ANNEX A: Outline of the existing law relating to the NHS(12) NHS trusts
230.Section 5 of the 1990 Act, and the immediately following provisions, provide for the setting up of bodies known as “NHS trusts”.  These are not HAs and are separate, independent bodies which were set up to assume responsibility for the ownership and management of hospitals or other establishments or facilities previously managed or provided by a HA (or, before 1 April 1996, its predecessor under the pre-1995 Act structure of the NHS), or to provide and manage hospitals or other establishments or facilities which were not previously so managed or provided.  Section 5(1), as amended by section 13 of the Health Act, now provides that trusts are established to provide goods and services for the purposes of the health service.  A trust's functions are conferred by its establishment order made under section 5(1) and by Schedule 2 of the Act.
231.Nearly all the hospitals in the country are now run by NHS trusts, although increasingly, smaller “community” hospitals are being run by PCTs.  The essential difference between NHS trusts and the hospitals run directly by HAs is that the latter were funded by money paid to HAs for the purpose by the Secretary of State under (what is now) section 97(3) of the 1977 Act; generally speaking, NHS trusts do not have money paid to them direct by the Secretary of State, but instead must compete with each other for orders for their services placed by HAs (or more recently PCTs).  HAs have thus been “purchasers” or “commissioners” of health care on behalf of the local population; while trusts are included among the “providers” of this health care.  HAs may also choose to purchase health care from private sector institutions.  In the period leading up to the creation of PCTs, HAs performed their commissioning functions through committees called Primary Care Groups. Today, most commissioning is carried out by PCTs (in England).
232.This system resulted in the creation of what was known as the “internal market”, whereby the whole of the operation (including trusts) is still the NHS, but for internal purposes the purchasers or commissioners were split from the providers.  However, it should not be of any concern to the patient how the internal arrangements work: so far as the patient is concerned, the whole thing is still the NHS.
233.The 1990 Act conferred on NHS trusts a substantial degree of autonomy.  As well as not being funded centrally, the Secretary of State was able to give directions to NHS trusts only in relation to a limited range of subjects (paragraph 6 of Schedule 2).  The Health Act restricted this freedom by extending to NHS trusts the Secretary of State’s power of direction under section 17 of the 1977 Act (see section 12 of the Health Act).
234.Paragraph 5A of Schedule 3 to the 1990 Act, as inserted by section 3 of the HSC Act, now provides that the Secretary of State may make supplementary payments direct to NHS trusts.  Most NHS trust income, however, continues to consist of payments by HAs/PCTs for the provision of services.