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NHS: Finance

My Lords, as I suspected, the innocent-looking Question tabled by the noble Lord, Lord Rea, turned out not to be so innocent. He has done us a service by raising a series of issues that lie at the very centre of the Government’s health policy, and I listened with care and a good deal of agreement to all that he had to say. My personal starting point in all this is that there is nothing inherently peculiar about the private sector being involved in NHS delivery. If we think about it—the noble Baroness, Lady Murphy, drew our attention to this—private enterprise has been involved in the NHS in all sorts of ways from the inception of the service. You go to see your GP, who is an independent practitioner; he gives you a prescription for a medicine dispensed by your local chemist, who himself runs a private business. The medicine is delivered to the pharmacy by a wholesaler and manufactured by a pharmaceutical company, both of which are private enterprises. These things are part of normal, everyday life for the NHS; we do not think twice about them, and, indeed, the sums are huge. So as regards the basic principle of private sector involvement in the delivery of NHS care, I do not think that we should allow ourselves to get too hung up. When I first read the noble Lord’s Question I made the assumption, which turned out to be correct, that he was not really concerned with any of the things that I have just mentioned but with other, more topical issues. I guessed that PFI would be one. The major advantage of PFI cannot really be costed in money. It is that by arranging matters in such a way that the private sector builds, operates and maintains a hospital throughout that hospital’s predicted life, NHS patients receive the benefit of that facility much sooner than they otherwise would have under the public finance route. Furthermore, the maintenance of the building is guaranteed by the contractor over the entire period and the business risk transferred away from the taxpayer. That much of PFI is generally agreed to be positive. However, the key question, on which the noble Lord put his finger, is not whether the public have received a benefit from the PFI deal, but whether they have received good value for money. In May of this year the Public Accounts Committee of another place produced the results of its report into the refinancing deal at the Norfolk and Norwich Hospital, one of the first major PFI deals to be signed by the Government in 1998. Two years later Octagon refinanced the project, and in so doing increased the rate of return to investors to more than three times that which it predicted in its original bid. The PAC was scathing about this deal, referring to, "““the unacceptable face of capitalism””," and stating: "““It is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating refinancing proposals with the private sector””." Those words came to mind last week when the Government published a Written Answer, to which a number of noble Lords referred, giving the capital value of each PFI hospital alongside the unitary payments for that hospital during the life of the PFI contract. The Answer makes astonishing reading. PFI hospitals with an aggregate capital value of £8 billion will cost the taxpayer no less than £53 billion over the life of the contracts, a ratio of about six and an half to one. That large difference, of course, includes within it both the cost of money and the cost of so-called ““hard services”” such as buildings maintenance. But the revealing aspect relates to those hospitals where the PFI contract also covers so-called ““soft services””—cleaning and catering. Cleverer heads than mine have analysed the figures and worked out that on average each of those hospitals is paying no less than £39,000 per day, every day, during the life of the contract just for cleaning and catering. The mark-up has to be enormous. But the irony of PFI is that, after promising the biggest ever hospital building programme in the history of the NHS, the Government now say that they do not want care to be provided in hospitals after all. As we all know, hospitals around the country are suffering cutbacks and closures, and in the midst of all that more than 80 NHS organisations are locked into very long-term contracts for the building of large hospitals that we have no idea whether the NHS will actually need. It is the inflexibility of these contracts which has turned them into a financial straitjacket. In the new world of intense competition between providers, hospitals do not want to be locked into commitments lasting into the 2030s; it is a handicap which they simply cannot afford if they are to remain competitive: Queen Elizabeth Hospital, Woolwich being the obvious example. Many PFI contracts were drawn up at a time when service level agreements offered stability of income. Now, under payment by results, the goalposts have moved, and those hospitals find not only that their income is more volatile but that the level of the tariff is totally unrealistic in relation to their running costs. I seriously question whether the right hand of the Department of Health realised what the left hand was doing when, first, payment by results, and then care in the community became part of mainstream health policy. Then there are the independent sector treatment centres. The cost-effectiveness and value for money of ISTCs has been difficult for mere mortals to establish, because the Department of Health has refused to release a lot of relevant information on the grounds of business confidentiality. The evidence that exists in the public domain shows that the NHS and the taxpayer are often paying a premium for independent sector involvement; on average 9 per cent and perhaps 11 per cent more than the NHS equivalent costs. There are reasons for that premium, which no doubt the Minister will set out. However, the real concern here is that, under the terms of their contracts, ISTCs are paid irrespective of whether they have completed the work that they have contracted to do. In some instances, they have been paid in full when only 73 per cent of the contracted procedures have been carried out. I suggest to the Minister that that is a high price to pay for the additional capacity afforded to the NHS by these centres. We all want that capacity, but not in a form that could destabilise the local NHS. That risk was highlighted by the House of Commons Health Select Committee in July. The ISTC programme will eventually provide about half a million procedures a year, at a cost of over £5 billion. Unless these contracts are managed extremely carefully, the viability of a number of NHS providers in certain areas of the country is very likely to be affected adversely, and not necessarily through any fault of their own. The Secretary of State said recently: "““If independent providers can help the NHS provide even better care and value for patients, we should use them””." I fully agree with that. Where I disagree with the Government is on the way in which independent providers are currently being used. Patient referrals are being channelled towards ISTCs irrespective of the wishes of patients, thanks to so-called referral management centres. For as long as that continues, the idea that ISTCs are serving to enhance patient choice looks like something of a fiction. The virtue of ISTCs should not just be to enhance capacity, but to enhance choice. That is why the Government need not set any artificial limits on the NHS’s use of the independent sector. The only limit should be that exercised by patients making the choice of where they want to be treated. Some people are fearful that having a greater plurality of providers will fragment patient care and reinforce boundaries between institutions. We need to take account of that worry, but perhaps not overplay it. The Connecting for Health programme, when it comes on stream, will serve to dissolve many of the boundaries that might otherwise affect patient care. We need to have certainty over the quality of treatment delivered by ISTCs. The BMJ in recent months has contained some worrying anecdotes on that score, including inadequate training of surgeons, poor supervision and poor clinical governance procedures, so it is reassuring that the Healthcare Commission is currently examining quality standards in ISTCs. There needs to be a level playing field across the piece. One issue that was not covered by the noble Lord, Lord Rea, but was raised by the noble Baroness, Lady Barker, is private sector commissioning. I am running out of time, but I want to sound a note of warning. I am worried that if that really is the way that we are going, it could represent a very serious wrong turning, not least in the context of the future development of effective practice-based commissioning. One has to question whether the ethos and values of a private sector organisation will make it fit for purpose as a commissioner. PCTs have public service values and they are accountable. Private commissioners are differently motivated and they are not in the same sense accountable to the public. The way in which private companies operate is too often hidden by considerations of commercial confidentiality, and it is questionable whether they will be susceptible to judicial review. If the Government want to go down the road of private sector commissioning, we need, at the very least, an open debate about it and about what it will mean for the NHS and for patients.