1999 Chapter 08

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These notes refer to the Health Act 1999 which received Royal Assent on 30 June 1999 (c.8)

Health Act

EXPLANATORY NOTES

INTRODUCTION

1. These explanatory notes relate to the Health Act 1999 which received Royal Assent on 30 June 1999. They have been prepared by the Department of Health, with input from the Scottish Office and Welsh Office, in order to assist the reader of the Act. They do not form part of the Act and have not been endorsed by Parliament.

2. The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given.

SUMMARY

3. In December 1997 and January 1998, the Government published White Papers on its proposals for the National Health Service in England, Scotland and Wales (Cm 3807 The new NHS; Cm 3811 Designed to Care; Cm 3841 Putting Patients First). Further to the White Paper The new NHS, detailed proposals on quality and partnership in England were set out in the consultation document A First Class Service (HSC 1998/113), published in July 1998, and the discussion document Partnership in Action, published in September 1998. Further to the White Paper Putting Patients First, detailed proposals on quality and partnership in Wales were set out in the consultation documents Quality Care and Clinical Excellence, published in July 1998 and Partnership for Improvement, published in October 1998. Action has already been taken to implement many of the proposals set out in these documents. The Act implements those proposals that require primary legislation.

4. The Act's main purpose is to make changes to the way in which the National Health Service is run in England, Wales and Scotland. The Act abolishes GP fund-holding in all three countries. It amends the National Health Service Act 1977 to make provision for the establishment of new statutory bodies in England and Wales to be known as Primary Care Trusts, and provides for NHS trusts in Scotland to take on additional functions.

5. The Act amends the legislative framework for NHS trusts. It makes changes to the provisions in the National Health Service and Community Care Act 1990 concerning the establishment of NHS trusts, including retrospective changes to the purposes for which NHS trusts are established, and to the current NHS trust financial regime. It extends the Secretary of State's current powers of direction in respect of NHS trusts to cover all their functions, in line with other NHS bodies. It also replaces the provisions about special hospitals to enable NHS trusts in England and Wales, with Secretary of State approval, to provide high security psychiatric services.

6. The Act provides for new arrangements aimed at improving the quality of the care provided to patients receiving NHS services. It places a new statutory duty of quality on Health Authorities, NHS trusts and Primary Care Trusts and establishes a new statutory body for England and Wales, to be known as the Commission for Health Improvement, to monitor and help improve the quality of health care provided by the NHS. It also introduces measures to enable the Secretary of State to require general medical practitioners, general dental practitioners, ophthalmic opticians (also known as optometrists) and pharmacists to hold approved indemnity cover.

7. The Act creates a new duty of co-operation within the NHS and extends the duty of co-operation between NHS bodies and local authorities in England and Wales. It provides for local strategies to be developed for improving health and health care, and for new operational flexibilities to allow NHS bodies and local authorities to enter into joint arrangements for the purchase or provision of health and health-related services (e.g. social care). The Act also provides for the allocation of additional funding to Health Authorities on the basis of their past performance.

8. The Act introduces a number of measures designed to tackle fraud against the NHS. It introduces a civil penalty to be imposed where a person fails to pay an NHS charge, or claims a payment to which he is not entitled, towards the cost of an NHS charge or service. It creates a new criminal offence in England and Wales of knowingly making false representations to obtain exemption or remission from NHS charges. It also extends the functions of the NHS Tribunal to enable it to impose sanctions specifically on family health service practitioners who have defrauded the NHS.

9. In addition, the Act provides for the Secretary of State for Health to make regulations and directions securing compliance with aspects of a negotiated pharmaceutical price regulation scheme, to regulate the profits of companies outside the negotiated agreement and to set maximum prices for medicines supplied to the NHS. It amends the powers of the Health Service Commissioner to release information. It also enables Her Majesty to regulate health care professions by Order in Council and to make provision by Order in Council for the exercise of NHS functions across the English/Scottish border.

THE ACT

10. The Act is in three Parts:

• Part I makes changes to the way the National Health Service is run in England and Wales. Part I also makes provision for the control of prices of medicines supplied to the National Health Service in England, Wales and Scotland, and the control of profits made by suppliers;

• Part II makes changes to the way the National Health Service is run in Scotland;

• Part III is concerned with the regulation of health care professions, the English and Scottish border and includes various other miscellaneous and supplementary provisions.

11. Part I of the Act is mainly concerned with implementing those proposals set out in the White Papers The new NHS and Putting Patients First which require primary legislation. This part of the Act therefore makes a number of changes to the structure of the NHS in England and Wales.

12. Section 1 abolishes GP fund-holding. Sections 2 to 12 (and Schedule 1) are concerned with the local administration of the NHS. Sections 2 to 7 make provision for the establishment, functions and funding of Primary Care Trusts and define the expenditure of Health Authorities and Primary Care Trusts. Section 8 enables the Secretary of State to make additional payments to Health Authorities on the basis of their past performance. Section 9 enables the Secretary of State to require general medical practitioners, general dental practitioners, optometrists and pharmacists to hold approved indemnity cover. Section 10 makes provision about determinations of remuneration of these practitioners. Section 11 enables local representative committees to represent doctors and dentists who work as assistants and deputies or who provide or perform personal medical and dental services. Section 12 is concerned with the distribution and exercise of functions. It provides the mechanism by which Health Authorities and Primary Care Trusts will inherit the majority of their functions and deals with the powers of the Secretary of State and Health Authorities to direct NHS bodies about the exercise of their functions. Sections 13 to 17 make a number of changes to the legislative framework for NHS trusts.

13. Sections 18 to 25 (and Schedule 2) concern the quality of services provided by NHS bodies. They place a duty of quality on Health Authorities, NHS trusts and Primary Care Trusts, establish a new statutory body to be known as the Commission for Health Improvement and as a consequence abolish the Clinical Standards Advisory Group.

14. Sections 26 to 32 implement measures to strengthen partnership working, both within the NHS and between the NHS and local authorities. They create a new duty of co-operation within the NHS and extend the duty between NHS bodies and local authorities; provide a new statutory mechanism for strategic planning to improve health and health care services; provide for NHS bodies and local authorities to make payments to one another and make use of new operational flexibilities to improve the way health and health-related functions are exercised; and remove the statutory requirement for Joint Consultative Committees.

15. Sections 33 to 38 concern the control of prices of and profits on medicines. They enable the Secretary of State to make regulations and directions securing compliance with aspects of a negotiated pharmaceutical price regulation scheme, to regulate the profits of companies outside the negotiated agreement and to set maximum prices for medicines supplied to the NHS.

16. Sections 39 and 40 are designed to tackle fraud in the NHS. Section 39 does this in two ways. First, it creates a civil penalty to be imposed where a person fails to pay an NHS charge, or claims a payment to which he is not entitled, towards the cost of an NHS charge or service. Secondly it creates a new criminal offence of knowingly making false representations to evade or gain a reduction or remission of, or a payment relating to, NHS charges. Section 40 provides for the disqualification of practitioners from providing services under Part II of the National Health Service Act 1977 in cases of fraud.

17. Section 41 enables NHS trusts in England and Wales, with Secretary of State approval, to provide high security psychiatric services. Section 42 makes provision for the Registrar General to provide the Secretary of State with information about births and deaths for the purpose of the health service. Section 43 amends the powers of the Health Service Commissioner to release information. Section 44 enables the Secretary of State to make an order to correct deficiencies which have been identified in the Health Authorities Act 1995 (Transitional Provisions) Order 1996.

18. Part II of the Act makes changes to the National Health Service in Scotland, implementing those proposals set out in the White Paper Designed to Care requiring primary legislation. Section 45 abolishes GP fund-holding. Sections 46 to 49 amend the existing legislative framework for NHS trusts. They make changes to the establishment of NHS trusts, provide a mechanism for NHS trusts to take on the responsibility for making arrangements for the provision of family health services and amend the constitution of NHS trust boards. Section 50 makes provision for the transfer of staff between health service bodies. Section 51 confers a new duty of quality on NHS trusts and sections 52 to 55 make a number of provisions regarding the financing of Health Boards and NHS trusts. Section 56 enables the Secretary of State to require general medical practitioners, general dental practitioners, optometrists and pharmacists to hold approved indemnity cover and section 57 makes provision regarding the determinations of remuneration of these practitioners. Section 58 provides for the disqualification of practitioners from providing Part II services in cases of fraud and section 59 introduces a civil penalty charge to be imposed where a person fails to pay an NHS charge, or claims a payment to which he is not entitled, towards the cost of an NHS charge or service.

19. Part III of the Act deals with miscellaneous and supplementary issues. Section 60 (with Schedule 3) makes provision for Her Majesty to make Orders in Council regarding the regulation of health care professions. Section 61 enables Her Majesty to make an Order in Council regarding the provision of health services at the border between England and Scotland. The remainder of this Part of the Act includes a number of supplementary and miscellaneous provisions, relating, in particular, to orders and regulations under the Act, consequential and transitional provisions, amendments and repeals, devolution, commencement of the Act's provisions, the extent of the Act and the short title.

OUTLINE OF THE EXISTING LAW

20. The following paragraphs provide a brief description of the current legislative framework for the NHS. The legislative framework for the NHS in England and Wales is mostly set out in the National Health Service Act 1977 ("the 1977 Act"). This has been amended quite substantially by various enactments, notably by the National Health Service and Community Care Act 1990 ("the 1990 Act"), the Health Authorities Act 1995 ("the 1995 Act") and the National Health Service (Primary Care) Act 1997 ("the Primary Care Act").

21. Under the 1977 Act, the NHS is essentially split into two different systems. The first is the system which consists primarily in the provision of health care in hospitals. It also covers those services described as "community health services", for example, the services provided by district nurses, midwives or health visitors in clinics or individuals' homes, and the provision of medical services to pupils in state schools. This system is the subject of Part I of the 1977 Act. The responsibility for securing the provision of these services to patients rests with the Secretary of State, although under his powers in section 13 of the 1977 Act he has delegated most of his functions to Health Authorities. Health Authorities enter into arrangements with bodies known as NHS trusts for the provision by the trusts of hospital and community health services.

22. The other main part of the NHS structure is what might be described as "the NHS in the high street". This is dealt with under Part II of the 1977 Act which governs the arrangements made by Health Authorities for the provision of services by the following professionals: general medical practitioners (GPs), general dental practitioners (GDPs), ophthalmic opticians and ophthalmic medical practitioners (also known as optometrists), and pharmacists. They provide what are termed general medical services (GMS), general dental services (GDS), general ophthalmic services (GOS) and pharmaceutical services (PhS) respectively. The remainder of Part II contains other provisions relevant to the provision of these high street services, which are often referred to as family health services.

23. The 1990 Act and the Primary Care Act introduced a number of changes to these systems of health care. Broadly speaking these changes were as follows -

• the 1990 Act introduced a divide between the planning and purchase of Part I services, on the one hand, and the provision of those services, on the other; and

• the Primary Care Act in effect enabled what were previously Part II services to be delivered, not under Part II, but under a more flexible system within Part I of the 1977 Act. These changes applied only to doctors and dentists, and not the other family health services practitioners.

24. The two systems, Part I and Part II, are very different. It should be noted that despite the changes introduced by the Primary Care Act the provision of Part I services is distinct from the provision of services under Part II. The changes made by this Act will not alter this divide. What follows is a more detailed description of the two systems.

Part I system: hospital and community health services

25. The system provided for under Part I of the 1977 Act is the system under which all of the NHS, apart from family health services, is provided. The core duty to ensure the provision of a health service is laid upon the Secretary of State (section 1) in extremely broad terms, and is supplemented by the provisions of the subsequent sections.

26. Section 2 confers wide-ranging powers for the Secretary of State to provide such services as are appropriate to, and to do any other thing whatsoever which is calculated to facilitate, or is conducive or incidental to, the discharge of any duty imposed on him by the Act. Section 3 sets out those general services which it is the Secretary of State's duty to provide to such extent as he considers necessary to meet all reasonable requirements. Most of the services that may be described as hospital and community health services are included under this section. Section 4 imposes a specific duty on the Secretary of State to provide special hospitals for persons detained under the Mental Health Act 1983 who have dangerous, violent or criminal propensities. The services provided under this section are often referred to as "high security psychiatric services" and are presently managed outside the normal hospital system by Special Health Authorities established under section 11 of the 1977 Act. Further miscellaneous powers and duties are imposed on the Secretary of State by section 5.

27. Part I of the 1977 Act (as amended by the 1995 Act) goes on to provide for the setting up of statutory bodies known as Health Authorities (section 8) and Special Health Authorities (section 11). Health Authorities are established to act for the area set out in their establishment order and together cover all of England and Wales. Special Health Authorities are established for specific functional purposes which the Secretary of State directs them to perform on his behalf (e.g. the National Blood Authority).

28. Although the main functions under Part I of the 1977 Act are conferred on the Secretary of State, the Act provides a mechanism which enables the Secretary of State to devolve to Health Authorities the responsibility for performing these functions, whilst retaining the ability to control how those functions are performed. The Secretary of State may direct a Health Authority or Special Health Authority to exercise his functions on his behalf (section 13). He may also give directions about the exercise of functions by a Health Authority or Special Health Authority (section 17). The Secretary of State has exercised his powers under these sections on many occasions but the principal instrument is the National Health Service (Functions of Health Authorities and Administration Arrangements) Regulations 1996 (S.I. 1996/708). Schedule 1 to those Regulations lists those "specified health service functions" of the Secretary of State that he has delegated to Health Authorities. The Secretary of State has directed Health Authorities to exercise most of his functions under Part I, in particular sections 2, 3, and 5. It is these Regulations by which Health Authorities have their functions in respect of Part I services conferred upon them. There is very little further prescription in primary legislation as to what the Secretary of State must do or how he must do it in relation to the provision of Part I services.

29. Health Authorities and Special Health Authorities are funded under the provisions of section 97 of the 1977 Act, as substituted by paragraph 47 of Schedule 1 to the 1995 Act and amended by section 36 of the Primary Care Act. Health Authorities are paid money in each year under section 97(1) and section 97(3). Section 97(1) concerns the remuneration of persons providing Part II services and is dealt with below. Section 97(3) concerns Part I expenditure and administrative costs. Under section 97(3) a Health Authority is paid money not exceeding the amount allotted to it by the Secretary of State. This amount is allotted towards meeting its "main expenditure" which includes all expenditure attributable to the performance of its Part I functions, all its administrative costs, and certain other expenditure. The money paid in respect of Part I services is therefore cash-limited. To enforce the cash-limits set by the Secretary of State, Health Authorities have various financial duties imposed upon them by section 97A of the 1977 Act (as substituted by paragraph 48 of Schedule 1 to the 1995 Act and amended by paragraph 23 of Schedule 2 to the Primary Care Act).

Part II system: family health services

30. The system provided for under Part II of the Act is quite different. The broad structure of the Part II system is similar for doctors, dentists, opticians, and pharmacists. For convenience, therefore, the existing system will be described as it applies to doctors. (There are significant differences in the systems for the other professions, most notably relating to pharmacists and opticians, but those differences are not relevant for the purposes of the Act.)

31. Under section 29 of the 1977 Act, it is the duty of each Health Authority in accordance with Regulations to arrange with medical practitioners to provide personal medical services for all persons in the area who wish to take advantage of the arrangements. These services are described as general medical services (GMS). A principal feature of this system as it operates in practice is that (apart from certain exceptional cases) it is not the Health Authority itself which provides the GMS; instead, it enters into separate statutory arrangements with independent practitioners for the provision of those services. GPs are therefore not employees of the HA; they are independent professionals who undertake to provide GMS in accordance with the body of Regulations governing that activity. Those Regulations are currently the National Health Service (General Medical Services) Regulations 1992 (S.I. 1992/635) as amended.

32. It is the duty of each Health Authority, in accordance with Regulations, to administer the arrangements made for the provision of GMS and the other family health services. The Health Authority must also perform such other management and other functions relating to those services as may be prescribed. In contrast to the Part I system, therefore, the duty to make the arrangements for these services is conferred directly upon Health Authorities, rather than upon the Secretary of State. Nonetheless, in exercising functions under Part II, Health Authorities may be the subject of Secretary of State directions issued under section 17 of the 1977 Act.

33. Remuneration of persons providing Part II services is for the most part not cash-limited (in other words the Secretary of State must pay whatever it has cost the Health Authority, and he cannot impose a ceiling on the expenditure). However, the Secretary of State has the power to designate some categories of Part II remuneration (e.g. reimbursement of certain expenses) as falling within cash-limited "main expenditure". Remuneration for Part II services includes payments to pharmacists and GPs in respect of drugs dispensed to NHS patients, typically in response to prescriptions written by GPs.

The National Health Service and Community Care Act 1990

34. The 1990 Act introduced a number of changes in the systems described above.

35. Section 5 of the 1990 Act, and the immediately following provisions, provided for the setting up of bodies known as NHS trusts. These are semi-autonomous bodies set up to assume responsibility for the ownership and management of hospitals or other establishments or facilities previously managed or provided by a Health Authority; or to provide and manage hospitals or other establishments or facilities which were not previously so managed or provided. A trust's functions are conferred by its establishment order made under section 5(1) of and by Schedule 2 to the 1990 Act. Some NHS trusts, known as "acute trusts" provide mainly hospital services. Other NHS trusts, known as "community trusts" provide mainly community services. Those which provide both hospital and community services are often known as "integrated trusts".

36. All the NHS hospitals in the country are now run by NHS trusts. NHS trusts have no money paid to them directly by the Secretary of State, but instead obtain orders for their services placed by Health Authorities and GP fund-holders. The nature of the arrangements between Health Authorities and trusts is, however, not that of an ordinary contract enforceable at law. Instead, the 1990 Act provided for a system of NHS contracts (section 4), which are explicitly not contracts enforceable at law (section 4(3)), but are subject to arbitration by the Secretary of State.

37. A further change introduced by the 1990 Act was the creation of fund-holding practices of GPs providing services under Part II of the 1977 Act. The fund-holding system did not essentially alter the Part II services they provide. However, the practices in question are given a sum of money known as an allotted sum with which to purchase, on behalf of their patients, from whatever provider they see fit, some of the care under Part I which would otherwise have been purchased by the local Health Authority. Thus there are two types of purchaser or commissioner of services: namely Health Authorities and fund-holding practices.

The National Health Service (Primary Care) Act 1997

38. The Primary Care Act introduced a new option for the delivery of family health services. Personal medical services (PMS) and personal dental services (PDS) may be provided under agreements known (in the initial stage at least) as "pilot schemes". These agreements are made between the Health Authority and one or more of the persons listed in section 2(2) or section 3(2) of the Primary Care Act, which includes NHS trusts, GPs, and NHS employees. Pilot schemes allow PMS and PDS (essentially the same as GMS and GDS) to be provided under the Part I system. The Health Authority funds the services provided under a pilot scheme from its cash-limited allocation under section 97(3).

39. These provisions allow PMS and PDS to be provided otherwise than through the regulatory system of Part II of the 1977 Act. They enable Health Authorities to agree with pilot providers locally the content of the services and the conditions under which those services will be provided. The Primary Care Act also included provision for a permanent regime (under sections 28C and 28D of the 1977 Act, as inserted by section 21 of the Primary Care Act).

Wales

40. Many of the functions of the Secretary of State in relation to the NHS are exercised in Wales (from 1 July 1999) by the National Assembly for Wales (see the National Assembly for Wales (Transfer of Functions) Order 1999 SI 1999/672).

Scotland

41. The legislative framework for the NHS in Scotland is set out in the National Health Service (Scotland) Act 1978 ("the 1978 Act"). It is broadly similar in structure and content to the 1977 Act, being split into Parts I and II in the same way. Instead of Health Authorities, services are commissioned by Health Boards. The 1990 Act and the Primary Care Act described above made similar provisions for Scotland as for England and Wales.

COMMENTARY ON SECTIONS

PART I - THE NATIONAL HEALTH SERVICE

Section 1: Repeal of law about fund-holding practices

42. Sections 14 to 17 of the 1990 Act provide for the establishment of fund-holding practices as part of the NHS internal market. These practices consist of one or more general medical practitioners (GPs) who provide either general medical services (under the 1977 Act) or personal medical services (under the Primary Care Act), but who are also given an additional sum of money (known as an allotted sum) to purchase certain goods or services for their patients.

43. The 1990 Act provided for regulations to be made which set out the procedures for application and recognition as a fund-holding practice, the purposes for which the allotted sum may be used, and renunciation or removal of recognition. The details of the fund-holding scheme can be found in the National Health Service (Fund-holding Practices) Regulations 1996 (SI 1996/706) as amended.

44. The White Papers The new NHS and Putting Patients First set out the Government's proposals to replace the NHS internal market. As part of these changes fund-holding will be abolished, Primary Care Groups (Local Health Groups in Wales) have been set up and Primary Care Trusts will be established. The NHS (Fund-holding Practices) Amendment Regulations 1999 (SI 1999/261), made on 8 February, provided for the replacement of the existing fund-holding schemes by a single residual scheme from 1 April 1999. Primary Care Groups and Local Health Groups have been established from 1 April 1999 under existing powers as Health Authority committees (c.f. section 16 and paragraph 12 of Schedule 5 to the 1977 Act). Primary Care Groups and Local Health Groups may in time become Primary Care Trusts, which will be established under the powers conferred by the Act (see sections 2 to 7, 12 and Schedule 1).

45. All GPs are covered by a Primary Care Group (Local Health Group in Wales) or will be covered by a Primary Care Trust if one is established in their area. Primary Care Groups and Local Health Groups also involve, as Primary Care Trusts will involve, other health professionals, social services and members of the local community. Primary Care Groups and Local Health Groups are responsible for improving the health of their local community, commissioning services, developing primary and community care and exercising functions delegated to them by Health Authorities. Primary Care Trusts will have similar responsibilities (see the commentary on section 2 below).

46. The repeal of sections 14 to 17 of the 1990 Act by section 1 will abolish the fund-holding system. The transitional arrangements for winding up the fund-holding scheme will be made under the powers conferred by section 63. The transitional provisions will cover arrangements for closing the fund-holding accounts of residual fund-holders; the transfer of those assets, rights and liabilities that need to be transferred to the Health Authority; and any provision for those that are to remain with the former fund-holders.