Times have changed since the days when estate management was accepted as part of the NHS. The emergence of the standard form private finance initiative model in the 1990s encouraged NHS bodies to concentrate on providing clinical services rather than constructing and managing buildings.
In 20 years' time, there may only be a few buildings managed by NHS organisations, with a significantly higher proportion owned by the private sector.
PFI models
Under some early PFI schemes, long leases were granted after the concession period had ended. This practice was quickly dispensed with in favour of a conventional PFI structure, including a bare lease and lease back just through the concession period. Finally, this was replaced with the contract debtor structure, providing a more tax efficient arrangement and making the public sector the owner throughout.
These arrangements reflect the core message of the estate code - that NHS bodies should not sell the "family silver". However, increasing numbers of NHS organisations are considering ways of converting outdated property stock into cash and in some cases replacing traditional facilities with more versatile ones owned by the private sector.
Commissioning conflicts
All trusts, whether foundation, acute or primary care, are facing new challenges in relation to estate ownership and provision of facilities as a result of new commissioning models and increased private sector competition.
Primary care trusts need to demonstrate evidence of competition/contestability in the commissioning of services. This may be difficult to show if their provider arms or bodies are the owners of the only appropriate facilities for a particular service.It may not be cost-effective to create new facilities, and unless commissioners have the power to require estate to be transferred, or at the very least to grant leases to a competitively selected service provider, there could be challenges and claims of bias.
Who controls facilities?
Commissioning arms of PCTs may hold on to their estate when they release their provider arms or seek new providers - otherwise they may need to include break provisions in leases or call options in freehold transfers. This may be particularly important to consider when they are setting up interim hosting arrangements with other NHS bodies or managing their provider arms out of the PCT and into new provider entities in the form of community interest companies or community foundation trusts.
Conversely, providers need sufficient control over premises to ensure services are not disrupted because of maintenance or access problems. Furthermore, if services are put fully out to tender, ownership and control of the relevant premises could be a trump card in retaining the provider role.
So we are left with a potential conflict at this time of commissioner-provider separation. The commissioner arm and the provider arm will each wish to have control and be able to retain or divest itself of the property at the appropriate time. The solution would appear to be for commissioners to retain the freehold, with provider bodies receiving a lease that is co-terminous with the length of the services contract they are operating under.
Flexible future
Facilities in the future will need to be more sustainable and flexible than ever to ensure that they provide value for money. Facilities that were once used for a couple of daytime clinics may need to be used for much longer periods. The traditional 25-year lease to general practitioners may become outmoded and in some cases may need to be replaced with a more flexible "hot surgery" or "hot clinic" option.
The continuing flow of procedures from traditional secondary care to primary care environments and the streamlining of care pathways through vertical integration initiatives also requires buildings and facilities that are fit for that purpose and that will provide value for money.
Foundation trusts in particular are going to be eager to bid for services from PCTs. Having appropriate facilities (or the ability to acquire such facilities) will be a necessary pre-requisite for this.
New challenges
We have seen fewer large PFI schemes coming to the market, but it is a structure that can be considered where several facilities are needed in one area. However, where there is a significant amount of retained estate or existing structures, a different solution and risk profilemay be preferable.
Many health sector private developers are now locating sites, funding and developing facilities on a more speculative basis than before. This presents a challenge to banks and funders, which require long-term payment commitments upfront to justify the level of borrowing required.
However, there is a discernible shift - some of the established private medical funds do not need senior funding investment as they can afford the initial construction themselves. They are freer to anticipate the facilities needed by the NHS market for future services.
In some situations, this may erode the provider arm's trump card, as ownership/control of existing estate may not be quite the passport to provide services that it once was.
Accounting standards
Finally, there is good news for NHS bodies that have private finance initiative or public private partnership projects:the application of international accounting standards has been pushed back by 12 months.Many in the NHS were concerned that the changes would shift PFI and PPP debt (including existing debt) onto their balance sheets and undo much of the rescue work that has been done over the last couple of years. Now they have another year to prepare for the impact of these changes.
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