The pros and cons of those PFI hospitals

June 26, 2012 by
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A soaring atrium, technicolor artwork and cappuccino dispensaries – who would   have envisaged the day when no modern hospital felt complete without this   therapeutic trinity?

Yet after just over a decade of works on a scale not seen before, which have   led to the opening of 118 new hospital schemes (with another 18 in   progress), the first thing most patients will think of when they talk of the   modernisation of the NHS is surely the great glass lobbies that are now   ubiquitous in our hospitals. If the Victorian philanthropists were addicted   to statuary, their 21st-century equivalents are hooked on the smell of   Windolene. They’ll certainly be cleaning the windows as usual today at the Cumberland   Infirmary in Carlisle, the first hospital completed under the Private   Finance Initiative (PFI) system, where the Government borrows money from the   private sector to build public infrastructure in return for   part-privatisation. Opened in June 2000 by Tony Blair and hailed as a   flagship, the £87 million Infirmary has 442 beds and acres of glass, all  paid for privately and leased back to the NHS for 45 years. Three old   district hospitals were closed and amalgamated to make way for the new   hospital, staff were “rationalised” and patients got used to paying for   parking.

Meanwhile, all over the country, more new hospitals began to spring up.   Although Labour had been critical of PFI when John Major introduced it in   1992 for non-NHS projects, Alan Milburn, incoming Health Secretary in 1997,   embraced the concept, declaring that “when there is a limited amount of   public-sector capital available, it’s PFI or bust”.

Critics were quick to suggest that PFI funding for the NHS was not just bad   news financially – because the Government was forced to pay higher interest   rates to PFI consortiums than it would have paid to borrow on the open   market – but that it was causing financial shortages for cash-strapped   primary care trusts (PCTs), that clinical care was being compromised because   funding considerations were driving medical conditions, that future   generations were being thrown into hock, and that the NHS was being forced   to sell off its land to pay for the new builds. And, perhaps most   trenchantly, that the whole thing was a con: that private money had been   chosen, despite the cost to the country, simply because it could be hidden   in the Government’s books, concealing the fact that national borrowing had   increased massively, and perhaps unsustainably.

Labour certainly intends to keep using PFI as a vehicle to update our   crumbling hospitals. As recently as January last year, Alan Johnson, then   Secretary of State for Health, confirmed that “PFIs have always been the   NHS’s ‘plan A’ for building new hospitals … There was never a ‘plan B’.”

But should there be? The Department of Health is convinced that the criticism   is unwarranted. After all, no-one believes that our crumbling Victorian   hospitals – with their long, inevitably mixed wards, MRSA-loving nooks and   crannies, and soaring heating bills – were fit for purpose. Many were a   mess, and made the lives of doctors, nurses and patients miserable. Even the   British Medical Association (BMA), which has been among the harshest critics   of the scheme, agrees that new hospitals were long overdue.

By choosing the ambitious target of building 100 new hospitals by 2010, Labour   could easily have set itself up for a fall. Yet, instead, it exceeded its   aims. “This was a significant, ambitious commitment – it could never have   been done on public money alone,” says a spokesman for the department.

University College London Hospital (UCLH) certainly has reason to be proud of   its PFI scheme. Possibly the largest in the country, at £422 million, it was   signed in the middle of 2000 and completed on time and on budget in 2008.   Sir Robert Naylor, chief executive of the UCLH NHS Foundation Trust, says   the decision – taken before he joined the trust – was possibly the bravest   and the best “ever made in this part of the NHS”.

By bringing together hospitals from four sites, the Trust was able to save   money and create a centre of excellence – not just in acute care but in   academic excellence as well. “UCL is one of the top-performing universities   in the world, and UCLH the top performing hospital according to the   independent assessment organisation Dr Foster,” he says.

James Barlow, Professor of Technology and Innovation Management at Imperial   College, London, and a Director of the Health and Care Infrastructure   Research and Innovation Centre (HaCIRIC), has been looking closely at PFI   projects. “So many would not have been built so quickly without PFI,” he   says. Where he parts company with Whitehall is in his analysis of lessons   that could have been learnt.

“One mistake was in risk-sharing,” he explains. “We’ve learnt that when risk   is shared equitably between all parties involved in construction, you get   more innovation. In PFI, the NHS wanted the private consortiums to take all   the risks. So new ideas weren’t being tried. This is a problem for an area   where technology and practice are changing so rapidly, that, for example, we   may not need as many beds in 10 years as now.”

The BMA’s worries were more straightforward. Dr Paul Flynn, Deputy Chairman of   the BMA’s Consultants Committee, says PFI is inevitably bad for hospitals   because the building consortium and the NHS Trust negotiate every detail but   have different needs. In real terms, he says: “Hospital specification has   been what the PFI consortium has been prepared to pay for.” This means fewer   beds, for example, than the trust might prefer – which could lead to winter   shortages. “Health care should be driven by clinical need, not consortium   considerations,” he says.

Doctors have told the BMA that because the consortium also runs the building,   it can be incredibly difficult to get anything done; one noted it took weeks   to get a notice-board hung, another said that reconfiguring a colonoscopy   clinic to meet patients’ needs took years.

This “straitjacket of provision” – the day-to-day control that consortiums   build in to their contracts – disturbs Liberal Democrat MP Norman Lamb. He   was horrified to discover that his local hospital – Norfolk and Norwich NHS   Hospital, another early PFI build – was negotiated on such poor rates that   the local Trust was deep in the red trying to pay for it. When the rates   were reconfigured in 2003, two years after it opened, the NHS hardly   benefited, but the consortium did, by about £70 million.

The problems, he warns, don’t end with the initial negotiations. “The next 30   years are going to show a revolution in health care – yet we will be   committed to services designed in the Nineties and early Noughties. These   will become redundant. And at the end of the leases, we don’t even end up   with the buildings as the consortiums retain ownership.”

The Liberal Democrats are proposing the establishment of a UK Infrastructure   Bank (UKIB), which would leverage a small amount of public capital with   private capital to make long-term investments in projects such as hospitals.   The key difference between this and PFI is that the infrastructure would   remain in public ownership.

The Tories, too, are looking for alternatives. George Osborne said last   November that they are drawing up models that are more transparent and   deliver better value for taxpayers. “The first step is transparent   accounting, to remove the perverse incentives that result in PFI simply   being used to keep liabilities off the balance sheet,” he said.

But perhaps the greatest criticism levelled at PFI is that it is simply poor   value for money.

The NHS has been saddled with debt,’ says Dr Flynn. ‘Had the  Government borrowed in the usual way, the amounts would have faded into   insignificance by now.”

But from the inside, PFI is seen as good value. Health  Minister Mike O’Brien   says: “The cost to the public sector of long-term capital investment has   always been spread over a number of years – PFI is no different. All PFI   schemes must demonstrate that they are good value for money and affordable   when compared with the public capital funding alternative.”

Alan Maynard, Professor of Health Policy at the University of York and Chair   of York NHS Foundation Trust, disagrees: “If you are trying to raise money   for a new hospital, the best rates come from government borrowing. Why use   private capital when it is always more expensive?” He believes it was done   simply because this borrowing didn’t show up as public expenditure.

The only justification, he says, for using private finance is if it comes with   better management. “But there is simply no evidence of that. There is no   data. There have been no studies.”

Ultimately, many of us will judge PFI by how it affects us next time we need   to visit our local hospital. Again, Mike O’Brien is bullish: “The long-term   benefits for patients of PFI are clear – Norfolk and Norwich Trust has   estimated that it is treating 23,000 more patients each year as a result of   moving to new PFI premises.”

Margaret Keogh, 68, who is on the Patient Panel at the Cumberland Infirmary,   knew the old hospitals in Carlisle well, and is equally familiar with the   shiny new one. And, having suffered breast cancer in her forties, is a   regular user . She does not think PFI is a success. “We’d only just   renovated some of the wards at the old hospital before they tore it down for   the new one. Now there’s no money left at all.”

But that’s not the only problem. Mrs Keogh says: “We have excellent medical   staff, but the new hospital has made life difficult for them. All the   departments of the old hospitals have been combined on one much smaller   site.”

But Carole Heatly, chief executive of North Cumbria University Hospitals NHS   Trust, is clear about what PFI achieved: “Even before the formation of the   NHS in 1948, the need to bring all Carlisle’s hospital buildings together on   one site was the policy direction. The new hospital has delivered an   improved environment to our patients. And as PFI was the only option   available, it meant that Carlisle could have a new hospital.”

This article first appeared in March 2010.


UPDATE: The South London Healthcare NHS Trust is likely to be placed in a form of special measures after accumulating a deficit of £150m, it was revealed today (June 26 2012).

As the government contemplated calling in administrators, politicians began a blame game. Tory health secretary Stephen Dorrell attacked some private finance initiative deals on which the NHS now relies for much of its new infrastructure as “indefensible”, but did not mention that his own party first introduced PFI in the 1990s.

Instead coalition ministers are blaming an “unaffordable” PFI deal signed under Labour, which enthusiastically took up the model, as they prepare the trust to be placed in the “unsustainable providers regime”.



About the Author

Victoria Lambert has been a journalist for more than 20 years, and specialises in health and medical matters. She writes for the Telegraph, the Times, the Sunday Times, the Guardian, the Mail and the Mail on Sunday. She contributes to Saga, Geographical and First Eleven magazines – where she is the agony aunt.

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