Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1-19)


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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