Health matters: The privatisation of health care in Britain

Posted on December 22, 2009. Filed under: GP-led health centres, News stories | Tags: , |

FRFI 211 October / November 2009 | accessed 22 December 2009

Health care for London

‘The days of the district general hospital seeking to provide all services to a high enough standard are over’, said Sir Ara Darzi, responsible for the ten-year plan for reorganising health provision inLondon. Commissioned by Gordon Brown in 2007 and promoted to a ministerial post in the Department of Health, he resigned in June this year.

The NHS Next Stage Review Interim Report, published in June 2008, showed there were significant variations in access to and quality of primary medical care services across Britain. The Equitable Access to Primary Medical Care programme was launched to address this. This includes at least one GP-led health care centre in each Primary Care Trust area.

Darzi’s plan was to shift work from hospitals into polyclinics and urgent care centres. 150 polyclinics (GP-led health centres are linked to this model of service), with long opening hours, would provide community-based care at levels between GP practices and district general hospitals, including pharmacy, dentistry, social and mental health, x-ray and ultrasound services, blood tests and minor surgery.

Darzi’s changes opened the way for private companies to bid to run these centres. The Department of Health expects Primary Care Trusts to commission 15% of their services from the private sector. NHS London’s timetable included inviting suitable providers to tender by April this year and sign contracts for the preferred provider by December 2009. ‘Suitable providers’ include GP practices, NHS bodies, private sector companies and ‘third sector organisations’ such as charities. Clearly GP practices cannot compete equally with multinationals in such a bidding process, and whilst health centres may continue to be described as ‘GP-led’ for public consumption, they will in fact be run for profit by health care multinationals and consortia.

Fifty ‘GP-led’ health centres have already opened around Britain. In 17 of these, up to 80% of the GPs are newly qualified or are just finishing GP training. Once private companies take over, information about what they are doing may become commercially confidential.

On 31 July, Camden NHS awarded a ₤20 million contract for running its new GP-led health centre in north London to Care UK, a company that in April 2009 was criticised for the poor quality of its elderly homecare. Yet again, the decision was made two months before the conclusion of a public consultation. A legal challenge is being mounted.

US multinational United Health currently runs three GP practices in south Camden, despite local opposition. In August, Connect Physical Health Ltd (CPH) was awarded a three-year contract to provide physiotherapy services at the Royal Free Hospital, to treat over 11,500 people a year. The pay of staff who choose to stay will be protected but they will not be able to add to their NHS pension. Camden physiotherapy will now be fragmented while CPH manages the referrals, records and appointments from a central database in Northumberland, 350 miles away.

In Hackney, two ‘GP-led’ health centres are planned and again, sticking to the minimum legal requirement for consultation, it is clear that the Primary Care Trust in Hackney has not adequately informed local people.

Private finance and the crisis

The cost of private finance for hospital building has increased with the global financial crisis. Guarantees for repayments of capital to bond holders are now more risky and so this method has become more expensive. However, bank loans have also become more costly. Before the crisis, interest rates on bank loans were between 0.6 and 0.8% above basic bank borrowing rates; they are now 1.5-1.6% above this rate. The government’s plan to increase public borrowing to support the banking sector means that the public sector is locked into making Private Finance Initiative (PFI) repayments to banks at these higher rates. As Alyson Pollock of the Centre for International Public Health Policy at the University of Edinburgh says: ‘Having bailed out the banks at taxpayers’ expense, the government is further conflicted because in allowing the banks to charge an excessive premium for finance it is protecting shareholders’ and investors’ interests at the expense of the taxpayer, the citizen and public services.’

Cutting NHS staff

Management consultancy firm McKinsey has come up with solutions to the financial shortfall and reducton in NHS budgets. Commissioned by the Department of Health in England, it is advising a cut of 10% in the workforce by 2014. This will drastically affect health care provision. Money is however being wasted on the administration of the increasingly privatised system: it now represents 12% of the total NHS budget, compared to 6% in 1991 before the introduction of the internal market.

As the NHS is progressively broken up and its services sold off, concepts such as inefficiency and productivity become paramount whilst universal health care and needs-based planning fall off the agenda. Competition in this context prevents resources being directed to where they are needed. The privatisation of the NHS must be opposed for the health of us all.

Hannah Caller

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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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Public-private partnerships: getting NHS finance that adds up

Posted on October 23, 2009. Filed under: Journals | Tags: |

Health Service Journal | BY STEPHEN LANSDOWNSHELLEY THOMAS | 23 October 2009

Public-private partnership arrangements can be the right alternative to PFI for some trusts’ equipment upgrades, say Stephen Lansdown and Shelley Thomas

The need to balance finances, manage risk and drive efficiencies are common themes in today’s NHS. Delivering high quality, safe patient care while achieving the 18 week target is a constant demand.

Technology in radiography, diagnostic imaging and nuclear medicine is developing fast. Indeed, the NHS’s electronic system PACS demands hospitals have up to date equipment, training, and support and maintenance services to achieve the Department of Health’s objective of joined up, modern healthcare provision.

But such equipment is often costly, expensive to maintain and quickly superseded by newer technology.

A trust considering an equipment upgrade might implement a managed replacement project. Nothing new there. New medical equipment has been procured through largerprivate finance initiative schemes for some time. Trusts which have engaged specialist contractors for this have been able to call on private sector expertise.

Expected constraints on capital expenditure budgets beyond 2012-13 will reduce the amount of PFI. And for some trusts that is not in any event the right solution.

A standalone managed equipment replacement project based on a public-private partnership allows a trust to manage the cost and spread it across the life of a contract with an external provider (typically 15-20 years). The project is “stand-alone” in the sense that it is procured without a larger private finance scheme.

Radiology and diagnostic imaging are where the equipment is most suitable for this type of project, but the principles can be applied elsewhere in the trust’s operations, such as anaesthetics, patient monitoring, ophthalmics and endoscopy.

In essence, the contractor takes on responsibility on an outsourced basis for supplying, maintaining, repairing and ensuring the operation of the equipment, for a regular payment from the trust. Typically the contractor will fund the equipment replacement programme using asset finance.


The public-private arrangements typically involve the contractor, as well as bearing the capital cost of the required upgrade, providing services such as maintenance, support and training to the trust.

Some new or replacement equipment is usually installed at the start of the project and then, working around the life cycle of the current equipment, other equipment is replaced on a pre-agreed rolling basis.

Benefits include:

  • delivering cost savings;
  • removing unpredictability in long term capital expenditure;
  • offering certainty as to equipment uptime and service quality (most payment mechanisms in these projects are based on equipment availability times and monthly performance measurements);
  • providing new and up to date equipment at regular, pre-agreed intervals;
  • reducing capital charges (if off balance sheet treatment can be secured).

Despite the introduction of international financial reporting standards, carefully structured managed equipment replacement projects which transfer significant technology, financial and other risks to the contractor may still be off the NHS balance sheet. Some examples of major risks that the trust should expect a contractor to bear include:

  • supply, maintenance and repair of the equipment
  • equipment downtime
  • technology updates
  • equipment obsolescence
  • changes in maintenance and support charges, interest rates and other costs
  • removal of the equipment on expiry or earlier termination.

Case study

Southport and Ormskirk Hospital trust entered into a 20-year managed equipment replacement project in 2007.

The contract involves the diagnostic imaging equipment at the trust’s two main hospitals being replaced and refreshed with the latest technology, following a pre-agreed phased programme. Service and training are included, and significant technology, financial and other risks are transferred from the trust to the contractor. New equipment in the initial phase includes: digital, general and mobile X-ray; fluoroscopy; digital mammography; ultrasound and mobile C-arms. At the end of the lifecycle of the current equipment, the trust’s CT scanners, MRI scanner and direct digital chest X-ray will also have been replaced.

This contractor financed programme is allowing the trust to reorganise services and improve the patient experience.

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High cost of new Blackburn health centre

Posted on September 28, 2009. Filed under: Uncategorized | Tags: |

Lancashire Telegraph | By Chris Hopper | NHS Blackburn with Darwen | 28 September 2009

A NEW health centre due to be built for £21million will cost taxpayers more than £50million, it has emerged.

Health bosses last month secured private finance for the facility, in Alma Street, off Barbara Castle Way, Blackburn, with a deal to lease the building back.

But now the Lancashire Telegraph has learned that under the terms of the deal, NHS Blackburn with Darwen will pay around £2million a year for 25 years, with annual instalments adjusted for inflation.

And the trust must then make a further payment if it wants to buy the site at market value in 2034.

Yesterday, Roy Davies, Blackburn with Darwen’s health watchdog, criticised the deal and similar public finance initiative (PFI) schemes.

He said: “I don’t think this is a good way to built public buildings at all. I think it is disgusting that we have so much money to pay back.

“I am trying to discourage NHS officers from going down the PFI route.”

Coun Davies said he believed cash for the build of the health centre should have been found within NHS Blackburn with Darwen’s budget.

Burnley General Hospital’s new £29million maternity unit has been paid for from East Lancashire Hospitals’ capital fund, although the Royal Blackburn Hospital extension was bankrolled by PFI at huge cost to taxpayers.

The new health centre, which is expected to open in September 2011, will replace the outdated Montague Health Centre.

Paul Hinnigan, NHS Blackburn with Darwen’s finance director, said: “A replacement for Montague Health Centre has been a priority for some time.

“We have an option to purchase the new health centre at the end of the lease which will be linked to its market value.

“It is not a commitment to buy and we can decide whether or not to take up the option at that time.”

The Lancashire Telegraph has previously revealed that East Lancashire Hospitals NHS Trust will pay £680million over 35 years for the Royal Blackburn Hospital extension, which opened in 2006.

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The NHS is about care, not markets

Posted on September 3, 2009. Filed under: ISTC, News stories | Tags: , |

Guardian | Comment is free | By Allyson Pollock | 3 September 2009

Downsizing the workforce is a business response to loss of profit – but it doesn’t account for the NHS goal of universal healthcare

The core goal of universal healthcare and services planned on the basis of need and not ability to pay is being jettisoned by the turnaround teams and management teams brought in to manage anticipated reductions in NHS budgets. Downsizing the workforce is a traditional response of business to loss of profit where businesses have to pay the costs of operating in a market and earn surpluses for shareholders. Unlike Scotland and Wales, the NHS in England is continuing to pursue market-oriented healthcare in its reform of the NHS. So it should be no surprise that management consultants firm McKinsey have come up with market-oriented solutions to anticipated budgetary shorfalls. They have advised ministers to cut 10% of the NHS workforce in England by 2014, a reduction that will affect services provided primarily to the old and the poor who have among the highest healthcare needs. But strategies to reduce the NHS budget need to pay attention to the role of market structures and how they reduce the ability of the NHS to pool the risks and costs of care across its population.

The diversion of health spending from patient care to paying for a market are not apparently McKinsey’s concern. Take for example the costs of the new market bureaucracy; for more than 40 years administration costs were in the order of 6% of the total budget a year, they doubled overnight to 12% in 1991 with the introduction of the internal market. We have no data today for England, but what we know from the US is that the introduction of for-profit providers increases administrative costs to the order of 30% or more.

So why hasn’t McKinsey advocated making savings along the lines of Scotland and Wales by reintegrating trusts into area-based planning structures and thereby abolishing billing, invoicing, the enormous finance departments, marketing budgets and management consultants, lawyers, commercial contracts? In this way one could project savings of anything from £6-24bn a year for England.

A second set of savings would be the high costs of PFI where the taxpayer, having bailed out the banks, is now paying almost twice as much as it should for some PFI hospitals through high rates of interest and returns to shareholders. The total money raised from private finance so far is £12.27bn but the NHS will pay out £41.4bn for the availability of buildings and a total of £70bn over the life of the contracts. The irony is that the patient and the public are rebuilding the banks’ balance sheets using scarce NHS funds intended for patient care and staff, especially in community-based services.

A third saving could be made by cancelling the contracts for the £5bn ISTCs programme – research in Scotland extrapolated to England has shown as much as £1bn has been wasted by giving money to for-profit ISTCs for work that was not carried out in the first wave.

Then there are all the other contracted out services including the pharmaceutical bill of £14bn. Are these contracted out elements part of the McKinsey scrutiny? It is doubtful since the company travels the world advocating market solutions.

And here we run up against the fundamental problem of retaining marketeers to advise on healthcare. Markets mean reducing the capacity of the NHS to pool the costs of care across the whole service, substituting instead hospitals, clinics and practices that have to pay their way like businesses and, like businesses, can fail. Needs-based planning, once the hallmark of the NHS in England, is being replaced by strategies to deal with artificially created market failure.

Solutions are sought from outside consultants and turnaround teams using unsubstantiated assertions that the NHS is inefficient and can increase productivity. What the selective use of data and evidence mask is the failure to view the system as a whole and to remember that its core goal is universal healthcare, not concocted operating surpluses.

In contrast to Wales and Scotland, England has established hospitals and services as competing trusts or firms operating in a market; competition has replaced the mechanisms which enabled health authorities to monitor and respond and direct resources to the needs of the populations that are being served. But markets create winners and losers – and the unpublished McKinsey report is an attempt at refereeing.

The moral is that if the Department of Health in England commissions private management consultants that derive their profits from markets you will get market solutions. It is the commissioning, not McKinsey’s report itself, that should give offence.

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Banks ‘using PFIs to boost profits’

Posted on August 27, 2009. Filed under: Journals | Tags: |

Health Service Journal | 20 August 2009

A study claims the high interest rates being charged for private finance initiative projects are helping banks restore their profits.

Researchers at Edinburgh University claim the quality and financial performance of NHS services is being impaired because PFIs are forced to pay “unjustified” interest rates.

They say the government is allowing banks to restore profit levels at the expense of PFIs and that the opportunity presented by the taxpayer takeover of two major banks to negotiate better interest rates has been missed

The team analysed the 149 major PFI hospital projects that have been signed by the NHS so far.

They found that two banks in which the government is the major shareholder – Royal Bank of Scotland and Lloyds – have lent money to or invested in 54 separate PFI projects.

In total these projects have raised £12.27bn under PFI, but over the next 30 to 60 years the public sector will pay off a total of £41bn in capital costs alone.

Professor Allyson Pollock, of Edinburgh University’s Centre for International Public Health Policy, said: “Instead of using the opportunity of the taxpayer bail-out to reopen the contracts, the UK government is allowing the banks to restore their balance sheets.”

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£21million of private funding to build Blackburn health centre

Posted on August 13, 2009. Filed under: LIFT, News stories, Providers | Tags: , |

Lancashire Telegraph | Catherine Pye | NHS Blackburn with Darwen | 13 August 2009

CONSTRUCTION work is set to start on Blackburn’s new health centre after £21million funding was arranged.

Building work will commence on the site near Alma Street off Barbara Castle Way in November.

The new facility, which is expected to be completed in September 2011, will replace the Montague Health Centre.

Funding has been found through private finance.

The East Lancashire Building Partnership/Eric Wright Group will build the centre and lease it back to NHS Blackburn with Darwen until all the repayments are made.

The so-called Local Improvement Finance Trust agreement is sim-ilar to the controversial Private Finance Initiative which saw the construction of the Royal Black-burn Hospital extension.

The hospital trust will repay £680million over 35 years for the £113million extension due to the interest rates. Supporters say new facilities would not be built without private finance schemes, but critics believe they are too expensive.

NHS Blackburn said it could not at this stage reveal what repay-ments or interest rates would be for the new health centre.

Services in the new health centre include audiology, speech and language, an artific-ial eye clinic, ortho-ptics, podiatry, a pharmacy,training areas and a cafe.

There will also be a 60-space car park with accessible park-ing bays. NHS Blackburn with Darwen chief executive Judith Griffin said: “We are absolutely thrilled that build-ing work can now begin on the new health facility planned for the centre of Blackburn.

“Services now based at Montague Health Centre will transfer to the new centre. In addition to transferring and expanding existing services a number of new services will be developed including a Young Persons Resource Centre.

“Working with our partners including the borough council I believe this exciting development will underpin a step change in the services we are able to provide.”

“This is a terrific investment in the regeneration of the town centre that will help us to continue to improve health and wellbeing in Blackburn with Darwen.”

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DoH ‘considers dropping private finance initiative for NHS buildings’

Posted on June 26, 2009. Filed under: News stories | Tags: |

Healthcare Republic | 26 June 2009

The government is considering ditching private finance initiative (PFI) as its main way of funding new health buildings, Lord Darzi has hinted.

The PFI involves farming out the funding and management of public buildings to private contractors. The DoH has used the PFI to build dozens of new hospitals over the last 10 years. 

But the model has remained controversial, with many observers convinced it delivers worse value than public money and has been favoured purely to disguise costs.

Now Lord Darzi has hinted that the government is reconsidering its position.

‘That model of funding may have been the right model,’ he told the BMA. ‘But I have no doubt that the Department [of Health] will be appraising whether that it is still the model for the future or whether there are other, better models.’

He added, ‘Quality is a moving target and PFIs have been very successful and might be in the future but it needs to be looked at.’

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