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: www.nhsconfed.net
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. PPP/PFI
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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