NHS Improvement has published new guidance for NHS Trusts considering setting up wholly owned subsidiaries. The guidance follows the consultation launched earlier in the year (as reported by HEFMA here) and is effective from November 26.
The updated reporting and review process now requires all proposals for subsidiary transactions from Trusts or Foundation Trusts to be backed by a Trust board-approved business case supported by underlying financial projections and submitted to the appropriate NHS Improvement regional team.
The review process will assess the inherent risk of proposed transactions and decide whether they are ‘material’ or ‘significant', which in turn will determine the level of scrutiny to which they are subjected. The review panel will comprise appropriate governance, finance and subject matter experts.
Whilst proposals rated as 'material' may be asked to provide evidence that the Trust board has satisfied itself in relation to key areas of risk, those rated as 'significant' will also require examination of upto four further domains - strategy, transaction execution, quality and finance. The process will include meeting with the Trust and key stakeholders, a detailed review of the business case and the underlying financial projections and meeting the appropriate executives at the parent Trust.
The process will conclude with the transaction being rated green, amber or red. Green or amber means the Trust may proceed with its proposals, although further monitoring may be required in the case of an amber rating. Transactions rated red are considered to be too risky to progress and the Trust will be required to restructure the proposal to address these risks. If necessary, NHS Improvement will use its regulatory powers in these cases to stop the transaction.
At the moment subsidiary proposals require consent from the Secretary of State, but NHS Improvement is also discussing a revised process with DHSC about which further information will be released early in 2019.
This process will apply to new subsidiary company proposals as well as any future ‘material’ changes to existing companies.
Commenting on the new guidance, UNISON head of health Sara Gorton says: “The guidance is a step in the right direction but could have gone much further.
“While there now is a requirement for Trusts to report any plans for subsidiary companies, the guidance fails to ensure such plans are truly transparent and made public from the outset. Engaging with staff is a start but what is really needed is their full support before anything goes ahead.
“The new rules should be enough to stop most Trusts from arbitrarily setting up new companies that cause more harm for staff and patients than good. But this will depend on NHS Improvement being serious and strict about enforcing the guidance. UNISON will be making full use of this guidance in our scrutiny of any future Trust plans to set up subsidiaries.”
However, Saffron Cordery, Deputy Chief Executive of NHS Providers, cautions that the bar may have been set too high, which will act as a discouragement to push forward with innovative plans and look to less attractive alternatives instead.
"We are concerned that the level of detail and the steps outlined in the new review process go a long way beyond what is normally expected of Trusts and what is required for other transactions and commercial activities. There are many reasons why a Trust may choose to establish a WOS. These go well beyond just making tax savings. The process NHS Improvement is choosing to adopt here sets the bar too high and introduces an unwelcome extra administrative burden into the sector. There is a danger that Trusts will abandon innovative WOS plans and instead look to less preferable alternatives.
"Many will also see this guidance as part of a worrying trend where the decision-making power and autonomy of Trusts and foundation Trust boards continues to be eroded with more and more control shifted towards the centre. Unitary Trust and foundation boards, working as part of local systems, are fully and legally accountable for the services their Trusts deliver for good reason – they are in the best position, by far, to ensure that high quality care is provided to the communities their Trusts serve. The task of arms length bodies is to support and enable provider boards to fulfil these responsibilities, not unnecessarily restrict them from doing so."
NHS Improvement remains committed to reviewing this process within a year. "Trusts must play a full role in any such review," adds Saffron.
Read the full guidance document here.
