NHS facing £65bn PFI bill – our response

Response by AF Consulting (PFI Support) to the report by Nick Triggle, Health Reporter, BBC News filed on 13 August 2010

 

The report highlights the impact which repaying £65bn over 3 decades is likely to have on NHS Trusts facing rising costs and falling (or static) revenues. This situation is set to be exacerbated by the primacy of patient choice and GP commissioning advocated in the DoH’s July White Paper “Equity and Ecellence: Liberating the NHS”, which points the way to additional squeezing of costs and significant challenges for underperforming Trusts.

 

The mortgage analogy provided by Professor Appleby of the King’s Fund is apt, as is the comment by Dr Mark Porter of the BMA that long-term contracts with the private sector have made local health economies vulnerable to changing conditions.

 

Whilst I would not for one moment suggest that either Professor Appleby or Dr Porter fall into this category, one cannot escape the sense that the PFI ‘nay-sayers’ must be wringing their hands at this latest revelation. There is more than a whiff of schadenfreude in the air.

 

Over the past few years a number of academic studies have concluded that for one reason or another the procurement of PFI projects has been badly mishandled by successive governments leading to disproportionate gains by the private sector and an unsustainable burden of public debt. It has even been suggested by one leading academic that it would be cheaper for the government (of the day) to ‘buy-out’ PFI contracts than pay them off over their contractual life. In fairness the suggestion was made some time ago – certainly well before the advent of today’s recessionary pressures – and although a nice subject for academic discussion it is clearly unrealistic.

 

Responding to the BBC report today, the Chief Executive of the University Hospitals Birmingham Foundation NHS Trust spoke of her satisfaction with their PFI facilities for which she said they are paying around £48m annually against revenues of £500m – ie below the 10% ratio set by the last government. She cited the value [to patients] of replacing Victorian buildings with up-to-the-minute facilities – the inference being that this would not have been possible without the PFI.

 

The many advocates of PFI refer to its ‘opportunity value’ and claim, no doubt with justification, that in the absence of PFI hospitals, schools and other facilities could not have been built when they were most needed – if at all. Also, it is unusual to hear of a public authority which is not largely satisfied with its PFI project once operational.

 

So, the bottom line appears to be that by and large PFI is delivering as intended but at a cost the impact of which was perhaps not fully anticipated.

 

Now we come to the interesting bit. The oft-repeated expression ‘locked-in’ when applied to the public sector (and by inference the taxpayer) is taken to mean that once signed a PFI contract is immutable and cannot be broken without unimaginable penalty. Indubitably, PFI contracts are immensely complex and (if this is not tautologous) tortuous. The balance of understanding also tends to sit with the private sector, partly because it is very much in the interests of shareholders to know how to optimise each contract’s financial potential, but also because the private sector generally ensures that it has continuity of contract management whereas its public sector ‘partner’ does not.

 

Surprisingly perhaps, PFI contracts are not immutable and the concept of the public sector being ‘locked-in’ in the sense of being at the mercy of a Frankenstinian monster of its own creation, is to a very large extent false. In fact much can be done to re-shape PFI contracts to deliver service more nearly matching core needs – and budgets. And that is only the beginning as, upon diligent and informed enquiry, some deviation is likely to be found over time in most if not all operational PFIs, the eradication of which can generate savings and other benefits. If this is thought to be fanciful, solid evidence exists to support it.

 

In its report into the performance and management of hospital PFI contracts issued on 17 June this year, the National Audit Office concluded that “the Department (of Health) should work with the Treasury, who are responsible for PFI policy, to explore ways in which standard PFI contractual terms can be adapted to best encourage partnering and efficiency savings. They should consider how to fit such changes into existing contracts as well as new contracts.” This is one of a number of recommendations made by the NAO most of which have a common root, namely the inadequacy of hospital managers to find and implement latent benefits in PFI contracts. The same recommendations could no doubt equally apply to other sectors.

 

It is to this end, rather than a fruitless navel-gazing exercise, that the government should now be urgently applying itself.