The Government has abandoned a controversial plan to brand failing hospitals using a "traffic light" system to publicise poor performers.
Ministers have decided public confidence in hospitals labelled "red" could slump, depressing staff morale and making bad hospitals worse. Initial indications suggested as many as one in 20 hospitals might be labelled as failing.
Instead Alan Milburn, the Secretary of State for Health, will announce next week a new star rating system for NHS trusts linked to their performance on new hospital league tables. Trusts will be ranked on measures such as waiting times and cancelled operations.
The best-performing trusts will get extra cash from a £500m "performance fund" and the freedom to spend it as they wish while "no-star" poor performers could face being taken over by managers from the top-performing trusts.
A ministerial source said: "If the top trusts want to pay a team bonus to their consultants for working very hard that could be quite a nice thing to do. We are not going to tell them they can't do that."
A sign that the shortage of NHS capacity is being addressed came yesterday with the announcement by the Department of Health that the number of hospital beds had risen for the first time since 1971. The number of beds in general and acute hospitals rose by 700 last year to 135,794.
The idea of shaming failing NHS trusts by marking them with red traffic lights was contained in the NHS plan published last year. However, the scale of the problems in the NHS has forced a ministerial rethink. The Commission for Health Improvement (CHI), the government NHS watchdog, provided a glimpse of the problems on Tuesday with a warning that routine inspections had found three hospitals in the West Midlands were putting patients at risk. It criticised "aggressive" management and "unsafe" practices at University Hospitals Coventry and Warwickshire NHS Trust where a "climate of fear" prevented doctors from highlighting problems. The CHI said the report was its most damning to date.
Mr Milburn admitted in May that designating dozens of hospitals as failing risked alarming patients and antagonising doctors. But he insisted there was no point trying to hide the facts. "We have got to acknowledge the scale of the problems ... It is better to be honest and say, 'We have these problems, they are going to take some time to sort out, we will sort them out' and then there is a choice. You either put the time in and get the reforms in or you go back to what we had before," he told The Observer. "The one thing that worries me is that it would be awful if people thought that somehow we believe that public services were inevitably doomed to fail."
Since then, the storm over private investment in public services has concentrated ministers' minds. They are anxious not to stigmatise public services as failing at a time when they are trying to woo union backing for an increased role for the private sector.
A spokesman for the Department of Health would not confirm the traffic light system had been dropped but said the new set of performance indicators for hospitals, to be published next week, would be simpler and "more about management information".Reuse content