The situation for trusts paying for PFI projects is not all doom and gloom. There are still ways to find savings, says Vincent King.
At the end of September, health secretary Andrew Lansley said that 22 trusts had contacted him with serious concerns about their clinical and financial stability. The blame for this, according to the trusts, lay with the costs of the private finance initiative contracts put in place to fund public sector projects.
The picture painted was a worrying one, with waiting lists for non-urgent operations rising as hospitals delayed treatment to save money.
But is the situation really as grim as is being claimed? The Performance and Management of Hospital PFI Contracts, a report carried out by the National Audit Office, was certainly not so black and white. Although published in June 2010, since when the financial position of individual trusts may well have deteriorated, many of the points made in the report are still valid. It suggested that most of the contracts “are performing satisfactorily or better and meeting the expectations of trusts”; however, it also highlighted that many PFI contracts lacked the flexibility to achieve savings.
Essentially, the main way to cut PFI costs is to reduce the scope of services or relax performance standards or maintenance regimes. The variation mechanism in the contracts will typically require the trust to meet the immediate costs incurred by a service provider as a result of implementing such changes, although over the term of a 25 year contract this may still work out at better value overall.
The NAO report identified the following steps for greater efficiencies:
- trusts need transparency and clarity over the contractor’s costs and activities;
- the parties should work together to find more efficient ways of working;
- the Department of Health should Monitor whether trusts are getting the best possible value from value-testing exercises;
- future maintenance expenditure should be regularly reviewed to identify opportunities for gain sharing;
- the government should look again at standard PFI contract terms and adapt them to best encourage partnership and efficiency savings.
For foundation trusts at least, the new Health and Social Care Bill will introduce greater financial freedoms.
This will enable them to borrow money a great deal more easily than has previously been the case and could facilitate the sale of surplus assets, so that they can dispose of their land without the consent of Monitor. This, in theory, means that they will be able to grant mortgages over that land.
It also means trusts may be able to cut out some of the costs associated with developments funded by the private sector.
However, these new powers are not without limit.
Any loans from the DH will be on commercial terms and the DH will also be able to impose terms in relation to financial assistance which has already been provided – in theory it could require that this is repaid from the proceeds of any disposal or fundraising.
In addition, these benefits are likely only to assist foundation trusts that are looking at future developments; it is unlikely that trusts that have signed up to an existing PFI contract will be able to afford to buy their way out, although doing so is not without precedent. Tees, Esk and Wear Valleys mental health Trust used a voluntary break option to terminate its PFI contract for the West Park Hospital in Darlington. The trust paid £18m to exit but estimated that it had saved more than £14m over the life of the contract.
When it comes to the funding of future PFI developments, it is vital that trusts, advisers and private sector partners learn the lessons of the past and put in place contracts that work for all parties. The Health Bill may offer more options to foundation trusts as alternatives to PFI.
It is unlikely that trusts already signed up to contracts will be able to afford to get out of them completely, although this may still be possible depending on the circumstances. It should also be possible to use the contract terms to at least explore the potential to find savings. While the services which are provided under PFI contracts do not extend to clinical services, it is clearly essential that any changes are made firstly with the impact on patients in mind and secondly after considering their “whole life” cost.