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There was plenty of coverage last week surrounding hospital PFI projects, and whether they represent good value for money. Of course it’s the familiar theme of “public sector wastes money in times of austerity” and the headline numbers offered by the media are at first alarming, the NHS pays 65B over 30 years for projects with a build value of 11.5B, but of course maintenance and upkeep of the building is usually a standard part of any PFI contract and the private partner is meant to hand over the hospital as an asset to the trust in pristine condition at the end of the term.
But if PFI deals are so bad, why do trusts go for them?
Two main reasons, firstly the ageing stock of the NHS’ hospital buildings. Old Victorian hospitals, with poor physical configuration of services are just not fit for purpose to support the health needs of communities in the 21st century. Secondly lack of alternative options, the reality is that any trust approaching their local SHA and the DH for funding to build a new hospital is likely to have received short shrift in recent times. PFI is a neat way of keeping extra public borrowing off the public books, and the last Labour government have preferred to have schemes funded by private finance than go to the money markets to secure extra borrowing to fund the build of new hospitals.
But even despite the lack of alternative options, surely the level of cost / benefit analysis applied when a trust is considering a PFI is pretty robust?
Julie Moore, CEX of University Hospitals Birmingham NHS Foundation Trust appeared on BBC’s Hard Talk programme and also a Radio 5 live interview, defending their PFI, saying the annual cost of payments is only 4% higher than their current estate management and maintenance budget, and that’s for a brand new, modern hospital. I spoke to one of our interim managers who works as an Interim Director of Estates and Facilities and he commented that he has worked in trusts where the annual maintenance bill has run to 30-40M on a TO of circa 225M and the annual capital allowance has only been enough to paper over the cracks, which of course both prolongs and exponentially increases your maintenance liability. Building via PFI eradicates that maintenance bill in one fell swoop and presumably some trusts often come to that tipping point where the PFI starts to look more attractive as maintenance bills rise year on year.
And there are the softer and less tangible benefits as well – improved staff morale, better physical re organisation of services to allow for more efficient patient pathways, higher patient satisfaction, lower carbon footprint, lower HAI rates, and decreased inter-site supply chain and transport costs. Not to mention indirect local economic benefits, such as the taxes paid and employment offered by the companies running PFI schemes.
I particularly liked one poster’s comment on a PFI article last week - Show me anyone who can buy a new house with all the costs and refurbishment rolled up over 30 years for less than 10% of their in come per annum.
I’d be keen to hear back from interim managers who have worked in PFI trusts. Have you worked in a trust where onerous PFI payments meant patient care has been affected as other budgets have been squeezed? Or have you worked in a PFI hospital where delivery of service improvements have clearly justified the cost of the PFI?
I’d be keen as ever to hear your comments.
Steve Melber is Senior Consultant, Health at Interim Partners.
August 20th, 2010 at 9:32 am
For a different perspective - I am an interim but was also a non-executive director of an acute hospital trust. We had seven hospitals across a wide geographic area, all of which were in varying states of decay and disrepair. We considered whether to go down the PFI route for the largest two and decided against. Clearly, the operational (no pun intended) benefit was clear - new hospital, up-to-date equipment and so on. But we were dissuaded for three key reasons:
- the ongoing management input was thought to be nowhere as low as the various providers would have us believe. Asking around, we established that the management requirements for proper contract supervision, change control, finance and accounting was not significantly less than was already being incurred;
- defining the specification for 25 or more years forward was impossible. A quarter of a century ago, the idea that height, weight, blood pressure, blood sugar and other measurements would be electronic (as they now are), rather than with tape measures, sphygmomanometers etc was unthinkable. We were not prepared to commit to an unknown technological future at price almost certain to hold the trust to ransom. We had seen this done in too many other places, within and outside the health service. Not just anecdotes, but evidence of three figure sums to hang a fire extinguisher on a bracket and over twenty pounds to change an office light bulb were too, too frequent;
- the bureaucracy in getting the approvals and the regulations meant we would have to fabricate input numbers to get the right output. We (and I as chair of the governance committee) were not prepared to do this. If the case stacked up on its merits, so be it. It didn’t.
So, the hospital group still has old buildings and a maintenance backlog. Are mortality rates worse here than in neighbouring trusts with PFIs? No. Are staff leaving in droves to work in other PFI hospitals? No.
I should stress that only one non-exec director at that time had any declared party political allegiance and he did not express his party’s views but his own.
August 20th, 2010 at 10:42 am
Remember why PFI and its predecessors arose in the first place? As a means of transferring the debt for capital building projects to the private sector so it did not appear in the national debt figures. But in transferring the risk and cost, the revenue budget must allow for profit for the private companies concerned, which to most people is an anathema for public enterprises like hospitals.
Therein lies the dilemma: do you go for the cheapest option or the most efficient? When you add up all the costs (not just maintenance), PFI is certainly not the cheapest - a Trust finance director I know put the premium at well over 20% rather than the 10% quoted above, once you took into account all factors - though if the involvement of private companies means the project sticks to budget and is managed more effectively than public sector projects, that might be a price worth paying. After all, would you want hospital or school building projects to proceed like Connecting for Health and many other public IT projects?
The best long-term financing method is surely one that keeps the Treasury and its political masters at arm’s length and allows trusts to budget and manage their own affairs with a minimum? Goodness knows, there is way too much interference in Trust finances already, which will not reduce in the short term.
August 20th, 2010 at 12:45 pm
PFI builds were for many the only option available to them - pre foundation trust days. I beleive there will be more creative solutions in the future with the private sector owning and then leasing buildings back to NHS over a long period.
More imaginative community providers are finally investing in remote working, this works well for community based staff (big driver in public health) and trusts can see substantial reductions in office accommodation and improvement in working practices for staff. This process needs thoughtful mgmt to keep staff on board but quality of service can be raised. Double win.
August 25th, 2010 at 3:25 am
Working in Primary and Secondary Care in recent years in PFI and non-PFI buildings I can echo Benjamin Damazer’s comments.
In particular I have worked alongside facilities managers of PFI’s that complain bitterly of the process steps required for routine maintenance like getting a light bulb changed. The man hours and negotiation procedures defy common sense. When a new fixture/fitting for the benefit of patients is required it cannot be done without adding a maintenance fee for the remaining term of the PFI which in some cases proves inhibitative and so the improvement is not enacted. You only need to add a few of these instances together to realise PFI’s do not have the ongoing patient needs at heart thereby suggesting the gain of a new builiding and equipment is short lived in the ever changing demands of health services and patient expectations.
Working as a clinician in both PFI builds and old hospital stock it has never been my experience that staff morale is miraculously enhanced from new builds, this still takes good leadership, efficient processes and the satisfaction from delivering quality healthcare.
August 26th, 2010 at 12:30 pm
It is interesting that this government is denigrating PFI deals as part of its “waken up to reality” statements. Yet PFI was conceived by the Conservatives and taken up with gusto by Labour. It was good enough for both colours of Government for many years, but somehow is the worst of the worst now.
The fact is that Government simply could not afford to replace its ageing assets using conventional capital investment vehicles. The introduction of resource accounting revealed the real cost of capital replacement and went some way to explain why capital investment had been underfunded for many decades.
Noone will deny that there are some pretty bad PFI contracts out there (sometimes bad for the client, sometimes bad for the contractor), but there are some good ones as well.
Unfortunately I fear that dogma will now throw out the benefits for nothing more than newspaper headlines. And it will be the user of services who will suffer.