HAR 209
Health Policy and Evidence Based Care
The Private Finance Initiative and New Hospitals
Since 1992 the governments preferred method of funding capital works for public services has been through the Private Finance Initiative (PFI), in other words raising the money for new capital assets through loans from the private sector. In the case of hospitals this means that a consortium of private companies design, build and operate the hospital, in return they are paid an annual fee, by the particular NHS trust that commissioned the hospital, to cover the cost of borrowing and maintaining the hospital. This fee can also include any other non-clinical services provided and is usually based on a 25-35 year contract. Several new hospitals have been built using the PFI, in recent years however this method of financing new hospitals has come in for a great deal of criticism, because of its high cost and impact on clinical budgets (Pollock et al, 2002).
However, the use of private finance for hospital building is not a new idea, many of the hospitals in use in Britain today were built with finance from the private sector; before the foundation of the National Health Service in 1948, the hospital and community health service were primarily the responsibility of local government. Any new investment was dependent on the local authorities ability to meet the cost of borrowing. This inevitably meant that the authorities in the areas with the worst health status were at a disadvantage. The use of private finance was suggested by among others Aneurin Bevan, during the early years of the NHS, as a way of funding hospital projects in the post war years, as public sector money was concentrated on education and housing (Gaffney et al, 1999).
Today’s NHS infrastructure retains many pre-war buildings, with a considerable proportion of these being pre-First World War. Spending on these assets has been insufficient to either replace or maintain these worn out and out of date buildings, with the backlog of maintenance standing at £2.6 billion in 1999 (Gaffney et al, 1999), it can therefore be seen that the NHS stock is in need of some investment. In the absence of any other funding, the PFI is the only option available to NHS trusts to replace these old, out of date hospitals. By 1999 a total of thirty-one hospital schemes had been planed under the PFI, with contracts for twelve already signed (Gaffney et al, 1999), by 2002 a total of forty-two hospital schemes were scheduled to be completed by 2008 (Pearce, 2002).
One of the main criticisms of the use of PFI to fund new hospital projects, is that is more expensive than using funding from central government. This extra cost is due to the higher rates of interest charged by the PFI consortiums; in general the treasury can borrow at an annual interest rate of around three to three point five percent to fund new projects, however interest rates charged by PFI consortiums is between nine and eighteen percent per annum (Gaffney et al, 1999). The cost of this higher interest there fore needs to be absorbed somewhere in the project. According to Pollock (2002) this extra cost is usually funded by cuts in the number of beds (30%), staff reductions (20%) and in some part by the sale of assets and charitable appeals. NHS trusts using the PFI also work on the premise that they are able to generate extra income from external sources, by making a greater proportion of their beds available for private patients than they previously did, however under current legislation the NHS must give priority to NHS patients and convert private beds back to NHS beds as and when required; this could mean that this option is no longer available. In July 1999 the then health secretary Frank Dobson MP defended the use of private finance to build hospitals to the Parliamentary Health Select Committee, saying that it got hospitals built faster and freed up money that would have been used to build hospitals, to be spent on other projects, such as replacing old and outdated equipment. He claimed that the use of the PFI was not the reason why new hospitals had fewer beds than before. Mr Dobson also said “all the evidence is that the decision about how many beds a hospital should have is made before it is decided how to finance it”.
This is disputed however by Pollock et al (1999) who claim that PFI business cases contain little or no planning material and use the business cases of Norfolk and Norwich, Carlisle and Hereford as examples, saying that they fail to identify the numbers of total and specialty beds that would be available. Harrison (2000) stated, that £1.4 billion worth of PFI hospital schemes had already been agreed before the National Beds Inquiry had even reported its findings. Whenever they have been asked about hospital planning decisions, the government have tended to argue that clinicians make the important decisions, with clinical directors agreeing business cases and medical directors approving them. Pollock et al (1999) argue that healthcare planning has never been a core clinical skill and decision-making is very different from agreeing to other people’s decisions. One of the clinicians involved in the planning process for the Edinburgh Royal Infirmary PFI scheme told the Glasgow Herald in 1999 that, “We are told maximum cost and told how this translated into maximum bed numbers…and told that we could decide how they should be divided among the various specialities”. The planned reduction in bed numbers in eleven PFI hospitals can be seen in the table bellow.
(Pollock et al, 1999)
Another criticism that has been aimed at new PFI hospitals is that the hospitals being built with private finance are inflexible and unable to adjust to changing healthcare needs. John Carvel, the social affairs editor of the Guardian claims (2000) in an article about the Kings Fund report on its examination of PFI hospitals, “PFI hospitals are expensive, inflexible and could leave the NHS with a portfolio of buildings which are out of date within a few years”. There have been suggestions that architects designing PFI hospitals should be advised by those who will have to work in these new buildings. Chair of the Royal College of Nursing’s governing council, Patricia Bottrill said; “Nursing and other clinical staff must be involved in the design process and should be integral to the PFI team to ensure patient care is at the core of decision making.” In a report compiled by the Commons Health Committee, MP’s said that NHS staff should scrutinize designs for new hospital buildings or put forward their own suggestions before plans are approved.
Anthony Harrison and Sean Boyle, co-authors of the Kings Fund report argue that new hospitals are being built under the PFI scheme without regard to how they fit in with other health services and call for all new hospitals to be commissioned regionally, not by individual NHS trusts. Because the PFI is being used primarily by individual hospital trusts, the projects being funded are almost exclusively concerned with the provision of major capital assets and their associated services and have not taken into account the regional healthcare system into which the project should fit. Harris (2000) says; “The biggest users of hospital care are older people. Their health depends on the existence of good quality primary and community services, working closely with local hospitals, under 30 year binding contracts with private companies, without also planning community services, could turn out to be both wasteful and inappropriate.” In concluding their report for the Kings Fund, Harrison and Boyle argue that as fare as hospital buildings are concerned the PFI is very limited in its contribution to better hospital design.
Among some of the more positive aspects of the use of PFI to build new hospitals that have been highlighted is the reduction of certain risks associated with building and running a hospital to the NHS trust commissioning it. These risks are the cost of overruns in the design and building phase and the risk of running over budget of the non-clinical operation and maintenance of the hospital during the operational phase of the PFI contract. So far however none of the new PFI funded hospitals that have been built have overrun during the design and building phase, in fact former health secretary Frank Dobson reported to the Commons Health Select Committee in 1999 that three of the new hospitals being build under the PFI scheme were due to go into their operational phase between three and six months ahead of schedule; whereas many schemes including the Harrogate and Royal Sussex hospital projects, which were being funded with public money from the treasury were running behind schedule. As many of these new PFI funded hospitals will replace several old hospitals, which are spread out across multiple sites with one new building on a single site the cost of maintenance should be much lower, therefore making more money available for other services. This point is argued by Michael Rosen (1997), in a letter published in the British Medical Journal, in response to an article by Allison Pollock, which criticised the PFI.
As it can be seen in all the literature I have researched, the Private Finance Initiative has many critics and a handful of advocates; these advocates are mainly government ministers, treasury officials or those with a vested interest in PFI consortiums. My personal opinion is that because the government is either unable or unwilling to fund the building of new hospitals, NHS trusts that either want or need to build new hospitals have no other way to fund these projects than with the use of private finance. Whether or not the leasing of these new buildings and the non-clinical services needed to operate them, from private consortiums is a good way of doing this will only be proven later in their contracts. Throughout my research into PFI hospitals I have not heard anyone voice concern about the possibility of a PFI consortium going bankrupt, this maybe because most of the literature I found was written before the demise of Railtrack in 2002. Fortunately for the government when Railtrack collapsed they were only a service provider, managing the national rail network, which was still state owned; however if a PFI consortium should go into liquidation its’ assets including any hospital buildings and services would be passed to the official receiver. This could mean the government having to find money to take over the running of the hospital and pay off creditors, or in a worst-case scenario a hospital having to severely curtail its operations or even close completely.
(Word count, 1878)
References
Carvel, J. (2000). NHS Risks Building White Elephants. Guardian Unlimited. http://www.guardian.co.uk/uk_news/story/0,3604,365363,00.html (21/01/2003)
Duffin, C. (2002). Call for Hospital Architects to be Advised by Nurses. Nursing Standard. Vol. 16(36) p9
Ferryman, A. (1999). Dobson Defends use of the PFI for Hospital Building. British Medical Journal. Vol. 319(7205) p275
Gaffney, D. et al. (1999). NHS Capital Expenditure and the Private Finance Initiative – Expansion or Contraction. British Medical Journal. Vol. 319(7201) p48
Gaffney, D. et al. (1999). PFI in the NHS is there an Economic Case? British Medical Journal. Vol. 319(7202) p116
Harrison, A; Boyle, B. (2000). Private Finance and Service Development. Kings Fund. http://194.66.253.160/eKingsFund/html/pfi.html (21/01/2003)
Pearce, L. (2002). Designed With You in Mind. Nursing Standard. Vol. 16(51) p14
Pollock, A. et al. (1999). Planning the “New” NHS: Downsizing for the 21st Century. British Medical Journal. Vol.319(7203) p179
Pollock, A. et al. (2002). Private Finance and “Value for Money” in NHS Hospitals: A Policy in Search of a Rational. British Medical Journal. Vol.324(7347) p1205
Rosen, M. (1997). What Happens When the Private Sector Plans Hospital Services for the NHS: Patients and Staff Need Facilities Required for Modern Medicine. British Medical Journal. Vol. 314(7094) p1621
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