Select Committee on Health Minutes of Evidence

Memorandum by the NHS Confederation (PS 29)

1.  Executive summary

  1.1  The NHS Confederation accepts in principle the use of private sector facilities, expertise and capital in the NHS under the four headings set out by the Secretary of State for Health in his speech to the NHS Confederation annual conference on 6 July 2001.

  1.2  There is a real need for major capital investment in the NHS. PPP/PFI can make a contribution to this process. However, it must not be seen as the only option alongside publicly funded capital investment.

  1.3  The NHS Confederation has a number of concerns about both the suggested benefits of PPP/PFI and the process itself. These include value for money, design and innovation and management capacity. There needs to be a thorough and definitive investigation of the issues surrounding PPP/PFI. It is vital that all parties involved exchange information to advance understanding of the implications of the different financing options.

  1.4  The debate on the role of the private sector in the NHS is confused and is burdened by ideology. It must be recognised that the issues around private sector involvement are matters of practicality rather than principle.

2.  About the NHS Confederation

  2.1  The NHS Confederation is the voice of NHS management. Our members include the majority of NHS trusts, primary care trusts and health authorities in England; trusts, health authorities and local health groups in Wales; trusts and health boards in Scotland; and health and social services trusts and boards in Northern Ireland.

  2.2  For information about the work of the NHS Confederation across the UK you can visit our website:

3.  Purpose of this paper

  This paper sets out the NHS Confederation's evidence on the NHS Concordat with the private and voluntary sectors, and the public/private partnerships (PPPs). Especially the Private Finance Initiative (PFI).

4.  The NHS and the private sector

  4.1  the NHS Confederation accepts in principle the use of private sector facilities, expertise and capital in the NHS under the four headings set out by the Secretary of State for Health in his speech to our annual conference on 6 July 2001:

    —  Allow private sector management to run the new stand-alone surgery centres.

    —  Utilise spare capacity in the private sector to perform operations on NHS patients.

    —  Extend PFI beyond the acute sector into areas such as primary care, social services and equipment.

    —  Use of private sector management expertise in areas such as the provision of IT systems.

  4.2  the NHS Confederation supports the Government's determination to improve the capital stock of the NHS and modernise hospitals and other premises. However, this is just one area of hospital reprovision policy where there is a need for some major rethinking.

  4.3  the issues relating to private sector involvement in the NHS are technical rather ideological.


  5.1  There is undoubtedly a need for major capital investment in the NHS. The NHS has a historic record of major under investment in new buildings, equipment and information systems. PPP/PFI can make a contribution to the modernisation of the NHS in helping to rectify this. However, PPP/PFI needs to be viewed as only one option alongside publicly funded capital investment.

  5.2  The debate on PFI as a method of finance is confused and typified by extreme positions from both its attackers and defenders. The process of obtaining PFI finance and successfully signing a contract is complex and, from the outside, opaque. This has made it difficult for those not closely involved in the process to make an informed decision about the merits or otherwise of the PFI regime as a method of hospital procurement. There are a number of concerns about whether the promised benefits of the PFI process are available.

  5.2.1  Cost of finance, risk transfer and value for money: There is debate over whether PPP/PFI schemes provide value for public money over the long term. Does the transfer of risk to the private sector outweigh the higher costs of borrowing associated with PPP/PFI? This question can only be answered in the future, once the contracts have run their course. However, a key step that can and needs to be taken is to ensure that the value for money assessment for proposed PPP/PFI projects is as rigorous and comprehensive as possible. There is evidence that some of the transfer of risk has not been particularly valid.

  5.2.2  Design and other innovation: There is little evidence that the process encourages the development of highly innovative designs. Indeed, reports from those involved in the process suggest that the process may have something of the opposite effect. The process appears to impose a high cost on the bidders and this will tend to further encourage relatively conservative approaches to design as well as putting total costs up as unsuccessful bidders wish to recover their outgoings across their portfolio of projects.

  5.2.3  Cost over runs: Recent work by the Office for Health Economics suggests that the original claim that PFI procurement reduced the risk of cost over runs is open to question.

  5.3  There are a number of concerns about the process itself.

  5.3.1  The process as an end in itself: The PFI process in the NHS has been driven by an able and well-led team of civil servants. However, there has been an absence of policy about the future shape of hospitals, their internal design. There has been no assessment of the impact of the process redesign work being undertaken by the Modernisation Agency on the design of hospital or health care systems. Health authorities have often been short of the skills required. This has meant that the process of agreeing a PFI deal has had more impetus than other parts of the process and indeed in some cases may have become an end in itself. The impression that PFI was "the only game in town" has re-enforced this. This has further confirmed the tendency towards unadventurous design and a commitment to particular design solutions too early in the process.

  5.3.2  Short term costs: The National Audit Office's analytical framework is widely used. It considers a number of long-term issues, such as risk, but does not lend sufficient attention to significant short-term costs that are often incurred. A PPP/PFI scheme places new technical and financial challenges upon managers and accountants. Without the expertise required to deal with these aspects, the health service is forced to rely heavily on the knowledge provided by external advisors and consultants. These are expensive and can significantly increase the overall cost of the scheme.

  5.3.3  Management capacity: A further major issue is the work and time pressure that is placed upon the purchasing managers of the trust involved. Not only do managers have to use large amounts of time developing the business case, evaluations and approvals, when they also need to be involved in the day-to-day running of their trust, but once the scheme is operational, considerable ongoing management time is also required for monitoring the contract.

  5.4  The main thrust of our evidence therefore is that:

  5.4.1  The heavy commitment to PFI as a solution and the energy expended on rebutting (often unconvincingly) Professor Allyson Pollock (of University College London Hospital NHS Trust) and her team seems to have prevented a more sober and reflective review of the evidence. There needs to be a definitive investigation of these issues to enable managers, planners, policy makers and private sector partners to fully understand the implications of the different options.

  5.4.2  The NHS Confederation believes that mechanisms for sharing learning about PPP/PFI can help to streamline ad reduce dependence on expensive external advisors. The Confederation has formed a working group to advance thinking and exchange information on PPP/PFI schemes across the health service. The Future Hospitals Network will provide an important centre of information about projects, experts and innovative ideas, as well as commissioning work on issues of common interest to its members such as workforce and redesign. So far over 20 Trusts have signed up to this project.

  5.5  Some further policy development work is required to examine:

  5.5.1  How flexibility can be built into PPP/PFI schemes so that they can be adapted to meet long-term future requirements as technology, techniques and demands change. Unlike a number of types of risk that the private sector is prepared to absorb, contractors may not be willing to take on any flexibility considerations for long-term future requirements.

  5.5.2  The matter of staff transfer is a sensitive issue that needs careful and detailed examination. We welcome the examination of new models of employment and secondment but there is a concern about the current state of progress of the three pilot schemes and the extent to which some of the proposed alternatives are legal or workable.

6.  the Concordat and the involvement of private sector management

  6.1  the NHS Confederation supports in principle the use of private facilities by the NHS. Although recent policy has suggested an expansion of the use of private sector capacity, this is not a significant change of direction. Independent contractors or private providers in fact provide many NHS services. In both mental health and elderly care, there are long traditions of core purchasing of specialist facilities. IM&T is another area of modernisation where PPP solutions have been harnessed.

  6.2  The issues are matters of practicality rather than principle. Poor commissioning often produces unanticipated outcomes or poor quality results because of a lack of clarity of what was required. This has made providing health service in this way risky for both the NHS and the private sector. The natural way for the NHS to deal with this is to ensure that a restrictive contract is set. However, this runs the risk that the advantages that the private sector brings (faster response, risk taking, innovation) are so constrained that they cannot operate.

  6.3  the NHS Confederation is not opposed to the use of private sector in areas where they have specialist skills and expertise not available in the NHS. This may include the management of scheduled care, information systems and some specialised functions, but it is worth pointing out that there is no private sector equivalent of a large acute hospital.

  6.4  One area of debate is the extent to which the private sector has more of a history and habit of innovation and expertise in implementation. There is some evidence for this but this may be more of a feature of the difference between the public and private sector in terms of:

    —  attitudes to risk and failure;

    —  levels of management resource;

    —  access to capital to promote innovation;

    —  a simpler performance management system.

  6.5  It is the environment in which private sector managers work rather than any intrinsic difference between the people, that makes a difference. A combination of restrictive contracts and public sector approaches to risk, innovation and management spending may well remove most of the spark that allows the private sector to perform better. It would simply provide public sector management at private sector prices, but without some of the dedication to the goals and values of the organisation that public sector managers can bring.

  6.6  A number of organisations in the private sector have raised their concerns over what they see as the Concordat's failure to work effectively during the pressures of winter. Whereas in past years non-recurrent funds, allocated late in the year have been the preferred method of funding expected winter pressures, more recently the approach has been to incorporate these in baseline allocations. Health communities that received relatively large amounts of non-recurring money had to opt for schemes where capacity could be geared up quickly and where no ongoing commitment was required. The private sector was a good solution to this sort of requirement. With the change to the approach to funding—making it part of the baseline allocation—health communities have been able to take a longer term view and set up services based on recurring funding. The private sector is still a helpful part of the equation but the ability to plan means that the option of in house services can be more fully considered than in previous years and may be more competitive in term of cost and responsiveness. This represents a shift in the way the private sector is used to help cope with winter not resistance by NHS managers to the concept of suing the private sector.

7.  Conclusion

  7.1  There is a real need for major capital investment in the NHS. The NHS Confederation supports in principle the use of private sector facilities, expertise and capital by the NHS. However, PPP/PFI should only be one option alongside publicly funded capital investment.

  7.2  the NHS Confederation is grateful to have been given the opportunity to give evidence to the House of Commons Health Select Committee. The NHS Confederation would be very pleased to work with the Health Select Committee in developing the issues in this document.

September 2001

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