Free and Public

Unhealthy Profits: PFI in the NHS – Its real costs

The announcement by British Chancellor Philip Hammond last November, in the costly aftermath of the collapse of major contractor Carillion,  that the Conservative government would be signing off no more projects funded through the Private Finance Initiative (PFI) (better known around the world as Public Private Partnerships, or P3s) might seem to be the end of an era.

It came after firm statements from the current leadership of the Labour Party that it had not only abandoned the party’s previous support for PFI, but was determined to bring hundreds of projects funded through PFI back “in-house.”

In other words, both of the major parties that had most avidly embraced PFI in Britain, where it began, appear now to have now learned the hard way that the policy did not deliver its promised benefits, but carried expensive consequences.

Yet the grim legacy of PFI contracts signed in the past and still operational lives on, not least in the health service in Britain, where 125 projects valued at £12.4 billion were signed between 1997 and 2017, but are set to cost almost £81 billion in “unitary charge” payments running into the late 2040s.

Hospital financial deficits, problems with the inflated cost, and restricted size, design, quality and safety of buildings constructed by PFI consortia all continue as daily problems in Britain.

The same is true in many other countries around the world which unwisely followed the model of PFI and used private capital to construct hospitals, to be paid for on complex, index-linked contracts covering maintenance and support services lasting for periods up to 40 years.

How to limit the financial cost and the impact on health services of these ill-conceived projects, and their aftermath, is a live issue which will be with us for a generation to come.

That’s why I would argue my new book on PFI and PPPs, Unhealthy Profits, is still very relevant now even though the heyday of PFI deals being signed off wholesale by Tony Blair’s government from 1997-2010 is now over.

The book, which was commissioned and published by a local branch of the health union UNISON where they have been fighting PFI and its consequences for over 25 years, is in three sections: the theory of PFI (how it was supposed to work); the experience in practice (focused on a case study of the UNISON branch and the issues it faced in Mid Yorkshire); and what to do about it.

An extended Postscript examines the global spread of PFI and shows the extent to which the same flawed model has generated similar problems in very different health care systems around the world, not least the disastrous hospital project in Lesotho driven by the World Bank.

Yet even now a new ‘Global Health Group’ at the University of California San Francisco featuring former World Bank executive Richard Feachem is working with management consultants PWC in an effort to whitewash over some of its flaws and promote the P3 model.

From its inception in Britain in 1992 PFI was a device to open up public sector budgets to create profitable opportunities for construction companies, service providers, banks and finance houses (as well as lawyers, accountants and management consultants like PWC).

The theory – since largely abandoned – was that because the borrowing was done by private consortia, and the buildings were effectively leased until the contractual payments were complete, this would not impact on levels of public sector borrowing.

However, like any hire purchase agreement it meant the public sector bodies would wind up paying much higher interest, and having to finance the new projects from limited revenue budgets. Contracts were tightly written to ensure PFI payments were a first charge on revenue, regardless of the consequences. In some hospitals this meant whole floors built but left unused to avoid staffing costs.

The book reviews academic literature and other studies to show that all of the arguments justifying the higher cost of PFI compared with conventional government borrowing – promises of “innovations”, “efficiencies” and that risk would be transferred to private consortia, have proved illusory.  Expected tax revenues from consortia evaporated as profitable PFI contracts were sold on to firms in off-shore tax havens.

So what is to be done about PFI/PPPs? Unhealthy Profits takes a critical look at and dismisses various ideas, from buy-outs, defaults on payments and a windfall tax on excess profits, but concludes that the plan developed by Labour Party advisors to nationalise the small companies (Special Purpose Vehicles or SPVs) at the centre of PFI contracts offers the best hope of bringing the projects into public ownership and control.

The book, normally £7.50, is available to download from Amazon. A 288-page paperback version will be available online soon.

 

 

 

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Global Health Versus Private Profit

John Lister is well-known as a researcher, writer and campaigner against cutbacks and privatisation in the NHS. But his new book Global Health Versus Private Profit focuses on the changes taking place in global health care systems. It has received glowing endorsements from a number of specialists in the field, and described as “penetrating, highly readable, and extremely well researched”. We caught up with John and asked him to talk about the book.

Can you sum up the book’s main point in two sentences?

Market-style reforms result in health care systems that are more unequal, more costly, more fragmented and less accountable – but which offer more profits to the private sector. That’s why the question really is whether we want to see global health – or private profit.

Who will be interested in reading the book?

This book is for all those working to achieve universal access to health care, and anyone interested in the evolution of international health and the different ways in which the

I also hope it might be read by some of the people  working for the institutions assessed in the book including the WHO, World Bank (and especially IFC),  for national health care systems and for NGOs and donor agencies.  My analysis is based on research, analysis, literature and evidence, and I would be delighted to see a debate on issues which people find contentious. neoliberal agenda has brought its influence to bear on international health over time.

Global Health versus Private Profit offers a detailed analysis of the main “menu” of market-style reforms to health care systems that have been rolled out in country after country, despite the absence of evidence for their effectiveness, and ignoring the evidence of harm that is being done.

These include the emphasis on competition rather than planning and cooperation, the splitting of health care systems into purchasers and providers, privatisation in various guises – including buying in services from the private sector that were previously delivered by public sector providers – the imposition of user fees, and the focus on health insurance and managed care in place of social provision and universal coverage.

Many of these policies are being implemented in rich countries and poor alike, but they are having the most devastating impact on the poorest. They sap vital resources, dislocate and fragment systems, prevent them from responding to health needs, and obstruct the development of planning.

What evidence does the book bring to light of this conflict between global health and private profit?

Perhaps the most important examples come in the chapter entitled “The Missing Millennium Development Goals” which underlines the massive global gaps in provision of care for the growing elderly population, in mental health care and services for people with physical disabilities.

All of this is health need, but countless millions of people can’t pay a market price for care, and so they are the “customers the private sector doesn’t want”. The longer health care is shaped by the quest for private profit the larger these gaps will become.

So are we just looking at wrong-headed ideas, or is there more to it than that?

My book argues that these so called “reforms” are driven not by evidence, but by ideology – but that behind the ideology is a massive material factor: the insatiable pressure from the private sector which is desperate to recapture a much larger share of the massive $5 trillion-plus global health care industry, much of which only exists because of public funding.

That’s why rather than relying on hopes of expanding on the basis of private insurance, the private sector has been eager to get a larger slice from public sector budgets.

Why do you draw specific attention to the UK’s NHS in your book?

The costly experiments with competition, and slicing up publicly provided services to encourage private providers, have gone furthest in England, but that’s partly because compared with other countries there was a more integrated and publicly-provided service to dismantle.

But sadly England is not unique. Similar “reforms” from the same discredited menu are being adapted in different ways to different systems across much of Europe, and are even being driven in to the poorest developing countries where they are even less appropriate and more disastrous in their consequences.

For example, one growing problem is the international spread of “Public Private Partnerships,” to finance new hospitals, many of them drawing on the trail-blazing Private Finance Initiative (PFI) in the UK, which is proving itself to be a major liability, bankrupting hospitals in a cash-strapped NHS.

Despite many costly flaws, failures, and false starts, more PPPs (P3s in Canada) are now under way in OECD countries, but also in Latin America, Asia, South Africa and even Lesotho – in a costly $120m scheme I have written about for Global Health Check.

Where do you get the information for your critique?

I have made a point of using the most up to date material available from the World Bank (and its privatisation wing, the International Finance Corporation) and the IMF, as well as official figures from governments and the rich countries’ club, the OECD.  It’s important to use data that cannot be refuted – and in many case, let’s be honest, these are the only figures available.

Does the book raise any new issues?

I am not claiming to have invented many of the ideas in the book, but I hope I have helped to update, popularise and develop the argument for them.

And my concluding chapter “It doesn’t have to be this way” brings together a lot of different ideas, emphasising that the policies we are opposing are not inevitable products or even a rational response to the current situation, but choices that have been deliberately made by politicians working to a neoliberal agenda. They can be rejected and defeated by mass political action.

How do you hope the book will be used?

As I say in the preface, good ideas must be turned into political action to change the world. Bad ideas must be fought through political action too.

Sometimes good arguments can begin to prevail, such as the success that has been achieved by Oxfam and other campaigners challenging the logic of imposing user fees on health care.

So I hope my book will not sit gathering dust on library shelves, but be brandished — even used as a weapon — by those fighting for change.

A reinforced hardback edition may yet be needed to ensure we win!

 

Health Policy Reform: Global Health versus Private Profit, by John Lister is available from www.libripublishing.co.uk
(use voucher code HPR13 when purchasing to get discounted price of £20).

 

 

 

 

 

 

 

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Don’t try this at home! Lessons from England of what not to do to your health care system

For over 20 years now health system policy makers in developing countries around the world have had to endure a relentless sales pitch from advocates of market-style reforms.

Their menu of routine suggestions will be grimly familiar. These are not the painful measures which are clearly intended to contain spending (cash limits, centralisation of services, rationing and exclusions, “essential packages of care”, and of course user fees – which cut demand for services while seldom raising any significant resources).

The menu of market-style reforms can sound relatively harmless: the purchaser-provider split and “internal markets”; provider payment reforms (maybe even “payment by results”); provider autonomy; competition; outsourcing or privatisation of services; “partnership” with the private sector – even “Public-Private Partnerships”. But the same policies in the UK, have all cost more, not less.

And while it may seem that some of these proposals are to meet specific problems or to rescue failing public health care systems, beware:  these are not tailored solutions, but off the peg “one size fits all” policies – which in practice are equally inappropriate everywhere.

They are the rote learning of academics in wealthy northern countries, who have swallowed whole the illusion that health care can somehow be delivered efficiently, equitably, or economically through a competitive market.

Look at Britain, one of the few wealthy countries to adopt most of these ideas – despite the lack of any evidence that they could deliver improvements or efficiencies. Since 1991, the National Health Service, which for decades had management overhead costs of 5%, has been increasingly subject to a “purchaser-provider split”, initially in the “internal market” created by Margaret Thatcher, then, under Tony Blair, a market involving high cost private providers.

The additional costs of this market split in England have increased overheads to over 14% of NHS spending – an extra  £10 billion per year . Yet still there is no evidence that all the extra cost and bureaucracy have improved the quality of health care.

Tony Blair’s government also introduced highly complex provider payment reforms, the “payment by results” system  – nothing to do with results, since it simply imposes a national tariff (cost per case). This makes it possible to drain money out of the NHS budget to pay private providers.

Are private providers cheaper or better value? No, and no.

 In England Independent Sector Treatment Centres set up by Labour to create a new private sector provider network, charge an average 11.2% above the standard NHS cost. But they cherry-picked only the easiest cases  – leaving the rest to the NHS. And they were given generous 5-year contracts, which paid them for a fixed number of operations, regardless of how few patients chose to use the service. Millions were wasted on this, taking resources from NHS hospitals.

England has experimented with provider autonomy in the form of Foundation Trusts – providers which run outside the main managerial structures of the NHS and are responsible not to the government but an independent regulator.

The first Foundations were set up from the wealthiest, most successful hospitals, and have accumulated surpluses of £2 billion – while NHS hospitals which are not foundations face mounting financial problems. Now ministers want to let them make unlimited money from private medicine, while funding for NHS patients is being sharply reduced.

Competition, outsourcing and privatisation are best assessed by looking at the damage done to hospital cleaning standards by Margaret Thatcher’s government putting cleaning and other support services out to tender in the 1980s, forcing health bosses to accept the cheapest bid. Two decades later hospitals are still struggling with the rising tide of infections and hygiene problems caused.

And as for partnerships with the private sector – the English experience again shows that it’s like sharing a house with a lion. Your ‘partner’ sees you as his lunch.

100 hospitals have been built since 1997 using the “private finance initiative” – in which the private sector has scooped up massive guaranteed long-term profits paid from the public purse. £11 billion worth of new hospitals are set to cost £65 billion – far more than just borrowing the capital. Some early PFI hospitals have already paid back double the cost of the hospitals, but still have 15-20 years to pay. Many PFI hospitals are closing beds and wards in the new hospitals and sacking staff to cut costs: some need rescuing by government.

Now services in the English NHS could be opened up by the new government to competitive bids by “any qualified provider”. But the private sector will only bid for services where it is certain of a profit. So if NHS and non-profit providers are all expected to behave like businesses in a market, who will bid for services which can’t be profitable – like emergency care, mental health or care of the elderly?

The policies only sound tempting until you investigate their consequences. Markets are OK for fruit and vegetables, but they don’t deliver equity – and are not good for health care, where those with the greatest needs have the least ability to pay – and the least political power.

Don’t copy the costly mistakes made in England.

John Lister is a freelance journalist with over 27 years’ experience in analysing health policy for pressure group London Health Emergency, and now senior lecturer in Health Journalism at Coventry University. His PhD is in global health policy, and his books include Health Policy Reform, Driving the Wrong Way? (2005) and The NHS After 60, for patients or profits? (2008).

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Lesotho hospital public private partnership: new model or false start?

A new $120m privately financed hospital in Lesotho capital Maseru, the first in Africa to be built through a “Public Private Investment Partnership” (PPIP), and claimed a “success” by the World Bank, is already mired in controversy.

Just days after finally opening its doors the showpiece 390 bed Queen ‘Mamohato Memorial Hospital, which replaced the crumbling 450 bed Queen Elizabeth II Hospital in central Maseru, hit the headlines when it turned away an expectant 24-year-old woman, Metsana Rapotsane.

The incident triggered an investigation by the Ministry of Health, amid public questions over arrangements for urgent care and emergencies at the new hospital – which according to the World Bank is supposed to “operate as the national referral hospital as well as the district hospital for the greater Maseru area”. 
 
From the outset this project has received significant backing from the World Bank. The private sector arm of the World Bank Group, the International Finance Corporation (IFC), which describes itself as “a pioneer in the implementation of public-private partnerships in health” has supplied technical assistance, and a World Bank International Development Assistance (IDA) grant of US$6.25 million was provided through the Global Partnership on Output-Based Aid. Since before the hospital was built the World Bank’s marketing machine has been in action, showcasing this ‘truly exciting’ partnership as a successful model to be replicated elsewhere in Africa. These claims seem dangerously premature.

The Queen ‘Mamohato Memorial Hospital is built and run by a consortium headed up by South African private medical giant Netcare. The company is struggling to free itself of the disgrace caused by its involvement in the sale of kidneys between 2001 and 2003 – a number of them purchased from children – for which Netcare was fined £700,000 last year, with the possibility of further court action.

The 18-year government contract with Netcare involves the building of the new 390-bed hospital to replace the 450 in the closed Queen Elizabeth II, the provision of clinical services at the hospital and three filter clinics, and the ongoing training of health staff. In addition to the new hospital the PPIP scheme also financed the construction of a deluxe 35-bed private patient unit to serve Lesotho’s wealthy elite. The private unit will be run separately by Netcare who will keep all of the profits.

In return, the Lesotho government will pay a US$32.6m index-linked annual “unitary charge” to Netcare for the hospital and services. Given that the annual budget for the QEII hospital and the filter clinics in 2007/08 was less than $17m this represents a massive 100% increase in costs and throws into doubt claims that the project is ‘cost neutral’. This is at a time of sharply falling government revenues and after the government has already invested $62m ($51m in capital up front and another $11m in infrastructure costs).

The Queen ‘Mamohato Memorial Hospital is “to treat all patients who present at the hospital” – up to “a maximum of 20,000 in-patient admissions and 310,000 outpatient attendances annually”. This seems a very low cap for the country’s main hospital when official figures show a national hospitalisation rate of 3.2% of the population each year, equivalent to 64,000 patients. Patients treated above this agreed maximum will presumably have to be paid for either by the government or patients themselves thus further adding to the cost of the deal. The annual charge for the hospital, soaking up a third of Lesotho’s recurrent health budget[1], also threatens to distort national health spending and likely put desperately needed expansion of primary health care for Lesotho’s majority rural population beyond reach.

The unfavourable terms of the contract can be traced back to a lack of relevant expertise among those in Lesotho negotiating the contract terms and an apparent failure of the IFC, who acted as consultants on the project, to provide sound advice. A “Baseline study” by the Lesotho-Boston Health Alliance warned in 2009 that: “At present, sufficient expertise in hospital operations, financial oversight and analysis and systems analysis to manage the PPP contract in the interests of the Government and people of Lesotho does not exist.”

This was very much to Netcare’s advantage and under the existing agreement its consortium members can profit in several ways:

  • a guaranteed profit on the capital investment,
  • plus a very healthy 10% guaranteed return on its operating budget,
  • plus payment for any additional patients treated above the contract maximum (with no information available to the fees Netcare will be able to charge).
  • an effective government subsidy for the building of a 35-bed private wing at the hospital – with all profits kept by the consortium.
  • Netcare as the largest operator of private hospitals in South Africa can make more money by sending patients for specialist treatment not covered by the PPIP contract, including  radiotherapy to its hospital in Bloemfontein or elsewhere. There appears to be no limit on numbers, or the prices that can be charged for these externally treated patients, and no incentive for Netcare to reduce referrals[2] 

The problems with the PPIP deal are not unique to Lesotho. In the UK, where 100 hospitals have been built through various “private finance initiatives”, £11 billion worth of new hospitals are set to cost UK taxpayers £65 billion – far more than just borrowing the capital. In August this year a UK House of Commons Select Committee report concluded that private financing is an ‘extremely inefficient method of financing projects’.

The new referral hospital is a good deal for Netcare but less good for Lesotho. It also appears inconsistent with the IFC’s commitment, as part of the World Bank Group, to wider values of equity and calls into question whether the World Bank really works in the interest of efficient and equitable public spending for health.

There is no question that a new hospital was urgently needed to replace the QEII. However, did anyone ask whether this could have been better financed through a low interest World Bank loan? The details of the Lesotho PPIP contract have so far been shrouded in secrecy but given that this is the first major hospital built in Africa through a “Public-Private Investment Partnership” a rigorous evaluation of the initiative – including complete transparency about the costs – will be essential.

As it stands it seems a sizeable and growing share of Lesotho’s health budget will be locked in to a scheme that guarantees payments and profits to Netcare and other shareholders at the expense of Basotho patients and taxpayers.

John Lister is a freelance journalist with over 27 years’ experience in analysing health policy for pressure group London Health Emergency, and now senior lecturer in Health Journalism at Coventry University. His PhD is in global health policy, and his books include Health Policy Reform, Driving the Wrong Way? (2005) and The NHS After 60, for patients or profits? (2008).

[1] The recurrent health sector budget in 2010/11 was just over $100 million. Budget Speech to Parliament for the 2010/11 fiscal year.
[2] In 2006/07 FY $24.8 million was spent on 3,281 external referrals, of which 55% were oncology cases. Lesotho Health Systems Assessment 2010, p.22

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New law could turn England’s NHS into a competitive market

'Save the NHS' protest on Westminster Bridge. Credit: Edward Crompton

The National Health Service in England is facing far-reaching changes which many opponents fear could spell the end of a system that has for over 60 years won admiration around the world. A highly controversial Health & Social Care Bill presented to Parliament in January by Health Secretary Andrew Lansley is now being debated in detail in the House of Lords.

Although innocuously described in some BBC reports as “giving more power to GPs”, the Bill would fragment the health care system, reducing the National Health Service itself from a public service, largely publicly provided, to little more than a collective fund of taxpayers’ money to buy services from a range of for-profit and non-profit providers in a competitive market.

The Bill proposes to scrap all 160 or so local and regional management structures (Primary Care Trusts and Strategic Health Authorities) which currently commission health services for large populations. It would also dilute the responsibility of the Secretary of State for the provision of a universal and comprehensive health service in England. Existing scrutiny arrangements over local health services are also scrapped.

Public health responsibilities would be hived off to local government, to be run by new “Health and Wellbeing Boards” – which may contain as few as six people. Over 400 public health experts and academics recently wrote calling for the Bill to be withdrawn.

The £80 billion annual NHS budget for commissioning health services in England would be devolved to new GP-led “Clinical Commissioning Groups” (CCGs). Hundreds of CCGs have already sprung up in advance of the legislation being agreed, despite 78% of GPs opposing the Bill: only 16% want to be involved with commissioning. Just 7% of CCG leaders were subject to a contested election.

“Pathfinder” CCGs have been set up without public consultation or involvement. Cuts in spending mean they will become rationing boards, deciding what services to exclude from the NHS. CCGs are not required to work together, threatening greater inequality in access to care between one area and another, and conflicts of interest for GPs with private sector connections.

Despite all Lansley’s hype, GPs will NOT really be in charge.  CCGs will be dominated by a remote, bureaucratic NHS Commissioning Board. Its new chair has already declared the Bill “unintelligible”.

All the real work of commissioning will be done by management teams, many of them from private companies. In London 31 CCGs have signed an initial £7m deal with consultancies including McKinsey and KPMG, for assistance – a prelude to taking over almost every duty GPs are supposed to carry out as commissioners.

Patients requiring hospital care will have even less choice than now. Hospital referrals will require the rubber stamp of cost-cutting “referral management” teams, often run by private companies, many staffed not by doctors but by podiatrists and nurses – with power to over-rule GP and patient choices.

The Bill would open up many clinical services to competitive bids from “Any Qualified Provider” – private companies, inexperienced voluntary groups and unstable social enterprises – jeopardising the quality of care. GPs will have no say over which providers will be included in the national register of qualified providers, drawn up by the independent regulator Monitor.

More private providers entering the market as the NHS seeks £20 billion in “savings” will inevitably bankrupt many local NHS services and hospitals.

Meanwhile all NHS providers will have to become autonomous Foundation Trusts, run outside of the NHS framework as non-profit businesses and accountable to Monitor. Foundation Trusts would be allowed to make as much money as they like from private medicine, treating wealthy patients from home and abroad – while NHS budgets are squeezed and performance targets relaxed.

The Bill could cost at least £3 billion to implement. It remains hugely controversial and may yet be amended in committee stage discussion in the Lords.

Every week it drags on does more damage to David Cameron and the Conservative Party, for whom the NHS – and the Bill – have once again become a toxic issue.

Despite defeatist MPs, peers and others arguing much of the Bill is already a fait accompli and must be accepted, GPs are still unmoved: and 84% of psychiatrists oppose a Bill which would threaten services for their vulnerable patients. The Academy of Medical Royal Colleges reports “united opposition” of its members to aspects of the health bill – notably the proposals to promote competition. All health trade unions and professional bodies are opposed, and even the normally docile Patients Association has raised fears of Lansley’s Bill.

So it’s more or less unanimous on all sides: thousands have marched and tens of thousands have petitioned. Ministers have ignored all protests. But as evidence mounts to show how Lansley’s Bill would open up a weakened and fragmented NHS to the private sector, campaigners are fighting on to force amendments that reduce the damage – or preferably kill it off altogether.

But the Bill stands as a warning to the world that even long-standing and successful services could be put at risk by ill-conceived neoliberal market reforms, for which there is no serious supporting evidence.

John Lister is a freelance journalist with over 27 years’ experience in analysing health policy for pressure group London Health Emergency, and now senior lecturer in Health Journalism at Coventry University. His PhD is in global health policy, and his books include Health Policy Reform, Driving the Wrong Way? (2005) and The NHS After 60, for patients or profits? (2008).

The views expressed in this article do not necessarily reflect the agreed policies of Global Health Check
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Global Health Check was created by Anna Marriott and is currently edited by Mohga Kamal-Yanni