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Our view on these Benches is that there are areas in the country where the quality of commissioning is poor. However, the case for bringing in the private sector to take over that commissioning function has not been made, because it is not clear on what basis the private sector would do that. One is left to assume that services would be commissioned principally on the basis of cost, not of quality. That leads us to suggest that there is no evidence that the development of private commissioning would be preferable to improving commissioning skills and capacity within the NHS; for example, by disseminating good practice.
Much has been said already on the subject of PFI. I support the noble Lord, Lord Rea, in his question to the Minister about how the Government can justify the payment of £53 billion for private finance initiative hospitals that are worth only £8 billion. In September 2006, in a speech to the IPPR, Patricia Hewitt stated that there was no limit to the role of the independent sector in the NHS. We would add to that the words, “as providers competing on fair and equal terms, judged by the same quality standards and required to provide the same management information, and working with the same obligation to work in partnership with those parts of the NHS that will never be commercially attractive but will always be needed”.
As in other public sector services such as education, what is happening is yet another round of rushed structural reforms in pursuit of very short-term gains. We believe that the NHS working with the independent sector has a bright future, provided that there is coherence in Government policy, and that what we are buying for the NHS is increased resources and not increased competition for the future, at a time, as the noble Lord, Lord Selsdon, has said, when services and demand will be different.
3.24 pm
Earl Howe: My Lords, as I suspected, the innocent-looking Question tabled by the noble Lord, Lord Rea, turned out not to be so innocent. He has done us a service by raising a series of issues that lie at the very centre of the Government’s health policy, and I listened with care and a good deal of agreement to all that he had to say.
My personal starting point in all this is that there is nothing inherently peculiar about the private sector being involved in NHS delivery. If we think about it—the noble Baroness, Lady Murphy, drew our attention to this—private enterprise has been involved in the NHS in all sorts of ways from the inception of the service. You go to see your GP, who is an independent practitioner; he gives you a prescription for a medicine dispensed by your local chemist, who himself runs a private business. The medicine is delivered to the pharmacy by a wholesaler and manufactured by a pharmaceutical company, both of which are private enterprises. These things are part of
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The major advantage of PFI cannot really be costed in money. It is that by arranging matters in such a way that the private sector builds, operates and maintains a hospital throughout that hospital’s predicted life, NHS patients receive the benefit of that facility much sooner than they otherwise would have under the public finance route. Furthermore, the maintenance of the building is guaranteed by the contractor over the entire period and the business risk transferred away from the taxpayer. That much of PFI is generally agreed to be positive. However, the key question, on which the noble Lord put his finger, is not whether the public have received a benefit from the PFI deal, but whether they have received good value for money.
In May of this year the Public Accounts Committee of another place produced the results of its report into the refinancing deal at the Norfolk and Norwich Hospital, one of the first major PFI deals to be signed by the Government in 1998. Two years later Octagon refinanced the project, and in so doing increased the rate of return to investors to more than three times that which it predicted in its original bid. The PAC was scathing about this deal, referring to,
“It is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating refinancing proposals with the private sector”.
Those words came to mind last week when the Government published a Written Answer, to which a number of noble Lords referred, giving the capital value of each PFI hospital alongside the unitary payments for that hospital during the life of the PFI contract. The Answer makes astonishing reading. PFI hospitals with an aggregate capital value of £8 billion will cost the taxpayer no less than £53 billion over the life of the contracts, a ratio of about six and an half to one. That large difference, of course, includes within it both the cost of money and the cost of so-called “hard services” such as buildings maintenance. But the revealing aspect relates to those hospitals where the PFI contract also covers so-called “soft services”—cleaning and catering. Cleverer heads than mine have analysed the figures and worked out that on average each of those hospitals is paying no less than £39,000 per day, every day, during the life of the contract just for cleaning and catering. The mark-up has to be enormous.
But the irony of PFI is that, after promising the biggest ever hospital building programme in the history of the NHS, the Government now say that they do not want care to be provided in hospitals after all. As we all know, hospitals around the country are
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Many PFI contracts were drawn up at a time when service level agreements offered stability of income. Now, under payment by results, the goalposts have moved, and those hospitals find not only that their income is more volatile but that the level of the tariff is totally unrealistic in relation to their running costs. I seriously question whether the right hand of the Department of Health realised what the left hand was doing when, first, payment by results, and then care in the community became part of mainstream health policy.
Then there are the independent sector treatment centres. The cost-effectiveness and value for money of ISTCs has been difficult for mere mortals to establish, because the Department of Health has refused to release a lot of relevant information on the grounds of business confidentiality. The evidence that exists in the public domain shows that the NHS and the taxpayer are often paying a premium for independent sector involvement; on average 9 per cent and perhaps 11 per cent more than the NHS equivalent costs. There are reasons for that premium, which no doubt the Minister will set out. However, the real concern here is that, under the terms of their contracts, ISTCs are paid irrespective of whether they have completed the work that they have contracted to do. In some instances, they have been paid in full when only 73 per cent of the contracted procedures have been carried out. I suggest to the Minister that that is a high price to pay for the additional capacity afforded to the NHS by these centres. We all want that capacity, but not in a form that could destabilise the local NHS.
That risk was highlighted by the House of Commons Health Select Committee in July. The ISTC programme will eventually provide about half a million procedures a year, at a cost of over £5 billion. Unless these contracts are managed extremely carefully, the viability of a number of NHS providers in certain areas of the country is very likely to be affected adversely, and not necessarily through any fault of their own.
The Secretary of State said recently:
“If independent providers can help the NHS provide even better care and value for patients, we should use them”.
I fully agree with that. Where I disagree with the Government is on the way in which independent providers are currently being used. Patient referrals are being channelled towards ISTCs irrespective of the wishes of patients, thanks to so-called referral management centres. For as long as that continues, the idea that ISTCs are serving to enhance patient choice looks like something of a fiction.
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The virtue of ISTCs should not just be to enhance capacity, but to enhance choice. That is why the Government need not set any artificial limits on the NHS’s use of the independent sector. The only limit should be that exercised by patients making the choice of where they want to be treated. Some people are fearful that having a greater plurality of providers will fragment patient care and reinforce boundaries between institutions. We need to take account of that worry, but perhaps not overplay it. The Connecting for Health programme, when it comes on stream, will serve to dissolve many of the boundaries that might otherwise affect patient care. We need to have certainty over the quality of treatment delivered by ISTCs. The BMJ in recent months has contained some worrying anecdotes on that score, including inadequate training of surgeons, poor supervision and poor clinical governance procedures, so it is reassuring that the Healthcare Commission is currently examining quality standards in ISTCs. There needs to be a level playing field across the piece.
One issue that was not covered by the noble Lord, Lord Rea, but was raised by the noble Baroness, Lady Barker, is private sector commissioning. I am running out of time, but I want to sound a note of warning. I am worried that if that really is the way that we are going, it could represent a very serious wrong turning, not least in the context of the future development of effective practice-based commissioning. One has to question whether the ethos and values of a private sector organisation will make it fit for purpose as a commissioner.
PCTs have public service values and they are accountable. Private commissioners are differently motivated and they are not in the same sense accountable to the public. The way in which private companies operate is too often hidden by considerations of commercial confidentiality, and it is questionable whether they will be susceptible to judicial review. If the Government want to go down the road of private sector commissioning, we need, at the very least, an open debate about it and about what it will mean for the NHS and for patients.
3.35 pm
Baroness Royall of Blaisdon: My Lords, I am grateful to my noble friend for initiating this short but passionate debate. It raises many questions that we must discuss, and I hope that we will have many more opportunities to do so.
My noble friend was absolutely correct, and I start by stating categorically that we will never compromise on the fundamental principle of a health service funded through general taxation, available to each of us equally and free at the point of use, with care based on need and not on ability to pay. Those fundamental principles were the starting point for the NHS Plan, which we set out in 2000, and they have not changed. We will never compromise those values. Indeed, not only are the changes and reforms that we are making consistent with our traditional values, they are essential if we are to protect those values for another generation.
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Over the past five years, we have seen far-reaching improvements in the health service. They have been delivered thanks both to the dedication and commitment of NHS staff and to the record levels of investment that the NHS has received under this Government—from £33 billion in 1997 to £69 billion this year and £90 billion by 2008. All that money has been, and will be, spent on providing the healthcare that people want, whether provided directly by the NHS, by the independent and voluntary sector or by private companies, in hospitals, in specialist centres, in the community or in their homes.
We are now six years into our 10-year programme of health reform, as set out in the NHS Plan, in which we also clearly set out our strategy and path for progress. We are not talking about a rushed set of reforms to produce short-term gain. Indeed, there are four key elements of health reform: more choice and a stronger voice for patients; money following the patient; a regulatory system that will guarantee quality; and a range of providers so that patients and commissioners can get the right services in the right place at the right time.
It was one of the core principles of the NHS Plan, explicitly endorsed by many of the organisations which marched on Wednesday, that we would strengthen partnerships—as stressed by many noble Lords—with patients, their carers and families, NHS staff, and public sector, voluntary and private providers in supplying the highest quality, patient-centred services.
The involvement of the independent sector is not a departure from NHS values—far from it. I emphasise three points. First, the NHS will always remain a provider because of the quality and commitment of its staff, in and outside hospitals. Secondly, as the noble Earl, Lord Howe, clearly stated, the NHS has always been a mixed economy of care. State-owned hospitals have worked happily with GPs—the majority of them private businesses dependent on the profits from their practices—since the founding of the NHS; and the private sector has been widely used to meet particular pressures—at a very high cost, as pointed out by the noble Baroness, Lady Barker. That is not new, and it has not happened only under this Government’s watch. When 40 per cent of secure mental health beds and nearly half of NHS abortions are provided in the private or not-for-profit sector, we should not try to set arbitrary targets or limits on one provider or another.
Thirdly, where a particular service is not meeting the needs of local people, commissioners will be free to find the best organisation or partnership to provide the services that are needed. I stress at this point that it is not private sector commissioning—just advice and support to PCTs. PCTs remain responsible for all commissioning decisions. I know that that concern has been raised by many noble Lords.
I now turn to the figures. Although information on the proportion of NHS finances currently spent on the private sector is not collected centrally, the department does collect fairly comprehensive information on the proportion of total NHS spend on non-NHS provision. However, as well as including the
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As for future spend on the private sector, I draw attention to the fact that, where clinically appropriate, patients can choose in which hospital they would like to be treated. A great many will choose to go to their local NHS hospital; others will not. It would be injudicious to set an arbitrary limit on the proportion of NHS spend in the private sector in the future. Although 2004-05 is the last year for which I can provide a fairly definitive figure, at the end of 2005-06 expenditure on the first wave of independent sector treatment centres had reached £136 million; expenditure on PFI schemes for that year was £468 million; and expenditure on NHS LIFT, the public/private partnership to improve our primary healthcare infrastructure, was £100 million.
Understandably, today there has been much interest in ISTCs. The total investment in wave 1 of that programme will be approximately £1.6 billion and in phase 2 we expect to invest £3 billion on elective services and a further £1 billion on diagnostics services. That expenditure is clearly to be made over a number of years.
Concern has been expressed about possible destabilisation of existing service providers. In phase 2 of the procurement, there is a robust process to ensure that there is local support and a capacity need for each ISTC. That includes the SHA demonstrating how the ISTC will be integrated within the local health economy and how any impact on the activity levels and capacity of existing providers will be managed.
We recognise the importance of the provision of training for NHS staff in ISTCs. Training pilots are now taking place in wave 1; for example, there is training for doctors and nurses in Brighton, York and Burton, as well as many other forms of training. In the second phase of ISTCs being procured at the moment, all schemes will have the capacity to offer clinical training experience. It will be a matter for educationists locally to take this up and, if they do so, there will be no additional cost. Like the noble Baroness, Lady Murphy, I hope that the deans will ensure that that becomes practice. Do ISTCs cherry-pick? No. They were established precisely to offer dedicated facilities for specific types of planned surgery. Similarly, units have been established by NHS hospitals, and the number of places in NHS treatment centres far exceeds those in ISTCs.
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The noble Baronesses, Lady Turner and Lady Barker, spoke of the premium to ISTC providers. Premiums recognise that ISTCs face costs that are not borne by the NHS, such as staff recruitment, the cost of financing new buildings and many other things. We do not expect to pay the same premium in the next phase of procurement. That is important.
Noble Lords have rightly stated that the Select Committee in the other place was told that the department is still negotiating contracts for the next phase of ISTCs and, therefore, the committee was unable to receive all the information that it required. That is absolutely right, because to have provided all the figures could have adversely affected the department’s ability to achieve best value for money for taxpayers in these negotiations. However, a point often missed is that the Select Committee was offered—it took up the offer—a private meeting with Ken Anderson, director-general of the department’s commercial directorate, to discuss these matters. The department and the NHS are committed to evaluating the impact of the reform programme so that the lessons of the current reforms can be used for policy development in future.
The noble Earl, Lord Howe, made a point about referral management centres which, it is alleged, are being used by PCTs to intercept GP referrals and divert them to private providers. The most recent guidance issued by the department to the NHS made clear that referral management centres must not be imposed on GP practices. They must abide by clear protocols that provide tangible clinical benefits to patients and should provide feedback to practices on referrals, thus enabling GPs to review the appropriateness of their referrals.
The noble Lord, Lord Rea, asked whether inspections of ISTCs are as rigorous as those of NHS trusts. The quality of treatment must be paramount, and ISTCs are subject to inspection and audit by the Healthcare Commission, as is the NHS. In addition, providers of ISTCs are subject to a rigorous contractual performance regime to ensure that they provide the high level quality of care that we expect for NHS patients. Like the noble Baroness, Lady Murphy, I believe it is clear that ISTCs are having an effect on practice in the NHS and the private sector.
Many noble Lords raised questions about the private finance initiative. The way in which the Opposition and many others have chosen to use government figures is wrong and grossly misleading. The relevant figures are £8 billion for the capital cost of PFI hospitals open or under construction and £53 billion for subsequent annual payments to the private sector partners over the next 30 years. The annual payments made by NHS trusts to their private sector partners cover financing charges, building maintenance and, in most cases, all the non-clinical support services such as cleaning, laundry, catering, portering and security, which can account for between 40 per cent and 50 per cent of the annual payments. Pure capital cost accounts for as little as one-fifth of the overall total paid by the trust. The £53 billion figure also includes inflation compounded over 30 years, whereas the £8 billion figure for capital costs
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At the end of a typical PFI contract period, the NHS trust always exercises a first option on the property in the interests of the NHS. At that point, the private sector partner has recovered all its costs and leases automatically fall away at the same time, leaving the trust free to run the hospital itself, retender the PFI contract or realise the investment potential of the site. I will write to the noble Lord with a breakdown of costs and interest rates and place a copy in the Library for the information of all noble Lords.
For users of the National Health Service to have a real choice and a real say in their healthcare, there must be real diversity of provision. That means that commissioners of services must have the freedom to make decisions and exercise options for action. It also means regulated access to the private and voluntary sectors, but it does not mean privatisation. Most noble Lords in the Chamber agree on that point. We have always procured services from the private sector, and we always will. The difference is that we are now doing it rationally within clear regulatory and financial frameworks for the benefit of all of us who use the NHS. Whether services are provided by NHS hospitals, privately owned ISTCs, not-for-profit social enterprises or voluntary bodies, they will be commissioned and paid for by a publicly funded NHS. If independent providers can help the NHS
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