Editor’s blog Tuesday 18 January 2011: Damning PFI and commissioning reports out

Politicians can do really good things, we should remember.

And one of the glories of a well-functioning Parliamentary select committee is that it can cut through the ordure-ordure of party-political partisan middle-aged shoutiness, and produce really useful reports on what is happening.

The health select committee has just produced its report on commissioning. You will already know that it is pretty critical: chair Stephen Dorrell, a former health secretary, has scarcely concealed his surprise at the liberation theology of the new regime in charge of the DH.

It is more than pretty critical. It is seriously critical of the development and strategy of SOS Lansley’s health policy.

Dorrell’s statement for the report launch points out that while ”the NHS has met the financial cost of a commissioning system, (it) has repeatedly failed to take full advantage of the opportunities which commissioning should create to improve the quality and value of the services provided”.

The report’s conclusions are stark:
- “The NHS needs to make unprecedented efficiency gains if it is to meet rising demand for healthcare against the background of budgets which are broadly stable in real terms (the Nicholson Challenge)
- More effective commissioning is key to the delivery of this requirement for unprecedented efficiency gains
- The White Paper proposal to abolish Primary Care Trusts and transfer commissioning responsibility to GP-led consortia was not foreshadowed in the Coalition Programme and came as a surprise to most observers
- This "surprise" approach created uncertainty among commissioners and therefore increased the risks and costs associated with delivery of the Nicholson Challenge
- The pace of events since publication of the White Paper has required a pragmatic management response ahead of Parliamentary consideration of the proposals
- The Committee intends to follow through its report with further work on the detailed proposals for commissioning in the Government’s forthcoming Health Bill”

Its recommendations focus around democratic legitimacy in the new system; engaging all clinicians in commissioning; permitting integrated solutions where that is best value; managing handover points effectively; realising benefits; and reconciling conflicts of interest.

All are smart observations – and have challenged the NHS in the rare periods of well-funded organisational stability. At a time of utter upheaval while needing to save £5 billion a year for each of the next four financial years, they look fairly challenging.

The report also fingers the uncomfortable dynamic between SOS Lansley and Sir David Nicholson as regards the scale of the change: “The Secretary of State has tended to emphasise continuity with the policies of the previous government, playing down the extent to which he plans to change the structures of the NHS. When he gave evidence to the Committee in July 2010, he said ‘Chairman, you will know that over this last more than six years I have talked to thousands of people in the National Health Service, clinicians who say, "We do not want another big upheaval." […] For the great overwhelming majority of clinicians in the National Health Service this is not an upheaval, it is an empowerment. There are organisational changes that flow from it—I do not deny that—but they would have had to have happened anyway.’

“In November 2010 he told us ‘This is not a nuclear device going off from the point of view of most of the staff working in the NHS […] much of this is evolution. Seen from the perspective of GP practices, this is more to do with empowering them than changing the terrain around them […] we are in a position where, frankly, what we need to do is to keep the best of many of the processes that were set in train [by the previous government], whether it is patient choice, practice-based commissioning, the introduction of the tariff or greater autonomy for providers through foundation trust status. I didn't invent any of those things. What I am doing—I make no apology for it, because I regard it as absolutely essential—is ensuring these things are done in a consistent and coherent fashion, not done piecemeal.’

“Sir David Nicholson, however, has appeared to interpret the government's proposals differently. He told us ‘The scale of the change is enormous—beyond anything that anybody from the public or private sector has witnessed, really’.

“In December 2010 he adopted the same approach when he told NHS finance officers that he had consulted change management experts from around the world and no one could come up with a scale of change like the one we are embarking on at the moment. Someone said to me 'it is the only change management system you can actually see from space' — it is that large’.”

The report gets more damning when it states, in carefully Parliamentary language, “At a time when the primacy of the Nicholson Challenge should have focused the minds of NHS senior management on the need to secure unprecedented efficiency gains, we have been presented with evidence of widespread uncertainty about the Government's intentions. In addition to its inevitable effect on management morale, the Committee believes this will have had the effect of blunting the ability of the NHS to respond to the Nicholson Challenge.

“In the Committee's view the policy described in the White Paper introduces significant institutional upheaval into the NHS, without significantly changing its policy objectives. The Committee broadly shares the policy objectives so it therefore welcomes the fact that these are substantially unchanged. It does not believe however that the approach adopted by the Government represents the most efficient way of delivering those objectives.

“Like most observers, the Committee was surprised by the change of approach between the Coalition Programme and the White Paper. The White Paper proposes a disruptive reorganisation of the institutional structure of the NHS which was subject to little prior discussion and not foreshadowed in the Coalition Programme.”

“A successful "surprise" strategy requires clarity and planning, but the Committee does not think that the White Paper reflected these qualities. There appears to have been insufficient detail about methods and structures during the transitional phase. The failure to plan for the transition is a particular concern in the current financial context. The Nicholson Challenge was already a high-risk strategy and the White Paper increased the level of risk considerably without setting out a credible plan for mitigating that risk.”

Of PCT clustering and pathfinder consortia, the report states, “Changes have taken place in the management structures of the NHS in advance of Parliament having the opportunity to debate and approve them. We think this is unsatisfactory”.

Parliament-watchers will know that “unsatisfactory” is pretty strong language.

At para 116, the report makes a significant intervention: “When responsibility for NHS commissioning passes from commissioning consortia to PCTs, patients who exercise their right to choose their GP practice away from their normal area of residence will also have chosen a commissioner. This will need to be reflected in the funding formula for consortia. While many people will avail themselves of the choice of GP practice, many people will not be able to exercise this choice either because of where they live or because they are too unwell or infirm to access primary care services that are further away. Even if a funding formula was developed which reflected the narrow concerns around resource levels there remains a concern that this development could lead to the creation of 'sink' practices which reinforced a culture of disadvantage and exclusion within a community. In the light of these concerns, we recommend that the Shadow NHS Commissioning Board publishes its proposed funding formulae for consortia as a matter of urgency.”

SOS Lansley comes in for further sharp criticism on the subject of accountability arrangements: “the Secretary of State for Health said only that these decisions would be for consortia to take themselves – ‘We are not proposing that we should prescribe in detail how the commissioning consortia conduct their own activities internally. We are requiring them to be transparent. For example, they will have to publish a constitution, and act in response to it.

“The Committee does not find the current stance on patient and public engagement in commissioning persuasive. The National Health Service uses taxpayers' resources to deliver a service in which a high proportion of citizens take a close interest both as taxpayers and actual or potential patients. While the Department may be right to point out that there is no special virtue in uniformity of structure, the Committee regards the principle that there should be greater accountability by commissioners for their commissioning decisions as important. We therefore intend to review the arrangements for local accountability proposed in the Bill.”

PAC report ’PFI in housing and hospitals’
PFI is, as you well know, an acronym for pure financial illiteracy.

There have only ever been two good arguments in PFI’s favour.

Firstly, the realpolitik of TINA (there is no alternative), as with economic boom and bust abolished (ahem), then placing infrastructure on a credit card would be fine as credit would never become hard to get (ahem). Secondly, that it prevented the NHS from being able to skimp on facilities maintenance and management.

The bad arguments were the various assertions that PFI represented value for money.

It didn’t. No meaningful risk was ever transferred; most deals were naïve to the possibility of refinancing when interest rates fell; all deals allowed consortia to change unreasonable sums for minor works. The public sector comparator data was easy to game (and to re-game if the data suggested PFI was not best) – and thus easily entering the realm of fiction.

Oh, and HM Treasury had to bale out PFI projects when banks stopped lending to refinance.

Transferred risk? Hardly.

The PAC report is not a whit less damning: “As with previous Reports, we again found no clear and explicit justification and evaluation for the use of PFI in terms of its value for money. However, we accept that the then Government gave the Departments no realistic alternatives to PFI as the procurement route to use for these capital programmes.
“Our other concerns are central government's failure to use the market leverage that comes from overseeing multiple contracts, and the lack of robust central data to support effective programme management.
“Whilst PFI has delivered many new hospitals and homes which might otherwise not have been delivered, there is no clear evidence of whether PFI is any better or worse value for money than other procurement routes. There were instances where PFI may have been used where there was no evidence that it was the best procurement route.”

It adds, “On hospitals, most are receiving the services expected at the point contracts were signed and are generally being well managed. There are, however, wide and unexplained variations in the cost of hospital support services, such as cleaning, catering and portering.

“There are important developments in the PFI market which affect the profitability of these contracts and we are concerned that government is missing a trick in failing to secure the appropriate financial advantages for the taxpayer. Specialist financial institutions have been bundling projects together. This gives them the prospect of greatly enhancing the value of their interests in the projects through economies of scale. We are very concerned that the Department of Health has not approached the major investors and contractors to negotiate a share in these efficiency gains and economies of scale.”

The report also finds that “the Department of Health does not know whether services provided more cheaply in some locations are better value for money, or alternatively poor quality, or reflect inconsistencies in the way costs are recorded.
“It seems that the central team in the Department of Health is already under-resourced and unable to secure proper value for money from these contracts. It would be a false economy to have weak central teams that are unable to implement our recommendations, all of which are aimed at delivering better value for money in the long term. The issues facing housing and hospitals will also be relevant to other PFI programmes.”

The report concludes that
- “There is no clear evidence to conclude whether PFI has been demonstrably better or worse value for money for housing and hospitals than other procurement options
- The Department of Health, in failing to negotiate with investment funds centrally, is not using its own buying power to leverage gains for the taxpayer.
- The Departments do not routinely collate sufficient accurate data on the costs and performance of their PFI contracts. Monitoring and improving value for money depends on local projects having access to good quality information from across the programmes. Both Departments should define minimum data requirements and then take responsibility for ensuring that information collected from and distributed to local projects is complete, accurate and consistent. The Department of Health and the Foundation Trust regulator Monitor should embed these data requirements in Foundation Trusts' terms of authorisation so that they are mandatory.
- There are no mechanisms built into generic PFI contracts to test the continued value for money of maintenance work during the contract period. The requirement for buildings being maintained to high standards over the life of the contract is supposed to be a key benefit of PFI. Yet around 20% of hospital Trusts were not satisfied with the maintenance service. Unlike services such as catering and cleaning, maintenance is not subject to a value for money review during the contract period, so contractors do not face the threat of losing the contract if they are uncompetitive. The Treasury, in consultation with departments, should identify how value for money tests and incentives to improve maintenance could be built into the life of PFI contracts.”