In three successive waves, 32 major hospital private finance initiative schemes have been prioritised by the government in England alone, with the cost of building them estimated at£2.8bn. But now the question of private finance in primary care is looming on the horizon.
The Department of Health's annual report states: 'The next challenge is to replicate. . . PFI in non-acute settings, and to explore the scope for PFI-type solutions in primary care.'
1 PFI schemes valued at over£10m must gain Treasury approval before they can proceed, and this process is open to public scrutiny through the release of PFI business cases. But for schemes of less than£1m, wider scrutiny and accountability are practically non-existent. This is worrying as the government has signalled its commitment to expanding PFI and related public-private partnerships in primary care and community health services, where the cost of schemes is likely to fall well below the Treasury threshold.
Private insurance companies in the NHS
In May the Financial Times reported the launch of the Norwich Union public-private partnership fund, a joint venture between Norwich Union Life and Pensions and the Mill Group.
2 Norwich Union has committed itself to£100m for PFI investments in small projects including health, education and social care. Its first scheme is in West Yorkshire, where Bradford Community trust has signed a PFI deal for premises that will include a pharmacy, social services, three GP practices and a benefits office.
This marks a departure from the pattern of PFI procurement in the acute sector, where contracts have gone to consortia led by banks, service operators and builders. For the first time a major private health insurance company has found a way into healthcare PFI deals. And while the Norwich Union venture was reported in the financial press as simply a development in the property market, the involvement of an insurance company which already has important NHS links through private patient units and GP premises suggests that developments of this kind should also be examined in relation to NHS service provision.
3 Public-private partnerships in primary care are less complex than large PFI hospital schemes, with a shorter procurement and approval process. The comparatively small size of primary care projects does not require the full formal PFI process. But a similar model to PFI schemes in the acute sector is described by NHS Estates as 'locate, design, build, financing the capital project (with any return to be recovered through rent) and operating the facility'.
4 This has not usually involved a full business case stage or Treasury approval in selection.
Investment in property
There is a readily identifiable income stream to fund returns to private company shareholders in the payments made by the DoH to GPs to cover the cost of their practice premises. Three schemes are in operation: cost rent, notional rent and actual rent. Expenditure through these schemes for England in 1997-98 was more than£200m.
5 In1995-96 almost two-thirds of primary care premises were owned and occupied by GPs who were reimbursed through either the cost rent (30 per cent) or notional rent (33 per cent) scheme. Twenty-one per cent of premises were rented from the private sector, with only 16 per cent wholly owned by NHS organisations (representing a quarter of all GPs).
6 But apart from total spending figures, little information is held centrally. Details of the various financial arrangements are held by health authorities, which hold delegated responsibility for the provision of general medical services including the management of reimbursement schemes.
The government's intention to upgrade and extend primary care premises has seen an increase in development activity. And the private sector has been quick to exploit the commercial opportunity afforded by the£200m revenue stream paid out to GPs in rental. A private company such as Primary Health Properties formed solely to provide such premises has seen its portfolio multiply in value more than six times in less than three years.
3 It has entered into forward purchasing and funding agreements to acquire medical centres set to be constructed in Bicester, Sherwood, Wakefield and Toddington, among others. The buildings in the Wakefield Health Village, West Yorkshire, for example, will include 11 GP practices, a pharmacy, and two further retail units at a cost of£3.7m and an anticipated annual rent roll of£345,000.
For Norwich Union, which already has an asset base of£3.7bn (and concomitant facility management experience), the potential for rapid expansion is obvious.
Access to GPs
The advantage of PFI for insurance companies may lie less in the profits to be made from properties than in the access PFI may afford to GPs in their role as gatekeepers for NHS services. The GP is the focal point for access both to NHS funds (the capitation and the rental stream) and to the patient population, which is the potential healthcare market.
With the formation of primary care groups and eventually primary care trusts, NHS budgets will become increasingly devolved, as will the decisions for rationing healthcare. Trusts' sole statutory duties are financial - that is, they are obliged to balance their books. PCGs and PCTs can now combine the general medical services and the hospital and community health services budgets.
But as these will be capped, GPs will have to make difficult decisions about how they manage their budgets - in other words, rationing of NHS treatment and moving elements of NHS care into means-tested social services using eligibility criteria.
Income generation by public-private partnerships
A third possibility is income generation in partnership with the private sector. PCTs will have to decide on the extent to which income generation forms a part of their core business. There will be a number of income generating options such as private health insurance schemes, or developing healthcare products as a sideline for those with private insurance or who can afford to pay.
But in addition to managing the budgets, PCTs will have to make strategic decisions about where they purchase care for NHS patients. The effect of acute care strategies, currently reducing bed capacity by up to 30 per cent in some areas, and of closing community services may mean that GPs will have little choice but to use NHS funds to buy healthcare provision in the private sector.
In May 1998, Norwich Union launched a private medical insurance option called, appropriately, 'GP First', which offers 24-hour GP cover, a range of minor surgical procedures, and health screening.
This was the first move into the primary care insurance market by a large private medical insurance provider. Run jointly with Sinclair Montrose Healthcare and offered initially at their MediCentres, the aim is to base new centres in Boots stores. As Norwich Union took a 5 per cent stake in Sinclair Montrose last year, the new product combines both insurance cover and services.
Other healthcare products being developed by Norwich Union include 'Fair and Square', which offers a choice of going private or getting a substantial money-back payment for eligible treatment on the NHS. If you choose private treatment, the policy covers medical care in a private hospital from the insurer's list. If you choose NHS, you receive a payment of£250 per night in hospital. The policy also covers an initial private consultation, minor GP surgery and psychiatric outpatient cover.
The company's 'Health Choice' package covers access to nursing homes, hospice care and chiropody for elderly policy-holders with adult children. With private-sector domination of the long-term care market, it is not hard to see Norwich Union going into joint ventures and ownership with businesses such as nursing homes in order to access self-pay and state revenue.
However, Norwich Union press officer Andrew Stronach said: 'This is really an opportunity to expand our investment into property. It's not an indication of any desire to operate healthcare facilities. Future projects could include libraries, police stations and courts.'
Moving towards a US model?
In US health maintenance organisations, managed care is the much-detested by-product of a system which denies the population universal access to care.
In the US, doctors are now largely united in protesting against a system where global corporations determine who is treated, and where at every turn profits come before care.
Norwich Union has almost all the elements of an embryonic HMO: an insurance function, a property function with relevant infrastructure, a guaranteed income stream from the state, and an embryonic private health provider function.
But to succeed, Norwich Union must network into the NHS to gain access to patients and NHS budgets. How the Bradford experiment and others evolve will need careful monitoring. It is likely that NHS services will increasingly be contracted out. There must be concern that with the blurring of boundaries between public and private provision will come blurring of boundaries between state and individual responsibility for funding.
If that happens, the core principles of the 1946 NHS Act will be further undermined.
1 Department of Health. The Government's Expenditure Plans . Departmental report, 1999.
2 Cohen N. Property joint venture is first institutionally backed fund to focus on publicprivate partnerships. Financial Times . 12 May 1999.
3 Healthcare Market News , May. London: Laing & Buisson Publications, 1999.
4 NHS Estates. A Guide to the Provision of Leasehold Premises for GP Occupation , 1999.
5 Department of Health, Unaudited FIS(FHS)4 Part B and C returns for 1997-1998 .
6 Glendinning C, Bailey J. The Private Sector and the NHS: the case of capital developments in primary healthcare. Policy & Politics , vol. 26.
Private finance schemes in primary care will not be subject to the controls required in hospital programmes.
Insurance companies are interested in partnerships with primary care in order to influence NHS spending as services are increasingly contracted out.
This state of affairs could lead to the introduction of US-style managed care with a loss of equity for patients.