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Hostility to NHS PFI programmes 'sweeping generalisation', says expert


The cost of paying for privately-funded building projects is unlikely to be the "sole cause of difficulty" for local healthcare trusts, an expert has said.

Michael Boyd, who specialises in private finance projects with Pinsent Masons, the law firm behind Out-Law.com told the site that it would be a "sweeping generalisation" to suggest that the repayments were the sole cause of reported financial problems in 22 NHS trusts.

The government has said that 22 hospitals were facing difficulties because of payments under private finance initiative (PFI) schemes amounting to up to a fifth of their budgets in some cases, according to a report by the BBC.

The combined value of NHS PFI projects is £12.6bn, according to Department of Health figures. In some cases this figure includes services such as maintenance, cleaning and catering as well as building costs.

The private finance initiative (PFI) model is a method of utilising private sector capital as a way of funding major public infrastructure projects. In a PFI agreement, the private sector pays the upfront cost and is typically repaid by the taxpayer over a 30 year period.

PFI has become the default option for many public bodies looking to provide roads, prisons and schools as the initial procurement costs are comparatively low. However, a recent Treasury Select Committee report suggested that higher borrowing costs as a result of the recent economic downturn have resulted in the long-term expense of PFI becoming much higher than more conventional forms of borrowing.

The report also found little evidence that infrastructure funded through PFI was of a higher quality or more innovative in design than those procured by other means, or that contractors had an incentive to maintain finished buildings to a higher standard. It proposed much stricter criteria for when PFI could be used.

Health Secretary Andrew Lansley said that the 22 hospitals identified in the report had suggested their PFI contract may "act as a barrier to achieving clinical and financial sustainability".

Hospitals which were struggling to meet payments could be cross-subsidised by other hospitals which have kept to their budgets, which was unacceptable, Lansley said.

That the reports came with the "official stamp" of the Department of Health "begs the question as to the nature of the message that the Government wants to give about PFI in the NHS", private finance expert Boyd said.

"If all the Trusts referred to are genuinely financially challenged, it would be a sweeping generalisation to allocate complete responsibility for that at the door of their PFI scheme. Whilst any long term and significant contractual commitment at a time of serious financial constraint - unforeseen at the time these contracts were entered into - may be a factor, in many cases they are unlikely to be the sole cause of difficulty," he said.

In addition, not all trusts that had used PFI programmes to fund their building projects were suffering financial difficulties.

"Many are functioning perfectly happily and delivering surpluses which are ploughed back into healthcare. As such, scalable and replicable lessons are available within the NHS which can help many of the Trusts the Department has described as being under threat," Boyd said.

"Any contract requires effective management if it is to deliver the benefits it was intended for and to adapt to meet changing circumstances. It is often the case that Trusts have struggled to manage their PFI schemes effectively, meaning that many are not getting what they are paying for or enforcing the payment mechanisms to reflect performance shortfalls," he said.

PFI contracts contain several mechanisms which allow health trusts to claw back cash or vary the payment terms to reflect changing circumstances, Boyd said.

"A good start from many of the 22 trusts with operational PFI schemes would be to consider the tools that they have at their fingertips to improve their immediate and long term financial position," he said.

Without large amounts of public capital PFI remains the only option for large projects such as complete hospital redevelopments, Boyd said.

"For smaller scale proposals, more flexible alternative delivery models are becoming used by commercially aware Foundation Trusts. So there are alternatives, even if PFI is not the spectre that the Government appears to want the population to believe it is," he said.

Health Minister Andrew Lansley is expected to set out the government's plans to deal with "the true impact of long PFI contracts" later in the year, the Department of Health said.

"The fact is the figures show that some hospitals have taken on PFI contracts they can't afford and are not financially sustainable on their current plans," he said in a statement.

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