PFI does not explain variations in financial performance, research finds

An ongoing project by the Audit Commission and the Nuffield Trust is seeking to uncover why some health economies in England see persistent deficits in either their commissioners or providers.

Researchers examined 50 observable variables to see how they were linked to the underlying financial performance of England’s health economies between 2006-07 and 2010-11.

Their findings suggest that some of the NHS’s favourite explanations for persistent financial problems – including PFI hospitals, the efficiency of local providers as measured by NHS ‘reference costs’, and the volume and quality of local primary care – do not explain variations in financial performance.

Researchers found that the main indicator of good financial performance was a high level of deprivation in the area’s catchment population. Nuffield Trust chief economist Anita Charlesworth said deprivation was a “very significant” factor in the NHS’s  funding allocations formula. “Through this period, more-deprived areas would have experienced a higher level of growth than average,” she told HSJ.

Relatively deprived areas also inherited “a base of more limited supply”. Moving services out of acute hospitals and into the community may be easier for areas with less-developed acute services, she suggested. However, she added: “There is a question: is a surplus a good thing? Or if there was high need in their areas, which deprivation suggests, should they have been spending the money?”

The findings could play into the current debate about whether the NHS in areas with older, healthcare-dependent, populations have been underfunded to the benefit of deprived areas.

However, the research found no link between large populations of older people and poor financial performance. In fact, it found that one of the main indicators of persistent financial problems was having a younger population, with a high proportion of people aged five to 19-years-old.

Other indicators of poor financial performance identified were high staff costs, and “below target” funding allocations. The allocations formula is used to set a “target” allocation for each primary care trust, but commissioners are moved towards this target over a number of years.