1. The Government should make it clear whether there will be fewer targets for Foundation Trusts. (Paragraph 21)

2. While we believe that the abolition of the Secretary of State's powers of direction over NHS organisations is a gesture underpinned by a genuine intention to remove micro­management, we are concerned that current plans for Foundation Trusts which include direct accountability to four separate types of organisation, in addition to the increased complexities of new contracting arrangements, may in fact leave Foundation Trusts encumbered by more bureaucracy than their predecessors. In line with the general move towards rationalising inspection and regulation in healthcare, we recommend that the proposed Commission for Healthcare Audit and Inspection and the proposed independent regulator act in a complementary way, integrating their work. (Paragraph 23)

3. We believe that the Government's proposals, as they stand, have the potential to get a greater proportion of the increasing NHS funds going to Foundation Trusts, and we believe that limitations on private work are appropriate and necessary to ensure that Foundation Trusts' primary function remains the delivery of healthcare to NHS patients. (Paragraph 26)

4. Much of the oral evidence we heard showed strong support for the principles behind plans for Foundation Trusts to secure local ownership and involvement, but also elements of scepticism and genuine bewilderment at the array of different problems, both philosophical and practical, facing those charged with implementing them. We agree with the Secretary of State that "either this is for real or it is not" and feel that it absolutely crucial that these proposals are able to deliver the genuine improvements in patient involvement that they promise, rather than raising expectations they are not able to meet. (Paragraph 30)

5. We believe that the time is long overdue to address the democratic deficit in the NHS. However, the proposed system has no minimum standards for involvement and no coherent guidelines for how constituencies will be drawn up to ensure that patients and the public throughout the country have an equal opportunity for involvement. Instead, the Government has left the determination of what is a radical alteration to democratic accountability in the NHS to the unelected leaders of individual NHS organisations, which could lead to a system of patient and public involvement that is fragmented, confusing and inequitable. Although different constructions will clearly need to apply to different types of organisation, it is imperative that the Government safeguards democracy throughout the NHS by providing a national set of guidelines specifying the rules for defining membership constituencies and the process for managing elections so that NHS patients, and the public at large, can have full confidence in transparent and consistent standards of involvement. (Paragraph 37)

6. In order to maximise the breadth and range of membership, we believe that Foundation Trusts must proactively attempt to extend registration so as to achieve real and representative community engagement. This, including the involvement of disadvantaged groups, should be an issue both in assessing applications for Foundation Trusts and an on-going responsibility for the attention of the Commission for Patient and Public Involvement in Health, or, failing that, the independent regulator. (Paragraph 42)

7. If it is the case that members of a Foundation Trust will have the right to veto Trust proposals through a referendum, then this will invest patients and the public with significant power over the way their local services are run. However, nothing we have seen in the Guide to Foundation Trusts or in our other evidence suggests that this is the case, and we would welcome clarification on this point from the Department. (Paragraph 44)

8. The Department has not answered the important question of how disputes will be resolved when a Board of Governors refuses to approve strategic plans related to meeting national priorities. This question was flagged by several chief executives as being crucial to how successful this policy could be. In response to a question about whether Boards of Governors would be able to veto decisions taken by the Management Board, the Department was limited to saying that if the Board of Governors wanted to do this they would need to sack the Chair or non-executive directors subject to approval by a 75% majority of the Board of Governors. This does not necessarily mean the decision will be vetoed. We call on the Department to clarify this situation and to indicate how it expects decisions to be overturned. (Paragraph 49)

9. We believe that the Government must put in place a national training system to ensure that Governors of Foundations Trusts have the necessary skills and information to hold the management boards of Foundation Trusts fully to account. This programme should be led by the Commission for Patient and Public Involvement in Health. (Paragraph 54)

10. The Government must also give very careful consideration to the difficult questions which are already emerging about how disputes will be managed where the interests of representative constituencies including patients, staff and academics differ, and even more problematically, where the will of the Board of Governors steers a trust away from national priorities, or from a PCT's assessment of the needs of the local health economy as a whole. Not enough is known yet about formal voting and vetoing rights, and nascent Foundation Trusts cannot be expected to wrestle successfully with these enormously difficult issues on their own. Instead, these principles must be firmly established on a national basis if Boards of Governors are to wield genuine power in the NHS, rather than simply functioning as a focus groups, advisory panels or talking shops. (Paragraph 55)

11.   One way of minimising the bureaucracy and allowing another model for trusts to choose from would be to allow elections to take place based on the electoral roll (not necessarily on existing council boundaries). The Government should consider this as an alternative model which some trusts might want to adopt. (Paragraph 57)

12. As well as striving to improve democracy at a local level, as these proposals do, we feel it is important that democratic accountability is maintained at a national level. The appointment of an independent regulator must not be allowed to reduce the ability of members of the public to obtain information that they otherwise would have sought from Ministers through their Member of Parliament. (Paragraph 64)

13.   In oral evidence to us, the Secretary of State indicated that Patient and Public Involvement Forums (PPIFs) in NHS trusts would be temporary measures, which would ultimately be replaced by the new system of a partly elected Board of Governors. One of the key functions of PPIFs is their right to appoint a non-executive Director to the Trust Board, something the Commission for Patient and Public Involvement in Health (CPPIH) argued might allow patients and the public more direct involvement in a Trust's governance than only being able to elect representatives to a Board of Governors. However we feel that this function of PPIFs will be covered by the provision for Foundation Trusts' Boards of Governors to elect non-executive directors (NEDs) to their Management Boards. (Paragraph 67)

14.   Major concerns remain about the differences between arrangements for patient and public involvement in Foundation Trusts and in other NHS trusts. For example, PPIFs are entirely independent of the trust whose population they serve, and account directly to the Commission for Patient and Public Involvement. On the other hand NEDs on a Foundation Trust Management Board would be accountable to the Trust's Board of Governors and the CPPIH would be excluded. We recommend that, in the absence of its own Patient and Public Involvement Forum, a Foundation Trust's patient non-executive directors should have access to support and training from the CPPIH. Such NEDs should be a part of the CPPIH in the same way as NEDs appointed to Foundation Trust Management Boards as representatives from commissioning PCT Patients Forums. (Paragraph 68)

15.   There are no explicit provisions either in the Guide to Foundation Trusts or in the Health and Social Care (Community Health and Standards) Bill to ensure that Foundation Trusts have Patient Advocacy and Liaison Services (PALS) to support patients in negotiating hospitals systems, or that they will have access to an Independent Complaints Advocacy Service. Neither is it clear that they will be subject to the same complaints procedure as the rest of the NHS. The proposal of entirely new arrangements for patient and public involvement for Foundation Trusts does not appear to be well integrated with systems currently being implemented in the rest of the NHS. We feel it is very important that Foundation Trusts are able to benefit from the developing expertise of the CPPIH, and to contribute to the work that the CPPIH is undertaking to improve patient and public involvement in the NHS at a national, strategic level. (Paragraph 69)

16. Plans for Foundation Trusts involve far-reaching reforms in three areas. At a central level, they propose the introduction of a new regulatory regime and the establishment of a new regulatory body which will eventually replace the Secretary of State's direct control over NHS organisations. The new regulatory regime will also require Foundation Trusts to develop new skills in order to interact with it successfully. Also at a local level, Foundation Trusts will face the challenge of designing and administering large community and staff elections, and, once elections are finished, ensuring that new Boards of Governors are able to contribute effectively to the governance of the trust, whilst protecting the smooth running of the trust during the transition period. At the same time as this Foundation Trusts will also be learning how best to use their new financial freedoms. The problems we have identified with the proposals as they stand attest to the difficulty of formulating three such complex reforms simultaneously, and we therefore feel it is very important that if these reforms are implemented Foundation Trusts are given dedicated support in introducing each element, and that each element is individually addressed. (Paragraph 72)

17. We feel that there is much that needs to be clarified surrounding the Government's proposed requirement that prospective Foundation Trusts must demonstrate the support of local communities as part of their application for Foundation status. If trusts have to undertake lengthy consultation with local communities, which might include public meetings, roadshows, surveys and votes, this could have high administrative costs and could potentially be open to manipulation rather than contributing constructively to debate on how best to deliver healthcare for that locality. However, there is also the risk that if these proposals are implemented only in a tokenistic way, consultation could continue to be the "charade" described by one of our witnesses. Although applications for Foundation status will be assessed on whether their plans are supported locally, it is not clear how such support will be measured, and whether information about this will be made public. If consultation on Foundation status is to withstand accusations of tokenism, it will need to include stakeholders from early on in the process, even before an expression of interest in Foundation status is expressed. It should also include neighbouring health organisations and service users as well as those served by the prospective Foundation trust, and it is important to recognise that the local community of any particular hospital cannot necessarily be defined along boundaries of existing PCT catchment areas or local authorities, or else significant parts of the population may be excluded. These issues must be addressed and resolved by the Government if local ownership is to succeed. (Paragraph 80)

18. The Secretary of State was clear in his evidence that he expected Foundation status to be extended to all trusts within four to five years. His evidence also suggested that rather than lowering the hurdle and allowing 1- and 2-star trusts to become Foundation Trusts, this would be done through raising the performance of all trusts up to 3-star level, therefore enabling them to apply. As the current star rating system has a relative component, it is not clear whether all trusts will be able to achieve 3-star status or not, as their performance will be measured relative to the performance of the rest of the NHS. When we asked the Department for further information, they told us that the relative element of the current system might be reviewed in future, but did not provide a full explanation of how the system would work if the relative element remained in place. We feel that there is some confusion about this area of the policy, and urge the Government to provide clarification on this point. (Paragraph 84)

19. The Secretary of State was quite clear to us that Foundation Trusts would continue to be subject to the star rating system in exactly the same way as any other NHS organisation, as he told us it would be "difficult and probably invidious"to set up "two parallel sets of assessment". However, the Secretary of State also told us that "the structure of the performance rating system will need to take account of the mixed economy of both NHS Foundation and non-Foundation trusts for a number of years". We find these two statements confusing and contradictory, and endorse the requirement for Foundation Trusts to continue to be subject to the same performance ratings system as the rest of the NHS. (Paragraph 92)

20. While we agree with the Secretary of State that performance varies considerably across the NHS, and support his attempts to improve performance, we feel that the question of how good the star ratings system is, whether, in his words, it is "right, wrong or indifferent", is crucially important. NHS patients as well as NHS staff have the right to expect a performance measurement system that is as sophisticated and reliable as possible, and focuses on issues that matter to patients, most importantly the quality of clinical care. This importance is only reinforced by the fact that star ratings are to be used as a gateway to increased freedoms and privileges. (Paragraph 97)

21. We believe it is important for the Government to ensure performance ratings are as accurate and sophisticated as possible. We [also] feel that the contradictions in using the star ratings system as a 'one­way' gateway to Foundation status need to be addressed and resolved. (Paragraph 98).

22. A key argument in favour of the policy of Foundation Trusts is that it presents a genuine incentive for trusts to improve their performance. However, we are not clear that once Foundation status is achieved there are adequate incentives in place to ensure that trusts improve or even maintain high levels of performance. This shortcoming must be addressed as it has very serious consequences for performance and standards in the NHS, both in the short and the long term. (Paragraph 100)

23. We note the Government's commitment to piloting this policy with a selected group of trusts rather than opting for large­scale 'big bang' implementation. We recommend that consideration is given to establishing an additional pilot allowing all trusts in a particular area to become Foundation Trusts, as this would help to evaluate how the system would operate in the long term. We do not think that the proposed very tight schedule of annual waves of reform allows sufficient opportunity for the advantages or disadvantages of Foundation status to be evaluated, or for lessons to be learnt, good practice disseminated, and the policy refined for further waves. In particular, we feel that in the early years of this policy, the success of public involvement measures, and the impact on wider health economies will merit very close scrutiny. We recommend that the Government should commission an independent evaluation specifically aimed at assessing the impact on wider health economies and on public involvement, and geared towards helping refine the policies for 'second wave' Foundation Trusts, before announcing the second wave of trusts. (Paragraph 106)

24. We are strongly supportive of recent efforts made to promote the development of primary and community based care, and of whole systems models of care. It is imperative that the introduction of Foundation Trusts does not undermine the good work that has been done, or reverse this trend by re­focusing efforts on acute service provision. In particular, patients rather than buildings should remain at the centre of healthcare, and the needs of people suffering from chronic illness, including mental illness, many of whom receive the majority of their care in community settings, should not be marginalised in favour of those in need of elective care in acute hospitals. We were impressed by the evidence of good partnership working we received from our witnesses from Teeside and East Anglia, but we are not convinced that such good practice exists across the board. The policy of Foundation Trusts does not necessarily mean that partnership between acute and community settings will be damaged, but we believe it does introduce the need for stronger safeguards to ensure continued co­operation between PCTs, Local Authorities, and other NHS organisations across the board, and a continuing emphasis on whole systems working. (Paragraph 119)

25. The Secretary of State informed us that he is keen to learn from the experience of establishing Foundation Trusts in the acute sector, and to examine how the model could be adapted for other NHS organisations, and he has stated that he will soon be writing to mental health trusts to advise them of future developments. The extension of Foundation Trust status to mental health trusts could counter­balance the acute hospital emphasis of the first wave of Foundation Trusts. If the policy of Foundation Trusts is to be pursued, we urge the Government to address the extension of Foundation trust status to mental health trusts as a matter of priority. (Paragraph 121)

26. We welcome the Government's aim of shifting power from the secondary to the primary sector, and it is vital that these proposals do not reverse this trend. During this inquiry we have heard much support for extending these reforms to PCTs, and also suggestions that PCTs would be a more natural starting place for these reforms than acute trusts. As PCTs are commissioning organisations, the concept of Foundation PCTs raises a different set of issues and concerns. However, if proposals for Foundation Trusts go ahead it will be necessary to explore these issues as a matter of priority to ensure that the balance of power between primary and secondary care is maintained. (Paragraph 123)

27. We recommend that in assessing applications for Foundation status, the Secretary of State should make specific provision to assess the readiness of local PCTs who will be commissioning services from prospective Foundation Trusts to meet this new challenge at such an early stage in their organisational development. (Paragraph 126)

28. We have not studied the financial flow arrangements in depth in this inquiry, but we have heard several concerns relating to commissioning arrangements between PCTs and Foundation Trusts. If these proposals go ahead, these concerns must be addressed by Government. (Paragraph 130)

29. In evidence to us the Secretary of State strongly refuted suggestions of guaranteed incomes, saying that it would be up to PCTs how long their contracts were for, although the Guide anticipates that PCTs will enter into at least three year service level agreements with Foundation Trusts in order "to ensure stability". This needs to be clarified. We support PCTs having a right to determine the duration of contracts. (Paragraph 131)

30. We feel that the key to the success of the patient choice reforms is that safeguards are put in place to ensure that Foundation Trusts do not abuse a monopoly position, either by a cumbersome process of legal contracting which curtails PCTs' flexibility to move patients, or by expanding their services to such an extent that patients have no other viable choice. The Government must take immediate steps to address these points. (Paragraph 132)

31. We strongly endorse the drive to put the patient at the heart of the NHS. However, we believe that the introduction of Foundation Trusts, coupled with increased patient choice, has the potential to alter the distribution of hospital services. We therefore urge the Government to overlay these plans with a mechanism to ensure that these potential problems do not materialise. This could include placing a legal duty on the Regulator to safeguard the best interests of the NHS as a whole. (Paragraph 137)

32. Our evidence suggests that in local health economies where trusts, PCTs and other health organisations have close and well developed working relationships, the introduction of Foundation Trusts may be less likely to result in wage inflation and aggressive staff poaching. However, in areas where links between local partners function less well, and in areas of high mobility and workforce shortages, for example London, we believe that these problems may emerge. (Paragraph 144)

33. We understand that in time it is the Government's intention to ensure a 'level playing field' within the NHS, with high performing NHS Foundation Trusts being the norm rather than an elite. However, if these reforms are implemented in their present form, we conclude that, at least in certain areas, stronger safeguards will need to be put in place to ensure that aggressive poaching of scarce staff does not take place. These should include an obligation on Foundation Trusts to consult local NHS employers before altering staff terms and conditions. We recommend that the Government monitors closely the impact of the reforms on standardisation of staff terms and conditions as this was a founding principle of the NHS that encouraged equitable distribution of staff. (Paragraph 147)

34. A commonly­voiced concern has been that borrowing by Foundation Trusts will be counted against departmental spending limits and that this will restrict the capital resources available to non­Foundation Trusts. We urge the Government to clarify this issue and to provide reassurance that capital schemes based on capital allocations to trusts will proceed on the basis of need, not according to whether or not the trust in question is a Foundation Trust. (Paragraph 151)

35. We received many submissions arguing that the introduction of Foundation Trusts would lead to the creation of a "two­tier health service". It will create, at least in the short term, legally two different types of trusts, but in terms of NHS services we believe the two tier claims originate from an overly simplistic argument, which fails to recognise that despite the best of efforts, the NHS is a multiple tier service, with significant variation in both access to and quality of care. However it is important to acknowledge that the NHS was established precisely to tackle the severe inequities in service provision and broader health inequalities that existed across the country, and that today that aspiration is, if anything, more rather than less relevant. The Department of Health needs to ensure that in creating Foundation Trusts it does not undermine its determination to reduce inequality in the NHS. (Paragraph 157)

36. While we welcome the Government's aim to ensure 'a level playing field' within the NHS, we feel that the Secretary of State may be being too ambitious in assuming that it will be possible to introduce Foundation status to all NHS trusts within four to five years. During the time that star ratings have been in operation, the record shows that the performance of 70% of trusts either remained static or fell. Early implementers of Foundation status will attract more resources, as well as perhaps attracting more and higher calibre staff, which given current shortages in many professions may be at the expense of other worse performing hospitals. The potential for inequity posed by Foundation Trusts therefore needs to be addressed. (Paragraph 159)

37. While this problem could be easily solved by removing the additional financial freedoms on offer to Foundation Trusts, such a measure could seriously limit the Government's aims for these reforms and would diminish the attractions of seeking Foundation Trust status. An alternative would be to create an immediately level playing field by extending the financial freedoms to all NHS trusts. However, we understand the Government is likely to be reluctant to extend these freedoms to organisations whose performance is not yet top level. We believe there should be established a detailed monitoring system to assess the impact of these reforms on the equity of resource distribution across NHS acute trusts. This monitoring should also involve regular consultation with non­Foundation trusts to identify any problems as they emerge. It could be underpinned by ongoing annual performance assessment of all trusts by CHAI, with particular attention focused on trusts which are failing to improve their performance ratings, to discover whether their problems are related to the introduction of a local Foundation Trust. (Paragraph 160)

38. Foundation Trusts will be able to do as they wish with unregulated assets. Borrowing against unregulated assets could involve new risks for Foundation Trusts. With responsible management teams, we believe that these arrangements will yield no significant practical difficulties. Further, we assume that the National Audit Office will ensure that best practice is being followed. (Paragraph 161)

39. We recommend that the Government considers a wider democratic option for trusts, including PCTs, to consider, with or without the freedoms associated with the current Foundation model. (Paragraph 164)