Transcript The PFI - Private Healthcare in Developing Countries

The Private Finance Initiative
What is a PFI
The Private Finance Initiative addresses the question
of how we should finance the NHS and was
introduced by the Conservative Government in 1992,
with the primary objective being to encourage private
investment in major public building projects, like
schools, hospitals and roads. Private investment
implies that the level of government borrowing falls
and that risk is transferred from the public to the
private sector.
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Benefits of the PFI
The major appeal of the PFI for the government is that the cost
of the hospital does not appear as an immediate lump sum
payment in public expenditure.
Also, the PFI may additionally:
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A private sector consortium pays for a new hospital,
where the consortium usually consists of a
construction company, a bank or financier, a facilities
management contractor and consultants. The local
NHS trust then pays the consortium a regular fee for
the use of the hospital, which covers construction
costs, the rent of the building, the cost of support
services and the risks transferred to the private
sector. Thus, in essence most new NHS hospitals will
be designed, built, owned and run by a consortium or
grouping of companies. The NHS will employ some of
the staff, mainly doctors and nurses and will rent the
building and other facilities from the consortium for at
least 25 years. The deal is constructed in such a way
that the consortium is guaranteed a full return on
costs including interest on the capital borrowed, plus
an element of profit.
Advantages *
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Create better incentives to perform, as payments are directly
linked to the contractor's performance.
Offer design improvements and lower construction costs.
Lead to more cost-effective support services.
Lead to more projects being completed on time, although the
PFI may incur higher costs of borrowing.
Yield better maintained hospitals.
*Source: Office of Health Economics-John Sussex
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The facts so far
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The costs of the PFI to taxpayers and patients are likely to be
high
The average increase in estimated cost from the 'outline
business case' is 72%.
The private finance initiative substantially increases the cost of
hospital building. Total costs in a sample of hospitals built under
the PFI are 18-60% higher than construction costs alone
The new hospitals generally contain 20-40% fewer beds than
those they replace.
Over-budget PFI hospital schemes are being bailed out by
taking money from community services.
The costs of PFI contract negotiation have been estimated to be
seven times higher than for traditional tendering.
** source: www.centre.public.org.uk/briefings/pfi.html
Disadvantages***
The PFI is a more expensive way to finance new hospitals.
It is a 'build now, pay more later' scheme. To pay for the
building work, the private companies will have to borrow
the money from banks at a higher rate of interest than
government funded schemes.
The private companies will need to make a profit on the
scheme, so there is no scope for saving money on building
costs, unless quality standards are allowed to fall.
The PFI involves the private sector taking over the financial
and operational risk of a hospital for which they charge a
price.
The costs of the first schemes have been far in excess of
what was budgeted. Thus, with PFI contracts guaranteed
for 25 years or more, any future savings in the NHS will
have to come from other services.
Low staff morale due to poor working conditions can lead
to poor quality health care provision
In the long run the consortia will push for all staff including the doctors and nurses - to be employed by
private companies.
Service planning will be distorted as:
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Hospital services will be planned by private
companies, which may result in reduced bed
numbers, if this is more profitable!
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Companies will want to build big new hospitals
to make big profits and will be less keen to
build small, locally accessible community
services.
Community services will lose out as the PFI locks the NHS
into paying for new super-hospitals for at least 25 years.
Democracy will be impossible, since PFI schemes are
shrouded in secrecy.
*** source: www.centre.public.org.uk/briefings/pfi.html and BMA website.
Alternatives to the PFI
Government borrowing and taxation.The traditional
method of paying for new hospitals - through
government borrowing - remains the cheapest and best.
A high quality, cost-effective, appropriate and
accountable health service can only be financed
properly through taxation.1
Increased allocation of Public funding to the NHS. One
of the original purposes of the PFI was as a means of
reducing public sector borrowing. This is no longer the
imperative it once was, in view of the improved state of
the economy and also changes in accounting rules. On
the basis of this, there is a main alternative to the PFI,
namely increased allocation of public funding to the NHS
to finance building projects. It is acknowledged that
capital has been allocated, not only to build new
hospitals but also to update facilities in a number of
NHS hospitals. There is no reason however why the
level of funding available to the NHS should not be
increased still further to allow a much higher proportion
of the Government's ambitious hospital building
programme to be funded from public money. This would
allow evidence of likely future patterns of need for care
to be taken fully into account rather than the NHS being
dictated to by the economic imperatives of PFI projects.
1Source:
Office of Health Economics -John Sussex