NAO slams Peterborough's 'unaffordable' PFI hospital

29 Nov 12
Auditors have criticised Peterborough & Stamford NHS Foundation Trust for its 2007 decision to proceed with a Private Finance Initiative hospital it could not afford.
By Vivienne Russell | 29 November 2012

Auditors have criticised Peterborough & Stamford NHS Foundation Trust for its 2007 decision to proceed with a Private Finance Initiative hospital it could not afford.

In a report published today, the National Audit Office also slammed the foundation trust regulator Monitor and the Department of Health for, respectively, failing to properly scrutinise the impact of the scheme on the trust and being insufficiently sceptical of its affordability.

The spending watchdog said the trust’s PFI payments and other estate costs would be a challenge in any circumstances, but failures in financial management had compounded the issue.

MPs on the Commons Public Accounts Committee had asked the NAO to probe the Peterborough City Hospital PFI deal more closely following an earlier case study by the auditors. The trust had an in-year deficit of £46m in 2011/12 and is predicting it will be more than £50m in the red in the current financial year.

The NAO’s investigation revealed that Monitor had raised ‘well-founded’ concerns about the scheme’s affordability with both the trust board and the DoH before sign-off in June 2007, but these were not fully addressed. Monitor considered that it would have been inappropriate to intervene at this point.

Following sign-off of the business case and ahead of the hospital opening in December 2010, Monitor and the trust board did not adequately scrutinise the future impact of the scheme on the trust, the NAO found.

Despite its earlier concerns, Monitor rated the trust as a very low financial risk, although this did not reflect the impact of the forthcoming PFI development. The regulator finally placed the trust in breach of its terms in October 2011, but concluded that an intervention would not necessarily be helpful.

NAO head Amyas Morse said: ‘The trust board’s poor financial management and procurement of an unaffordable PFI scheme have left the trust in a critical financial position.

‘The board developed and enthusiastically supported an unrealistic business case built on over-optimistic financial projections. The regulatory and approval processes did not work in this case and did not ensure affordability.’

Morse urged the trust board, NHS commissioners, the DoH and Monitor to work together to help the trust turn itself round. The deficit, he said, ‘is now too great for the trust to balance its finances by managing its own resources’.

Responding to the report, Monitor chief executive David Bennett said: ‘Monitor [has] commissioned an independent review to learn lessons from this experience and is implementing the recommendations to strengthen its oversight of long-term investments by foundation trusts.’

Peter Reading, interim chief executive at the trust, said the shortcomings highlighted by the NAO were acknowledged and new systems and processes were in place to improve financial forecasting. ‘We are also on track to deliver £13.2m of cost savings in 2012/13. Our patients can be assured that we are working to our turnaround plan, which focuses on delivering savings and efficiencies while maintaining the consistently high standards of quality care.’

He added that Peterborough City Hospital was one of the ‘finest facilities in the NHS’ and popular with patients. ‘Without this hospital, the city would be struggling with three separate sites in Peterborough – which collectively required hundreds of millions of pounds in renovation costs to bring them up to a satisfactory standard.’

A DoH spokesman said the Peterborough case was another example of PFI policy going badly wrong. ‘We are working with Monitor and Peterborough to find a solution to this problem.’

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