The bill creating foundation hospitals scraped into law last year. Through the mist and fog of political debate, one thing seems clear. Foundation hospitals will have to behave much more like private companies than extensions of the civil service. If trusts status was one step away from Whitehall, foundation status is probably three steps away – and that may only be the start of a long walk.

To see why foundation hospitals are different, it’s worth looking at what happens when there are disputes between different parts of government. There’s a limited role for lawyers, heads are knocked together and the default mechanism is the Treasury, acting like Big Brother to come in to say who gets what. Never mind what was previously agreed or promised, a deal must be done within the envelope of the resources available. But with foundation hospitals we’re going to see the civil servants making a planned exit by one door and may see the lawyers enter by another.

Under the new law, the contract between the local Primary Care Trust (PCT), which, for example, orders the hip replacement for Mrs Smith, and the Hospital Trust, which carries out the operation, will become legally enforceable. At present, PCTs enter into ‘NHS Contracts’ with hospitals to deliver elective surgery, outpatients appointments and the full range of services. These aren’t legally enforceable agreements because it’s just moving money around the public sector. If either side runs out of money, they scratch their heads and try to sort it out.

This will all change under the new system. A foundation hospital will be in the same position as any other arm’s-length contractor to the PCT. The price for a hip replacement will be fixed at the start of the year on a call-off contract. The PCT will pay no more, and be able to pay no less. And with the patient able to choose where to go, the hospitals with the lowest waiting times and best outcomes are in the driving seats. That means the hospital has to perform and the PCT has to pay – with legally enforceable obligations on both sides.

Putting this into context, one of the core complaints about Railtrack was the creation of a myriad of competing legal obligations between different parts of the rail system, which meant that everything was someone else’s legal responsibility. So, when things went wrong, it was inevitably someone else’s fault. This was a ‘Not me, Guv’ approach to management. Despite the fragmentation caused by Kenneth Clarke’s reforms in the early 90s, non-legally binding NHS contracts have avoided this in the health service. It is still reasonably clear who is supposed to do what.

But who is going to write the contracts between PCTs and foundation hospitals? The Department of Health is working on a set form and is likely to say to the part of the NHS that it still controls: “Thou shalt only enter into contracts on these terms”, and surprise, surprise, all the risks pass to the hospitals under the draft.

Foundation hospitals will enjoy extra borrowing powers and the right to enter into joint ventures with third parties. They could use these powers to exploit clinical advances made by their medical staff and to make money for the trust out of private work.

The other area where foundation hospitals are different is over their membership. Like the Co-Op, they will have local people as members.
But will these be representative of the community or is this an excuse for every minority interest, disaffected local faction or crackpot religious sect to sign up all their members and demand the type of interest they would never get in any other democratic system?

The boards of foundation hospitals face a difficult balancing act in making proper use of their freedoms. They have to keep their staff and local communities on board with the developments and, at the same time, make sure they aren’t diverted by unrepresentative minorities of political, religious or ethnic affiliations. It’s a tough call since the members all have legally enforceable rights which they are highly likely to exercise.