Last month Monitor, the foundation trust regulator, published revised rules for the calculation by NHS foundation trusts of their “private charges” - the name given to a foundation trust’s earnings from goods and services provided to non-NHS patients, which can be accessed here.

Monitor was obliged to change its rules following the court’s decision (on the application of Unison, the public sector union) that Monitor was not correctly applying section 44 of the National Health Service Act 2006, which obliges it to restrict the proportion of a foundation trust’s income that can be derived from private charges.

Under section 44, it is irrelevant who made the charges to the private patient or how the foundation trust’s receipt is categorised. This means that Monitor’s previous practice of counting only income from services provided to private patients by the foundation trust was too narrow. Consequently, some structures that Monitor previously regarded as outside private charges will now count towards a foundation trust’s private charges cap. For example, if a trust were to conduct its private patient work through the trading subsidiary of a charity which then donates its profits to the foundation trust, the income of the foundation trust will be private charges because the donation will have been “derived from” the charges made to non-NHS patients by the trading subsidiary of the charity. The nature of the income reaching the foundation trust is irrelevant (so it could be a donation, a dividend, payment of rent), as is the number of intervening layers, provided it ultimately comes from someone who has received it from a non-NHS patient in return for goods and services.

Another potentially important distinction confirmed by the judgment is that section 44 applies only to income of the foundation trust itself - income is, after all, what comes in. Mr Justice Cranston was unequivocal in saying that in this case Hansard (which Unison had sought to rely on to prove that the income of companies that are joint ventures or in which the foundation trust has a minority interest were also intended by Parliament to be included) is irrelevant. This is because section 44 is perfectly clear, even though it does not say exactly what Monitor would have liked it to say, and under rules of statutory interpretation, Hansard is only admissible to clarify ambiguity. This means Monitor is not legally required to look beyond income derived from private charges received by the foundation trust itself, whether the income of other bodies would be consolidated with the foundation trust’s income under accounting convention or not.

In its new guidance Monitor expressly acknowledges that an accounts-driven approach is inappropriate “The judgment has made clear that the accounting treatment of particular types and sources of private charges should not be the driver as to whether income from certain goods and services falls within the definition of private charges for the purpose of section 44 (2)”) but either misunderstands the judge’s remarks or (perhaps more likely) feels that as a responsible regulator it should adopt rules that capture the income of subsidiaries, investments and joint ventures even though the income may not have been remitted to (received by) the foundation trust. Monitor is perfectly entitled to adopt this approach: it is always open to Monitor to impose greater restrictions than the minimum required by the Act.

One practical consequence of the changes is that foundation trusts will need to recalculate their private charges for their “reference year” (the baseline by reference to which the trust’s private charges cap must be set) which in most cases will be the financial year 2002/3. This means foundation trusts need to be recalculating their private charges for 2002/3 now so that they can evaluate properly how the change in the private charges rules will affect their business in the future. Recognising that not all foundation trusts will have retained (or in the case of arrangements with third parties have access to) all of the records that would be necessary to establish precise amounts, Monitor is allowing foundation trusts to estimate where that is necessary and appropriate.