Memorandum submitted by The Centre for
International Public Health Policy
CONCLUSIONS AND
RECOMMENDATIONS
Conclusions
1. The methodology used by the National
Audit Office is fundamentally flawed, being based on surveys of
informants who have an interest in LIFT schemes.
2. Other than these biased interviews, there
is no evaluation of value for money or the factors that underpin
it. Specifically:
— There is no comparison of the LIFT
proposals against other current or potential financing methods.
— There is no examination of risk transfer
despite the unusually high levels of return to equity providers.
— The analysis of the financial models
was contracted out to Operis, a PFI/PPP consultancy, and neither
the models nor the evaluation are in the report.
— There is strong evidence that affordability
(the capacity of the public sector to meet the cost of the unitary
charge) may be a problem, but there is no analysis.
As such, the Report marks a new phase in the
NAO's problematic shift away from quantitative to qualitative
analysis in its evaluation of PFI/PPP projects.
3. The NAO make clear that the new governance
structures for the delivery of health and other public services
could be problematic, but there is no attempt at evaluation.
Recommendations
We recommend:
(1) that the Committee of Public Accounts
ensure that a proper, in-depth evaluation of NHS LIFT is undertaken,
with due regard to quantitative data, and with respect to:
— value for money (as compared with
other financing options, whether these are real or theoretical);
— the quantum of risk transferred to
the private sector;
— the rate of return to private sector
investors;
— the effect of joint venture companies
on public sector governance.
(2) that the Committee request from the
NAO the financial models from the Department of Health that were
given to Operis as part of its inquiry, and that these should
be published. Included in the models we would expect to see:
— affordability calculations;
— anticipated sources of income (revenue-sharing
arrangements);
— value for money calculations (Net
Present Value and cash); and
— the apportionment of risk and liabilities
in the event of project failure.
BACKGROUND TO
LIFT
The Local Improvement Finance Trust (LIFT) initiative
is being used to develop new primary and social care facilities
for the NHS. LIFT involves the creation of a joint venture company
within each LIFT locality in which representatives of central
government and the local public sector own shares along with a
private sector partner.
These vehicles raise private finance in order
to develop a succession of projects over the 20-year life of the
partnering agreement. They charge rents to primary care providers
to service this debt—and provide profits for investors and
contractors. This is repaid through NHS subsidy to GPs, primary
care trusts and/or other health providers. Investment through
LIFT, therefore, is ultimately paid for by the NHS.
A total of 42 schemes across England were approved
by the DoH in August 2002, followed by a further nine schemes
in November 2004. Building work has so far schemes valued at £866
million. This number will grow as more LIFT contracts are signed.
THE NAO REPORT'S
TERMS OF
REFERENCE
The NAO sought to assess whether LIFT has proved
to be successful so far through attempting to answer four "high-level"
questions. These were:
1. Will LIFT contribute to the better long-term
delivery of local health services?
2. Does the LIFT structure include appropriate
governance arrangements, incentives and accountability?
3. Have LIFTCos sufficient public and private
skills and capacity to deliver and operate their programmes?
4. Will LIFT deliver the expected benefits
in a way conducive to value for money?
These questions were together used to answer
a general question: is LIFT a suitable vehicle to support improved
primary and community care services that meet local needs while
improving value for money? (page 36). However, the report is not
structured around the four questions, but around the NAO's "Dinner
Party" approach (page 36), the aim of which is "to produce
crisp, interesting report conclusions that can each be stated
in 10-15 seconds."
The conclusions that the NAO reached through
this process were (page 36):
— The National LIFT programme appears
an attractive way of securing improvements in Primary and Community
Care.
— The local LIFT models appear to be
an effective mechanism clearly demonstrating value for money;
however, local management frameworks could be strengthened.
THE NAO REPORT'S
METHODOLOGY
The NAO studied the national picture through
two large surveys. One was sent to the private sector bidders
who had competed for LIFT schemes; the other was sent to Project
Directors from the public sector side. The NAO consulted frequently
with the Department of Health and Partnerships for Health, and
used these two bodies to provide details of potential interviewees.
The NAO also carried out case studies of the
six LIFT schemes that had been signed at this stage of their fieldwork.
They also carried out in-depth interviews with "key stakeholders",
including Project Directors, private sector bidders, clinicians,
Primary Care Trusts, Strategic Health Authorities and local authorities.
A survey was sent to Local Pharmaceutical Committees
in each of the six case study areas following a request by the
National Pharmaceutical Association, which had expressed concerns
that pharmacists felt they had not been fully included in the
LIFT process.
Evaluation of the financial models of the six
case studies was provided by Operis, a management consultancy.
OUR CRITIQUE
OF THE
METHODOLOGY
(i) Project sampling
The NAO sample was restricted to the first projects
to close. As such, the NAO's sample may not represent the full
picture of the procurement. Looking only at the projects that
were most successful in terms of the procurement process makes
it hard to assess how well LIFT projects are progressing generally.
The report might have been more representative had it included
analysis of LIFTs where organised opposition had started to develop.
The NAO did receive letters from people complaining
about their local LIFT schemes but the report did not include
these cases in its evaluation.
(ii) Selection of informants
The NAO's choice of informants could lead to
biased results. In the two national surveys, it only contacted
private sector bidders and LIFT project directors. The experiences
and views of staff and service users were not incorporated. Both
private sector bidders and project directors have an obvious interest
in providing the NHS with a positive account of their projects.
This is also, of course, the case with PFI and indeed public procurement
processes. However, unlike PFI and public procurement, LIFT involves
the promise of future projects, and it may therefore be particularly
difficult for those involved to provide objective evidence.
(iii) The contracting out of the financial
analysis
The Committee may question the legitimacy of
outsourcing the review of the financial models to Operis, a consultancy
company which advises private sector bidders and banks involved
in PPPs.
(iv) Evaluation of performance
The NAO notes that all of the LIFT schemes it
studied have failed to conduct proper post-project evaluations.
Of the six LIFT projects examined by the NAO, just one had developed
a post-project evaluation plan. However, the NAO fails to point
out that these LIFT schemes—and the DoH itself—are
consequently in breach of published guidance. The NAO seems not
to be aware of this guidance. Of evaluation, it says there is
"no clear guidance recommending either its nature or timing"
(page 30, para 3.8).
But this is wrong. In January 2002, the DoH
published guidance to assist NHS bodies involved in capital schemes
in the process of evaluating their completed projects. This guidance,
The Good Practice Guide: Learning Lessons from Post-Project
Evaluation, states that such evaluations are "an essential
aid to improving project performance, achieving best value for
money from public resources, improving decision-making and learning
lessons" (page 1).
This guidance sets out a four-stage process
of evaluation and a number of technical considerations. In addition,
it advises NHS bodies to carry out an initial post-project evaluation
of project outcomes six months after the facility has been commissioned.
It would appear that the LIFT schemes studied
in this report are in breach of this guidance, since in most cases
some buildings have been operational for more than six months.
In addition, since all LIFTs involve Partnership for Health—a
representative of the DoH—arguably the DoH is itself in
breach of its own published guidance.
While the details of this guidance have the
status of "advice" to NHS bodies, the requirement to
evaluate and learn from projects is in fact mandatory for all
DoH projects with a cost in excess of £1 million. Further,
guidance specific to LIFT states that LIFTCos should "regularly
monitor and report the standard of performance" of the services
they provide (Standard Strategic Partnering Agreement, version
4, Section 2).
(v) Value for money comparison
The NAO does not produce direct quantitative
comparisons with public sector finance or with GP-managed developments.
The NAO takes the DoH line that value for money can be demonstrated
through the running of a competitive procurement, in addition
to some benchmarking and an assessment of rents by a district
valuer.
We would question this proposition, which runs
against the process operating under PFI, in which a public sector
comparator is used to test the value of the PFI proposal against
a theoretical publicly financed scheme.
It could be argued that the PSC system is not
appropriate for LIFT schemes, since public finance is rarely available
for large-scale capital investment in primary care. Instead, investment
has primarily been through debt-financing in the form of interest-free
loans from the General Practice Finance Corporation (GPFC). These
loans are paid back by the NHS in the form of a number of different
types of subsidies to GPs.
However, there is no reason why the government
could not produce comparators, based either on public financing
or financing through the GPFC in order to provide information
about base costs. The production of a fully costed "theoretical"
publicly financed project has taken place within the mainstream
PFI programme since the initiative's conception.
In addition, it seems the NAO is unaware of
recent examples of public sector funded health centres, such as
those built with London Implementation Zone grants. Anecdotal
evidence suggests that these projects have been very successful.
For example, Greenwich's Fairfield Grove Health Centre was highly
commended by the Commission for Architecture and the Build Environment
(CABE 2002).
(vi) Risk transfer and the rate of return
The NAO presents little data with which we might
make inferences about the value for money of LIFT projects. This
is despite the fact that local NHS bodies were sceptical. For
example, some of the Strategic Health Authority representatives
in the NAO's case study areas expressed concerns that initial
business cases did not sufficiently explore the risks of LIFT,
and that it was hard to have complete assurance about value for
money for an untried initiative.
Meanwhile, the quantum of risk transfer is not
explored by the NAO, despite the higher rates of return in LIFT
(case study range is from 14.3% to 15.9%) compared to the average
in PFI schemes (12.5% to 15% in the NAO's comparator PFI schemes).
Despite this, the NAO agrees with the government that LIFT is
"clearly value for money".
(vii) Affordability
Affordability refers to the income required
from the public sector to pay the unitary charge to the LIFTCo.
The NAO Report does not produce any affordability calculations,
despite the fact that GPs have expressed concerns that smaller
GP premises may lose funding because the higher lease costs of
LIFT schemes within the locality are tying up resources (Pulse
magazine, 30 April 2005).
In addition, representatives from the National
Pharmaceutical Association, the British Dental Association and
local authorities told the NAO that they had concerns about rental
costs. Indeed, the NAO comments that "there is a common perception
from these groups of prospective tenants that the higher cost
of LIFT, compared to current rent payments, outweighs the benefits
of new, purpose built premises" (page 21, para 2.14). The
Report makes no final conclusion on affordability.
(viii) Conflicts of interest
The NAO makes some criticisms in this area and
recommends stronger management arrangements. Its report expresses
concern about the potential conflicts of interest, in particular
the issue of PCT directors sitting on the LIFTCo Board. It comments
(page 32): "if the LIFTCo was in financial difficulties,
as a LIFTCo director a Primary Care Trust employee might have
conflicting pressures between helping the LIFTCo and protecting
the interests of the Primary Care Trust" (para 3.13).
The NAO points out (page 32, para 3.13): "the
public sector director, in the role as a LIFCo Board Member, has
a fiduciary duty to act in the interests of the LIFTCo and not
for the Primary Care Trust." The NAO provides no evaluation
of how these difficulties have impacted on issues such as accountability,
transparency and the avoidance of conflict in the governance procedures
of the six LIFT areas studies.
OUR CONCLUSIONS
AND RECOMMENDATIONS
Conclusions
1. The methodology used by the National
Audit Office is fundamentally flawed, being based on surveys of
informants who have an interest in LIFT schemes.
2. Other than these biased interviews, there
is no evaluation of value for money or the factors that underpin
it. Specifically:
— There is no comparison of the LIFT
proposals against other current or potential financing methods.
— There is no examination of risk transfer
despite the unusually high levels of return to equity providers.
— The analysis of the financial models
was contracted out to Operis, a PFI/PPP consultancy, and neither
the models nor the evaluation are in the report.
— There is strong evidence that affordability
(the capacity of the public sector to meet the cost of the unitary
charge) may be a problem, but there is no analysis.
As such, the Report marks a new phase in the
NAO's problematic shift away from quantitative to qualitative
analysis in its evaluation of PFI/PPP projects.
Recommendations
We recommend:
(1) that the Committee of Public Accounts
ensure that a proper, in-depth evaluation of NHS LIFT is undertaken,
with due regard to quantitative data, and with respect to:
— value for money (as compared with
other financing options, whether these are real or theoretical);
— the quantum of risk transferred to
the private sector;
— the rate of return to private sector
investors;
— the effect of joint venture companies
on public sector governance.
(2) that the Committee request from the
NAO the financial models from the Department of Health that were
given to Operis as part of its inquiry, and that these should
be published. Included in the models we would expect to see:
— affordability calculations;
— anticipated sources of income (revenue-sharing
arrangements);
— value for money calculations (Net
Present Value and cash); and
— the apportionment of risk and liabilities
in the event of project failure.
SUPPLEMENTARY NOTE
ON LIFT'S
MOVE INTO
CLINICAL SERVICES
The NAO comments that in the fourth wave of
LIFT, LIFTCos will be encouraged to "expand the range of
services provided" (page 32, para 3.16). What the NAO is
referring to here is the delivery, through the private sector,
of clinical primary care services.
In a document from Partnerships for Health that
was circulated to private sector bidders, healthcare companies
and their advisers described how clinical services will be delivered
through LIFT under the alternative provider medical services route.
The clinical services which may be included
in LIFT's fourth wave are as follows:
1. Essential Medical Services: including
care for those who are ill, or believe themselves to be ill, but
recovery is expected.
2. Replacement Additional Services:
These services include Cervical Screening, Contraceptive Services,
Vaccinations and Immunisations—excluding childhood immunisations
and certain travel vaccinations, Childhood Vaccinations and Immunisations,
Child Health Surveillance Services, Maternity Medical Services
and Minor Surgery.
3. Enhanced Services: These include
Intrapartum Care, IUCD Fitting, More Specialised Services for
patients with Multiple Sclerosis, More Specialised Sexual Health
Services, Alcohol and Drug Misuse Services, Provision of Near-patient
Testing—shared care drug monitoring service, Provision if
Intermediate Care and First Response Care, Specialised Care of
Patients with Depression, Care of the Homeless and Anticoagulation
Services.
4. Out-of-Hours Services
5. A combination of any of the above
This proposal will dramatically reduce the public
sector role in primary care services.
18 October 2005
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