Examination of Witnesses (Questions 1-19)
DEPARTMENT OF
HEALTH, PARTNERSHIPS
FOR HEALTH,
PARTNERSHIPS UK AND
DR KOHLI
17 OCTOBER 2005
Q1 Chairman: Good afternoon, welcome
to the Committee of Public Accounts. I should start by welcoming
Mr Oxikbayev, who is Chairman of the Chamber of Accounts of Kazakhstan,
and his colleagues. You are very welcome. Today we are considering
the Comptroller and Auditor General's Report Innovation in the
NHS: Local Improvement Finance Trusts, which examines a new public-private
partnership model for providing primary care facilities which
is called LIFT. We welcome the witnesses: Brian Johns, who is
Chief Executive of Partnerships for Health; James Stewart, who
is Chief Executive of Partnerships UK and Peter Coates, who is
Deputy Director of Finance—Investment, in the Department
of Health. A general question to start with. What do you think
will be the main benefit for patients from LIFT?
Mr Coates: It is certainly a revolutionary
way to deliver health care for the NHS and it has brought in an
unprecedented investment in primary care facilities to the NHS.
To date we have started work on buildings worth £866 million
and of that £671 million is through building works and £195
million through enabling money provided by the Department of Health.
By the end of the year we think it will be £71 million in
further new starts, making a grand total this year alone of £937
million. We think it has improved access to health care in areas
of most need, closer to home, with a wider range of services under
one roof. The best example of variety under one roof which I can
give is in Newcastle which is a place opened this month where
there are over 100 services under one roof. There are the usual
NHS one-stop shop services; there are also council house services,
a community police station, a job centre and a library. At Colchester
and Tendring there will be a renal dialysis unit meaning patients
no longer have to travel to London, Ipswich or Cambridge.
Q2 Chairman: Could you look at figure
11, which you can find on page 27 of the Comptroller and Auditor
General's Report? LIFT projects are described as attractive to
the private sector because they are "low risk", but
at 15% are the rewards not quite high? Why are they so high?
Mr Coates: I should like to bring
James Stewart in later on, if I may, to discuss what the expected
rate of returns are to be, but LIFTs are not particularly low
risk for the private sector. For example, if the building is not
delivered on time and to budget they bear that risk. In terms
of the IR rate of return they make, we obviously benchmark these
against rates similar in other contracts within government and
we believe that 15% is about the going rate for risk equity in
the private sector. Perhaps I might ask James to come in and talk
a bit more about equity rates.
Mr Stewart: If you compare equity
rates with the PFI market, they are comparable, possibly just
a little bit higher. There are two reasons for that. One is that
the equity rates you are looking at here are effectively for the
first six deals and indeed the rate at which we rolled it out
would probably cover the first 20 or so deals. In time future
tranches will flow through LIFT and we may well see equity returns
come down.
Q3 Chairman: Some criticise this
because the private sector is charging quite a lot for occupancy.
Do you think that is a fair criticism?
Mr Coates: What do you mean?
Q4 Chairman: For the occupancy. Because
their costs are high they are having to charge more. We will bring
in a GP in a moment, but some GPs are saying that this is quite
an expensive scheme and therefore it may be taking resources from
other parts of the NHS. Is that a fair criticism?
Mr Coates: You have to look at
what you get for your money and you have to make sure you compare
apples and apples and pears and pears in terms of value for money.
No doubt we will have a discussion later about what value for
money is and how it is measured. I note the Report does say it
is quite difficult to compare traditional third party developer
developments and LIFT, but we believe that if you take the full
life costs of both options and price in the risks we retain in
the public sector for third party developers and price in the
benefits received from LIFT, the cost per square metre of development
is better for LIFT than it is for third party developers.
Q5 Chairman: Can we look at the evaluation
now? If you look at page 16, paragraph 1.24, could you tell the
Committee why you proceeded with waves 2 and 3 without a complete
evaluation of the pathfinder and wave 1 schemes? It seems that
there is only a gap of about a year between the pathfinder schemes
and actual implementation. Do you think this was a good idea?
Should there not have been more evaluation at the time?
Mr Coates: Obviously with the
NHS it is a large and rapidly changing market, even more so when
government funding is increasing so rapidly. In these situations
with large programmes like LIFT you have to be able to be flexible
to changing priorities. Officials were asked, the question was
put to officials, whether they thought it was a good thing to
telescope the programme down to meet our changing priorities and
we considered that it was a risk we could manage and take. We
did put extra resources into the support programme through the
Department of Health and through Partnerships for Health. In hindsight
we can look back and say perhaps it worked fairly well. If you
look at the number of different services which have come out of
LIFT, for example, it would be quite difficult with a single pilot
to imagine how many different kinds of service there would be.
If we said we would have two or three pilots, we could actually
stifle innovation, stifle growth. We do not think it caused any
slippage to the overall programme and by and large, with hindsight,
we think it was a decision well made.
Q6 Chairman: Could I ask you about
co-location now, which is dealt with in paragraph 1.4 on page
10? Could you explain to the Committee the extent to which LIFT
has been successful in achieving the desired co-location of primary
care professionals and associated services?
Mr Coates: It is policy that we
try to bring care closer to home in the NHS. One of the best examples
we saw was last Thursday when we went round to the Church Road
development and saw there an example where four acute consultants
are now stationed regularly in the one-stop shop and able to treat
patients locally. I believe that it was said there that doctors
were able to refer patients across the room on a contemporary
basis as they came in through the door for treatment.
Q7 Chairman: May I just return to
evaluation? If you look at recommendation 9, which you can find
on page 7, it says "The Department should establish a framework
with which it can establish and evaluate the impact of LIFT".
Can anyone know whether LIFT is really working in the absence
of any proper national evaluation?
Mr Coates: I agree with your sentiment
in the sense that this is very much work in progress and we will
not know for some time whether value for money and success have
been achieved. I would point out that the indicators so far have
all been very positive. The Report itself recognises that LIFT
is an effective solution, offers value for money and I should
be quite happy to run through on a stage by stage basis the indicators
we have as time goes on in terms of evaluating value for money
and success. For example, the initial competition to select a
partner for each LIFT was described in the Report as being robust
and successful and overall value for money was judged to be the
main criteria for selecting partners. So each trust's partner
was selected on the basis of a fair and robust competition. In
relation to schemes as they come forward, we have a whole range
of measures which we can apply to ensure value for money is secured.
We have the business case review system, which ensures all business
cases go to the Strategic Health Authority (SHA) if they are above
a certain value. The District Valuer, part of the Valuation Office
Agency, tests rents to ensure that they are fair. We have professional
testing of estimates from the advisers the Primary Care Trust
(PCT) employ and, a very important step in terms of the future,
some benchmarking work which we are starting with PFH on which
I can go into more detail for you now or later if you wish.
Q8 Chairman: May I ask you about
the strategic partnering board (SPB) which is mentioned in paragraph
3.15 on page 32. It says there "The accountability of the
LIFTCo to the strategic partnering board is well defined. It is
unclear, however, to whom the strategic partnering board is responsible.
Who holds the strategic partnering board to account? Who makes
sure that it is effective?
Mr Coates: The SPB is a cross-organisation
body which is designed to sit and discuss the needs of the local
economy. We expect and know that the representatives on that panel
are the senior members of the various bodies and given that they
are all accountable back to their home organisation it is hard
to see how one body could hold these people to account, bearing
in mind that they are not all NHS employees. It seems to me to
be one of these issues of where the buck stops. These are all
people who are very senior and they are all accountable back to
their boards and putting another layer of control on top of them
seems to be—
Q9 Chairman: That is a fair answer,
but would it not also be a fair criticism that this is one of
those typical schemes which we have increasingly in the public
sector where many people seem to have a hand but no hand is dominant,
therefore there may be a lack of accountability?
Mr Coates: I accept that there
is that risk and the question then is how you track through projects
or different schemes to ensure that they are delivered. The process
of events is simply that a sponsoring department, be it a local
authority or whatever, will take a scheme to the SPB and seek
approval for it and agreement that it fits into the necessary
plans. Ultimately that scheme is tracked through their own boards
and their own accounting structures through to their own responsible
officers. Nothing will go into the system unless it is chased
through by a sponsoring body.
Q10 Chairman: The LIFT schemes appear
to have encountered some resistance from GPs. Why? What are you
doing to gain their support?
Mr Coates: I am sure that some
GPs will resist change because change itself is a threat and different.
There may also be an element of GPs believing that it is more
expensive or whatever and there may be an issue around rent reimbursement.
All we can do is provide the necessary framework to allow the
PCTs to negotiate with the GPs and reach agreement about transferring
into the centres if they can.
Q11 Chairman: As it happens, Mr Bacon
and I, on behalf of the Committee, visited one of these schemes
in Newham last week and it was very interesting. There is no doubt
that the facility we visited was a superb facility, but we did
encounter there some people on the ground and I should like to
call forward now Dr Kohli, if I may, who works at the Newham centre.
He seemed to intimate to Mr Bacon and me that whilst it was a
superb facility and very popular with doctors, he had some worries
about how much money was being drained off other services in Newham.
This is your chance, Dr Kohli, just to give the same answer to
this Committee now that we are meeting formally in the House of
Commons that you gave to us informally in Newham last week and
give us your impressions of what financial consequences there
might be of this scheme in Newham.
Dr Kohli: I prepared a short document
which I circulated to you earlier today.[1]
The buildings are fabulous, there is no doubt about it, but the
cost is of concern. For instance, just to give you a figure, the
cost of the two new LIFT buildings which have been completed in
Newham now, which cover 8% of the population, the total spend
from our total premises expenditure budgets for all GP surgeries
for 310,000 patients who are registered, is 33% of the budget
spent on 8% of the buildings. I personally have no objection to
spending money because I like the idea of working in a great new
building. My concern is for the practices which do not have that
opportunity because at the end of the day the NHS does have a
limited pot to work with. To illustrate it further, we have done
a pounds- per-patient calculation. The average pounds-per-patient
spend on non-LIFT buildings, on premises costs, divided by the
list size, patients registered in that practice, is £8 per
patient. For the two LIFT buildings which have been completed
it has come out at £43.40 per patient. In my world and having
had a little bit of experience of managing NHS budgets, having
been involved in commissioning and chairing a PCT executive committee
not too long ago, these are significant cost burdens to take on
board. I am not opposed to these buildings: I am just concerned
about the cost. The other concerns I have around it are any variations.
Traditionally in general practice when you want to make alterations
or make improvements, which are inevitable, no building can be
built perfectly for the next 20 years, you are able to go to an
open market, get three quotes and the PCT finance department will
approve the cheapest quote as long as it meets their quality standard.
In LIFT you are living with a landlord who has a monopoly provider
status for all alterations, be they small or large. There is no
competition, it is a monopoly and it is for 20 years. So my concern
around that is that we may stop doing the small alterations because
we are worried about the cost which will have an effect and consequence
on patients and patient services. Those are the two concerns I
have.
Chairman: Thank you for that view from
the grassroots. It is always quite important for this Committee
occasionally to get those views. Thank you very much.
Q12 Kitty Ussher: I have a couple
of broad questions and then some which I have drawn from the experience
of a LIFT building which is going up in my part of the world which
is Burnley in Lancashire. It looks splendid at the moment. First
the general ones. Could you just explain from first principles
why doing projects in this way is preferable to direct funding
from national government?
Mr Coates: The first thing to
say is that what we are doing is trying to improve a market which
is there already. We are not saying this is instead of public
funding: public funding is still there. What we are trying to
do in LIFT is improve the way that the private sector currently
allocates and provides primary care property. We are not trying
to take out public sector money, we are not trying to replace
GP-owned developments, we are looking at a particular sector,
which is third-party developers, which we believe could offer
better value to the taxpayer if done differently.
Q13 Kitty Ussher: You said that has
not been proven in terms of value for the taxpayer. Is that right?
Mr Coates: What I said was that
in all these long-term investments you will not have proof positive
that it is value until you have gone some way down the path. If
we look at the indicators we have so far, these indicate that
what we are doing is value for money.
Q14 Kitty Ussher: When will that
finally be proven or not?
Mr Coates: We have some work in
hand around benchmarking and long term learning which is an essential
and integral part of LIFT and an integral part of the recommendations
in the Report, which we accept.
Q15 Kitty Ussher: So you believe
that in the medium term it will be value for money for the taxpayer.
Mr Coates: I personally believe
that in the short term and the long term it will be value for
money.
Q16 Kitty Ussher: I understand that
the LIFTCo effectively has a monopoly on the provision for five
years. Is that right? Then the PCT can market test it.
Mr Coates: It is not quite as
simple as that. How it works in terms of services is that the
contract allows for partnering agreements to be set up which are
long-term agreements whereby you have an agreed list of suppliers
providing services to the LIFTCo. What is a monopoly is the agreement
that all primary care contracts which the PCT wants to let which
are partnering in nature go through the LIFTCo. If the PCT, for
example, wants to develop mental health facilities or acute facilities,
then there is no obligation to use LIFT. Indeed if the LIFTCo
cannot demonstrate value for money to the PCT then the PCT is
free to go elsewhere.
Q17 Kitty Ussher: Do you accept that
there is a monopoly for certain types of services?
Mr Coates: The partnering services
certainly. If you want to partner a contract through that company
which is using the supply chain provided by the LIFTCo, then there
is a monopoly.
Q18 Kitty Ussher: How long does that
last for?
Mr Coates: Five years?
Mr Johns: The overall partnering
arrangement lasts for 20 years, that is the partnering agreement.
The LIFTCo, which is not just the private sector of course it
also includes the public sector, it is a public-private partnership,
has the right, indeed obligation, to respond to PCT requests for
new capital schemes during that period. I think perhaps what you
may be referring to is that in the first five years the LIFTCo
is able to demonstrate value for money by using benchmarking of
costs of schemes without having to go to market testing, out to
competitive tender, but after five years it cannot use the same
supply chain using benchmarking to demonstrate value for money,
it is obliged to go out to competitive tender. To reiterate what
Mr Coates said, any scheme which is developed by the LIFTCo has
to demonstrate value for money and if it fails to do so, the Primary
Care Trusts or local authorities are free to use any other supplier
it chooses.
Q19 Kitty Ussher: Thank you for that
clarification. The point I am probing is if it is the snazziest
outfit in town, which it often appears to be, how can you do a
proper competitive market appraisal, whether it is benchmarking
or market testing? Has there been an analysis of that?
Mr Johns: In terms of the market
testing the important thing is that the LIFTCo is made up essentially
of three partners: one private sector partner and two public sector
partners. It is that public-private partnership company which
has the exclusivity. Beneath that public-private partnership is
a raft of supply chain members, whether design, architects, construction
contractors, maintenance providers and so on and the LIFTCo can
choose from the raft of providers to provide the particular service
on a particular building. It may choose one contractor for a very
large building and a different local contractor for a small building.
The exclusivity does not mean the individual contractors are set
in stone for the next five years.
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