The basic theory is that public institutions such as the health service,
education, the military, taxation departments etc should, wherever possible
have their new infrastructure investments funded, and to some extent managed
by the private sector. The principal being that the government does not
have to increase its public sector borrowing requirement; it can defer
the risk of things going wrong; and that the private sector is much more
skilled at implementing construction projects and has more expertise in
managing large logistics-heavy corporations. A sound theory but it hardly
ever runs like that in practice.
THE MONEY
The government can borrow money at an interest rate of around 3%. A commercial mortgage would be around 6-7%. The average interest rate demanded by PFI 'partners' is at least 17.5%. But the government has to demonstrate that PFI represents better value for money than a treasury funded loan. This is achieved by calculating the 'the risk factor' and adding it to the actual estimated cost. Thus PFI is almost always shown to be better value for money. The government is funding about 6 projects which for which PFI investors could not be found (e.g. Sheppey). They are also funding the country's biggest hospital building project - the new Euston Road Hospital.
PFI INVESTORS
There is only one incentive for a company to provide funding for projects and that is PROFIT, there is no altruism involved. They are indifferent to the needs of patients, staff or the community. Consequently they are generally very reluctant to undertake refurbishment projects. They like major new-build projects which involve lucrative land sales. Example: No PFI investor could be found for the £30m which was needed to refurbish Coventry and Walsgrave hospitals. It was therefore decided to demolish both hospitals and build a new one on the Walsgrave site for £174m. The new hospital is smaller than either of the ones it replaced and costs the Trust £36m per year in repayments.
THE REAL COST
PFI funding is not like a mortgage or a loan. No PFI money changes hands. It is a private sector company paying for a jointly-agreed project. As usual, power rests with the party who controls the money - i.e. the PFI investor. Several instances have come to light (e.g. Carlisle Hospital) where PFI investors have changed the specifications, and projects have been found to be 'gerry-built' or unsatisfactory when handed over to the Trust.
THE RISK
The theory is that all inherent risks such as cost over-runs, time delays, industrial accidents etc are carried by the PFI partner. In practice, the government has never yet asked a PFI partner to accept the liability when things go wrong. For example, the Dartford Hospital project went 42% over budget and vastly over schedule. The Norfolk and Norwich new acute hospital went 44% over budget. Who carried the can? The NHS! So the 'risk factor' is a complete illusion.
OVERSPENDS
According to DOH's own figures, there are 157 PFI projects currently under way. Another 24 have been completed - of which one was under budget, 2 were on budget and 21 were over budget by an average of 22.79%.
CONSEQUENCES
In order to afford the exorbitant cost of the overspends and annual repayments, hospitals have no choice but the cut beds and staff. The British Medical Association has estimated that the first 14 completed projects have resulted in the loss of 3,700 beds (31%), and that every £200m of PFI funding results in the loss of 1,000 doctors and nurses.
PAY BACK
As well as running the specific project (s), the PFI partner usually takes over certain contracted services which had been run by the Trust. These might include estate management, catering, porterage etc. This is included in the annual instalments over a term of 25 or 30 years. At the end of 30 years, in most cases, the NHS does not even own the buildings. If the PFI partner decides the building will be more profitable as e.g. flats, there is little to stop them! Or they could negotiate a new lease at an even more extortionate rate. The government of course is secure in the knowledge that it will be someone else's problem!
CONCLUSION
PFI is an inefficient, exorbitantly expensive and deceitful way to fund the NHS. But without a change of policy, there is no other way to fund capital projects as the government almost always decides PFI is better 'value for money'.
EAST KENT’S PFI
EKHT has estimated that to downgrade the KCH and expand WHH and QEQMH will cost £102m. The annual repayments would be £29.8m per year (that's a total of £984m over 30 years!). Of that, £19.8m is the cost of transferred services (such as catering, porterage etc) but £10m per year would be 'new' money - extra money which the Trust would have to find out of existing budgets. Last year the Trust overspent by £2.3m (until the Regional Office baled them out) and this year is projecting deficit of £8m. Without losing beds, staff or services there is no way on earth that the Trust could afford this extra money.
THE PFI PROCESS
When, in Feb the Trust announced approval for their £102.2m bid for PFI funding, it was somewhat of an exaggeration. The path to PFI funding is long and tortuous. EKHT has passed the first hurdle - the Strategic Outline Case (SOC). The SOC document, called 'Moving Forward' gave, in very general and basic terms, the reasons why they believe change is necessary, what the new structure of healthcare in East Kent should be and roughly how much it would cost. Many believe that this was a shoddy, lazy document which was based almost entirely on inaccurate statistics and unsubstantiated assumptions.
In spite of this, the government gave the go-ahead for the Trust to move onto the next stage - the Outline Business Case (OBC). This was supposed to be delivered last June but will now not be ready until next March - 9 months late. The OBC has to be a much more detailed, much more specific proposal and must go back to basics, re-examine the whole premise for change, and pursue every possible option (the 'long list') for achieving their objectives.