PFI hospitals face frontline cutbacks

16 Jun 10
Hospitals with Private Finance Initiative contracts might have to cut services as the terms leave little room for efficiency savings, the National Audit Office has warned
By Lucy Phillips

17 June 2010

Hospitals with Private Finance Initiative contracts might have to cut services as the terms leave little room for efficiency savings, the National Audit Office has warned.

A June 17 report found that the ability of hospitals to make savings from strict PFI contracts was ‘very limited’. It said: ‘Because trusts pay an index-linked fixed sum, it is difficult for them to make savings without cutting back on services.

‘Contractors who secure economies of scale through managing multiple PFI contracts are rarely required to share these efficiency gains with trusts.’

The NAO also criticised the Department of Health, which helps hospitals manage their PFI contracts, for failing to use market leverage to get better deals.

PFI contracts are currently operational in 76 hospitals in England and are generally used to build and maintain buildings. In some cases they also provide catering, cleaning and portering services – all areas of spending that other trusts typically look to rein in during times of financial difficulty.

The NHS is expected to find up to £20bn in efficiency savings between 2011 and 2014, despite a commitment from the government to increase its budget in real terms every year for the next five years.

Mark Hellowell, a research fellow at the Centre for International Public Health Policy at Edinburgh University, said PFI hospitals that wanted to make any changes to their contracts would ‘have to pay through the nose’ because private providers were in a monopoly environment and ‘a very, very advantageous position’. 

He added that PFI contracts ‘reduced the categories of staff over which you have control’ because most ancillary staff tended to be private sector employees.

It was also ‘close to impossible’ to close down a PFI hospital, meaning decision- making was ‘distorted’.

The British Medical Association said that the lack of flexibility in PFI contracts had created ‘financial instability’ in the NHS and ‘ultimately makes cuts and closures more likely’.

Dr Mark Porter, chair of the BMA’s consultants committee, added: ‘While future funding for the NHS is uncertain, payments to private companies under the PFI will burden local health economies for decades.’

The NAO report, The performance and management of hospital PFI contracts, found that most PFI contracts were well managed on a day-to-day basis and achieved the short-term savings originally envisaged.

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