From 2007: Suppressed Government Report into Failures of PFI

One of the first elements in the gradual privatisation of the NHS was the Private Finance Initiative. Under it, private companies were awarded contracts for the construction and maintenance of the hospitals they built partly through private finance. it was a way of keeping the cost of hospital construction and maintenance off the government books. The downside was that the costs, although hidden, were still massive, meaning that the public was saddled with exorbitant costs for many years, indeed decades to come. Furthermore, the financial risks were never spread evenly. If a private consortium ran into trouble and could no longer make a profit from the deal, it was left to the taxpayer to bail them out.

In their issue for the 21st June – 8th July 2007, Private Eye carried this story about a government report that had been suppressed after it severely criticised the Private Finance Initiative for its numerous and disastrously expenses failures.

The Hospital Report They Didn’t Want You To Read
PFI, the Untold Story

A damning report on hospitals built under the private finance initiative, prepared by the National Audit Office (NAO) but never published or show to Parliament, has been obtained by Private Eye under the Freedom of Information Act.

In 2005 the NAO announced that it was looking into the record of PFI hospitals, but a year ago mysteriously cancelled the study – without revealing that it had already written a hugely detailed 90-page report on the subject. The move came just weeks after Health Secretary Patricia Hewitt had announced a review of the £12bn worth of hospital PFI deals then in the pipeline, in the face of mounting evidence that PFI was unaffordable and unworkable with other Labour health reforms. The last thing she needed was a critical report on the record of the PFI hospitals already up and running.

The NAO insists it was not pressured into pulling the report, entitled The Operational Record of the First Wave of PFI Hospitals, though it refuses to disclose any details of its discussions with the Department of Health on the subject. It claims the “evidence collected was too mixed and not sufficiently conclusive to justify a report to parliament”. Really? Eye readers (and MPs) are invited to study the principal findings and judge for themselves.

The ‘Risk’ Factor

In all 17 hospitals whose costs were looked at, PFI was judged to be a few pounds cheaper when compared to how much it would have cost to build or refurbish the hospital under conventional procurement. But at 15 hospitals this was only after a spurious financial “risk factor” had been applied to the public sector alternative. The factor varied from 1 percent to 22 percent of the cost but was always just enough to make PFI look cheaper. The NAO overlooks the obvious fiddling and swallows the alleged “similarity of costs” without question.

Not So Grand Designs

A comparison of design quality found the PFI hospitals overall, slightly worse than non-PFI ones. On five out of six criteria they were below “minimum acceptable standard” and especially pisspoor architecturally. Although the non-PFI ones used for comparison were mostly 20 to 30 years older and much work has been done on improving hospital building standards in the meantime, this seems to have passed the PFI industry by.

Bed-Hopping Mad

Seventy percent of the PFI hospitals had fewer beds than the facilities they replaced, but all save one had higher rates of occupancy. Indeed, in 70 percent of cases the PFI bed occupancy rate was higher than the officially recommended maximum of 85 percent. Above this figure peak admissions are more difficult to handle, men and women can’t always be separated and infection control is compromised.

The cause of the problem, the NAO found, was that “greater efficiency designed to increase patient throughput … has not yet been fully achieved.” In other words, such is the expense of PFI that in order to produce a remotely affordable deal, unrealistic assumptions about needing fewer beds were made (with the help of financial consultants anxious to get the deal through and secure their success fees).

Three of the PFI hospitals have already had to build extra facilities as a result, putting millions more on the cost of their deals every year. Clinicians are understandably miffed: two thirds said that “affordability constraints” had led to “design compromise”, including at University Hospital Durham where floor area had to be reduced, leading to “shortage of space … and a lack of ventilation”.

Feeling the Heat

“One particular problem”, the auditors noted, “is summer overheating”. PFI hospitals fall well below minimum standards. “At one PFI hospital the contract manager had recently recorded temperatures of over 40 degrees C in the wards during the height of summer,” said the auditors. As the whole premise of PFI and the dodgy value for money calculations is the transfer of risk, solving this problem might be thought to be down to the PFI company. But no. When the auditors visited “it had not been agreed who would bear the cost”.

Cleaning Up

Among the most alarming findings was that “the cost of cleaning PFI hospitals is higher than in non-PFI hospitals and the quality of service is lower”. Not exactly surprising, but with clear evidence that poor hygiene standards increase the incidence of MRSA, C. difficile and other deadly super bugs – exactly the sort of finding Hewitt would not have wanted splashed across the papers last year.

The problem isn’t just cost-cutting by the PFI companies and the cleaning firms they employ: the report noted that “only a fifth of ward managers at PFI hospitals … had sufficient powers of direction over cleaners”. And in the bureaucratic nightmare of PFI, doing something about it isn’t easy either because improved standards “are not necessarily reflected in the service specification”, ie contract.

Making improvements is “likely to require the requesting of a service variation”. Great news for lawyers, not so comforting for patients.

Failure? Fine By Us

When things go wrong it’s invariably the hospital, not the PFI company, that suffers. Two thirds of hospital managers felt that they couldn’t impose sufficient financial penalties on the companies to motivate the PFI company to do its job.

And that’s if difficulties are reported in the first place. Many problems go unpunished as busy nurses have better things to do than hang on the phone to a remote help-desk. “They would often therefore either ignore the failure or deal with it themselves,” say the auditors, with the result that only 30 percent of trusts report “most” service failures. Even if they do, the PFI companies determine how much to fine themselves: “The data for calculating deductions is usually generated by the helpdesk and is therefore the responsibility of the PFI contractor.”

When whole areas of PFI hospitals become unavailable most trusts think the payments they can withhold aren’t enough to make the PFI company return the building to use quickly. In one case, a water leak shut an operating theatre for two days at a loss of 33 operations and a cost to the trust of £24,750. The PFI company was docked less than £5,000.

Red Tape, Red Faces

Anyone who thinks the public sector is tied up in red tape should look at what happens when a PFI hospital needs the private company it’s relying on to make any changes.

If it needs a new noticeboard, say, it can’t just ask a handyman to put one up. It has to get a quote for “supply and fit and life cycle maintenance” (£860 for five of them from one PFI company, since you ask). The NAO report leaves a large space for a “flow diagram of the process for making a minor change”. Unsurprisingly clinicians reported infuriating delays. And it’s not cheap: at Norfolk and Norwich 1,600 “minor “works” (putting up a shelf, changing a plug, etc) came in at £1.2m – £750 a throw. For any bigger change, like altering the use of a room, the process is more cumbersome still. And if it costs more than £5,000, the lawyers and even bankers have to be pulled in as their “risk profile” might be affected.

As a trust manager from Durham put it: “It is not a competitive market, the mark-up by the contractor and the [PFI company] increase the costs, and there is not the incentive for them to come up with affordable solutions.

And the Good News Is …

It’s not all bad news. On the odd incidental like “security” PFI hospitals were judged better. And the report repeats the Treasury’s favoured view of PFI: “The first wave of PFI hospitals were very largely delivered to time and budget.”
Yet again, however, this conclusion is based on the cost of the hospitals once the contract was signed, after which it can’t go up. If the prices when the deals were given the go-ahead were considered, a more appropriate comparison, the auditors would have seen increases of between 40 percent and 230 percent as huge price increases emerged during contract negotiations.

Despite the evidence of innumerable surveys, reviews, field visits to hospitals, independently commissioned technical evaluations, questionnaires and focus groups, at a cost of hundreds of thousands of pounds, Parliament, apparently, doesn’t need to know about the bed shortages, substandard buildings, poor cleaning, labyrinthine bureaucracy and extra costs that come with PFI.

Patricia Hewitt’s own review of hospital PFI deals duly concluded that, subject to some trimming here and there, they could go ahead. Nobody was able to point to damning NAO findings that PFI is about as useful in a hospital as a surgeon with the shakes.

Before the last election, Osborne stated that he would end PFI once the Tories got in power. This is one of the promises that the Tory party has broken. Not only has not ended PFI, he actually increased it and authorised more projects. This probably shouldn’t be a surprise to anyone, as PFI was originally a Tory idea, put forward by Peter Lilley as a way of opening up the NHS to private enterprise.

It needs to be closed down, and the Tories removed from office before they can privatise anymore of the NHS.

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3 Responses to “From 2007: Suppressed Government Report into Failures of PFI”

  1. sdbast Says:

    Reblogged this on sdbast.

  2. jeffrey davies Says:

    anothwer dodgy deal exposed it was never about saving monies only about the private sector getting to charge vast amounts from that endless tax payers p[ot ops jeff3

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