|
Development
Of PFI/PPP In Healthcare
Past
under-investment has left the NHS, which is responsible for the free
delivery of healthcare to the vast majority of the population, in a
situation characterised by capacity shortages. As a result, major new
investment is required and this will entail the expansion of the role of
PFI/PPP in the Healthcare Sector. The ability of the Government to
undertake the required investment will be dependent upon the willingness
of the Private Sector to finance it and the funding generated by the
level of economic activity and political decisions concerning taxation.
Economic
Background
In overall
terms, the economic framework is currently relatively favourable for the
development of the UK Construction market, with the economy registering a
sustainable level of growth. Overall rates of GDP growth are buoyant,
however earnings are rising at over 4.5%, which is considered to be too
high a level to be consistent with the inflation target.
Nevertheless, price pressures remain subdued, though house price
increases and increasing confidence in the manufacturing sector are
beginning to indicate that the economy may be in danger of more rapid
growth. As a result commentators are now suggesting possible increases in
interest rates around the summer 2002 period, which may constrain growth
towards the end of the year.
UK
Public Healthcare Market Drivers Of Demand For Healthcare Services
Against this
background, the base demand for Healthcare is constantly growing, it is
driven both by technological advances (what is becoming possible) and the
needs of an ageing population.
In 2000 - 01,
total Healthcare expenditure in the UK was estimated to be of the order
of £56 billion, of which the NHS accounted for £48 billion. This figure
represents 6.8% of GDP and contrasts with the levels of expenditure
elsewhere in Europe - France with 9.3%, Germany with 10.3%, Spain with
7.0% and Sweden with 7.9%.
In addition,
the Government's commitment to improve Healthcare in the Public Sector
creates its own pressures. The targets that have been set in the NHS Plan
require additional facilities and manpower, as well as management. There
are clearly enunciated plans for increasing capacity in the NHS. These
requirements will, a priori, tend to drive the provision of Healthcare in
the public sector.
In many
respects demand for Healthcare services is limitless. In the UK the level
of under-investment over past decades means that the pent-up demand for
Healthcare - as evidenced by waiting lists - is very high. The
Government's commitment to improving Public Sector Healthcare is
therefore driven by numerous forces and seeks to attain numerous
objectives.
The
Scope For PFI/PPP In The Healthcare Sector
In order to
improve service standards in the Healthcare sector and meet the NHS Plan
objectives there is a substantial need for investment to remove capacity
constraints and make the system more responsive to patient needs.
NHS LIFT
represents a major initiative to improve Primary Care conditions and
delivery. In order for the programme to work, however, it needs a
committed local partner and this is more likely to be found with the
Primary Care providers in the NHS organisations rather than with
individual GPs or dentists. In addition, the need to have projects of a
sufficient size to justify the costs involved in bidding, means that the
bundling of smaller projects will be necessary for them to become
attractive to the private sector partner. The key here is the management
capacity of the local joint venture and the deliverability of the scheme.
Major
hospital building projects are required to make up for the under-funding
of the last decades. Here, once the initial need to standardise
procedures and develop methods of appraisal have been met, the real
problem is the need to avoid flooding the market with projects. There are
limited resources available for the preparation of the complex bids
required. There are also limits on resources in the construction and
facilities maintenance industries. Furthermore, there are constraints
imposed by the availability of suitable staff. Given the length of time
that it takes to train doctors, nurses and specialists simply building
new facilities is not enough. In addition, the whole issue of outsourcing
ancillary staff and improving management and cost effectiveness will
remain important.
Further
measures designed to reduce the capacity constraints currently
experienced by the NHS are also being examined. The setting up of private
sector Diagnostic and Treatment Centres is designed to reduce pressure on
Acute Hospital facilities although it may experience the same difficulty
over staff recruitment as the NHS. An alternative way of relieving
pressure on Acute Hospital facilities is possibly provided by suggestions
to alter the level of care within the hospital with different levels of
facilities and care for those patients, who do not require intensive
nursing, but cannot be discharged.
Although discharging these patients into Intermediate Care (usually in
the Private Sector) should be an option, this is not the case at the
present time as Nursing and Residential Homes are closing due to
additional regulation and pressure on revenues from Local Authorities'
payments which have lagged behind increases in the cost of care.
"Layering" of hospital facilities, through the provision of
various standards of care and accommodation, could offer a more effective
use of resources.
The
Government has adopted PFI/PPP as the major vehicle for the delivery of
additional resources to the NHS. To date, PFI has been chiefly used for
the delivery of new facilities - new hospitals, new staff accommodation,
new IT systems, new laboratory services. The PFI projects have typically
involved the outsourcing of either "soft" or "hard"
facilities management, and often both. Whilst the status of ancillary
staff and core clinical staff remains ambiguous there will be some
reluctance in entering into long term contracts. The potential market is
obviously there, but some of the parameters remain unclear.
Progress
To Date
Although
considerable progress has been made in DOH procurement for the NHS
through PFI, the process remains cumbersome. Some of the projects are
exceedingly complex - both in terms of the output specification and the
setting of the levels of service standards. As a result, the tendering
process is very time consuming. Currently, the issues surrounding the
status of the ancillary staff in new PFI projects has further added to
the delays.
Residential
projects, however, are very much simpler and therefore do not suffer from
the same disadvantages and Intermediate Care projects are more easily
adopted. Experience of Primary Care PFI projects is limited in so far as
England is concerned, although some projects have gone ahead in Scotland.
Case
Studies
Case studies
of the differing experiences offer helpful pointers for the evolution of
PFI projects in the Healthcare sector.
The experience outlined in the case studies indicates that the
standardisation of procedures recommended by Bates has been implemented
and appears to be working to reduce the amount of time necessary to bring
a PFI project to a successful conclusion.
In so far as
the very large projects are concerned, however, the amount of time (and
cost) involved in preparing bids means that only the larger companies can
take a lead position. The experience that is gained from successful
bidding confers an advantage upon the successful consortia, which will
tend to encourage the formation of stable alliances to capitalise upon
this knowledge. Although a variety of regional sub-contractors may be
involved, the number of major consortia is likely to be limited.
The
importance of re-developing NHS Trust sites as part of a relocation and
consolidation strategy means that even with a new build, the property
development element remains a key factor in determining the profitability
of the PFI option. Arrangements for profit sharing among the various
parties are thus important.
The current
controversy over the assignment of staff, both clinical and non-clinical,
to the private sector inevitably leads to delays in the finalisation of
PFI contracts and is likely to delay the hospital building programme.
Uncertainties in this area may lead to a preference among consortia for
contracts, such as Newcastle, from which soft FM is excluded.
Key
Issues
A number of
Key Issues have been identified which impact upon PFI/PPP projects.
At a general
level they include:
-
Site
redevelopment;
-
Refinancing
of loans;
-
Insurance
and performance guarantees;
-
The
competence and commitment of the client;
-
Design
quality and designation as fit for purpose.
At a
Healthcare specific level Key Issues in the UK include;
-
The
transfer of personnel;
-
The
provision of clinical services;
-
The length
of waiting lists;
-
The
Concordat with the private sector;
-
The use of
foreign facilities;
-
The
hypothecation of NHS revenues.
It is clear
that a number of the factors outlined above have the capacity to reduce
the scope of PFI/PPP to deliver improvements in the provision of
healthcare in the NHS. An increasing awareness of the various constraints
and limitations within which PFI/PPP must function is, however, a
positive step.
Evolution
Of The Role Of The Major Players
Over the past
five years there has been a trend towards consolidation within the PFI/PPP
industry. The risks involved in the large projects mean that there is a
greater desire to control the continuing operations once the construction
period is over. In the smaller and more medium sized projects the degree
of complexity is generally less and it is easier to put together
consortia for each project. The time involved, however, and the learning
costs associated with them mean that there is a tendency for alliances to
become more semi-permanent over time.
At the
sub-contractor and supplier level, the key factors are specialised or
local knowledge can be made available, which can be used to minimise the
overall level of risk. Quality assurance and guaranteed service and
rectification periods are perceived as being critical to the success of a
given project.
International
Perspective
Healthcare in
continental Europe has tended to adopt a more mixed approach to the
provision of healthcare than that prevailing in the UK, there is greater
acceptance of plurality. The way in which healthcare is funded will also
have a profound affect upon the character of healthcare provision, with
health insurance (Bismarck) schemes being more consumer driven than those
funded out of taxation (the Beveridge scheme).
Over the past
half century, there has been greater investment in healthcare facilities
in Europe with the result that recent developments in medical treatment
reducing the average length of stay have led to excess hospital capacity.
This situation contrasts strongly with that of the UK which faces
capacity constraints. Opportunities exist in Europe, however, for the
continued development of intermediate care facilities and the UK
experience of PFI/PPP could be relevant here.
The current
emphasis in European healthcare is on cost containment. PFI/PPP does have
a role to play in performance improvement. The use of the private,
for-profit, sector in healthcare provision and outsourcing generates
unease in some countries - particularly Sweden - but it is likely that
this practice will continue since it offers the possibility of greater
efficiency in the use of healthcare resources.
Interestingly,
however, the political dimension relating to healthcare is causing
problems as consensus among political parties is breaking down leading to
uncertainty over reforms.
Future
Prospects
The recent
Budget which projects an increase in health care expenditure in real
terms of 7.4% over the next five years to arrive at a budget of 3106
billion in 2007, undoubtedly offers considerable opportunities for PFI/PPP
in the healthcare sector in the UK. The translation of these
opportunities into concrete projects will, however, require time and
attention.
The most straightforward projects will be those involving the provision
of accommodation. These opportunities are likely to exist both in the
field of Intermediate Care and also for Primary Care. Both these markets
look set to expand substantially given current programmes to reduce bed
blocking and improve Primary Care through NHS LIFT.
In some
instances projects may be for hospital facilities but confined to hard FM
only (leaving the soft FM to be managed by the hospital itself). The more
complex projects will involve the provision of both hard and soft FM but
these are likely to raise difficulties over management issues of the soft
FM portion. These projects will go ahead but are likely to be
time-consuming in the tendering stage and involve considerably more risk
than the simpler projects.
There will
also be specialised PFI/PPP projects, such as IT projects aimed at
improving patients' records, which will require substantial investment
over the next five to ten years. Past experience of IT procurement,
however, has not been very successful and as a result IT procurement is
likely to be tightly controlled.
List
of Companies Mentioned
Cap Gemini, Deloitte, L-Soft, Balfour Beatty, AMEC,
Amey, Carillion, Jarvis, The Miller Group, MJ Gleeson, Morrison
Construction, John Laing plc, Sir Robert McAlpine, Kier, Bouygues,
Interserveplc, ISS, Taylor Woodrow Facilities, Caxton, Rentokil, Aqumen,
Sodexho, Tilbury Douglas, WS Atkins., Gleeson, Bouyues.
|
