The future is PFI - hospitals forced to close to fund PFI buildings

New report claims cash cuts will force trusts to put all their cash in 'inflexible' PFI schemes

Has PFI construction put the future of NHS hospitals in doubt?

Increased pressure is likely to be put on health trusts to close old buildings and concentrate services in costly PFI developments as the NHS struggles to cut spending in light of restrictive private finance deals.

PFI as a procurement channel has been widely criticised as, while it provides modern, purpose-built clinical environments, it shackles providers with substantial repayment costs for anything up to 30 years. These costs are typically considerably higher than if the projects had been publicly financed and take little account of changes in the delivery of health services, or the amount of cash trusts have at their disposal at any given time.

Now a new report from health think tank, The Nuffield Trust, reveals the full scale of the problem, with the admission that NHS organisations will have to make tough decisions in order to meet the Government’s £20billion savings target over the next four years.

At times of contraction, building and land costs can impose diseconomies if services are not concentrated on fewer sites

In areas where PFI hospitals have been built, this is likely to mean older estates having to be sold off and services focused in the new buildings.

This could have a serious impact on patient access as people are forced to travel further for treatment.

The report, entitled Can NHS Hospitals Do More With Less? was written by Jeremy Hurst and Sally Williams and is part of The Nuffield Trust’s Quest for NHS Efficiency Programme .

Based on feedback from NHS executive managers and clinicians, and by reviewing literature, it looks at how trusts can meet the efficiency challenge through changes in staff performance, process improvements and estates rationalisation.

It states: “It will be difficult to reduce capital inputs such as buildings and land over such a period, especially if only parts of a site become mothballed, but capital charges remain. In other words, at times of contraction, building and land costs can impose diseconomies if services are not concentrated on fewer sites.”

At a first glance, the omens for making such efficiency savings do not look good

The NHS Confederation has agreed to assist in making savings if whole sites can be closed, and The King’s Fund recently concluded that reconfiguration across hospital sites is the only way some trusts can achieve financial balance while avoiding unacceptable deterioration in the quality of care.

In addition, the current NHS Operating Framework is likely to put downward pressure on both the volume of growth and the price of hospital services over the next three to four years. And, despite investment in new PFI hospitals, reductions in capacity will be necessary if trusts are to remain efficient in the long term. This pressure is further driving the need to consider the future of the NHS estate.

The report adds: “At a first glance, the omens for making such efficiency savings do not look good. The NHS can boast many achievements in recent years, but until very recently increased productivity was not one of them.”

Currently it is estimated that wasted estate within the NHS is costing taxpayers up to £500m a year. It is this space, the report states, that will be among the most likely to be sold off and the services transferred to newer, often PFI-funded, buildings.

New facilities designed for healthcare should have efficiency benefits, such as improving patient flows and reducing the resources tied up in infection control, but the ability of trusts with PFI estate to take costs out of the system may be constrained by the pressure of the unitary payment

Currently there are around 100 PFI hospitals in the NHS, with several more in the pipeline. They commit trusts to large annual fees for a number of decades and frequently represent between 5-15% of a PFI trust’s income. Research by the Audit Commission has identified a direct association between large new buildings that are on the whole PFI funded, and financial deficits in the NHS. This is due to the relative inflexibility of the contracts and because it is being increasingly suggested that there will now be pressure to concentrate hospital activity on these sites at the expense of non-PFI sites in areas where services need to be concentrated to save cash.

The report states: “New facilities designed for healthcare should have efficiency benefits, such as improving patient flows and reducing the resources tied up in infection control, but the ability of trusts with PFI estate to take costs out of the system may be constrained by the pressure of the unitary payment, which shifts more of the costs into being fixed.

“If acute capacity is to be reduced, there could be an argument for retaining PFI builds designed for modern healthcare provision over ageing hospital estate.”

The Private Finance Initiative has created some up-to-date and efficient, but inflexible, NHS capacity

But do these modern estates necessarily mean efficiencies are possible? The report throws some doubt on this assumption.

It states that available literature suggests that cost-per-case returns are roughly constant in hospitals with between 200-600 beds. In developments where there are more than 600 beds, as is the case with a number of the large PFI schemes, ‘diseconomies of scale’ set in, possibly because the larger the hospital, the more difficult it is to manage.

The report adds: “The Private Finance Initiative has created some up-to-date and efficient, but inflexible, NHS capacity. The large fixed costs associated with PFI facilities may mean rationalisation is more likely on non-PFI sites.

“PFI schemes represent a new and growing challenge in the search for savings.”

On the impact of any such shift on patients, it warns: “If downsizing is expected to be permanent, or there are already plans in the pipeline for rationalising facilities which can be modified, it may be possible to concentrate services on fewer sites, at least in large urban areas, in the required timescale, thereby releasing buildings and land and restoring the remaining hospitals to something like their former average size before the contraction.

If acute capacity is to be reduced, there could be an argument for retaining PFI builds designed for modern healthcare provision over ageing hospital estate

However, from a whole system viewpoint, such concentration is likely to have adverse effects for patient access. In addition, it may have adverse effects for competition, which could impact negatively on efficiency.”

But there is some hope in the learning from areas where downsizing and estates rationalisation has already begun. Mike Treharne, finance director at NHS Halton and St Helens, argues that trusts with PFI commitments can still reduce activity through the introduction of ‘hub and spoke’ arrangements and incentives to keep people out of hospital.

But he warns: “This is not possible without a joined-up strategy with commissioners and other providers to properly and appropriately reduce system capacity.”

Click here to read the full report

Companies