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The pros and cons of PFI hospitals by Victoria Lambert

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Daily Telegraph, 10 Mar 2010

In the third of our series on the future of health care, Victoria Lambert look at the hospitals built under Tony Blair's Private Finance Initiative.

A soaring atrium, technicolor artwork and cappuccino dispensaries – who would have envisaged the day when no modern hospital felt complete without this therapeutic trinity?

Yet after just over a decade of works on a scale not seen before, which have led to the opening of 118 new hospital schemes (with another 18 in progress), the first thing most patients will think of when they talk of the modernisation of the NHS is surely the great glass lobbies that are now ubiquitous in our hospitals. If the Victorian philanthropists were addicted to statuary, their 21st-century equivalents are hooked on the smell of Windolene.

They’ll certainly be cleaning the windows as usual today at the Cumberland Infirmary in Carlisle, the first hospital completed under the Private Finance Initiative (PFI) system, where the Government borrows money from the private sector to build public infrastructure in return for part-privatisation. Opened in June 2000 by Tony Blair and hailed as a flagship, the £87 million Infirmary has 442 beds and acres of glass, all paid for privately and leased back to the NHS for 45 years. Three old district hospitals were closed and amalgamated to make way for the new hospital, staff were “rationalised” and patients got used to paying for parking.

Meanwhile, all over the country, more new hospitals began to spring up. Although Labour had been critical of PFI when John Major introduced it in 1992 for non-NHS projects, Alan Milburn, incoming Health Secretary in 1997, embraced the concept, declaring that “when there is a limited amount of public-sector capital available, it’s PFI or bust”.

Critics were quick to suggest that PFI funding for the NHS was not just bad news financially – because the Government was forced to pay higher interest rates to PFI consortiums than it would have paid to borrow on the open market – but that it was causing financial shortages for cash-strapped primary care trusts (PCTs), that clinical care was being compromised because funding considerations were driving medical conditions, that future generations were being thrown into hock, and that the NHS was being forced to sell off its land to pay for the new builds. And, perhaps most trenchantly, that the whole thing was a con: that private money had been chosen, despite the cost to the country, simply because it could be hidden in the Government’s books, concealing the fact that national borrowing had increased massively, and perhaps unsustainably.

Labour certainly intends to keep using PFI as a vehicle to update our crumbling hospitals. As recently as January last year, Alan Johnson, then Secretary of State for Health, confirmed that “PFIs have always been the NHS’s 'plan A’ for building new hospitals … There was never a 'plan B’.”

But should there be? The Department of Health is convinced that the criticism is unwarranted. After all, no-one believes that our crumbling Victorian hospitals – with their long, inevitably mixed wards, MRSA-loving nooks and crannies, and soaring heating bills – were fit for purpose. Many were a mess, and made the lives of doctors, nurses and patients miserable. Even the British Medical Association (BMA), which has been among the harshest critics of the scheme, agrees that new hospitals were long overdue.

By choosing the ambitious target of building 100 new hospitals by 2010, Labour could easily have set itself up for a fall. Yet, instead, it exceeded its aims. “This was a significant, ambitious commitment – it could never have been done on public money alone,” says a spokesman for the department.

University College London Hospital (UCLH) certainly has reason to be proud of its PFI scheme. Possibly the largest in the country, at £422 million, it was signed in the middle of 2000 and completed on time and on budget in 2008. Sir Robert Naylor, chief executive of the UCLH NHS Foundation Trust, says the decision – taken before he joined the trust – was possibly the bravest and the best “ever made in this part of the NHS”.

By bringing together hospitals from four sites, the Trust was able to save money and create a centre of excellence – not just in acute care but in academic excellence as well. “UCL is one of the top-performing universities in the world, and UCLH the top performing hospital according to the independent assessment organisation Dr Foster,” he says.

James Barlow, Professor of Technology and Innovation Management at Imperial College, London, and a Director of the Health and Care Infrastructure Research and Innovation Centre (HaCIRIC), has been looking closely at PFI projects. “So many would not have been built so quickly without PFI,” he says. Where he parts company with Whitehall is in his analysis of lessons that could have been learnt.

“One mistake was in risk-sharing,” he explains. “We’ve learnt that when risk is shared equitably between all parties involved in construction, you get more innovation. In PFI, the NHS wanted the private consortiums to take all the risks. So new ideas weren’t being tried. This is a problem for an area where technology and practice are changing so rapidly, that, for example, we may not need as many beds in 10 years as now.”

The BMA’s worries were more straightforward. Dr Paul Flynn, Deputy Chairman of the BMA’s Consultants Committee, says PFI is inevitably bad for hospitals because the building consortium and the NHS Trust negotiate every detail but have different needs. In real terms, he says: “Hospital specification has been what the PFI consortium has been prepared to pay for.” This means fewer beds, for example, than the trust might prefer – which could lead to winter shortages. “Health care should be driven by clinical need, not consortium considerations,” he says.

Doctors have told the BMA that because the consortium also runs the building, it can be incredibly difficult to get anything done; one noted it took weeks to get a notice-board hung, another said that reconfiguring a colonoscopy clinic to meet patients’ needs took years.

This “straitjacket of provision” – the day-to-day control that consortiums build in to their contracts – disturbs Liberal Democrat MP Norman Lamb. He was horrified to discover that his local hospital – Norfolk and Norwich NHS Hospital, another early PFI build – was negotiated on such poor rates that the local Trust was deep in the red trying to pay for it. When the rates were reconfigured in 2003, two years after it opened, the NHS hardly benefited, but the consortium did, by about £70 million.

The problems, he warns, don’t end with the initial negotiations. “The next 30 years are going to show a revolution in health care – yet we will be committed to services designed in the Nineties and early Noughties. These will become redundant. And at the end of the leases, we don’t even end up with the buildings as the consortiums retain ownership.”

The Liberal Democrats are proposing the establishment of a UK Infrastructure Bank (UKIB), which would leverage a small amount of public capital with private capital to make long-term investments in projects such as hospitals. The key difference between this and PFI is that the infrastructure would remain in public ownership.

The Tories, too, are looking for alternatives. George Osborne said last November that they are drawing up models that are more transparent and deliver better value for taxpayers. “The first step is transparent accounting, to remove the perverse incentives that result in PFI simply being used to keep liabilities off the balance sheet,” he said.

But perhaps the greatest criticism levelled at PFI is that it is simply poor value for money. Dr Flynn says: “The NHS has been saddled with debt. Had the Government borrowed in the usual way, the amounts would have faded into insignificance by now.”

But from the inside, PFI is seen as good value. Health Minister Mike O’Brien says: “The cost to the public sector of long-term capital investment has always been spread over a number of years – PFI is no different. All PFI schemes must demonstrate that they are good value for money and affordable when compared with the public capital funding alternative.”

Alan Maynard, Professor of Health Policy at the University of York and Chair of York NHS Foundation Trust, disagrees: “If you are trying to raise money for a new hospital, the best rates come from government borrowing. Why use private capital when it is always more expensive?” He believes it was done simply because this borrowing didn’t show up as public expenditure.

The only justification, he says, for using private finance is if it comes with better management. “But there is simply no evidence of that. There is no data. There have been no studies.”

Ultimately, many of us will judge PFI by how it affects us next time we need to visit our local hospital. Again, Mike O’Brien is bullish: “The long-term benefits for patients of PFI are clear – Norfolk and Norwich Trust has estimated that it is treating 23,000 more patients each year as a result of moving to new PFI premises.”

Margaret Keogh, 68, who is on the Patient Panel at the Cumberland Infirmary, knew the old hospitals in Carlisle well, and is equally familiar with the shiny new one. And, having suffered breast cancer in her forties, is a regular user . She does not think PFI is a success. “We’d only just renovated some of the wards at the old hospital before they tore it down for the new one. Now there’s no money left at all.”

But that’s not the only problem. Mrs Keogh says: “We have excellent medical staff, but the new hospital has made life difficult for them. All the departments of the old hospitals have been combined on one much smaller site.”

But Carole Heatly, chief executive of North Cumbria University Hospitals NHS Trust, is clear about what PFI achieved: “Even before the formation of the NHS in 1948, the need to bring all Carlisle’s hospital buildings together on one site was the policy direction. The new hospital has delivered an improved environment to our patients. And as PFI was the only option available, it meant that Carlisle could have a new hospital.”

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