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]
2 Ev 18 Back
3
C&AG's Report, paras 1.6-1.7 Back
4
Q 12 Back
5
Qq 41-52 Back
6
C&AG's Report, para 2.14; Qq 3-4, 58-60, 82 Back
7
C&AG's Report, para 2.21; Qq 89-90 Back
8
Ev 20, 21-22 Back
9
C&AG's Report, para 2.14; Qq 38-39, 53-57, 59 Back
10
Qq 11, 93-97 Back
11
Q 11; Ev 21-22 Back
12
Ev 21-22 Back
13
C&AG's Report, para 1.4; Ev 20-21; Q 1 Back
14
Qq 43, 82 Back
15
Q 7 Back
16
C&AG's Report, para 2.8; Q 7 Back
17
Qq 16-18; C&AG's Report, para 2.33 Back
18
Q 11 Back
19
C&AG's Report, para 2.21, 2.30; Q 2 Back
20
Q 2 Back
21
C&AG's Report, para 2.30; Qq 2, 80 Back
|