A]capital sum may be derived from assets within the meaning of the general words in s 22(3) even though those assets may not be the immediate source of that sum. That is not to say that Walton J was wrong in holding in IRC v Montgomery  STC 182,  Ch 266 that the sum received by the trustees from Mr Greene was derived from their rights under the policies. It means no more than that it would be a mistake to interpret Walton J's decision in that case as authority for the proposition that the asset from which a capital sum is derived must always be the asset that constitutes its immediate source. The true view was hinted at by Fox J in O'Brien (Inspector of Taxes) v Benson's Hosiery (Holdings) Ltd when he referred to the "reality of the matter". One has to look in each case for the real (rather than the immediate) source of the capital sum."
Discretion of statutory body to interpret legislation
"Once the criterion for a judgment has been properly understood, the fact that it was formerly part of a range of possible criteria from which it was difficult to choose and on which opinions might legitimately differ becomes a matter of history. The judgment now proceeds unequivocally on the basis of the criterion as ascertained. So far, no room for controversy. But this clear-cut approach cannot be applied to every case, for the criterion so established may itself be so imprecise that different decision-makers, each acting rationally, might reach differing conclusions when applying it to the facts of a given case. In such a case the court is entitled to substitute its own opinion for that of the person to whom the decision has been entrusted only if the decision is so aberrant that it cannot be classed as rational: Edwards v. Bairstow  A.C. 14 . The present is such a case. Even after eliminating inappropriate senses of "substantial" one is still left with a meaning broad enough to call for the exercise of judgment rather than an exact quantitative measurement."
"118. The question whether a demand is reasonable depends, as it seems to me, on many factors. I reject the notion that it has one particular meaning, namely to maximise economic efficiency. In particular I reject the notion that the question as to whether a demand is reasonable, can be answered by the application of a definition applicable in every case. In short, the question is not "hard-edged". It seems to me that there is a "range of possible criteria" about which opinions might legitimately differ in deciding whether a demand is reasonable. The statutory criterion is not clear-cut and is sufficiently broad to allow of different conclusions by different decision-makers, each acting rationally."
SUBMISSION OF FOUNDATION TRUST NETWORK
IS OPTION 2 LAWFUL?
The statutory context
The private patient cap
The Hansard material
Statutory interpretation and consequences