Close examination of last month’s Health and Social Care Bill reveals interesting potential for the transference of NHS property - something the increasingly costly estate is much in need of, argue Graham Lea and Nathan East.

If the healthcare property industry had hoped for the Health and Social Care Bill to provide definitive clarification on the NHS estate, there will be disappointment.

The bill outlines the broad framework by which property assets of soon-to-be-abolished primary care trusts and strategic health authorities will be transferred. However, no clear picture emerges as to who the owners of the estate will be, despite its strategic importance. 

Without a definitive statement on future ownership, the healthcare property industry is engulfed in rumour and speculation and consequently is being left in near stasis. 

The issues facing the estate are significant and well documented. Almost a quarter of the NHS estate, according to reports, is unfit for purpose and backlog maintenance alone is currently estimated at £3.5bn, up from £2.8bn in 1997, despite substantial investment during the intervening period. 

Significantly, the NHS pays to maintain an estimated 15 per cent of the estate which is currently unused, and a further 3 per cent surplus to needs. The total unoccupied or unused NHS estate is estimated at 4.35m² - at a value of £5.4bn. 

Innovation is needed to arrest the problem with new models for the disposal of surplus assets required to allow for reinvestment in the estate and frontline services. New and creative solutions will be required of the new owners, but the concern is that things are being left to drift in the meantime.

So what does the bill reveal? On the face of it nothing significant, but on close examination it reveals some interesting opportunities which have the potential to make an impact.

Firstly it allows the Secretary of State to make Property Transfer Schemes in connection with the establishment or abolition of a body under the NHS Act, (i.e. PCTs and SHAs). These schemes can prescribe controls on the property transferred such as restrictive covenants and in theory overage, or even buy-back provisions such as put and call options.

It also sets out the broad categories of possible recipients of the estate, almost all of which had been readily anticipated. The permitted transferees include the NHS Commissioning Board, commissioning consortia, local authorities, the CQC, Monitor, any public authority or other person providing health services in England, a “qualifying company”, and persons pursuant to s12ZA(1) of the Mental Health Act 1983.

These options fall into three principal categories of commissioner, regulator and service provider. It is the option of transfers in connection with delivery of services that seems the most immediate solution given recent developments and market rumour.

Providers

It seems likely that the transfer of at least part of the estate will be made to local foundation trusts. It has already been announced that properties from which community foundation trusts carry out services are to be transferred to the CFT, and rumours from the Department of Health suggest that similarly, transfer of full ownership will happen sooner rather than later in the case of properties currently used by FTs under transforming community services. This could therefore be a blueprint for much of the rest of the estate. 

Transfer to local authorities would appear to follow the same principle. As with foundation trusts, where PCT owned premises are occupied by local authorities under the TCS programme, it is seems possible that complete ownership of those properties may transfer to the LA. 

Whilst transfer to FTs has the benefit of keeping the estate in the NHS at a local level, and transfer to LAs promotes integration with their new public health role and local services, transfer of ownership to service providers could inadvertently undermine the internal market competition that the government is keen to encourage for service provision. Strict overage and buy-back arrangements would be needed in the legal documentation.  

In addition, given the extent of the cuts to local authority budgets revealed just before Christmas, transfer to LAs may offer little scope for investment and better utilisation of NHS assets in the short to medium term.

Private provider organisations

The extent to which other service providers such as commercial and third sector organisations will be given a level playing field with their statutory or public competitors to acquire the property from which they provide NHS services is not clear. In fact the criteria upon which decisions will be made as to who is a suitable transferee and on what basis the property will transfer is not provided in the bill. Further guidance is urgently required.

These potential transfers raise a number of questions:

Will a market value be paid for the properties? Will the transfers be subject to stamp duty land tax? If yes, could this place commercial providers at a disadvantage?

How will embedding property ownership with a service provider ensure a free competitive environment, without favouring incumbent service providers?

If competition is secured by, for example, requiring providers to make an onward transfer at the end of their contract, what incentive would there be for ongoing investment in the estate?

Commissioning bodies

Transfer to the new NHS Commissioning Board, even as a temporary solution seems the likely destination for the residue of the estate not directly linked to contracts for service delivery. Overall the Commissioning Board may not be best placed to identify local needs and priorities.

To work as a long-term solution on a broader basis, local offices would need to be established with a strategic local estate focus, but given budget constraints, this solution may not provide any scope for investment in the estate in the short to medium term either.

The position is more complicated in the case of commissioning consortia, given the scope for potential conflicts of interest. For example, with regard to allocation of GP surgery capital investment, could the presence of vested interest on a Consortium Board undermine their ability to make impartial decisions? As with the Commissioning Board budget constraints could also hinder investment.

Qualifying companies

Perhaps the most interesting and controversial option lies with Qualifying Companies. These are organisations established under s223 of the NHS Act 2006 which are wholly or partly owned by the Secretary of State. They can therefore be joint venture vehicles between the public and private sector, with the most prominent example to date being LIFT Companies.

These joint ventures are not restricted to any one form however and this paves the way for the involvement of other bodies experienced in large state ownership and management both from inside and outside the health sector.

Significantly, the bill allows qualifying companies to exercise the functions of the Secretary of State in the making of a property scheme in connection with the abolition of PCTs and SHAs. Through such companies there is real potential for investment in the estate using structures which are different from LIFT but it is unclear as to how this will interact with commissioning and service provision. 

It may be an indication of what the government is thinking, or perhaps it is just keeping its options open.

Survey

With the number of options and lack of detail it is clear why the industry is concerned and is requiring urgent action. A survey carried out by Hempsons to gauge the views of NHS estates managers, property professionals working within the NHS, and healthcare developers published before the arrival of the bill are telling of the scale of concern. 

The survey reveals that 90 per cent of respondents are very concerned about a lack of funding and investment in the NHS estate over the next five years, and significantly 70 per cent fear that the estate will deteriorate over that period.

Hempsons’ survey reveals that the most favoured long term ownership model to deliver improvements in the NHS estate is for new joint ventures between the NHS and the private sector to be established outside traditional PFI methods.

The industry is keen to see streamlined procurement which would give flexibility to create local asset based vehicles in which both public and private entities would have a stake to innovate and create their own local solutions. 

Eighty percent of respondents favoured collaboration between the private and public sector.  NHS bodies are requiring greater flexibility to be creative with investment strategy, but cumbersome procurement rules and accounting treatment create serious obstacles. They are seeking freedom to consider all options for partnering and joint ventures rather than nationally imposed models which may prove expensive or unsuitable. This is something that the bill seems to allow.

If the reforms are to work, the government needs to act quickly to determine the role of the NHS estate within the new primary healthcare world toavoid sclerosis, and most importantly secure ongoing investment and address the concerns of the industry to make the estate fit for the 21st century.