healthcare update - issue eight
Private patient cap – all change or is it?
With the second anniversary of the issue date for these
proceedings fast approaching, the High Court has now ruled on
Monitor’s interpretation of the Private Patient Cap, with the
result that a ‘middle ground’ must now be found which achieves
compliance with international accounting standards, this ruling and
the law - happily for us lawyers! It must also reflect the
political sensitivities which was one of the drivers for
proceedings, without putting current foundation trusts in breach of
their authorisation.
How that balance is to be achieved remains to be seen but it is
undoubtedly going to be a political football with the prospect of
own goals.
The principal focus of the decision was in relation to the legal
niceties of the statutory language of the cap, which stems from the
right of Monitor to restrict the provision of goods and services to
private patients. The court was concerned with the “methodology of
restriction” i.e. the expression used in Section 44(2) – the cap on
“income derived from private charges”.
The court’s focus was on the true, and lawful, meaning of this
expression, and whether a lawful process had been adopted by
Monitor in reaching its decision that the cap applied to “the
relevant proportion of income received from subsidiaries, joint
arrangements that are not entities (JANEs), joint ventures and
associates arising from the provision of goods and services
provided directly to patients other than for the purposes of the
NHS” – the so-called Option 2.
They took a purposive and common sense approach to the concept
“derived from” by considering what is the principal and authorised
(by Monitor) purpose of foundation trusts. It is essentially to
provide healthcare to NHS patients. Accordingly, the ability to
impose a cap and to determine the limits of the cap needed to be
considered with that original purpose in mind.
The degree of control that a foundation trust exercised over its
investments in other entities was irrelevant as to whether the
stake in the other entity – whether it is a company or an asset
investment in a private hospital – was 50% or 5%; all the income so
derived is capable of counting towards the cap.
Happily, the court did not consider it appropriate to undertake
a look-back exercise in relation to historic private patient income
for the accounting year 2008/09. It took the pragmatic view that
the accounts were closed and it would be an unnecessary waste of
resources to unpick those accounts.
It is clear that Monitor and the Department of Health will now
have to find a middle way which satisfies the original intent and
meaning of the private patient cap.
It will be for the Department of Health and Monitor to consider
whether or not a private patient cap moratorium should apply until
such time as the middle way can be found so as to avoid existing
foundation trusts breaching the current cap, and by default their
authorisation, as a result of this decision. Neither Monitor, nor
the Department of Health will want to be concerned with technical
breaches which put a huge burden on foundation trusts and Monitor
in these current times.
It does not mean that foundation trusts will not be flooded with
Freedom of Information Act requests for information concerning the
structure of subsidiaries, whether boards have reviewed the cap in
light of the decision, what level of income will apply etc; with
the inevitable reference to the local and national press.
We anticipate that foundation trusts will face a degree of
public interest in their private income and strategies will need to
be employed by boards now to manage that interest.
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The content of this update is provided for the purposes of general
interest and information. It contains only brief summaries of
aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.