The PFI bailout and the bankruptcy of NHS market reform

Yesterday the government announced a £1.5bn bailout fund for 7 hospital trusts most in trouble over their PFI deals (http://www.guardian.co.uk/society/2012/feb/03/hospital-trusts-emergency-fund-pfi). This is great, yes? It means that those trusts now have more money available for patient care instead of having to pay for their infrastructure. Great idea! A little hidden from news coverage as occurred on a Friday afternoon on the day of the Chris Huhne resignation, but surely generally a good thing.

Sadly, this really isn’t the case. The government are blaming their Labour predecessors for signing stupid PFI deals and putting hospitals in this situation in the first place. I’m really not interested in blaming specific governments because, let’s remember, PFI goes back an awful long way and both political parties have to take blame for its inception and use.

It was certainly the case in the late 1990s and 2000s that PFI was the only game in town if you need to replace your health facilities, and for very many NHS organisations, this was certainly the case. Older buildings were often damp, created bigger problems in dealing with infection control, or may actually have been falling down around clinicians. The NHS has been pretty terrible at capital investment for much of its existence because, if politicians are faced with a choice between cutting services today and reducing building expenditure in the future, they will always go for the latter. PFI was meant to be a way out of this – giving local managers the ability to negotiate deals for new facilities provided they could show they could pay the costs involved spread over 25 or 30 years.

Faced with no alternative to get a new build, managers put together often deeply optimistic plans with respect to future occupancy and cost levels, and negotiated some pretty poor deals with private partners who, research from the likes of Allyson Pollock, Matthias Beck and Jean Shaoul, had resulted in contracts that give returns massively above market rates. There was little help from government in negotiating these deals which public organisations put together often one at a time with private providers who became experienced at taking hospital managers for as much as they could. Depressing stuff.

So now we find ourselves in a position where NHS trusts can’t afford their PFI payments. On the surface of it, bailing out the trusts is a good move – it means they can continue to care for patients. But it also reveals the bankruptcy of the market reforms being driven through Parliament at present.

First, it shows that comprehensive healthcare providers can’t be allowed to fail. There isn’t much of a market for the vast majority of treatments in most local areas. If a big NHS provider were to be allowed to fail, it would cause chaos. Existing and planned patients would have to find alternative providers, and there simply isn’t the slack in the system to allow this. Comprehensive providers effectively have a get out of jail card that means the government will have to bail them out. You can’t have a market unless you are wiling to let providers fail – or they simply, according to its logic, have no incentive to improve.

Second it shows that market-based reforms can’t possible work. The first point I raised doesn’t just apply to PFI hospitals, but to all comprehensive (i.e. general hospitals) across the country. They won’t be allowed to fail either – not just because of the huge disruption to patients but also because of the political fallout – can you imagine what would happen if a major NHS hospital were to be allowed to close because of its financial situation? It would make Kidderminster look like a minor political event. Now imagine, if as it seems likely because of the parlous situation of many of its trusts, that hospital being closed was in London? What kind of political dynamite would that be? No remotely sane government would allow this to happen.

Third, the PFI bailout is effectively a £1.5bn transfer to the private sector firms that negotiated the very most expensive deals for the public sector. Do we really want to be rewarding what amounts to sharp practice? These deals should not have been bailed out, but renegotiated at a reasonable rate of return for the private partners, giving the public partners future breathing space and making clear that ridiculous deals for the public purse, especially in a time of austerity, will not be allowed to persist. This is taxpayer money which is being used to reward sharp contracting practices rather than actual value in the services being provided.

So what we have here is pretty clear evidence for me that the whole idea of a healthcare market to improve the standard of care is a nonsense. We need alternatives (see my entry ‘Non-market principles upon which the NHS….’ for one). We also need to stop socialising losses and privatising profits – which is what the PFI bailout is. It is rewarding sharp contacting practices which are costing the public sector millions because comprehensive healthcare providers cannot be allowed to fail, giving private contractors huge rewards while they effectively take little or no risk.

Do you remember the Prime Minister telling us that we are ‘in it together?’ during austerity. The proposed benefits cap is estimated to save £270 million a year. Now put that number next to the £1.5bn PFI bailout which is going direct to the private contractors who have negotiated the most expensive deals for the public purse. Does this really seem like fairness to you?

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One Response to “The PFI bailout and the bankruptcy of NHS market reform”

  1. Am Ang Zhang Says:

    The govt. must do this in order to sell off these hospitals to the likes of Circle.

    At the same time they blame Labour. Smart guy, SoS Lansley.

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