Monday, 14 January 2013

Are PFI hospitals value for money?

The news last summer that some hospitals were having difficulty meeting their financial obligations under their PFI arrangements led to speculation that hospital Trusts would fall into receivership like a row of dominoes. I have not been enthusiastic about the use of PFI in the NHS. I am, however, sceptical of some of the scary stories about how much they are costing and how big a problem they are. It is easy enough to take a few cases where there are problems, and there are some, and create a myth that they are inherent and endemic. Where there are problems, they are usually specific to those Trusts.

The left have always been sceptical about PFI if only because of the Private bit of the 'initiative'. It is regarded a bit like unsafe sex; unprotected, it could lead to unwanted consequences. A key question is not whether the scary stories are true but whether they are typical and what the  explanation for them might be.

Information collated by the National Audit Office indicates that most PFI contracts are performing either satisfactorily or better than satisfactory, and they have been meeting the expectations of the Trusts. Indeed, there is strong evidence that for the most part contracts have been delivering value for money, and  67% of Trusts have reported consistent and improved performance over time. Nevertheless, it is also clear that this is not true for all PFI arrangements. Nor have we seen the full impact of the cuts in NHS funding on the ability of Trusts to meet their PFI obligations. How you interpret this depends on whether you see the glass as half full or half empty.

The glass is certainly not half empty. Although 33% of Trusts have been dissatisfied with at least one service provided under their PFI contracts, this does not mean the PFI is not working well overall. Usually problems are corrected. Another key indicator is how they are working compared to non PFI hospitals, and here the NAO finds a mixed bag. Nevertheless, on the whole, costs and performance are similar to services in non-PFI hospitals. Cleaning, laundry and portering costs are about the same; catering is on average slightly cheaper in PFI hospitals.

I have no problem with the idea behind PFIs as long as service delivery can be assured and something can be done if expectations are not met.  PFI arrangements funded the build of 100 new hospitals  between 1997 and 2010. Many of the old hospitals they replaced, with shortage of space and built for a different age, were unable to develop services with state of the art technology,  and they were unable to adapt to the changing needs of patients. Furthermore the buildings were becoming expensive to maintain. Without the new hospitals the NHS would now have been in a very sorry state. New hospitals were needed. What was at issue was not whether they were needed but how they could be financed.

When considering the costs of PFI, rarely do the critics undertake a proper cost analysis.  They would need to demonstrate, not only that the hospitals could have been built and the services provided at a lower cost, but also how it would have been financed and what the cost of that financing would have been. Only then can we understand the relative costs of the PFI arrangements.

What we do know is that the capital value of the PFI  hospitals is estimated at £6bn and the annual spend on the contracts is £890m. PFI annual charge payments represent between 0.4 and 18.3 per cent of a Trust’s annual operating costs with a mean of 5.8 per cent.  For some Trusts that is a large fixed cost. Before the banking crisis, most PFI Trusts ran surpluses. The problem for those Trusts now in deficit is that these fixed costs cannot easily be reduced. With fixed contractual arrangements it is not easy to find savings in the services the PFI contract provides. The NHS is expected to find savings of £20bn by 2015 and this fixed cost is likely to be a reason why it is difficult for  some Trusts to find savings other than through cuts in front-line services. Again whether you blame the PFI arrangements or the cuts in funding depends on your perspective.

Nevertheless it is worth considering the costs of PFI hospitals in the light of other proposed capital projects. It is estimated that the cost of the full High Speed 2 rail link, linking the Channel Tunnel with Birmingham and the North, would be around £32.5bn. The cost of replacing Trident nuclear weapons capability has been estimated at £34bn. At the end of the day, it depends on political priorities and choices.




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