Monitor's consultation on the application of the private charges cap to NHS foundation trusts (FTs) closed at the beginning of this week. FTs, and all others in the health economy, will wait with interest to see if the regulator decides to change its current interpretation of how the cap applies.

The background

The requirement for a private charges cap was set by Parliament, and can be found at section 44 of the National Health Service Act 2006. Under the Act, Monitor is required to ensure that the licence of each FT prohibits a greater percentage of its total revenue being 'derived from private charges' than was the case in the year to 31 March 2003.

The cap varies considerably between different FTs - from zero in some instances to over 30% in the case of one trust. The average cap is set at a relatively low 1.5%. Strictly applied, the cap would severely restrict the ability of FTs to carry out work in the private sector.

In fact, Monitor has to date taken a relatively liberal view of what FTs can do without falling foul of the cap. In broad terms, it requires trusts to include in their calculation of income 'derived from private charges' only the revenue received from services provided directly to patients. Where any revenue is received indirectly - for instance in the form of profits obtained by a joint venture set up by an FT - that is not counted towards the cap, even where the work carried out is private patient work and the ultimate source of the revenue is the charges paid by private patients.

Unison has challenged this interpretation. It argues that additional categories of revenue, including revenue earned indirectly from private charges, should be counted for the purposes of the cap. The trade union has threatened judicial review of the current interpretation. Monitor's consultation was a response to this threatened action.

Next steps

Monitor is bound to give 'conscientious consideration' to all responses received in the consultation, and will need to take the time to do this properly before announcing whether or not to change its current approach. 

On the one hand, it will be conscious that there is no rational basis for the distinction between the caps applied to different trusts, and that setting any cap by reference to historical revenue more than five years old looks increasingly arbitrary. On the other hand, unless and until Parliament amends the Act, Monitor and FTs must live with its provisions and have no power to change them. The question is fundamentally one of legal interpretation. Whether or not Monitor decides to change its position, Unison (or anyone else) would be entitled to ask a court to decide how the Act should be applied.

In the meantime, the uncertainty generated by the potential change of interpretation and the threat of litigation is an unwelcome distraction for the busy chief executives and commercial directors of FTs, who would understandably like a clear and stable legal platform from which to plan and work. There will continue to be some element of risk associated with commercial projects that generate revenue which could be counted towards the cap.

Unfortunately, however quickly Monitor may digest the consultation responses and announce its decision, there is unlikely to be absolutely clarity until the prospects of litigation recede or this (or any future) government changes the legislative provisions.