NHS spending and the role of the private sector
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.
Introduction
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
A 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
Read Full Post | Make a Comment ( None so far )Public-private partnerships: getting NHS finance that adds up
Health Service Journal | BY STEPHEN LANSDOWN, SHELLEY 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.
All-inclusive
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.
www.southportandormskirk.nhs.uk
Read Full Post | Make a Comment ( None so far )High cost of new Blackburn health centre
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.
Read Full Post | Make a Comment ( None so far )Banks ‘using PFIs to boost profits’
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.”
Read Full Post | Make a Comment ( None so far )
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