NHS spending and the role of the private sector

Posted on December 21, 2009. Filed under: ISTC, Press/News Releases | Tags: |

British Medical Association | Media Centre | 21 December 2009

Note: This paper is intended as background information for the media. It is not intended as a comprehensive BMA policy briefing paper.


Funding for the NHS in England is expected to come under pressure after 2011, and there may be real term reductions in spending on health. The BMA understands the need for efficiency, but believes that the focus should be on cutting the waste resulting from commercial provision of NHS services, rather than on cuts to frontline care.

The following paper lists reports of money wasted as a result of market-driven reforms in the NHS.

Private Finance Initiative (PFI)

Under the Private Finance Initiative, the private sector has been contracted to provide new hospitals and other infrastructure and then lease them back to the state for 25 or 30 years.

A 2007 report from the Association of Chartered Certified Accountants stated ‘Unlike capital charges from non-PFI hospitals, the charges raised against PFI schemes represent revenue paid to private consortia and lost from the NHS. More schemes will eventually ensure that more money leaves the NHS in this way. In 2004, it was estimated that capital charges from PFI schemes were costing the taxpayer £125m per year.’

The 2008 National Audit Office report,Making Changes in Operational PFI Projects stated that ‘An estimated £180 million was paid by public authorities to PFI contactors to undertake [contractual] changes in 2006.

According to a report in the Daily Telegraph, ‘during the spending review period in 2011-2014, PFI repayments will rise to £4.18 billion – an increase of over £1 billion at current levels. The inflexibility of PFI contracts means that it is more likely that hospitals will make cuts to services to meet their PFI repayments’. (Hospital to cut services to pay for £60bn private finance deal Daily Telegraph, 8 August 2009)

– According to the Economist, ‘the Treasury recently established a unit to lend money to PFI projects that were experiencing difficulty in securing funds through the banks. In effect, public money is being used to prop up PFI projects’. (The Economist, print edition, 7 February 2009)

– Research (published June 2009) carried out by Dr Chris Edwards of the University of East Anglia looked at one of the first PFI contracts agreed for Norfolk and Norwich University hospital (NNUH) and concluded that:

– £217 million could be saved if the contract were bought out from the private company that originally financed the deal.

– £2.4 billion could be saved on buying out the contracts of 53 PFI hospitals, assuming the same saving as NNUH (however, each hospital would have to be looked at in detail individually).

– According to a BBC News report, ‘the University Hospitals of Leicester NHS Trust scrapped its PFI scheme due to spiralling costs. £23 million of public money had been wasted on initial preparations’. Hospitals scrap revamp plan, BBC News Online, 20 July 2007

– According to a Times report in 2008, ‘HSBC made almost £100million from managing National Health Service hospitals where contractors charge taxpayers inflated bills for simple tasks, such as £210 to fit an electrical socket. The charges, paid at hospitals run by the bank’s subsidiary infrastructure company, raise questions about lax controls in Labour’s private finance initiative’. Hospitals run by HSBC, Times Online, 8 June 2008

Independent Sector Treatment Centres (ISTCs)

Independent Sector Treatment Centres (ISTCs) are owned and run by the private sector, but contracted to provide NHS treatment. They typically carry out large volumes of supposedly simple surgical procedures such as hip replacements. The BMA is concerned that ISTCs are receiving millions of pounds for work which is not being carried out and still being paid, as their income is guaranteed. This means more money is being paid into the private sector for less work than the NHS was promised.

Information provided by the Department of Health to the Health Select Committee showed that across the first wave of ISTCs the cost of work carried out was 12% more expensive than the same work carried out by the NHS.

According to a report in the Health Service Journal ‘more than three years after opening, the Greater Manchester surgical centre has still delivered only 63 per cent of contracted value’. ISTCs: Where are all the patients? HSJ, 18 Sep, 2008

Research published in the British Medical Journal on 30 April 2009 by academics at the Centre for International Public Health Policy at the University of Edinburgh found that in the first 13 months after the Scottish Regional Treatment Centre (SRTC) began accepting patients it carried out work worth only 18% of its £5.6m annual contract for referrals. They found that:

– there was ‘no evidence’ to support claims that the centre was ‘efficient or good value for money’.

– the contract reporting requirements did not conform to NHS standards.

– Scottish health boards may have overpaid up to £3 million in the first year of the contract

– if the same findings apply in England then as much as £927 million or almost two thirds of the total first wave contracts worth £1.54 billion might have been overpaid to ISTCs.

Management consultants

The BMA believes NHS trusts are spending too much money on management consultants, often to help them with the burdens created by the development of the internal market.

The Royal College of Nursing has estimated that NHS trusts in England spent £350 million in the last financial year on external management consultants.

Figures recently published by the Department of Health in response to a Freedom of Information request, show departmental spending on consultancy projects for DH itself comes to over £125 million for 2008/09. Costs for the three previous years came to:

£132m in 2007- 2008
£205m in 2006- 2007
£133m in 2005 – 2006

2009 report from the Management Consultancies Association estimated spending on management consultancy to the wider NHS for 2008 was £300 million.

A 2009 investigation by Pulse magazine found PCT spending on management consultants has more than tripled in the past two years. It analysed figures from 62 PCTs obtained under the Freedom of Information Act, and found:

– Each PCT is now spending an average of £1.217m on external companies: up from £361,000 since 2006-2007.

– The cost of legal and professional fees has also risen dramatically bringing the total paid to external companies to an average of £1.568m per PCT.

– NHS Tower Hamlets, hailed by ministers as a trailblazing PCT, reported the heaviest use of external consultants. It spent £5.682m on various projects in 2008, an eightfold increase since 2006-2007. Pulse, 20 May 2009

For further details about the BMA’s campaign visit Look after our NHS


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