April 7, 2014 7:58 pm

NHS hospital trust seeks private help

Britain’s most indebted NHS foundation trust has approached private sector bidders to take over its management in a move that underscores the depth of the financial crisis in the National Health Service.

Peterborough and Stamford NHS Foundation Trust, which runs two hospitals in Cambridgeshire and Lincolnshire, has been left grappling with a £40m annual budget deficit after using the Private Finance Initiative (PFI) to build a new hospital.

The trust spends £42m a year servicing its PFI debts – the largest in the country – and receives a £40m subsidy from the Department for Health to stay afloat; a situation the professional services firm PwC has warned is “financially unsustainable”.

The trust is expected to put out invitations to tender this summer, and submitted its plans to Monitor, the foundation trust regulator, for approval last week. This could see a private sector operator such as Serco, Circle Health or the private equity owned Care UK taking over the management of an entire foundation trust for the first time.

Monitor confirmed that this was the first time an entire trust had sought a private sector bidder. “This is a complicated legal and administrative process which represents uncharted territory for the NHS and it is important the trust gets it right,” a spokesperson said. “There will then be an extensive programme to test bids before a final decision is made.”

The search for a private sector partner at Peterborough underscores the extent of the funding crisis faced by hospitals built under PFI, the off-balance sheet initiative introduced by John Major and continued under former Labour chancellor Gordon Brown and the present coalition government.

Private sector companies forward-funded the construction of public projects, and are being paid back with interest over decades, while picking up additional fees for service contracts attached to the deals.

The total cost of the Peterborough hospital is expected to near £2bn over the 33-year life of the scheme, nearly seven times the original £289m capital value of the building.

The trust is considering a range of options, one of which includes inviting a private sector operator to run the trust’s services under a franchise model. Other options include a sale or merger with another district hospital, or renting out part of the site to other private hospitals to run services from. The hospital’s fourth floor is currently rented out as less profitable office space, but could take 100 beds.

The deal will be closely watched by other NHS trusts, which are seeking to redesign hospital services. Faced with a £30bn shortfall in the NHS budget over the next seven years, many trusts believe they have little option but to work with the private sector, which pledges to invest in new technology, improve staff productivity and use economies of scale to deliver services at lower costs.

The likely invitation for private sector companies to tender comes amid fresh signs of political nervousness over the role of the private sector in healthcare, and is likely to spark claims that the privatisation of the health service is accelerating.

Last month, the NHS embarked on its biggest outsourcing of services so far by inviting companies to bid for £1.2bn in contracts to provide frontline cancer treatment and care for the terminally ill in district hospitals across Staffordshire.

Number 10 advisers are known to admire performance improvements at Hinchingbrooke, which has halved its losses in the past year after becoming the first hospital to be taken over by a private health company in 2012.

However, there is frustration among private providers at the perceived failure by Jeremy Hunt, the health secretary, to give a stronger signal of support for their entry to the sector.

In March, the tender process for the George Eliot hospital in Warwickshire, where two private health companies were in the running to take over operational control, was unexpectedly halted several months short of its expected decision date.

The hospital explained that a “buddying” relationship with another NHS hospital had begun to deliver “significant improvements in clinical performance” and officials emphasised that the decision had not been taken for ideological reasons.

Dr Peter Reading, interim chief executive at the Peterborough and Stamford Trust, said it was looking for a “system-wide solution to [the trust’s] financial difficulties”. “At this stage we will consider all options but the tender process is designed to identify those options which would maximise the use of the hospitals,” he said.

Crippled: PFI costs’ drain on budget

Peterborough and Stamford Hospital Trust was one of the first to obtain foundation status in 2004, giving it control over its own finances, writes Gill Plimmer. But a decision to use the government’s private finance initiative (PFI) to build a new state-of-the-art general district hospital in Peterborough city – with 612 beds, en suite rooms, 18 operating theatres, and children’s wards – has left it grappling with a £40m a year deficit, representing 22 per cent of its turnover in 2012.

The trust spends £42m a year servicing its PFI debts – the largest in the country – including maintenance and service charges. This has raised the projected total cost to almost £2bn over the 33 year life of the scheme – nearly seven times the original £289m capital value of the new hospital. The capital cost of the PFI scheme as a proportion of hospital turnover is also higher than any other hospital at 142 per cent.

A National Audit Office report in 2012 found that the trust’s problems had been compounded by weak financial management.

Although the Department of Health is bailing the trust out to the tune of £40m a year, a report by PwC last year warned this was “financially unsustainable”.

The same report also included a recommendation to put the management of the trust out to tender.

Millions of pounds have been spent on management consultancy fees in the past five years as the trust attempted to come up with a financially sustainable solution to its problems.

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