Feature

PFI: more cuts in the NHS

Using private finance to build new hospitals will lead to fewer beds, cuts in staff numbers and an emphasis on discharging patients ‘quicker but sicker’. Jean Shaoul explains why Labour should abandon the PFI

Last July, Frank Dobson boasted that the £1.3bn announced for 15 new hospitals in England under the Private Finance Initiative (PFI) was the biggest ever investment in new facilities for the NHS. It was, he said, part of £2.2bn to be spent on capital projects. The government clearly wants the public to believe that this spending bonanza signifies an improvement in healthcare provision. But such a presentation is fundamentally dishonest.

It will lead to a reduction and change in the composition of healthcare facilities, cuts in staff, including clinical staff, an increased workload for those remaining and ever fewer hospitals and trusts.

Few people realise what a financial disaster PFI will be for trusts, the rest of the health and social services and the public purse. It means paying much more for less, not just for the initial capital cost of the hospitals but also for the entire life of the contract.

Under PFI, trusts hand over their existing buildings and land to a special purpose private sector consortium (PSV), typically consisting of construction, IT, medical equipment, domestic services and catering companies. The PSV then designs, builds, operates and owns the new facilities and leases them back to the trusts for an annual fee. This tariff covers both the rent and all the non-clinical services which will be provided by the PSV or the PSV’s sub-contractors.

Initial capital cost

As others have shown, capital costs have risen by 72 per cent as negotiations with the PSV have proceeded to financial close.¹ Such increases are directly attributable to private sector involvement. Commentators agree that the private sector is not interested in refurbishment. As Walsgrave trust admitted: ‘There is considerable evidence that very large schemes are more attractive to the private sector.’²

So a £30m plan to refurbish the 28-year-old Walsgrave hospital became a £174m scheme to demolish the hospital and build a new one incorporating the facilities provided at another older site, with 15 per cent fewer beds.

As the scale of the increased costs became obvious, subsidies appeared in the form of the ‘smoothing mechanism’ to 12 out of the first 14 trusts close to submitting full business cases, in order to reduce the annual tariff. All or part of the equipment has been removed from PFI deals and is to be funded separately by block grants from the health authority’s block capital allocation. One HA has admitted that the allocation would not have gone to the hospital on any rational prioritisation, thereby distorting the allocation of resources and jeopardising the planned provision of healthcare.

Despite these disadvantages, trusts have been able to show that the privately financed option is better than a public sector comparator (PSC) by making grossly unfavourable assumptions and incorporating the Treasury’s latest mantra: risk transfer, a totally unverifiable calculation of financial costs associated with uncertainty. For example, the Royal Infirmary in Edinburgh, by assuming an eight-year build period (instead of two years) and a 45-year design life (instead of the normal 60) which increases the depreciation charge, produced a risk assessment which showed that £42m of the £49m public sector risk transferred to the private sector via PFI was interest rate risk.³ Yet despite such gross manipulation, the end result is a £17,000 pa surplus compared to a deficit of £117,000 for the PSC — loose change in the context of £144m pa income.³

Reduction in healthcare facilities

While hospitals specify their case load, bed numbers, based on caseload and performance values, are determined by negotiations between the trust and the PSV. All the PFI hospitals have fewer beds than the facilities they replace. According to Gaffney and Pollock, there was a 32 per cent reduction in staffed acute beds for 12 PFI hospitals.¹ The reduction in bed numbers for general inpatient care may be larger than stated since total beds include the ‘protected’ regional beds, unstaffed ‘reserve’ beds, daycase beds and ‘bed equivalents’. For example, overall bed reduction at Walsgrave hospital will be 14 per cent, but 25 per cent in acute inpatient beds.² Bed reduction is achieved by high-tech, short-stay treatments, with patients recuperating in facilities provided in the primary care sector, and offloading the long-term sick to social services.

In some cases, the reduction in beds is accompanied by a reduction in finished consultant episodes, as the case load is redistributed around the region and the case mix changes from emergency and elective admission to day case. Either way there is a higher throughput per bed. Without a corresponding increase in staffing, this means a greater workload for staff since a higher throughput with shorter length of stay concentrates care and admission and discharges procedures into a shorter period, and the casemix shifts towards more complex cases.

Trusts will need to reduce staffing levels, over and above the non-clinical staff transferred to the PFI, to allow for the annual tariff to the PSV which includes a margin for dividends to shareholders. That trusts recognise these implications is evidenced by references to the ‘very challenging performance targets’ that will put them among the top 10 per cent of hospitals in the country in terms of efficiency.^{2 4}

Lessons from the private sector make it clear that trusts will only remain viable if they adopt similar, cheaper models of care — elective surgery for those who are basically well, rather than chronically sick. Such a casemix, having a lower labour content, is thus cheaper.

Financial implications

It is not just patient care and staff that will be affected by heroic case loads. Failure to deliver these performance targets, due to lack of hospital staff or shortcomings elsewhere, will hit the revenue stream since income depends on the number of patients treated. It will lead to an ever downward spiral of ward closures and sackings.

To ensure the ‘success’ of PFI hospitals, HAs must make long-term commitments to ‘purchase’ healthcare from the trust, if necessary switching resources from neighbouring trusts in order to make the scheme viable, as West Kent HA has had to do in Dartford and Gravesham.¹ This can only lead to further financial instability since, according to the National Audit Office, half of all trusts are not achieving their financial targets, and one in four is in deficit. This may go some way to explaining why so many trusts, and their staff, appear eager to embrace PFI: if they don’t, the trust down the road will get in first and take their share of the ‘market’.

Payments to the PFI are funded partly by capital charges and partly by the transfer of resources to cover non-clinical services. But since in all cases the value of the new or enhanced hospital is greater than the existing hospital, it means a corresponding rise in capital charges, with no additional income. This, in turn, means cutting costs which, in a labour intensive service, means staff.

It also means that an amount equivalent to the capital charges leaks out of the ‘internal market’ instead of being recycled back to the HAs, further draining the NHS of resources. Gordon Brown announced in the Comprehensive Spending Review that PFI tariffs were ‘protected’, ie, they had to be met first and if necessary savings would have to be made elsewhere.

It is inconceivable that the trusts have been able to accurately specify their requirements for the length of the contract (typically 25-35 years). But any changes in requirements will lead to a variation in the annual tariff. Under conditions where the consortium is the sole provider, it can raise its charges accordingly.

Plans for acute care hospitals are predicated on forms of primary and community care, involving health and social services, which are clinically unproven and have yet to be established and shown to be cost effective. Local authorities are worried about cost shunting which will leave them with responsibilities but no money: West Herts district councils are considering taking West Herts HA to judicial review over plans to concentrate acute services currently provided in four hospitals in one new hospital, with 50 per cent fewer beds.⁵

Conclusion

Why, if PFI hospitals are such a bad deal, are trusts saying otherwise? The answer is that the Labour Government has rescued PFI from the doldrums. Not only must all capital projects greater than £25m be funded under PFI, albeit with sweeteners from the NHS, trusts must also show that a PFI deal is better than a publicly-funded alternative if they are to get their new facilities. In other words, they are forced to invite the burglars in, open the safe, offer to keep them for the next 30 years and, most important of all, act as chief witness in their defence.

By opening up the remaining public services to private profit, PFI is yet another mechanism for increasing the wealth of the few at the expense of the majority. The Labour Government is presiding over the destruction of a publicly provided health service.