A bad deal for Worcestershire means the Alex hospital Redditch is under threat
BY SIMON PRESTON
PFIs were a Conservative idea taken on by the Labour government in 1997 with the aim of building state-of-the-art schools, hospitals and other public buildings using loans of private cash.
The Worcestershire Royal Hospital PFI site was opened in 2002. It is a 30 year contract which included the construction and initial financing of the facility as well as the ongoing provision of a comprehensive facilities management service.
The original cost of the hospital was £82m. This debt cannot be rescheduled to take advantage of lower interest rates because it is locked in to the PFI and would incur a crippling early settlement penalty.
By 2032, the hospital will have repaid at least £852.1 Million for a hospital that cost £82m to build but the NHS will never own it.
NHS Worcestershire will face a stark choice when this PFI contract ends, either sign a crippling new contract draining hundreds of millions from frontline services or simply walk away.
The annual PFI payment in 2011/12 was circa £30m, the equivalent of 9% of total Trust turnover.
The existence of the PFI means that the Trust is unable to meet the Monitor Tier 1 Prudential Borrowing Limit requirements, and as such would require a Tier 2 Prudential Borrowing limit.
The cost incurred to date in respect of the private finance initiative (PFI) contract for Worcester Acute Hospitals National Health Service Trust since March 1999 is estimated to be £233.1 million. This is the total of the annual unitary payments paid by the national health service trust to the private sector consortium for all the services it provides under the contract such as construction, provision of building maintenance and facilities management such as catering, cleaning and portering, information technology and equipment provision and replacement.
This figure is based on the audited summarisation schedules of the trust for 2003-04 to 2008-09 held by the Department (which it only has for six years on the same accounting standard); and estimates for 1999-2000 to 2002-03 and 2009-10 based on other information held and standard assumptions about inflation.
The estimated cost to be incurred for the remaining 19 years of the PFI contract is £619 million. This is a projection based on the estimated payment for 2009-10 uprated annually using a retail prices index (RPI) figure of 2.5% (used as a long-term average estimate). It must be noted that the annual unitary payments fluctuate both up and down as a result of contractor performance, additional services requested by the trust or taken out, the effects of refinancings and changes to RPI, so these figures are only estimates.
One of the most contentious and politically significant PFI projects in the UK, the Worcestershire Hospitals project, provides important lessons for the industry. As the subject of many reports and the basis of the arguments of many of the pro- and anti-PFI camps, Worcestershire Acute Hospital is seldom far away from the headlines. But aside from the mudslinging, what can be learnt from the project?
The 450 bed hospital was built on a former greenfield site adjacent to the existing Royal Worcester Infirmary. The complete hospital includes eight major operating theatres (including four so-called ‘ultra clean’ theatres), plus four subsidiaries, a large accident and emergency department, and a specialist radiotherapy unit to boot.
The design of each ward block is based on a 72 bed template, in four, two or one bed rooms with en-suite facilities in accordance with the clinical needs of the area. A specialist children’s ward was also included in the plans. In keeping with prevalent public sector good design principles, a two storey, glazed curtain walled foyer provides a feature entrance to the diagnostic block.
Its construction followed a very intensive pre-construction period in which all the design information was signed and approved by the client, thus enabling the new hospital to be built and completed within the 32 month period.
The cost of the PFI hospital increased by 118% by 2000, as a study by Professor Allyson Pollock, from University College, London, showed. To meet the bill, Kidderminster Hospital in the North of the County was all but closed. Its intensive therapy and maternity wards, and its ‘laminar-flow theatre’, which allowed surgeons to operate without having to worry about the risk of infecting patients, were mothballed to raise money to meet the PFI bill. Absurdly, they had been opened only three years earlier at a price of £15m.
Research conducted by Professor Allyson Pollock and colleagues showed that the costs of raising finance at North Durham, Carlisle and Worcester added an average of 39% to the total capital costs of the schemes. There are several reasons for this. Firstly, private debt always costs more than public debt. Secondly, the amount of capital to be raised through loans or equity under PFI is inflated by financing charges, such as professional fees and the ‘rolled up interest’ due during the construction period when the PFI consortium is not yet receiving any payments from the NHS trust. In addition, there are fees for preparing the PFI bid and contract negotiations, which are not always identified in advance.1
The PFI agreement between Worcestershire Royal Hospital and Catalyst (the consortium provider of ‘soft’ services) was calculated on a bed occupancy rate of 90%. Anything over and above that, the contract averred, and the Trust would have to pay excess charges. In 2003, this happened, to much furore. Catalyst charged an extra £200,000 to pay for the extra work involved in caring for the patients being treated at Worcester as a result of the closure of Kidderminster Hospital. Many people of Worcestershire saw this as a ‘tax’ or ‘fine’ levied by the owing consortium against the Trust, which, it was argued, was being penalised for having too many patients.
“The fact that Worcestershire Acute Hospital is running at 98% capacity proves there aren’t enough beds within the Trust to cope with emergencies and acute demand”, said Dr Richard Taylor at the time. Richard Taylor was the independent Member of Parliament for the formerly marginal Worcestershire seat of Wyre Forest. “Why should the NHS pay this money – when it is so badly needed for patient care?” he asked. “This also shows there’s a lot of secrecy behind PFI deals. There is no accountability, so the Trust has been left to pick up the pieces.”
The lessons from this ongoing political feud are many. There needs to be greater transparency, at an earlier date, in the drawing up of PFI contracts. Greater consideration needs to be given to the wishes of the general public, who are served by, and find great social significance in, their local institutions. This goes beyond base arguments about taxpayers’ money. When the architects of the NHS were trying to create a fair and equal system, they saw it as part of a bigger picture of building a fairer and more equal society. One of the things that the PFI industry has to remember is that people still regard their schools and hospitals as foundations of their communities. A more inclusive, democratic approach would not go against the spirit of inclusiveness and partnership that the industry purports to uphold.
WE NEED SERVICES TO BE KEPT AT THE ALEX INCLUDING THE A & E http://www.worcestershirehealth.nhs.uk/joint-services-review/
Join the Facebook group for updates https://www.facebook.com/simonpreston33#!/pages/Save-the-Alexandra-hospital-Redditch/306299059460450
Also follow on twitter @alexhospital_
Also read the news blog https://savethealexhospital.wordpress.com/