Memorandum by the CBI (PS 46)
1. A healthy population and first rate healthcare
system are as vital to business as they are to Government and
individuals. Absence from work due to sickness costs UK business
nearly £11 billion a year. The cost to society as a whole
is £26 billion. More generally, business shares the wider
concern to see improvements in the healthcare system while keeping
public spending under control.
2. The private sector has an important and
valuable role to play in improving the delivery of healthcare.
This paper aims to demonstrate that:
In various ways, the private sector
is working in partnership with the NHS and local government to
The NHS and the private sector are
becoming better at working together. There is a genuine shift
towards partnership working. The goals are becoming more ambitious
and there is a concerted effort to solve previously intractable
Clearer and more balanced communication
is needed on the challenges in improving healthcare, the implications
of various options and the track record of PPPs.
There is more to do. Urgent action
is needed to reach the stage where partnership between the NHS
and the private sector is delivering optimum results.
3. There is a long history of private sector
involvement in the delivery of healthcare, but at modest levels.
The IPPR Commission on PPPs estimated that, including GPs and
dentists within the privately delivered total, 16 per cent of
publicly funded healthcare was delivered by the private sector
by 1989. The independent sector plays a substantial role in specific
markets, eg mental healthcare (including over 55 per cent of the
NHS's medium secure provision) and domicilary, residential and
nursing care for the elderly.
4. Nearly 200 NHS Trusts completed a survey
for the Health Estates Facilities Management Associates. This
indicated that around a third of security, catering and non-emergency
patient transport services are privately provided, as is less
than 20 per cent of other support services such as equipment maintenance
5. The private sector's role stretches beyond
front line healthcare and facilities management. In total, "non-pay"
services represent some 25 per cent of the cost of hospital services.
In this area, the NHS is almost entirely dependent on the private
sector, which supplies such goods, services and technology under
a variety of formal contracting, partnering and other collaborative
6. More recently, the NHS and the private
sector have begun working together in different ways. The term
"Public Private Partnership" covers a wide range of
The Concordat entails the NHS making
use of the independent sector's spare capacity in clinical services
to treat NHS patients. It is expected to reduce NHS waiting lists
by 100,000 patients this year. The Concordat also promotes joint
workforce and service planning between the NHS and the independent
The Private Finance Initiative is
a particular form of PPP. In health, it typically involves the
private sector building or refurbishing hospitals, maintaining
them and delivering some non-clinical services. The PFI programme
to date entails 31 new hospitals with a total capital value of
£2 billion. The PFI is not just about the private sector
financing capital projects in return for an income stream. It
uses private sector skills and management to deliver a "capital
and services package solution", giving whole life value for
money. The initial capital cost is wrapped up with maintenance
and service delivery costs in the total service payments made
to the PFI provider.
The NHS Lift (Local Improvement Finance
Trust) PPP will be a limited company with the Department of Health,
NHS and the private sector as shareholders. It will build, refurbish
and own primary care premises, and lease them to GPs and others
(eg chemists, dentists). This critical initiative should help
stem the massive loss of inner city GPs, 35 per cent of whom have
been scheduled to retire between 1998 and 2005.
Inventures is being set up as a PPP
joint venture with the private sector, covering what has been
the trading activity of NHS Estates. It aims to maximise the value
from the redundant NHS Estate and expand the activities of the
trading group. Inventures will sit outside the NHS Estates Agency
(which will retain policy functions such as advising on building
and maintaining healthcare facilities).
NHS AND THE
7. The NHS and the private sectors have
different skills, capacity levels and resources to apply towards
improving the delivery of health care. PPPs are not simply a mechanism
for the injection of private sector capital. Rather, PPPs share
a range of private sector skills with the public sector. A diverse
range of service providers allows different sources of innovation
and approaches to management. And a healthy competitive pressure
in the market can act as a spur to all to improve performance.
8. Recent PPP initiatives are noteworthy
for striving for better results by combining public and private
sector resources within a partnering relationship. Typically they
aim to solve previously intractable problems, either within the
NHS or in the way the NHS worked with the private sector or other
agencies. In particular, recent initiatives have rightly placed
more emphasis on ensuring that partnership working between the
public and private sectors delivers the "win-win" of
better quality services and a better deal for staff.
PFItowards a "whole life value for
9. Teamwork is at the heart of the PFI concept.
PFI contracts should motivate the public and private sectors to
deliver whole life value for money based on robust, balanced assessments.
The payment mechanism holds the private sector to account and
enforces the allocation of risk between the public and private
sectors. Funders of PFI projects are at financial risk if the
terms of the contract are not met, so they become powerful allies
of the public sector in ensuring that quality services are delivered
consistently throughout the term of the deal at levels never before
achieved under the traditional processes.
10. PFI aims to make the supply side work
as a team, with service delivery concerns shaping design and construction
decisions. In health, these features help to:
Deliver PFI hospitals on time and
on budget, reversing the trend of over-runs.
Ensure that assets such as hospitals
are not just built but also maintained, thereby reducing real
political and fiscal risk to the NHS capital programme. Successive
Governments have under-invested and maintenance budgets tend to
be particularly vulnerable. The bill for backlog maintenance in
the NHS stands at £3.1 billion.
11. The PricewaterhouseCoopers report published
earlier this month. "Public Private Partnerships: A Clearer
View", sets out findings of a survey of 27 PFI projects which
are already delivering services, including six hospital projects.
They questioned public sector clients, private sector partners
and service users where possible. The conclusion was that PFI
projects are delivering to time, to budget and to plan. The report
rightly identified where improvements could be made, but the feedback
from senior NHS managers and clinicians was overwhelmingly positive,
and the following quotations were typical:
"The PFI has delivered a new hospital on
time, and it is working." Chief Executive, NHS Trust
"We have come from something which was,
in my case, appalling, to something which works well with everything
in close proximity on one site." Senior Clinician, NHS Trust
"One of the intensive care nurses told
me it was like paradise. The reaction from staff has been brilliant."
A previously published comment from a Director at the Queen Elizabeth
The concordatbetter planning on using private
sector spare capacity
12. The NHS has previously bought in clinical
services from the independent sector, but often on a "stop-go"
or unpredictable basis, eg because of a capacity crisis or spare
budget at year end. The Concordat's strength is in getting better
planning into this relationship. It is making a difference; as
many NHS patients were being treated by the independent sector
in July and August 2001 as in last December and January. And collaboration
is developing on service delivery and workforce planning issues.
Best valuea shift away from lowest price
13. Too often Compulsory Competitive Tendering
and NHS Internal Market initiatives were used to achieve lowest
price provision. As a result:
Service quality suffered, as did
employees' terms and conditions.
A lack of long-term accountability
and whole-life planning increased the risk to service delivery
in the long-run.
14. This was certainly true for the provision
of ancillary services. The scandal of dirty hospitals was not
the result of decisions to outsource services, but rather the
intention to drive down costs even at the expense of service quality,
whether services were provided in-house or externally. There is
a clearer Government policy focus now on achieving Best Value,
emphasising service quality and continuous improvement. Embedding
this Best Value approach to procurement is key to good handling
of employment issues within PPPs.
Cash to end bed-blockingpartnership across
the public and independent sectors
15. The recent initiative to remove bed
blocking is momentous for injecting £300 million of public
funding on condition of partnership working between the NHS, local
government and the independent sector. The anticipated benefits
are significant: to end widespread "bed-blocking" by
2004, allowing over 2,000 older people to leave hospital after
their treatment is finished and freeing up 1,000 NHS beds this
New models of PPP: new approaches to improve and
exploit healthcare assets
16. NHS LIFT and Inventures are good examples
of the NHS forging innovative new commercial relations with the
private sector to exploit NHS assets.
A persistent drive by the NHS to be a world class
17. The NHS is striving to improve procurement.
The NHS Private Finance Unit (PFU) gives vital support to individual
trusts. It has produced the NHS Standard Form Project Agreement,
which is now accepted with minimal amendments on all NHS PFI projects.
This has greatly reduced the time and costs involved in procurement
of individual deals, and hence accelerated healthcare delivery.
The Agreement also increased risk transfer to the private sector,
in comparison with earlier PFI hospital deals, while delivering
value for money. These benefits have been achieved throught the
manner in which the PFU has harnessed the process of standardisation,
the perception of a steady flow of deals (until the recent hiatus
while staff secondment is piloted) and the competitive bid process.
18. NHS Estates has pioneered a Diploma
in Project Leadership with Lancaster University, tailored to the
needs of NHS Project Directors, to raise professionalism in delivering
capital schemes. The NHS is also starting to explore collaborative
procurement, eg a new pan-NHS software licensing deal with Microsoft,
replacing 35,000 separate orders, is set to save the NHS over
Need for Better Communication of the Challenges
Facing the NHS and of the Private Sector's Role in meeting them
19. There is an urgent need for better quality
public debate on healthcare, covering the following two points
and, in particular, recognising that they are separate issues:
The track record for partnership
working between the public and private sector.
The arguments for and against developing
new sources of funding for healthcare.
Achieve a more accurate and balanced assessment
of partnership working to date
20. The track record for partnership working
between the NHS and the private sector is mixed, as it is for
in-house NHS provision. There is a combination of outstanding
successes, satisfactory performance and lessons from what has
not worked well. Private sector involvement may indeed often make
sense, but it will not always represent the best option. And indeed
the most appropriate form of public private partnership will vary
from project to project. But the crucial point, which the examples
above illustrate, is that the relationship is improving, maturing
and delivering better results to service users and tax payers.
The way forward is to build on this success and address the outstanding
problems so that partnerships are used to best effect where they
can add value.
21. Progress must be founded on a realistic
and pragmatic understanding of where the private sector can best
add value. Private sector involvement is not a panacea. The CBI
rejects a "private goodpublic bad" rationale,
which is false and unhelpful. The opposite extreme of "public
goodprivate bad" is equally misguided.
22. Arguments against a partnership approach
between the NHS and the private sector are typically couched in
terms of public opposition in principle or of partnerships failing
to deliver on the ground. Often the arguments are distorted and
issues are poorly diagnosed.
23. Public opinion surveys can be manipulated
through the phrasing of the question. The public is hostile when
asked whether the NHS should be "run for profit" or
"privatised". But where the questions are more clearly
seeking views on partnership working, the answers are much more
positive. In June 2001, a Mori survey for the Economist indicated
69 per cent of people supported the policy of "having more
NHS patients treated in private hospitals". In a Mori poll
in September 2000, 79 per cent of respondents agreed that "the
country's healthcare needs would be better served if the NHS and
the private sector worked hand in hand". And 84 per cent
of people were confident about a future health service where there
is some degree of partnership between the public and private sectors.
Public Service Ethos
24. The Institute for Public Policy Research's
Commission on Public Private Partnerships conducted qualitative
research into the attitudes of nurses, patients and health managers
on the ethos and motivations of public and private sector providers
of health care. Nurses and health care managers strongly felt
there was no difference in ethos between providers. Patients maintained
that the attitudes of nurses to patients did not differ significantly
between the sectors. But the commitment and dedication of NHS
nurses was felt to be more noteworthy because they were typically
working under worse conditions and in worse working environments
than their private sector counterparts.
Presentation of the Private Sector's Track Record
25. Too often, there is a lack of balance
in presenting the record of private sector delivery. For instance,
press stories about the opening of the Cumberland Royal Infirmary
in July claimed flooded wards, raw sewage in operating theatres
and many other failings. These were wide exaggerations. A broken
pipe did cause a small amount of water to drip into a ward and
caused damage to four ceiling tiles, but cardiac patients were
never drenched. And a temporary soil pipe bung was erroneously
left in place causing a waste water overflow in an ancillary room
(not an operating theatre). Also, most of the problems related
to last Spring, when the hospital (the first major PFI hospital
to be completed) was initially handed over, and were put right
before the hospital opened to patients.
26. These scare stories and simplistic assessments
of the problems that do occur are damaging because they stifle
informed debate about how to make progress in an environment where
the overall quality of public debate is very poor.
End the Confusion over Issues of Funding and Delivery
27. There needs to be a mature and informed
debate about the need for more privately funded health care. But
this must be clearly separated from the immediate question of
how to optimise the benefits from partnerships working now between
the NHS and the private to deliver best value for money for tax
payers and high quality care for service users.
28. The relationship between the NHS and
the private sector is far from perfect. Further policy improvements
are needed, and even where policy is sound, better practice is
still required on the ground. Urgent progress is needed in view
of the scale of the challenge to improve healthcare delivery.
Strengthen the emphasis on Value for Money
29. The public sector needs to be more focused
on securing whole life value for money. Quality still suffers
Lowest price decisions and a failure
to recognise that "your get what you pay for".
A failure to recognise the true long-run
costs of traditional methods of procurement.
30. For example, many local councils pay
independent nursing homes £2.00 an hour per resident, which
does not realistically cover basic costs. Council-run residential
care homes are paid on average 48 per cent more than comparable
independent sector provision.
31. Recent PFI debates have focused unduly
on technicalities such as how to construct an artificial public
sector comparator against which to assess PFI bids. The debate
needs to widen, for example, to recognise the benefits of innovation
in service delivery, facilities being delivered on time and on
budget, assets being properly maintained and the value for money
gains over time that come from a diverse and contestable market.
There is little data in the public domain about the costs and
consequences of traditional methods of service delivery, the absence
of which reinforces the emotional and dogmatic arguments which
pervade the whole debate.
Improve public sector planning
32. Long-term PFI contracts are sometimes
criticised for constraining flexibility of Government decision
making. But hospitals built thirty years ago have required operational
budgets ever sinceto meet wage bills, contract payments,
running expenses and maintenance liabilities. The true long-term
consequences of decision-making have been unreported or managed
in the past. PFI contracts have forced the NHS to think through
these cost and service delivery issues at the outset. The Government
must use this information in its planning: aligning projects so
far as possible with long term need and affordability and building
flexibility into contracts to handle uncertainties about future
33. Better initial planning, particularly
more realistic outline costing, should avoid an "affordability
gap" appearing during the procurement process. Better public
consultation on projects should test support for clinical decisions
(eg hospital locations and bed numbers) and clarify that these
clinical decisions arise irrespective of the delivery route.
34. The future of health care delivery can
never again be allowed to degenerate to a point where many of
the facilities are based on wholly inappropriate residual assets.
Many of today's acute hospitals were originally constructed as
isolation hospitals before the First World War; the cost and consequences
of operating in this environment are significant and waste valuable
Improve the handling of staff issues within PPPs
35. The CBI has worked with the public sector
and trade unions to drive progress, for example to produce Cabinet
Office guidance giving more certainty on TUPE (staff transfer
arrangements) across the public sector. More work is needed to
address the "two-tier" workforce problem (of new starters
and transferred staff being employed on different terms). More
employment legislation is not the answer. And seconding staff
from the NHS to private sector partners is also deeply problematic.
Workers would lose out on promotion and development opportunities
with the contractor. Meanwhile the contractor and the NHS could
too easily blame each other where problems did arise. Rather,
better procurement is the key to achieving the "win-win"
of better quality services and a better deal for staff. Lowest
price tendering in the past has damaged service quality and employment
conditions. The Government must behave as a "quality driven"
client. This means requiring and being prepared to pay for a quality
service, which would then require service providers to maintain
high standards of HR, terms and conditions and pensions.
Choose the right PPP model each time
36. The optimum model of public private
partnership will vary from case to case, depending on issues like
how best to package the work and to share the risks. There is
a growing range of models and more will be needed as the public
and private sectors explore new areas of partnership. There needs
to be an open mind about the most appropriate models for wider
private sector involvement in service delivery.
37. Arguably PPP contracts in health could
deliver better value for money through getting closer to the PFI
ideal of integrating capital and service elements closer together.
It is worth learning from successful experience, for example haemodialysis
services provided through small units linked to NHS hospitals.
Adopt a more strategic approach to introducing
and integrating IT
38. The NHS needs to adopt an overall national
approach to IT services procurement, implementation and support.
IT has a key role in supporting and enabling business process
change across the whole of the healthcare sector. Common technology
systems (eg for patient records, appointments) could usefully
support steps to devolve clinical decisions to the local level.
39. Fragmentation of IT procurement and
the proliferation of ad hoc IT solutions and in-house IT departments
are significant barriers to the successful implementation of the
NHS Plan and to the delivery of "joined-up" healthcare
and related services.
40. More thought is needed specifically
on how to integrate the provision of IT services into hospital
building programmes. IT services have generally not been included
within the scope of NHS PFI schemes. Although there are well-understood
difficulties which need to be addressed, there are obvious financial
and operational benefits in adopting a holistic approach to service
Embed the Concordat
41. Commitment and good relationships at
the local level are key to embedding the Concordat. This could
be strengthened through explaining the benefits. Statistics (for
example, on the number of operations being transferred to the
private sector) should be published to indicate the extent to
which the private sector is helping to deliver healthcare needs,
and to what effect.
Strengthen private sector confidence in deal flow
42. The NHS must give the private sector
confidence in future deal flow in all areas where it wants to
have a strategic relationship with the private sector. This is
key to persuading firms to innovate and build capacity specifically
to meet NHS customer needs. A "stop-go" approach from
Government clients is extremely damaging. Specifically, the PFI
programme (which has arguably stalled while some pilot projects
investigate the option of seconding staff instead of transferring
them) should pick up pace and there should be greater recognition
given to the process of creating and expanding the market in the
interests of diversity and contestibility.