House of Commons - Public Accounts - Forty-Seventh Report

Select Committee on Public Accounts Forty-Seventh Report

1 Affordability of LIFT

1. The LIFT initiative was introduced to remedy the poor quality of primary care premises in some areas. The alternative routes for procurement of new primary care developments are limited. Public funding is rare (with the exception of NHS Walk-In Centres) and tends to be on a small scale or targeted at basic refurbishment. Only 31 of 588 developments between 2000 and 2004 were classified as being publicly funded.[2] The main alternative for GPs (as self employed individuals) or Primary Care Trusts is to use a private contractor to develop new premises on their behalf. This route has not been used as extensively in deprived areas, leading to inequalities of provision across England. In areas where neither public funding nor third party development is available, LIFT schemes may be the only option for building new primary care premises.[3]

2. The Department's aim is for LIFT to improve the way in which the private sector provides primary care accommodation, in particular through ensuring that there is strategic input to the initiative not available through piecemeal development.[4] Thus it supports LIFT in a way that it does not support other development routes. As well as assistance at national level for local developments through the activities of Partnerships for Health, enabling funds were made available to launch the initiative. The Department has the right to take back enabling funds but it has rarely been used. Enabling funds will not be available for subsequent tranches of developments.[5]

3. The rental charge for a LIFT building is usually higher than for other types of premises.[6] GPs generally qualify for full reimbursement of their rent but other potential tenants within the LIFT building are more likely to be concerned about affordability. For example, pharmacists, dentists or Local Authorities will be expected to cover the additional costs of LIFT premises above those for their existing premises.[7] It is difficult to make a direct comparison between the rent paid in a GP led development and that for a LIFT building because LIFT rentals cover a greater range of services, over the whole life of the building, and with a different mix of tenants. A reasonable comparison is between a large PCT led development in West Bromwich (one of the Sandwell PCTs), called the Lyng Centre for Health and Social Care, and the Oldbury Health Centre, one of Sandwell's LIFT developments. Even so the differences in the leases make interpretation of the figures difficult. The rental comparison is below.Table 1: Cost comparison - LIFT versus Third Party Development

Oldbury Health Centre (LIFT) Lyng Health Centre (Third Party Development)

Capital construction cost (£ million) 4.1 12

Square Metres 2260 5760

Rental charge £/m²
of which:
229 195

Construction and finance 151 178

Facilities maintenance¹ 16 17

Lifecycle 21 n/a

Partnering/ LIFTCo management² 33 n/a

Recovery of bid costs³ 8 n/a

¹ Maintenance in LIFT is inclusive of all maintenance across life of building, whereas under a standard internal repairing and insuring lease it only covers scheduled maintenance. The tenant usually pays for dilapidations at the end of the lease.

² Partnering and LIFTCo management costs relate to the setting up costs of the business whereas the Lyng development was undertaken by an established development business.

³ LIFT bid costs reflect that an exclusive contract for 25 years has been awarded to the LIFTCo. The rules on the number of schemes over which bid costs could be spread mean that there will be no bid costs from scheme 7 onwards. Lyng was a one off tender in the normal course of business for a developer.

4. LIFT rentals are based on the Lease Plus Agreement which includes payment for maintenance of the building. The LIFT rental charge is indexed annually in line with the Retail Prices Index (RPI), and cannot be increased any faster. In a conventional private sector development, increases in rental charges are unpredictable and are affected by the cost of maintenance and repair and market rental values. The tenant is usually also liable for necessary capital expenditure. The cost of LIFT also tends to reflect the greater quality and space within the accommodation than in existing GP premises and the greater scope of service provision.[8]

5. The LIFT rentals for GPs are generally reimbursed in full. To encourage other parties to take a tenancy some Primary Care Trusts choose to subsidise an element of their rent.[9] The high cost of LIFT could lead to spending on other primary care premises and services being squeezed. On average less than 10% of patients within the Primary Care Trusts' boundaries were registered with GPs in the first tranche of LIFT buildings, although this percentage will increase over time.[10] In Newham, in 2005/06, 9% of the PCT's patients were registered with GPs in LIFT accommodation. Nearly 30% of the total funding for primary care accommodation however, went to LIFT GPs (see Table 2 below).[11]Table 2: Analysis of GP premises costs in Newham 2005/06¹

Patients registered
with PCT
Percentage of total registered patients Percentage of total
primary care accommodation costs

Patients registered with GPs in Tranche 1 LIFT premises 27,927 9 28

Other patients 287,029 91 72

Total 314,956 100 100

1 Dr Kohli, a GP in a Newham LIFT development, provided the Committee with 2005/06 figures for Newham after discussion with the PCT. The PCT revised those figures in the light of more up-to-date information.

6. Primary Care Trust accommodation spending on patients registered with GPs in a LIFT development is up to eight times higher than total primary care spending on accommodation (see Table 3 below). The difference mainly reflects the cost of providing new, high quality and purpose built buildings.[12]Table 3: Average annual primary care rent paid per patient versus average rent per LIFT GP patient

(A)

LIFT area
(B)

Actual PCT funding for primary care accommodation 2004-05

(£) (C) ¹

Average annual cost per patient

(£) (D) ²

PCT funding for GP premises in LIFT buildings in 2004-05 on a annualised basis
(£) (E) ¹

Average annual cost per LIFT GP patient

(£)

East London 10,708,000 14.22 422,760 28.73

East Lancashire 2,815,000 5.58 2,451,480 32.88

Ashton, Leigh & Wigan 2,081,000 6.90 967,238 29.23

Barnsley 934,000 3.92 635,376 16.48

Sandwell 1,229,000 3.84 635,400 31.41

Barking & Havering ³ 3,432,000 8.20 0 0

2005/06 figures for Newham provided to PAC by Dr Kohli ⁴

Newham PCT 3,223,099 10.20 899,180 32.20

1 Patient numbers are derived from Table 1 of the C &AG's memorandum, Ev 19.

2 Column D details the annualised PCT funding of GP accommodation for tranche one LIFT buildings for 2004-05. The LIFT funding has been annualised as, in some instances, the buildings only opened during 2004-05. LIFT funding is comprised of the annual rental charge payable by the PCT for premises and forms part of each PCT's overall primary care accommodation funding as detailed in Column B.

3 In 2004-05 the Barking & Havering LIFT building was fully occupied by PCT staff providing clinic services.

4 Dr Kohli, a GP in a Newham LIFT development, provided the Committee with 2005/06 figures for Newham after discussion with the PCT. The PCT revised those figures in the light of more up to date information.

7. LIFT buildings are designed to provide a range of health and social care services to other parties as well as to patients being treated by GPs. Patients within the Primary Care Trust's overall population who are not registered with a LIFT GP may still, therefore, be able to access specific services available in a LIFT building. Some of these may previously have been available only in a hospital, such as radiography or minor surgery.[13]

8. For the LIFT model to work efficiently there needs to be a continuous flow of developments. The LIFTCo is intended to operate as a local property development business with overhead costs spread over a number of projects. Given the cost to the local health economy of developing LIFT buildings, and the long term funding requirements, there is a risk that a continuous flow of projects may not be taken forward. If so, the model may not achieve the expected benefits.[14]

9. There are processes in place to help achieve value for money, for example competitive procurement, review of business cases by Strategic Health Authorities and checks on the reasonableness of the rent by the Valuation Office Agency.[15] There was competition from at least two credible short listed bidders in each LIFT area.[16]

10. The LIFT partnering agreement gives the LIFTCo an exclusive right to develop primary care premises for the Primary Care Trusts for five years providing it can demonstrate value for money by benchmarking. After five years the LIFTCo is required to market test the cost of undertaking new developments with outside suppliers (see paragraph 19). Granting the LIFTCo an effective monopoly for five years, provided the costs are reasonable, is intended to encourage private sector interest. Exclusivity does not have to apply to other premises, for example mental health or Local Authority developments. Where the LIFTCo fails to demonstrate value for money in terms of operating costs, through benchmarking or market testing, Primary Care Trusts are free to use any supplier they choose.[17]

11. Some healthcare professionals working within the LIFT buildings report that the terms of the LIFT contract can make it difficult and expensive to carry out or procure minor alterations. The lease agreement states that tenants can only do so with the prior consent of the LIFTCo, but the time delay and bureaucracy involved in getting LIFTCo approval often causes frustration. In practice this provision is being taken by some LIFTCos to cover not only minor structural alterations, but for example something as straightforward as GPs wishing to erect a new notice board within the surgery. Minor variation is not defined or quantified in the standard Lease Plus Agreement.[18]

12. As debt is cheaper than equity the public sector sought to keep equity to 10% of the financing of LIFT developments. The equity rates of return to the LIFTCos for initial developments across the first 42 schemes ranged between 12.64% and 16.54%, with an average of 14.75%, which is slightly higher than the going rate for equity returns under the Private Finance Initiative of between 12.5% to 15%.[19] There are concerns that the returns in LIFT are high in relation to the level of risk taken by the private sector. Returns for the early schemes may have been higher because of perceived greater risk associated with the newness of the schemes, and uncertainty over the pace of future developments. Partnerships UK consider there may be some scope for them to reduce as subsequent tranches of schemes are rolled out and confidence in the LIFT model increases.[20] As LIFTCo is a public private partnership, the public sector's share of returns, i.e. the 20% due to the Primary Care Trust, will be reinvested in the local health economy. GPs, as self-employed individuals, would not be obliged to reinvest any returns made in developments they undertook.[21]



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