Examination of Witnesses (Questions 50
WEDNESDAY 24 OCTOBER 2001
MILBURN, MP, MR
60. I know what you will say
(Mr Milburn) The way to do that is to get the waiting
times down in this country. That is why our effort has to be focused
on the Health Service in this country and expanding the capacity
of care in this country. That is what we are going to do over
time. We will get to a position where I hope the people who face
an even starker dilemma sometimes, which is the folk who have
a bit of savings, who have saved all their lives and then have
to choose between waiting for treatment and paying for treatment,
and at the moment some of them feel compelled to pay. That is
a terrible situation to be in. We have to solve that dilemma for
them, the way you do that is by expanding capacity and getting
the reforms into the system, which is what we are trying to do,
now. You are right, in the end the patient is confronted with
that dilemma and has to make a choice based on the dilemma as
it is today and not the dilemma which I hope will be solved in
future years. That is true. I think there are things that we can
do to help now. As I said, what we are trying to do is to test
this out in three areas, Portsmouth, East Kent, West Sussex/East
Surrey because it is basically pretty complex, it is terrain we
have never been in before. As you will remember from your own
time in the Department of Health the advice that ministers have
always received until this ECJ judgment is very clear, that under
the National Health Service Act 1977 it was not allowed to send
patients abroad for treatment except in a limited circumstances
under the E112 referral system with prior authorisation. The ECJ
has effectively jettisoned that legal advice. There are a whole
host of issues we have to solve. You touched on standards, that
is a very important issue from my point of view. What we cannot
have is a sort of free for all where patients are sent abroad
willy nilly to any old provider, regardless of the quality of
care, regardless of the back up facilities, that would be a disaster
in clinical terms and it would be very bad for the National Health
Service too because the National Health Service would be paying
for the treatment and care. I can tell you what we are thinking
about, but do not hold me to it, what we are thinking about in
outline terms isAndy McKeon has been dealing with this
for usI think the best way through for guaranteeing standards
is that we get to a position where we have an approved list of
providers. We are in discussions with some providers in some countries
in Europe who seem to have a reasonable track record. I think
I would want to be pretty assured. Again, I think I may well want
to ask the Commission for Health Improvement to assure itself
that the standards of care are really up to scratch in those providers,
first of all. That is the first thing we would probably want to
do. Then it would be up to the local primary care trust in any
area of the country, once this thing is running full scale, which
it will be probably from the new year, to decide how it wants
to spend its money and whether it wants to spend its money sending
patients abroad or whether it wants to spend money sending patients
to the hospital down the road or elsewhere in the National Health
61. One factual point, when you said up and
running probably by the beginning of next year, are you talking
about the pilots or the actual system itself?
(Mr McKeon) We are looking to have the pilots to see
if we can make arrangements to send people for treatment abroad
around the turn of the year. Then after that we will then get
the system up and running and think about having a list of a credited
providers, having got the mechanics sorted.
(Mr Milburn) Then there are three further things we
could potentially do in terms of assuring standards. One is if
these providers are genuinely up to scratch they will want to
assure the local PCT based on firm evidence of clinical outcomes
that they are good. So there will be paper-based evidence that
the PCT will need to ensure itself of before it sends any patient
abroad. Secondly, what has happened and what could be drawn on
as good practice for the PCTs is what happened with St Thomas's
and Guy's Trust where, as you know, they are involved in an arrangement
with the British Army on the Rhine of accrediting five hospitals
there which treat British soldiers in Germany. The way that Tommy's
and Guy's basically determined the standards were up to scratch
was by sending some of their clinicians to German hospitals and
making sure from a clinical point of view they were happy with
the procedure, process and clinical governance issues. It may
well be that is what we have to do when we accredit providers
and, secondly, it may well be what the local PCT wants to do to
act as a failsafe against lapses in clinical quality. The third
and obvious thing which will need to happen is that the PCT will
want, through the contracting process, to have a contract which
ensures certain outcomes and standards and be able to hold the
European-based provider to account if those standards are not
met. I do not know whether that is helpful, but that is the line
of thinking we have on this so far.
62. I can understand that. I also understand
you may not be able to give categoric answers but can I return
to the question of costs. Travel, both for the patient and possibly
a family member to help them and look after them. I think I am
right in saying have there not been one or two, maybe a few more,
patients already treated overseas.
(Mr Milburn) Yes.
63. Under the pilots and those already treated
and possibly thereafter, will all the patients have all their
travel costs paid for by the taxpayer, or will the patients and
the family member or whoever have to make a contribution towards
their travel costs?
(Mr Milburn) We are looking at the legal position
64. In what way? If you wanted to, surely you
just could, could you not?
(Mr Milburn) I may have to change the law.
65. To pay their travel costs?
(Mr Milburn) Under the 1977 Act, I think it is, or
the NHS Act, as you know the Act stipulates which services are
provided free and which are not. It stipulates also those areas
where the making and recovery of charges is expressly provided
for in legislation. Transport is not mentioned, as far as I understand
the legal advice we have had. What you have to do is apply the
model we have in this country. The model we have in this country
is by and large the patients find their own way to the hospital.
What we do is help with low income families in particular. We
are in a slightly different ball game, as you will appreciate,
if we are having to put people not on a bus or in an ambulance
or a taxi to take them to the local hospital but having to put
them on a plane. So we will need to tread quite carefully in this
area and the truth is today we do not have an answer to that question.
We are looking at it carefully, of course we are. Just for your
information, in discussions we have had with some of the European
providers they are trying to suggest to us that what they would
be prepared to do is not just offer treatment and after care as
part of a package but also the cost of travel contained within
the overall package. We have to make sure, again, that represents
good value for money. In the end it will not be me who is running
this scheme, it will be up to the local primary care trusts, that
is what devolution means, they take the decisions, I do not, and
they have to decide how to juggle their priorities and how to
spend their money, and they will have to decide whether or not
it represents good value for money. The guidance I think we will
issue to them is that NHS reference costs probably provide the
best benchmark. There are outliers, as you know, in NHS reference
costs but there is a centre ground within the reference cost index
which might suggest to a primary care trust what they ought to
be looking at in terms of what represents good value for money.
The issue of clinical standards is a very separate thing and I
think we have some responsibilities there to make sure the providers
are genuinely up to scratch.
66. Have you done any estimate yet, or is it
too early, about the likely value for money implications of this
(Mr Milburn) It depends in a sense on what the take-up
is. If you ask me for my view on the take-up, I think it is pretty
difficult to tell because we have not offered this in the past,
but my suspicion isa self-evident pointthat the
NHS at home, whether provided through the private sector, through
the Concordat or through NHS hospitals, is and will remain the
first choice for the overwhelming majority of NHS patients but
there will be some patients who will want to go abroad. As you
know, through the E112 system now in the last year there were
around 1,100 patients we approved through quite a complex system.
My guess is that there will be more than that who take advantage
of the ECJ ruling. I do not know how many it is going to be but
what I am absolutely determined to do is ensure that the people
who get the advantage of treatment through the new system who
could travel abroad do not do so to the disadvantage of other
NHS patients. It is quite important the money for value test is
67. Something has just occurred to me as you
were talking. As a result of what is happening now, in your mind
are you doing it because you believe you have to because of the
European Court of Justice ruling, or on reflection as a result
of that are you now thinking that also the question of choice
and helping with capacity problems in this country and bringing
down waiting lists makes it a good idea? If the answer to those
questions were to be yes and yes, logically there would be nothing
to stop you looking further afield for certain serious medical
conditions where there are not the medical capabilities in this
country and send some people in certain circumstances to places
like the United States for treatment. Would you consider that?
(Mr Milburn) I am not sure we want to stick people
with serious conditions on long transatlantic flights.
68. No, but if there was no alternative?
(Mr Milburn) Shall I tell you what I would prefer
69. Bring them here?
(Mr Milburn) What I would prefer to do and what we
are actively doing is, talking to colleagues in the States, talking
to colleagues in Germany, Italy and Spain, and it is just far
more sensible in the great scheme of things if there is spare
capacityfor example, as you well know there is a surplus
of doctors in Germany (I wish we have a surplus here, we have
not)if we could bring some of those doctors here and get
them into the National Health Service providing treatment and
care for NHS patients. That is a much more comfortable and convenient
thing for the NHS patients. That is how I would prefer to deal
with it. I do not think, frankly, I would want to get into the
position where I send a whole lot of patients to America. I do
not think that is on the agenda.
Chairman: We have the world expert on PFI here
in Mr Coates; the only person who understands PFI, so we need
to talk to him. I will bring in Doug first.
70. I want to direct my first couple of questions
to Mr Macpherson who represents the Treasury and there would be
no reason for Mr Coates not to contribute but I think it is for
the Treasury first. Alan can have a rest. When we are talking
about PFI, and everyone is aware it is a controversial topic,
it tends to focus around value for money and already this afternoon
we have had it raised in that context. The comparison is often
made between PFI schemes and other methods of funding. Last week
at the public expenditure question session, evidence was given
that showed the value for money benefits of PFI schemes tend to
be fairly modest, about 1 to 2 per cent of scheme costs. The current
public sector discount rate is 6 per cent and some critics of
PFI schemes have said that is a bit too generous and therefore
favours PFI schemes unfairly. There are a lot of people coming
in with a lot more detailed questions but do you have any plans
to set a lower rate?
(Mr Macpherson) I think it is clear that we are currently
reviewing our guidance on the investment appraisal. There is an
excellent document called the "Green Book", which strangely
is green, and this was last revised and published in 1997 and
generally this has stood the test of time. If you go back in history
to the first White Paper on the discount rate, it was in 1967,
when the discount rate was set at 10 per cent. Then in the 1970s,
in 1978, the discount rate was changed to five per cent real.
That continued through most of the 80s and was set at six per
cent in 1989. There are clearly a whole raft of issues around
71. It has not changed since 1989?
(Mr Macpherson) The discount rate has not changed
since 1989. It has been reviewed a number of times during that
period but, as I said, the government announced last year that
we are reviewing the Green Book and as we do that we will review
the discount rate.
72. You say it has gone from 10 per cent to
6 per cent at various times, what difference would a one per cent
reduction make to PFI schemes and their value for money?
(Mr Macpherson) I am not best placed to comment on
particular issues relating to the National Health Service. If
you look across the public sector most PFI schemes actually have
quite big benefits. I would be surprised if on average they were
only round one per cent.
73. It was said between one per cent and two
per cent in an evidence session last week.
(Mr Macpherson) It really depends on what you are
doing across the piece on the appraisal guidance. The discount
rate is one factor amongst many. If you look at projects, both
public sector and private sector, what actually determines whether
a project is value for money is only rarely the discount rate.
Obviously if you change it by one per cent or two per cent it
does have effects in terms of what the net present value, to use
the jargon, is of that project. There are a number of issues round
the treatment of taxation, round what you regard as the opportunity
costs of public sector investment, which have to be taken into
account. Certainly if you were to change the discount rate and
leave everything else exactly the same then it is clear that that
will change the return on certain projects.
74. The one percentage point could have a very
(Mr Macpherson) I would be surprised if it was very
75. Mr Macpherson said he did not know how this
applies to the National Health Service, he was not best placed,
it is over to you, Mr Coates, what do you think about this?
(Mr Coates) I think the evidence to the Committee
last week was that it was between a one and two per cent difference.
There is a parliamentary question coming up to be answered and
the average over the last 20, or so, schemes is 1.7 per cent.
It is value for money.
76. If we move on to something else that came
in in your memorandum to this inquiry, is it conceivable that
only four out of 27 PFI schemes have been higher than the public
sector comparator, in other words they were better?
(Mr Coates) I would like to say something about how
we approach these schemes and why we do value for money calculations.
I think the implication in the question is that we somehow massage
the figures or squeeze them a bit to make them work.
77. Some people have alleged that.
(Mr Coates) What we test our assumptions against is
the National Health Service database of average building costs.
We are absolutely confident that we are taking proper risk transfers
in terms of cost in publicly procured schemes. Every quarter that
database is uplifted and we rigorously test the schemes and put
through the systems to make sure we do not over-egg the adjustment
to the comparator. We are really looking at 12 to 13 to 14 per
cent adjustment in terms of risk, which obviously squeezes down
against the PFI option. We also now determine trusts that they
must use a standard spreadsheet for allocating data so that they
always use a compliant, consistent approach for calculating the
value for money sums. We also take a very prudent approach in
our department our and our colleagues are proud of the way they
make sure they protect the public interest. They are always ensuring
the trust themselves do not inflate figures to try and squeeze
things through. Finally, of course, these risks are real, we are
not making these numbers up. If you refer to the press reports
on Laing Construction, they lost £60 million as a consequence
of some PFI scheme and it was recently sold for £1. I have
been around for a long time and I remember when Norfolk and Norwich
was signed and we were told what a wonderful contractor Laing
were, they were the best in the country and we should be very
proud to use Laing. In terms of that particular contract because
of PFI they have taken these risks and they are bearing the cost
of them. We are not making this up because it sounds good.
78. What is the difference between the four
out of the 27 schemes that failed the value-for-money test?
(Mr Coates) I think the answer to that is 1.7 per
79. The average.
(Mr Coates) Yes.