PFI concerns over costs threaten hospital schemes

Billions of pounds worth of hospital projects to be built under the private finance initiative have been put in doubt by health department concerns over the cost of the biggest – the £1.1bn rebuilding of St Bartholomew’s and Royal London hospitals. The department has challenged the project’s affordability and has even suggested the Bart’s part of the 1,250-bed scheme should be reconsidered– raising again the question of whether England’s oldest hospital, founded in 1123, could yet close.

The move poses a problem for construction group Skanska, the preferred bidder for the scheme, and will sound warning bells for companies that have profited from building large infrastructure projects under PFI, including Balfour Beatty and Amec.

Pressure has mounted on big PFI hospital projects because of the government’s new “payment by results” system. It means that hospitals are paid only for the work they do and for the patients who choose to go to them, not through block contracts. As a result the forecasting of the financial flows that underpin the 25 to 40 year agreements involved in PFI deals has become much more risky.

That, in turn, has raised doubts about whether the schemes, where the costs are largely fixed once a deal is signed, are affordable. Doubts have also emerged about the need for “mega hospitals” now that technological advances have made it possible to treat patients outside the hospital and often at lower cost. Health department officials have already challenged the need to build “monuments on long-term leases”.

Once again the Labour govt is moving the goal posts in the middle of the game and is suffering as a consequence.

Senior NHS executives and Treasury officials say PFI may still work for smaller schemes in the £100m to £300m range, particularly where an entire facility is not being rebuilt.

But question marks are growing over the larger projects. The health department denied there was a specific review under way, saying PFI was under constant review to ensure it delivers value for money.

But a spokesman said: “A number of PFI schemes are reaching a critical moment in their contracting process, and are, therefore, being subjected to the sort of detailed scrutiny that the public would expect in a major procurement. This does not mean there is a freeze on hospital PFI projects.”

The department said it had recently given the go-ahead to a £193m project in Portsmouth and a £129m one in Oxford. But it has asked the trust that runs Barts and the Royal London “to reconsider its plans to ensure the scheme is both affordable and meets local needs”.

As part of that, it should “consider further the inclusion of the Barts element”, which involves a new cardiac and cancer centre.

The trust yesterday insisted its scheme was affordable and had the full backing of local health authorities.

Doubts over the PFI hospital projects have coincided with a dispute between the health department and Monitor, the foundation trust regulator, over who should sign off another big scheme – a new 1,200-bed hospital in Birmingham.

Work was meant to start in July 2005. But questions about financing and affordability have delayed it. The capital cost of the hospital has been put at £696m by the health department.

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