Tuesday, 13 December 2016

The future of Devon's hospitals: Tiverton cannot be closed because it is run as a Private Finance Hospital - "but the local NHS trust will not own a single brick"

At last week's Town Council meeting, the PFI system of financing hospitals was directly referred to:

[The Town Council] backed an alternative proposal from Sidmouth Victoria Hospital Comforts Fund chairman Graham Vincent, who said at Monday’s meeting: “Sidmouth hospital is not NHS funded. There’s no private finance initiative (PFI). Its redevelopment cost us £5million and we don’t owe a penny.”

In contrast, Tiverton’s hospital was paid for by a PFI – essentially a loan from the private sector to fund capital expenditure – with a contract that the CCG cannot afford to leave, he added.

Mr Vincent said: “Had we gone down the Tiverton route with PFI, would our beds have been safe? I don’t want to criticise other hospitals, but I am in the business of talking up the strengths of Sidmouth.”

‘Beds should be retained in Sidmouth, Seaton and Exmouth’ - News - Sidmouth Herald
Futures Forum: The future of Sidmouth's hospitals: “We need to define how many patients could be cared for in community hospitals.”

Last month, the East Devon Watch blog pointed this out:


24 NOV 2016

Apparently, as explained at a recent consultation, it is run as a Private Finance Hospital (PFI) and its contract cannot be broken.

So the rest of our district has to lose beds to keep it at its full capacity, even if that is too high.

Not what we want to hear.

Why is Tiverton Community Hospital retaining 32 beds when some other community hospitals are being closed? | East Devon Watch
PFI contract for Tiverton Community Hospital-FOI-16-004 « Northern Devon Healthcare NHS Trust NDHT

This is what the NEW Devon CCG (the NHS body proposing the changes in bed provision) has stated in its 'Your Future Care' document which lays out the options - and with one hospital, there is no option but to keep it:

Makes best use of Private Finance Initiative (PFI) / Local Improvement Finance Trust (LIFT) services: 

Under PFI and LIFT, the local health service has entered into long term arrangements to rent back property from private organisations who have borrowed the upfront costs to build the premises. The 27 high costs of exiting these contracts and the generally high quality of the buildings mean it is sensible to make best use of PFI and LIFT premises. 

There is one hospital in Eastern Devon that fits all of the criteria and is PFI-funded – Tiverton Hospital – built in 2004 with a contract that runs until 2034 and which would cost approximately £35m to exit. Clinicians and finance leads have therefore recommended that 32 beds at Tiverton should continue to be used in all options, as best use of this space within this period. Therefore 32 of the 72 beds required will be at Tiverton in all options


So, how have we got here?

The Telegraph looked at this last year:

The PFI hospitals costing NHS £2bn every year

Bills under private finance construction deals hit new high and will keep rising, official figures reveal

By Robert Mendick, Laura Donnelly and Ashley Kirk - 18 Jul 2015

Under the deals, private investors take on the risk of building and operating new hospitals and clinics, and in return they receive repayments spread typically over 25 to 30 years that far exceed the original costs of the project.

All bar one of the hospital PFI deals were signed by Labour governments between 1997 and 2010. They had the effect of shifting the cost of big projects out of government borrowing figures.

The scale of the PFI charges is contained in official figures compiled by the Department of Health and obtained by The Telegraph.

The Telegraph has been investigating the huge expense of running the NHS, which faces a £22 billion black hole over the next five years, highlighting problems of waste of resources.

An analysis of the Department of Health figures shows that:

> 104 NHS trusts in England will have to pay private companies £1.96 billion by the end of the financial year for PFI deals – enough to pay for treatment of cystic fibrosis patients for 20 years.
>  The PFI deals financed £11.8 billion in building hospitals in England but will cost £79 billion to pay back over 31 years – equivalent to almost £4,000 per household in Britain.
> The 20 most expensive PFI deals will cost the NHS £970 million in debt repayment fees this year.
 > Four private firms will be paid £39 billion over the course of the PFI deals, and almost £1 billion this year.

Under the PFI deals, the repayments tend to escalate in the early years, peaking in 2030 when the total bill is expected to reach £2.67 billion.

A leading health think-tank condemned the deals signed by the NHS. Nigel Edwards, chief executive of the Nuffield Trust, said: “PFI did enable some outdated and poor quality buildings to be replaced but at a significant additional cost. In many cases, what was provided has proved to be not what is needed.”

Dr Peter Carter, chief executive of the Royal College of Nursing, said: “The RCN repeatedly warned that many PFI deals in the NHS represent extremely poor value for money for the taxpayer. Locking trusts into these deals for decades is deeply concerning.”

Their words echo the findings of Prof Allyson Pollock, an expert on PFI in the NHS, who said in a report in 2013 that the costs of borrowing in PFI deals “are consistently higher than public borrowing costs”.

She said: “The high cost of PFI services and debt repayment has had a serious impact on NHS services by creating an affordability gap. There is a correlation between large PFI building projects and hospital deficits and reductions in services and staff.”

The PFI hospitals costing NHS £2bn every year - Telegraph

It's happening across the country:

Worcestershire's community hospitals face shock 44% cut in beds


Worcester Source
12:22pm Thu 24 Nov 16

We can of course console ourselves that whilst our healthcare system seems to be hurtling back to the 1900's the consortium that build Worcestershire Royal Hospital continues to prosper. Worcestershire Royal Hospital cost £82 million to build but under the PFI contract for construction and maintenance Worcestershire NHS is paying the private contractor an estimated £852 million over a 30 year period ending in 2032. I believe that under the terms of the contract when this stage is reached the local NHS trust will not own a single brick but will be faced with the choice of either signing another maintenance contract or walking away!

Trickytrees >>> Worcester Source
7:53pm Thu 24 Nov 16

Fine facts and figures. But without PFI how precisely were new hospitals going to get built? I don't recall then, or now a huge appetite to increase the PSBR to fund them from short term borrowing increases. Why, even today the government 'can't afford' to run services, let alone improve them.

Worcestershire's community hospitals face shock 44% cut in beds (From Worcester News)

Warnings were being made many years ago:

Hospital Storm Warning

Oct 04, 2011

The financial vulnerability of UK hospitals was highlighted last week, although the cause of their symptoms was apparently up for debate.

Health Secretary Andrew Lansley claimed that 22 NHS trusts were “on the brink of financial collapse” as a result of their PFI debt obligations. But trust managers disputed this, accusing Lansley of trying to steer political heat away from the cuts. “The problems that we face are about having to cut our budgets by 4 per cent every year for the next four years.” one trust executive told the Independent.

So, who is right? Ominously for our hospitals, the answer is both.

Asking the NHS to deliver ‘efficiency savings’ of £15-20 billion by 2013-14 will have obvious and dramatic consequences for the quality of care the NHS can provide.

Meanwhile, PFI has been crippling NHS budgets around the country for years. As Private Eye observed this week: “In 2007… acute hospitals then deemed by the NHS to be so screwed they couldn’t borrow money were four times more likely than others to have large PFI contracts.” The magazine continues: “Then in 2009 when the Audit Commission found that six acute trusts had particularly debilitating deficits, what did we find? Yes, five were lumbered with massive PFI commitments.”

So far, so gloomy, yet the condition may deteriorate because when the forces of the cuts and PFI combine, the challenge for our hospitals grows graver.

A 2011 paper called Private Finance in Austerity addresses two problems of PFI budgets, 1) they are ring-fenced from cuts and 2) they’re indexed to inflation.

Professor of Public Health Allyson Pollock writes: “Although PFI charges preempt between 0.4% and 18.6% of annual hospital trust income, PFI contractors are insulated from efficiency targets.” In other words, PFI debt obligations are immune from cuts. This forces hospitals to make wider and deeper cuts across the rest of their services to continue meeting payments for PFI services.

But PFI contracts are notoriously inefficient and wasteful. For example, maintenance is often handled by off-site contractors who must be brought in to do menial tasks such as changing light-bulbs and moving heavy equipment. This expensive service is fairly unnecessary and the sort of thing a hospital manager would axe to save money. But PFI contracts forbid this. Cuts to other areas, like clinical stuff, hospital beds and drugs budgets must be more brutal to compensate.

This year inflation rates have been at 4%, the highest in nearly two decades. PFI contracts are indexed to inflation, meaning the amount of money owed by hospitals is not fixed but rises with the inflation rate. For instance, if a PFI payment was £100 million last year, it will be £104 million this year. And, if inflation rates continue to rise, £108 million in 2012.

While hospital managers are frantically laying off staff and closing wards to meet ‘efficiency’ targets, PFI contracts are demanding more and more money to provide exactly the same service. This eats even further into frontline service budgets.

So, PFI has our hospitals in a mess but the government does have a trump card, if it wants to play it.

Pollock’s paper notes that some of the biggest PFI project money lenders of the last decade were the bailed out banks RBS, HBOS and Lloyds. Public ownership of these banks provides an ideal opportunity to renegotiate PFI interest rates and pass these savings on to hospitals.

She writes: “The government rescue means that bank ownership and its attendant risks have been transferred, completely or in part, from the private sector back to the public and the taxpayer. However, the case for paying bank lenders and shareholders higher interest rates under PFI rests on the claim that risk has been transferred to them. There can be no case therefore for not reopening these contracts. Management consultants, McKinsey & Company, estimated last year that a reduction of 0.02 to 0.03 percent in interest charges paid to contractors by NHS hospitals could save £200m a year.”

This would, of course, require joined up thinking and an admission that markets do not correct themselves but need regulation and intervention… Don’t hold your breath.

Globalise Resistance | Hospital Storm Warning

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