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NHS spending squeeze to hurt PFI hospitals most

NHS hospitals built under the private finance initiative will face a much tougher time making the productivity and efficiency gains that are needed as public spending is squeezed, PFI experts and NHS managers are warning.

Under PFI, hospitals pay a single annual charge, typically for 25 or 30 years. It covers the cost of the capital, maintenance of the building and often other “soft” services such as cleaning, catering and laundry and sometimes equipment replacement.

While the soft service contracts are usually renegotiated every five or seven years, the main payments are fixed at the interest rates prevailing when the deal was done. In the current financial climate there is no possibility of refinancing them to produce lower annual payments, and the cost of buying out the contracts is prohibitive, according to PFI specialists.

Figures published by the Department of Health this week show big variations in the percentage of annual turnover that hospitals pay for their PFI buildings, largely depending on how extensive the rebuild was.

For some it is only 1-3 per cent but for others it is 10-12 per cent. For Walsgrave Hospital in Coventry, Dartford and Gravesham and Queen Elizabeth, Woolwich, it is 16 per cent and more. For Bromley Hospital it is almost 20 per cent of turn­over.

Traditionally, when spending has been tough, NHS hospitals have put back maintenance to retain doctors and nurses and other services.

“If you do that for too long, it is a thoroughly bad thing,” Nigel Edwards, head of policy for the NHS Confederation, said. “But for a year or two it can help you cope.

“But a hospital with a PFI scheme does not have that option. They are contractually bound to keep the maintenance up – and if you are spending 10 or 15 per cent on your buildings it means all the other efficiency and productivity gains you need have to come out of only 85 or 90 per cent of your budget.”

Hospitals without PFIs still paid a capital charge, so the comparison was not quite that bad, Mr Edwards said. “But some of these hospitals with PFIs are going to find it incredibly tough” to make their share of the £15bn-plus savings that the health department says are needed, he said.

Treasury officials privately acknowledge that there is an issue and hope PFI providers will prove flexible as public spending gets tougher. But David Florry, director-general of NHS finance, told MPs that while the level of cleaning of back-office areas, for example, could be reduced at the break points in the soft service contracts, there was no evidence yet that payments had gone down as a result.

William Moyes, chairman of Monitor, the foundation trust regulator, said lack of maintenance in the past had left the NHS estate in an appalling state. “On balance, having to keep up the maintenance is not a bad thing because it means patients will be treated in buildings that have been kept up to scratch.”

From:

http://www.ft.com/cms/s/0/b366ad6a-078b-11df-915f-00144feabdc0.html?nclick_check=1

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