PFI performance slides back into the spotlight

Having suffered an interrupted night’s sleep I was listening to BBC Radio 5 Live in the early hours when the story about the rising cost of PFI arrangements for the health service first started being broadcast. By morning this was no longer a secondary article in the bulletins but the lead on BBC news on local and national radio as well as television. We will all have heard or read the story and by the time this article is published it will probably be “old news” so I will not waste time going into the detail of the BBC story. The gist of it is that the cost of PFI arrangements is rising faster than the healthcare budgets that have to fund it and so there is fear of funds having to be diverted from patients to cover this increasing cost.

FUTURE PLANNING
It appears, according to the BBC article and statements from Government, that there is a concern that some Trusts in England have not budgeted for the index linked nature of the agreements they have entered into.

Obviously the current economic climate is not helping with the RPI, for example, above the inflationary increases in funding being provided and the drive for cost savings biting hard on already tight budgets. There are many in the health service now shaking their heads and muttering “told you so” under their breath. Concerns about PFI and the long term costs were being raised by Estates and Facilities Managers (and others) from the outset of the proposals.

Way back, when PFI was being introduced to the health sector, one by one PFI consortia approached us at HFC asking if we could help them with whole life costing figures for hospital specific items as well as general items, like lifts for example, in the healthcare environment. Our first reaction was “Why come to us?” and in discussions it became clear that they had picked up from the NHS side of their schemes that HFC runs the prime benchmarking information group for facilities information for the NHS. We were amazed that the consortia did not have this information from their previous schemes in other arenas. However, our benchmarking information is built around strategic information management and trend analysis to assist the healthcare FM teams in their strategic decision making and does not deal with the low end individual asset costs; that information can be extracted from the local service FM maintenance systems and we provided this feedback and some assistance in producing this where we could.

COST CONSIDERATIONS
What has been identified over the years was that the costs for a contracted out service or PFI type arrangements soon overtook the previous costs for the in-house provision. There does have to be a cost to improving the facilities and this can come in two forms: interest payments on borrowing or profit and shareholder dividends to commercial companies providing the premises and services. I can recall being asked a question when visiting Quarry House several years ago if I could help explain why an early PFI based Trust was showing premises costs some 18% higher than the median for equivalent sized organisations. I said I felt they were doing well as from my experience, working with a large civil engineering contractor in the early part of my working life, overheads and profit would account for some 21% or more of contracted services costs. I appreciate that some may feel this might be a simplistic view but across my 30 plus years in the healthcare sector this has been borne out.

From our own analysis of available information on the NHS, and the Facilities provision in particular, there are some interesting points to draw on. As one example, in 2004/05 the NHS Cleaning Manual was issued to drive up cleaning standards in the health service. Having looked at the cost of cleaning services across the intervening time there has been an understandable increase. As NHS organisations realised, through using tools like the HFC’s Credits for Cleaning (C4C®) System funded by the English Department of Health through the now defunct NHS Estates, that they were underfunding their cleaning services when compared with the new standards budgets were increased. The benefit of this work is that HCAIs have reduced significantly as shown in the graph below:

We are not so naive as to claim that this is the only reason for the reduction; there have been a raft of measures of which the improvement in cleaning funding and monitoring is but one. However, we now have a concern that the drive for cost savings on “back office” costs has the potential to undo a great deal of the good already achieved.

One of the other concerns we have is that some of the Key Performance Indicators we have worked with over many years in the HFC benchmarking information service, and provide real trend analysis of healthcare premises management performance and costs, have been made incomplete by recent changes in the statutory data collection. As an example Car Parking costs and related information is no longer collected but it is clear from surveys carried out by Which?, for example, that there is great public interest in such emotive issues. With changes in the data set relating only to Foundation Trusts (in England) removing many data entities that contribute to the overall costs of occupancy we are having to place caveats on our information as Foundation Trust costs start to appear low compared to the remainder. At a time when managing costs is a very real issue it is incongruous that such action means it is now more difficult and time consuming to make realistic comparisons around the service as a whole.

How does this relate to PFI?
The cost of providing healthcare to the nation is made up of lots of small (sic!) parts. Government grants an overall budget which is handed down through various (changing) channels. Ultimately significant parts of this budget end up with our local hospitals in order for them to look after us when we are ill (and yes I am not ignoring the GPs and other services like dental and ophthalmic – just that we are looking at hospitals in this context). Some of the service provision is made in PFI premises and the rest is not. We need to be able to accurately compare like with like in order to see if the cost/benefit of PFI is worthwhile.

A new hospital should be easier to clean and maintain and major plant and equipment should not need replacement in the early years so these costs would naturally be lower, balancing out to some degree the overall cost of the PFI development through the contract fees. However, life moves on and buildings suffer wear and tear and equipment starts to wear out and require work and so the maintenance costs start to climb. But all of this is predictable so why surprise being expressed now? Or is it that locally financial management and Boards had not allowed for the longer term costs?

For me a great deal of this is summed in a comment posted on the BBC web site: ‘Paying in instalments for something is always going to be more expensive than paying up front. If PFI had not been used, where would the money have come from to build these hopsitals? Are we saying it would have been better NOT to have built them rather than use PFI? How would we have got these hospitals in a way that would not have added to government borrowing?’

Is the real issue simply that the costs have not been properly predicated and built into the business cases or has the economic situation caught Boards and finance managers by surprise? I somehow suspect that both may be the answer.

Written by Keith Sammonds, MD, Healthcare Facilities Consortium

FOR MORE INFORMATION
www.hfc.org.uk