UK hospital PPPs
Between 1997 and the end of 2010 in England, 102 health sector PPP contracts (or PFI – private finance initiative) were signed compared with just 35 publicly funded health capital investment projects. Another 45 health sector PPP contracts were signed in Northern Ireland, Scotland and Wales during the same period.
The projects have usually involved construction of new hospitals or sometimes renovations of existing ones, together with the operation of non-medical services such as catering, maintenance and laundry.
Affordability was already a problem before the economic crisis. The availability fees that have to be paid by the National Health Service (NHS) to the project company have had a significant impact because they have been under-funded by the Government, which said that the NHS should cover the cost gap through ‘efficiency’ improvements. One result was that English NHS hospital capacity fell by 73 882 beds (almost a third) between 1992-3 and 2009-10, and occupancy rates rose to levels of more than 85 percent, a level considered by the Royal College of Surgeons and the National Audit Office to be unsafe.
In 2010 it was reported that for projects with a capital cost of GBP 11.3 billion (EUR 14 billion), the National Health Service is due to pay back a total of GBP 65.1 billion (EUR 80.7 billion) over the lifetime of the contracts, taking into account maintenance, cleaning and catering.Annual payments for the hospitals totalled GBP 1.25 billion (EUR 1.5 billion) in 2010, and will slowly rise until 2030, peaking at GBP 2.3 billion (EUR 2.85 billion), with the final payment to be made in 2048.
Now the UK Government has set a target for the National Health Service to save GBP 15-20 billion through increased efficiency by 2013-2014. However, PPP contracts are insulated from savings due to their legally binding natures, and it is left to the NHS to find other ways to tighten its belt without touching the wasteful spending outlined in the case studies below. Rather than renegotiating the contracts, in February 2012, it was announced by the Department of Health that for up to seven NHS hospital trusts with especially high PPP commitments, up to GBP 1.5 billion would be made available over 25 years to help them cover these costs.
affordability for public budgets
poor value for money
decline in health services provided
inflexible contracts making additional works expensive
Cumberland Infirmary, Carlisle
With a flawed and biased economic assessment, the total cost of the new hospital almost doubled during the procurement process and the annual cost of capital rose by GBP 3.55 million to GBP 7 million. It is also one of the hospitals where excessive maintenance costs have been revealed and the trust which runs it is one of the seven which may receive extra government support to pay its PFI commitments.
Walsgrave hospital, Coventry
Originally it was planned to renovate two hospitals at a cost of around GBP 30 million (EUR 37 million), but in order to make the project more attractive to private investors, it was decided to knock them down and re-build outside of the city centre, with a final cost of around GBP 400 million (EUR 494 million). Between 2005 and 2007, at least three wards had to be closed and staff laid off to meet unexpected costs.
North Durham Acute Hospitals
The public sector comparator calculation showed that over 30 years a publicly financed hospital would be cheaper – so the calculated period was extended to 60 years to make the PPP version come out at the same price as the public one. Throughout the planning processes bed numbers were gradually reduced from 798 to 454, with only 350 of them staffed, and in order to reduce costs to cover the availability fee, some qualified nurses were replaced with unqualified healthcare assistants.
Royal Edinburgh Infirmary
Home to a plethora of problems: high costs, biased public sector comparator assessment, 24 percent fewer beds than its predecessor hospitals. … and if that wasn’t enough, in March and April 2012 private owner Consort was heavily criticised for allowing the power supply for the hospital to be cut twice while operations were ongoing in the operating theatre, leaving surgeons operating by torchlight in one case.
Royal Liverpool and Broadgreen Hospital
Even with some very subjective accounting methods, assessors only managed to make the PPP option for this project look 0.03 percent cheaper than a publicly procured version.
Norwich and Norfolk hospital
Moved outside of the town centre, the new hospital involves a decrease in the number of beds, and was the subject of a scandalous refinancing scheme that eventually contributed to the UK government’s rules on refinancing being changed.
Queen Alexandra hospital, Portsmouth
In an attempt to pay annual hospital running costs of GBP 40 million, the hospital has cut 700 jobs and closed 100 beds.
The main reason why so many UK hospitals have been constructed using PPPs is not necessarily because it is the model that offers best value for money – it is because in most cases it was made clear by the Government that alternative sources of funding would not be available.
Critics such as Allyson Pollock, Mark Hellowell, David Price, Jean Shaoul, Jim and Margaret Cuthbert and George Monbiot have been warning for many years about poor value for money (see case studies below) and the affordability of hospital PPPs.