Memorandum by KPMG (PS 50)
KPMG Corporate Finance are delighted to have
been asked to submit evidence to the House of Commons Health Select
Committee on use of the private sector in the provision of publicly
funded health services in the UK. KPMG have been extensively involved
in the provision of advice on health PFI schemes for both the
public and private sectors. Schemes on which we have advised include
the first of acute hospital PFI scheme to be signed at Dartford
& Gravesham, as well as schemes at Greenwich, Bishop Auckland,
Hereford, West Middlesex and West Berkshire. In the course of
this work we have formed strong views both on the benefits which
PFI and PPP can bring to the health sector, as well as the potential
for making PPPs in health even more effective. Our views on some
of the key issues which are likely to be considered by the Committee
are as follows:
Value for Money
Acute hospital PFI schemes overall have represented
good value for money for the public sector. Whilst there have
been some initial teething problems and learning points evidence
suggests that a quantitative comparison of PFI against the public
sector comparator does indicate value for money, albeit marginal.
Moreover, we consider that as both the public and private sectors
have become used to the process and the risks involved, value
for money, compared to the early schemes has improved. For example,
rates of returns required by private sector investors, have reduced
and have bid costs to both the public and private sectors. In
addition, we consider that, in general, PFI has led to a higher
standard of hospital accommodation which has been delivered more
quickly than under conventional procurement.
PFI "per se" has not led to a decline
in the number of bed spaces. To the extent that there are fewer
bed spaces in PFI hospitals than hospitals they replace it is
because of a conscious decision by health trusts and health authorities
when specifying the requirement to reduce the number rather than
being a consequence of PFI. This early trend is also being addressed
in recent PFI hospital deals.
The PFI Process
Since the first PFI schemes in health the process
has improved considerably, with standardisation of contracts,
pay and performance regimes etc with a strong NHS PFU, leading
to more efficient procurement and reduced bid timescales and costs.
The strengthening of the process has also allowed health trusts
and the private sector bidders to devote more time to refining
the clinical solutions.
We consider that it is important for delivery
of high quality health services that there is a well motivated,
property remunerated workforce in respect of both clinical and
non-clinical services. Much would be gained by an agreement between
private sector employers organisations and unions to ensure that
private sector bidders protect the terms and conditions of employees
who are transferred whilst not impeding changes in working practices
and improved efficiency and value for money. The "artificial"
split between clinical and non-clinical services imposed under
current PFIs causes arbitrary division between those involved
in service delivery and risks undermining the health service ethos.
There has been considerable private sector concern
about the pilot projects where the workforce remain in the public
sector. We consider that this can be made to work, if and only
if, private sector managers are given real and effective managerial
control over the public sector workers.
The Bidder Market
We have some concerns that there is too limited
a market of bidders for health PFI schemes, which mean that the
benefits of diversity and competition might not yet be fully realised.
Further effort should be made to encourage the development of
a broader market.
Whilst refinancing gains have attracted considerable
criticism they should be looked at in the context that the early
schemes were in an immature market where the overall project finance
and market risks had not been fully digested. Moreover since then
underlying interest rates have fallen significantly. This has
enabled some refinancing gains to be realised from early deals
but lower interest rates plus the introduction of standard refinancing
sharing clauses in contracts has reduced much of the potential
for such benefits to arise in future.
The Boundaries of health PFI/PPP
In our view the imposition of "artificial"
boundaries on the scope of PPP/PFI services in health by excluding
clinical and near clinical services has meant that the scope to
achieve even greater VFM through use of the private sector has
been reduced. The experience of other sectors such as prisons
and defence has shown that "whole service" PFIs maximise
the scope for innovation and VFM. There are already established
providers who provide such services and hence private sector capability
is already established. Pilot projects involving clinical and
near clinical services would help to establish what further benefits
might be achieved from greater private sector involvement where
the clear arbiter of choice ought to be value for money.