Foundation Trusts
Last Updated: March, 2019

Legislation introduced by  Alan Milburn  in 2003 enabled NHS hospitals to become Foundation Trusts. A Foundation Trust is a non-profit businesses. Their assets are still publicly owned (by the state), but they are run as commercial concerns free to set their own pay scales, borrow on the private market, enter into contracts with private providers and determine their own priorities. They have a governance structure that is not unlike a corporation, the board of directors who set Trust policy has limited accountability to the governors and no accountability to local communities.

Their financial freedoms carry an obvious risk that they can go bust and close . They are no longer eligible to be funded as required by the Department of Health. Therefore the creation of Foundation Trusts was a paradigm shift that forced hospitals to prioritise the bottom line over patient care.

Foundation Trusts are  paid by results . This means that the proportion of funding they receive from the NHS budget is given to them for each completed treatment according to a tariff, and not as a lump sum to cover the running of the hospital. This increases competition between hospitals (hospitals had already been set in competition with each other following the creation of the  internal market ) and so further increases administration and transaction costs including: advertising, negotiating, contracting, invoicing, billing, auditing, ,monitoring contracts, collecting information and resolving disputes in and out of court.

Hospitals for whose costs exceed the tariff for any given procedure, will have to stop doing that procedure, or subsidise those procedures from another part of their budget. This destabilises services and leads to inequalities in provision between hospitals.

The  2012 Health and Social Care Act  increased the amount of income Foundation Trusts could make from private patients (known as the Private Patient Income Cap) from 2 percent to 49 percent.

The raising of the Private Patient Income Cap also happened at the same time as NHS Foundation Trust hospitals were facing static budgets and reduced tariff prices for treatments. By 2014 most Foundation Trusts (80 percent) were in deficit.

By lifting the Private Patient Income Cap ordinary NHS patients have ceased to be the priority for some Foundation Trust managements, and have become virtual second-class citizens compared with those who have the money to pay for their treatments (See  Self-Funding Patients ). This means that fewer NHS beds are available for ordinary NHS patients - and keep in mind that the UK has one of the lowest numbers of hospital beds per capita in the world to begin with.

In response to acute bed shortages Dame Barbara Hakin (deputy CEO of NHS England) was in discussion with private companies with a view to renting spare bed capacity at over-inflated prices (reminiscent of  Independent Sector Treatment Centres ) in the event of a winter crisis.